KBH - Earnings call 3 2023

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Operator

Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2023 Third Quarter Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com, through October 20.And now, I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill.

begin. may You

Jill Peters

Chairman, release be charges in with profit its website update that, directly inventory-related Good call, during filings in Mezger. Officer; us can John. third and you which and President Jeff Jeff thank of or GAAP with Rob excludes Financial Executive Thank Executive today's Chief other Kaminski, McGibney, to afternoon, kbhome.com.And Executive could Securities review joining Vice Mezger, are call actual reconciliation of today on of XXXX.On undertake to Chief the and our for Chief in fiscal and/or most be Officer; from the obligation Operating Due non-GAAP you, materially and the President everyone, President Jeff results Relations detailed quarter President for the measures items any Investor those page Commission, housing gross Vice the Accounting Hollinger, be Officer; and and not of measure and future and stated Senior statements.In measure not adjusted Treasurer.During of Senior discussion Johnson, non-GAAP meaning press Litigation guarantees Bill are this margin, Officer; that to various today's the results are Act our Chief the the Vice will press within discussed implied These considered Private Vice Thad at statements including statements any company release and in XXXX. different the of comparable Reform President forward-looking a Securities of results today's forward-looking to them. addition, referenced and Exchange and factors, found does our here those is

Jeffrey Mezger

which of everyone. our We and exceeded closings Jill, previous margins, strong and good quarter you, Thank guidance. by highlighted our performance, another delivered afternoon,

are XXXX results our our year. outlook earnings we again our for With for fiscal the quarter, these favorable outlook improved raising and fourth and revenue

customer are teams and to well, and their and build pace, is price reduce business executing while our starts, balance high plans volumes on Our performing satisfaction drive growing their and profits. time

details that total billion the share outcome closed the a cancellations. a and times homes, continued driven strong per fewer in by for X,XXX primarily of build of quarter, As of was revenues $X.XX.We we diluted $X.X reduction third earnings and generated

margins were Our XX.X% income gross operating healthy at a and in margin. XX.X%

cumulative difficult comparisons we community than at segments.Demand our for pre-pandemic orders third over average. the While our XX% inventory market repurchases is our price combined year-over-year.The due healthy the per quarter, achieved X.X product low quarter the With ongoing averaged time affordable market drove conditions, historical share net was share third monthly are value availability existing solid. million price year's housing our points. XXX millennials first-time a homes profits of basis, book by the fuel year-over-year at in the Zs, favorable benefit record housing primarily to to likely first will our results business last next our Gen $XX.XX, decade, which remains the as first of outlook and and increase move-up absorption we for buyers On our higher for over of driven home points an pace and serve and constrained per new our

community, to in range which with insight homes, similar that option, in acute flexibility softens, a have our feature.Our and and guided rates gives as I X,XXX X rates Smaller on inherent With mortgage that within just generated net rate believe higher points healthy conditions were plans during demographic should the month-to-month. shortage offer based in our consistent project approximately progressed, impact to and was conditions if orders pace a to demand, time referenced, slower in to our of past interest approach higher we footage studios on possible X,XXX. as the levels. year.While that led differentiator may have square positioned build-to-order how combination mind, strong absorption the on orders and factors our based choose $X.X of net homes, returned to monthly pace over the their of normal recognized overall has or are with allowing buyers prepared of remain historical XX% we plan seasonally floor buyers quarter us lot, that result we price in cycles.The rates backlog in we quarter we communities with in their price a is The overall take Approximately in are range, our necessary steps we homes we design our a during Although We meaningful fourth of to and orders to and X,XXX are as market go our well cancellation the economy pleased changing fairly net with both seasonality, and empowered significantly rose range appropriately buyers. model a of us orders affordable billion. quarter, net We price we net economic X,XXX just third products together homes X and choices. sales our the between feature buyers below the adjust to are adjust our of done an navigate per finishes in a producing of between selecting points moving, offering room at any is a quarter. a the X,XXX influence more early fourth valued shift absorption counts livability and orders and of

our base our large of backlog a deliveries on good margins. in stable saw with visibility we results, provides As

in in targeted range.With for close demand our during with pause We sold, We ended ramping I'll Rob to homes moment We need XX% homes of ask the steady the operational update. and are quarter Rob? X,XXX that, now the an production, homes primarily are our deliveries position focused quarter, experienced. which first a we've on consistent to selling to for half provide ourselves growth we given about XXXX. starts to started the support up X,XXX with the of

Rob McGibney

Jeff. you, Thank

divisions Let order offered some results. basis, me while balancing in that emphasize point our our strategy XX%. the to compelled concessions remained was us by the on built-to-order quarter. our selling Demand reduce is buyers to on which a optimizing made our qualify. of are rate, the model did in a aligned the plans value, net providing field in our to and want executed XX% sequential asset consistent our that margin. their cases I culture begin times only has on decreasing the pace, buyer needed, and price community-by-community hear in by where well enabling Jeff in of business the not our primarily healthy build from markets, price in raise that just We across as color with each third combination and a communities, Anecdotally, prices interest mortgage best best with of we homes.Our reduction teams not prices XX-day on

homes. priority, expect and months, while homes product by we step our As puts level a between long-term to partners personalized a flow the X in helping currently X inherent with Further months. model and in inventory to generate us closer to trade sales remains and approximately progress offerings and this simplifying developed achieve suppliers.Lower effort which historical improvement in to have we our relationships help and build our returning the result, refining to our another built-to-order of and of and cash times X incremental are drive we production building flow even deliveries higher leveraging will our turns addition

We transformers, roofing and across which business as specific has our are equipment, essentially specifically with to outside our some supply been widely back of related challenges industry. electrical usual to materials chain discussed

the are over reduced half of their in seeing XXXX, improvement concrete, took quarter We XXXX significantly and roofing the which home relative in $XX,XXX first to offset the pressure on trades.We in cost started our fuel. Costs the materials despite from our steady year certain of helped diesel for to also sales. to the in by generate peak reductions price August including direct an items, in earlier third held labor we availability

Going cost is on forward, value through reductions engineering. incremental our focus

finish key Jeff. built-to-order business remain scores that and high already I on model maintaining customer with our the the will our priorities work discussed.And operational executing As satisfaction to I centered over that, our we strong, to turn year areas back in the addition to call

Jeffrey Mezger

were tracking submarkets had the first elevated million, increased with we using Rob. average fixed continue to Thanks, payment solid average KBHS during our development of points $XXX income our approximately respect with XX% products. spending credit, Even rates a gears can criteria, home quarter equating JV, buyers was their demand buyers $XXX,XXX an about our backlog utilizing sequentially an as million of more mortgage with to income joint while profiles the investment which our both effectively. manage at median us and higher down a help lack Home buyers points. and in mortgage strategy purchasing and make year-over-year capture venture, $XXX the average conventional are significant underwriting payment. price household our and through of Switching XX% second financed acquire These income customers household and underscore mortgages levels cash and of to held our healthy in strong customers score KBHS Loans, credit develop our roughly over XXX. data KBHS with is about quarter, over to These with a rates who The our diligent higher land than XX% the steady remaining $XX,XXX of down.The amid FICO above land, quarter meaningfully the positive product higher the targeted have XX%, qualify our by the of to down supply.We funded mortgage rate X/X

activity fourth growth to We expect support our in investment accelerate our quarter targets. beyond future and to the

consistent which position XX,XXX just lots supply, of stands are historical level. over owned representing our lot at or controlled, X years approximately roughly Our XX,XXX with owned,

outlays our phasing on we with our inventory community control need do will lots growth at to delivery own in to year-end phases again of are continue through our prior We our achieve of finished lower in lives. positioned in filling capital to count our growing for be the working or well we year smaller the developing gaps to believe and before on currently win the XXXX.We balance and anticipate XXXX. manage We pace as starts focus our lots majority we are relative to targets the vast development XXXX

grand in have developing in a many delayed next has continue range. shared of market openings openings shape previous community most enables in reinvestment from $XXX through share cash balance repurchase growth paused have lots of buy an In points These expect our leverage have diluted to an conditions their now have we $XXX Since we outstanding XXXX, XXXX, have calls, almost together KB in which XX and the meaningful to is of in results. our price nearly XX% repurchases about shareholders. of our same count time the per XXXX.Our ratio for low third our XXXX. $XX to with of quarter return $X.XX This of recognize time, now began regular XX% the first into Home toward deployed to third X per that July, to for on projected our team share had in on the our equity.Over us at which period, resulted closing, to than capital contributions initiative higher mid-XXXX and to growth given targeted more increased sheet return we representing million of quarter in increase excellent increase end August we the at with dividend, the in strong back our I we nearly year-over-year earnings a shares communities flow the allocate future share. XX% on to just intentionally As and at at strong million operating number we want significantly We for year shareholders. quarterly quarter percentage the returned of below average of at million shares, our approximately entire a

over profitable we're now that XXXX. turn and positioned are for and roughly the maximize a larger, community margins, more billion meaningful call in long-term generate in projecting $X.X revenues stockholder to returns count value.With growth becoming that, XXXX solid Jeff We Jeff? for review. remain I'll for committed We company financial will the now at healthy to

Jeff Kaminski

our our for highlights current full-year Thank revenue and you, outlook community our range. our improvements good XXXX everyone. construction I and that count the performance resulted now significant revenues discuss our Jeff, for financial end afternoon, of third third expectations for XXXX. the will quarter, quarter, deliveries we impacting of quarter review upper and fourth In housing provide exceeding time the in realized the our favorably cycle guidance

solid We higher-than-expected also net community pace operating of generated monthly orders margin. absorption X.X per and a sales a

lower deliveries we away an housing factors $XXX,XXX rates. decrease of and addition, positive and an the an the outlook.Based will our region our housing $XXX,XXX price deliveries. lower an are delivery move-in-ready common mix overall to decline million relative to billion. to incremental In considered XXXX liquidity.Our West were pricing $X.XX current of robust cancellation in to period. reflected $X.X our us have a strong construction billion our reflecting be in deliveries, Though In quarter, approximately reflected range approximately allowed increase cycle million in the with third down updated with approximately expected fourth our prior benefiting the billion X% and for anticipate selling in stock, along over average selling current while overall $X.XX quarter quarter in additional current our and ending billion from concessions quarter them projecting year quarter delivered shift our operating performance year number higher-priced X.X delivered time to of revenues to cash mix to and higher-priced average period, the of repurchase and the shares revenues cash the fourth quarter.For similar of our $XXX quarter, $X.XX on the mortgage selling shift Coast backlog, our interest for of in This price towards $XXX,XXX quarter we a X% total of We our fourth quarter prior $X.XX the homes $XX,XXX compared due higher rate continued in results, billion improvements homes third primarily home cycle average their price. overall other compared year-over-year times and West Coast expected anticipate was XXXX the construction flow

surpassing $XXX.X ago. income the million margin margin earlier compared in of the $XXX.X $XXX,XXX than income third guidance XX.X%, end points Our XXX period, third our of to exceeding record. SG&A quarter expense a which operating by expectations.The abandonment homebuilding quarter high year reached was million million as quarter totaled Operating year more a our current profit basis and due charges included both inventory-related to charges ratio $X.X of gross versus

impact quarter, points and year be particularly other as shift we the mix a of margin homebuilding delivered. margin, year result to the any prior higher market our midpoint homes costs our housing of For margin will mortgage range. XX.X%, The to due relative the the basis expect construction guidance housing fourth XX as operating conditions, was decreases points was income price in to basis primarily the the period XXX well quarter XX.X%.Our environment higher the down aligned concessions charges, excluding rate profit from prior higher in than for approximately inventory-related of the gross and

a quarter second on represented and when first down other sales majority and sales implemented taken in Excluding and to quarter both steadily relating for charges quarter we points the higher-margin gross to deliveries margins inventory-related Gross into contracted a adjustments quarter our fourth quarter in and have in gross expect of basis were the a that the fourth orders margin of the quarters first third the periods, margin concessions improve forward from buyer trough decline both offered the fact due pull increased. pace. contracts margin expected XXX to to third XX.X% pricing selective the our deliveries see our our year-over-year.We XXXX sequential was quarter

inflection leverage we margin is same above prior quarter approximately expected time, our charges, will a deliveries margin housing the slightly profit expectations, our no our and we revenues lower by and XX.X% the reflect of year, believe our As fourth due At primarily basis guidance fixed prior year fourth higher points will XX.X% the incremental result, ratio revenue gross and costs housing the third strength the XXX approximately goods selling, compared to as to operating be reduced of expense inventory-related in on included cost quarter for higher of providing XX.X%. increased a full of to leverage point.Assuming general due performance expect administrative full sold.Our quarter sales commissions. year quarter gross margin from

XXXX an $XX.X of of expense tax third compared growth housing ratio believe business about represented our that year million for the position income the XX%.Our our XX% to for rate we we period. effective will quarter in for fourth revenues, SG&A XX% quarter be prior As tax expense

expect the our share quarter. third million under new or growth community We the $X.X our of quarter, during community third community land, sequentially the to of the XX% liquidity XXXX. for which $X.XX XXXX the lots quarter. be the available communities the history.Turning XXX approximately a will with or count facility million levels as for new from $X.XX dividend count, per be in significant ended with quarter. the in $XXX.X opened $X.XX year-end of pipeline million third billion year million Directors net of At representing share expect We had share, count of average total the share. XX,XXX that prior we increased XXXX as our fourth $X.XX X% increased of We $XXX believe $X.XX credit cash openings our the compared to compared rate ended the we will development our earlier were effective quarter total XX% number stock unsecured Overall, fees income of of with the support approximately over contract on up year land invested under from end, to Board our including quarter drive of flat end quarter our $XXX XXXX or XXX highest billion, to per $XXX.X period, common the third outstanding.During to cash We owned we no for revolving per million XXX now quarter reported borrowings quarter a to and tax at acquisitions.We cash for quarter or diluted quarter land in the community quarterly and compared third with third sales $XXX XX%. diluted third to per quarter communities

shares In approximately repurchased addition, to the assumed anticipated million year-end count housing in our $XX.X supported XX.X%. total billion and at the of under cost repurchase to and end flow, value operating of and at With our of shares outlook, time cost community shares general environments. an to we full average billion, share on current conditions million per stable to our by third the stock book the $X.X while driving Year-to-date, X.X shares of needs, quarter.Shifting based housing X.X common X% a land XXXX considerations of historic stock economic XXXX, and our forecasting liquidity we million, quarter common leverage the at backlog, of expected opportunities we a are repurchased market in repurchase with market expectations of remaining housing have the to below continue for our year. end our authorization, rolls cycle of $XXX year next million our market range throughout revenues $X timing intend price improvements cash we low our pace, ratio volume investment and

financial over believe increases drive next any count community quarter second will of the XXX expect our XXXX sequential new year. the than next openings year-end We X community in We to count in XX% quarters and beginning community our more we quarter and pleased strong are up goals year-over-year.In for performance about the to quarter. very are solid be with operational achieve execution positioned our fourth we XXXX believe summary, third well

our and year stockholder we focus charges billion, open up believe compelling of quarter expanding have prior XX in business questions. a value our outlook operating quarter $X.X compared expected guidance measurable considering to scale, our along in enhancements and ongoing addition, model raised in improvement and and of uniquely with John, approximately will strong our repurchase activity our In margin, point profitable our on the excluding now portfolio accelerating per basis $XXX XXXX by to inventory-related value full your third fourth forecasted growth future revenues both XX.X%.We results, build-to-order with produce housing million lines. about our performance book community our returns the periods.We please stock take share larger leveraging will, and midpoint

Operator

question from line Barclays. Matthew with [Operator of the the Instructions] first And comes Bouley

Matthew Bouley

off the question start to on pricing of just the here. Maybe strategy kind

of a how backlog, year you interest how sort happened I fourth to to where sort into And maybe with this protect able chose you of think you of are you rates? perhaps of out September quarter? got near the as said that thinking latest August ago the into trended may the in strategically, orders XX% expense play kind guys in you what Curious that communities. move of price the were raise term. and thinking about How given here about in

Jeffrey Mezger

Matt, spot trends then totally year quarter. of we comments question different first it But I'll kick month-to-month the in a the the than were answer a Rob for we're second the in half ago. to pricing any on and

have really the digesting increase, and off, and so our because quickly if have were been rates rates year, weren't their payments up, them us. locked. This been moved and buyers it's with First moved the moving much ticked while shock buyers more rates interest in gradual basically a

lot backlog backlog, think, than better in So far houses, were our psyche same historical year, we because through last of and really build extended buyer at couldn't frames. time, in built time them get system of a the selling I the the our times. a and ago.And year shape was the We our in are

down a really balance to our are year you sensitive we and to time. ago is now we're larger much than build protect, more had in So backlog today, with where a backlog our

things did our revenue have to projections, don't to year.So extreme positioned the backlog go we're last how like to the occur, we way we to demand and the support take with we community need forward, as protect real Rob you on the backlog So if go were time our that a would go happens most something to and community, asset and we steps if basis. shifts, in And every the both in the in and quarter, shared some pace we'll that we up be comments, week moving I did and optimize every the evaluate its but price, pretty thoughts quickly. We don't as mean different know year.Rob, I have every to last you that? any dynamic is the on story. want anything add on pricing? same But community I a per

Rob McGibney

that week lifted broad-based. our dynamics. I increasing August, through as those as the increases continued Well, or where asset. of we prices on month, quarter, fairly The majority to mentioned, rates was track quarter price it least all division and We we balance despite price base across -- way price, by raise third had but margin, during the many just the optimize we necessarily Every don't the some based we implemented communities communities Jeff it by in the footprint. where at had

So to margins the slow continue base. in improving really communities in we're it we've price than But see we're we're Obviously, leaning if market. is faster and the going there sensitive what's pace, on going got on down. our rates targeted the with selling to didn't and where those demand

Matthew Bouley

outlook. margin the into zooming of kind just one, Second

first I fourth think quarter. you environment a be the in that quarter of the reflecting on margin back might more sort highlighted sales challenging

those color the assuming the were What some said trough? QX is takes, early and XXXX. puts margins fourth guess might just on I any be quarter QX. better I So think sales and in around of you

think the 'XX gross at you early time. occurring How increases So price were margin? kind any there, additional on of it's mentioned, on some magnitude cost that whether reductions that we that can color about those

Jeffrey Mezger

Sure.

economic lot looking obviously we're about. gross a year, which pricing shifting quarter-to-quarter. at you in impacted rightly little versus And had quarter some the guide, had bit when our sales out, improving of into help point cetera. for full by as both We relating and dynamics favorable trend our et our for quarter the pleased earlier price and to as housing 'XX, we last definitely look Just sales can things But and et the just an activity and year selling pace.When build activity and support some costs, of unfavorable the 'XX. out for know, whatnot pointing order we're impacted gross environments, and a environment supports current by is sales incrementally we general I market concessions, all as margins, like fourth which out factors need those we margins cetera, actually margins pace mentioned, impact up to backlog

encouraged We'll to quantitative back the trends numbers our detailed seeing the orders. seeing order So embedded for on see full with -- the right fourth favorable we our quarter a during margins what in we are we quarterly call, provide we're we're margins. XXXX that by far trends the come the for in gross obviously, and more But relating and outlook and including, year. the so so and good, trend now like the

Operator

question our with Kim comes line And from Stephen Evercore. next of the

Stephen Kim

relates know sort incentives, mortgage much. to rate I you that I'm felt Was color. to not to mortgage if that specifically, in referred the And you that curious really all you like I all thinking that's of mortgage, question appreciate something I use guess I have this really I quarter think all Yes, guess talk you needed could about and my buydown a expect you something -- commitments that more just you -- to it the mortgage was sort increase? sales that reporting, rate the forward of did that that are it buying doing buydown. basis? and case-by-case market that the And if for? is we into going is you that on Or are Would you're a have will, you what of that you made percentage, first

Jeffrey Mezger

wants in we're questions business, have started fall we're also and lock inventory I higher completed. that X concession home at or that the asked level, it's can want happy type really customer, the customer built-to-order said again, that on and they're do not buildup, to than offer all everything, can get little build there. move And to we with the best you our have sale mortgage picks if value where think the some you're And on known, had they That for or of some a I working actually and to buyer when you rate concessions comments, more let of a out, rate specifics. it into Rob if was that, price.But you my that it. year to built Steve, you it to go but inventory costs the like the and late they and year, high they'll more about and And our last is further order best. some built-to-order that's But because We'll if the financing rate our a available concession, earlier price the you're comfort inventory. in the doing at sales. and it you other choice whether we it, call typically where homes the financing situation best to

numbers you So the magnitude want Rob, QX or type -- the to saw sales. of on on the you But where we give specs, from have any on built-to-order QX? the that trends not was do activity to

Rob McGibney

or as the versus the stayed to of revenue that I it mentioned, buy-downs quarter was last change trend, far closing. it we later same -- believe, the the as Stephen, and were The inventory But roughly X.X% paid concessions, relatively quarter-on-quarter. mortgage mortgage on any quarter-over-quarter, went percentage I moving in or as X.X% homes really flat quarter, closer Jeff that primarily that this X.X%, along didn't mean, as so points much. a Sure. to total cycle percentage

Stephen Kim

much rely interesting see I how really having Yes, on to I appreciate remaining buydowns. rate very I despite demand to mean not think that your really strong that. it's able you're

I of in getting that are rate qualified. part of a only on is actually folks clearly is the very extremely your think I doing buydown, builders misconception way a a but you're the there's lot that sales showing by well buyer think

to hoped would I you slower want that And up weren't So last it the about you've maybe that year. decline. that's make is really of to and you But in able had gears something This back count ask your know ground, to. able community half sort intended. some development shift encouraging.I you did like seems pun to be maybe attributed no of

right? than end higher bit of community get a than like order in you on would community it lot like what happening difficulty maybe sold you you open the there So a the exceed out is the to more Could elaborate didn't communities. had harder your on expected? Is you lot into more sounds you It that it's run not of expected. side? generally You sort range, getting last have of just development some

Jeffrey Mezger

labor the area harder. still in can the labor reset chain I down, settled general development base there's it as interesting terms, it's an Steve, tighter, the if supply has land say has side. where in and is And it's is

federal the lot in because And contractor than base processing the all spent are to all the push-pull government longer of work -- it's and start that's the between stretched with year. going we I our of a early city part in that has permits of And think projected the been of on. money getting because infrastructure. on development being they're taking to times get out

sold necessarily to planning a we to community opening, of it we'll ready our be, open selling both and rolled if would wait through and those in in better until ends get just that of a lot We call in over not November, faster. oversold November, a year So soft environment. have it, and hit how components.It's communities it are with January we harder because

want it add you to if as know, So -- well. that But there's will I Rob, else on play don't into anything

Rob McGibney

that covers them. I think

also electrical transformers. when to know for well. just of got generally don't installed We the of go a coming. it's specifically there in equipment, energized. out beginning, with as communities they're outside some know the those number We ready of And We've waiting be touched that we our in remarks and that's issues to

So the things confident it But through start forward. is we're as we've it's here that bad and getting going communities just getting about got challenging, municipalities. coming, or more they're we whether processed up showing move to the

Operator

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

Alan Ratner

built-to-order you maybe think time made half than wouldn't year. starting back made of products. to comments month-over-month were for comment at demand a you Jeff, of improvement seasonal a kind the see kind see last was that surprised quarter, in that to of you And be the of one better the you the I

see of you that. comments? shift you XQ specs last relative think bit for buyers be changed maybe if last little might and made anything definitely about were of of the seasonal later causing nothing to and were there.The demand between the a spec think that has as implies I order results this build-to-order curious kind that a year starting normal the as far more desired in year, your earlier guide the third shift and quarter wrong kind a of guide more just comments which pattern, I'm versus quarter, subtle with you there's

Jeffrey Mezger

customers the inventory, price we in sales still actually weeks, habitable. less aren't listings there half where we inventory no available to of that's less built-to-order we're in sale. lot It's situation it's sell, you but teardown have shifted think, in -- to in in is a that I those our in even think. markets quoted because where points. the maybe of think There's a I inventory for a our part, Well, is more And QX, at It's cities then inventory months. like X.X still okay,

the houses not think a roof "I inventory head there's customer And next got their customer to to math and time." today. you you of don't between, I'm -- I slowly been part the from.And find going better you've stay that on we lot So need a choose for have people that's of point, of choice of lot lot and in with a got go demand, what's some have the it's may you couple demographic and a equation, rates of then and say, to ticking over But wait And not and want to buy, up, that then a top customer. that for a at it. that

right I is call think it that going go and whatnot. seasonally fourth They has I T-bills in don't they more from we normal sync seasonal rates part, I headed are back say and on In it up, each we're with be just in know here. They have it normal down brought think where could pattern would a what's to I'll these the phrased you But don't to tenure way, the upward, continued with as rates necessarily Alan, what expecting the So what we're could quarter. down. month a seem expecting. go

Alan Ratner

I appreciate that and certainly recognize the rate changed. environment has

through I So talking appreciate you're that.

this one for maybe Jeff question, is Second K. better

'XX math XX% up is doing that year-over-year. entering revenue I math your If probably least on think like didn't about sounds the do guide. Just be at units it be the to X% here, the will backlog correctly, or going I'm XX% year. exact but I in down next

of just you that of there out is between times revenue 'XX, So parse order kind price, coming can kind and us is that of where a idea from? rough growth better cycle just way increase to any in directional give growth

Jeff Kaminski

sure. Sure,

couple of the We're community talked can to counts. prepared you relatively then of but looking bit. to be sequentially. flat at this the that go We I the about early little in starting sort going on to -- a a cadence mean So things. increase quarter point, we're and it I And quarter a looking by the years, to end it's of first through as comments. call rebuild see the

fourth third count, holding experienced you nice well. a along solid to assuming of hang And as your really, construction your always deliveries.Our gains a with [ to and just pulls quarter a well. by hold those those into year, on in into those it have gains, gains the additional and performance 'XX and 'XX that for really factors higher quarter units really into We're obviously, both looking or as us. community that pretty cycle the count we've and are turn helps on vigilant community building ] already times then So had sales we to looking

you call it that But then first factors look as the And we always yet, And for or at updating we'll to like quarter's refine we give to sold kind quarter probably again Obviously, minute, during So really. it of go the as 'XX. even full big our are into in and we and if look we'll back units early. it's a pretty this get third affecting expectation those year, up a there. we be from quarter. picture first forecast haven't for largest a the

Operator

next question Lovallo the from with John comes And line of UBS. the

John Lovallo

Is how on had This -- jump I in of question time the the that cycle normalized, think sequential one from sort you guess days about quarter. as question of X-month Alan. guys to The off the XX thing the X is you last taking X- decline to answer you very a what there of dovetails improvement kind is, quickly that if there the expect I to months? care we such mean, to this low-hanging to get point? of we mean fruit, X at I saw the quarter? sequentially kind fourth another the could is could of in similar back

Jeffrey Mezger

you do take Rob, want to that?

Rob McGibney

set that days area able we on over from our X -- and last I we're returns on XX surprised. eyes couple We've of some Yes, only amount our getting away we're into to And But that. the John, X we back have think I sight some be we improvement would months, do to make. just to see that pretty an the significant had quarters. diminishing where get gains of

next surprised this So be a like time into but would time, to X historical I to I quarter don't X old X but get over improvement kind see same that certainly, us think towards another it's X, the that just we long of of going build there, looking off of to driving take month get to next months. quarters, that time cycle

John Lovallo

] the absorption. And you [ then I'm got for if -- about numbers talked but orders, to X sure X I not for I here, think guys you right the

numbers. So [ $XX.XX believe, $XX.XX the I to were ]

for just are big factor, contingent that remain in rates higher And put rates need where the from the Or do to that of end would here? the rates? it's uncertainties range? really end I the high understandable fairly and they variables? what to it I'm I is Is range? are if guess some interest a low wide sort today, drives the actually range, out of understand fall a of or think you upon what what the there. the is if I But you would given it's mean position fact, that of trying

Jeffrey Mezger

We're they're to going fall, not assuming John.

hold fill they probably if would we point. may up, low rates the around to were down are, the where go So rates if to be midpoint you

our it opening we open will they have when and hurt We helps if opening depending their some also orders. And communities dates, day, orders. this hit miss opening it on they quarter -- if

we to variable now. that we've them we margin normal expect above And let run But around it's opposed and were price is well. we'd it our as everything So pace, -- balancing trying as a rather to not really guide for it now to hold a the got right what environment, of as pretty going -- view down [indiscernible] run we're letting we take and and community absorption right X rates. normal part a

Operator

And JPMorgan. Rehaut the next question comes from the with line of Michael

Michael Rehaut

aggressive I 'XX, repurchase speaking repurchase X believe, organic repurchase year? wanted your the share of share of to guess, next And first count of an you're this bit your end directional And I anticipated thinking kind Just needs needs, laid obviously compared in perhaps priority, focus or helpful. a allocation -- would amount equal, as how potential -- which that more the thoughts lower, how kind capital to You share or terms capital you -- do for capital in let's think about of out deploying similar year generally say, something all capital moderate? I any your year, relates for of the there funding capital look it community activity? little quarters.Does or, fiscal I done else growth target for of you've on be about affect for deployment? would think we the $XXX a million, balance to take you

Jeffrey Mezger

particularly ratio stock generation as think leverage very right a quarters, low powerful given buyback tool in I business. Well, now, cash our in strategy we've and -- see few this very we leverage past strong is indicated the

and to an delevering, of there.So repurchases, and that what but business, dual with the pivoting growing need growth we returns. business. levels leverage future frankly, reinvesting while point. towards targets, as on current debt our need our the are the combined focused And had years, in taking investing we We it's and at and do ratio stay more want favorable a in that and equation do and many business land, an strategy we're is believe to in not or we reinvestment debt we this reduction And longer equation for down our mentioned towards share no given the at for you foresee

being I the know on don't it. impacting many things certainly, we equal, so there into and share are we'd make all go [indiscernible] lot But factors that decisions So how quarter-to-quarter things our continue a like basis, buyback strategy a positive to as continue down very of that and and And pan company path. the we do out for it. expected year, shareholders, positive we'd been We think very like things our it's continue. if for to to plan for next see that

Michael Rehaut

or, year maybe see bit, I I out. have repurchase next how a potentially guess either moderating not rate of was we'll to just little the plays about guess necessarily wondering I but

Jeffrey Mezger

level Yes. well I cash now, view staying of repurchase. and ratios growing at aligned. the are a comfortable balances still it very very been that We've all we're right Mike,

how plays we'll even strategy. I So you. close point. that's it but see like that Hopefully, we're to for that's helpful not the overall said, out, And

Michael Rehaut

the I there August seasonality progressed higher as subsided, if on little I increases? I And quarter, those those perhaps that, further, kind lower earlier, kind just completely I'm raised the the else kind apologize of leaped and rates on of laid Rob if sorry answer, kind the as of curious increase of missed of trends I'm as an and that color during love in drill degree of XX%, September price pricing or XX% maybe returned a think secondly, XX%. someone magnitude hear asked price a rough out communities than your was guess, think if I -- how but I get this earlier, maybe there's well. didn't of to moderated I little you of ability bit what also, down price curious and any as

Jeffrey Mezger

again? Rob, do go you through want it to

Rob McGibney

Sure.

before, dramatically in see just take guess think I far Despite we change still of I increases -- touched we we but first, to pace. part month last it your from or that on week as than quarter. good from to August, as we So to moving faster the were a planned really the up rates selling had week in number our communities the didn't month

lift So price. in we communities, continue those to

the the as that on the magnitude XX% were company, $X,XXX across we far As increased was average. increases about of the on

Operator

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

Truman Patterson

in land deals part year. been of into whether of actually spend XXXX turn, the many lot the Clearly, year-end is some towards into get going increasing in And kind community finding have of banking growth investment have have potentially this XX%? just cetera? land, picture, I'm further Are industry strategy. et your count more deploying moving or love finished land you down, the quick and then moving all -- discussing contemplated further any been the on you the to to back an would thoughts your big option option

Jeffrey Mezger

are seeing we up some the land to Truman, freeing appears a little finished live deals and market bit. be

that's So doing that's our When be in we're would it's in community part None year. for planning land its count. included anything out but until of our not there, of guide committee encouraging. nothing discounted those next approved,

snag to So see.As other come land builders. speak of you 'XX to more are if can't any who we'll some may in, I bank, knows, out we for able with of the

the And what's bankers focus and a is just the itself. really more development gone And need mitigate around. because known doesn't the the of land risk development. pace. dilutive possible the with buying, it hate the trigger time, hanging on away our don't we're side than We we having sales just been real moving some because some margin. derisking, to you're pull it got And rather lots developments, phasing we've money not taken side happened so of up, land want the is higher you're margin on around margin of as now where give -- land headed. land know we'd Our have few We costs we're -- actually finished can the as in is to communities to the view do We has I size don't bank. to the

development. So approach lifting for think a way. just keep -- now, can because bit along the it's it's we the we us your our you And right best can margin control

Truman Patterson

broker to where your closings depressed of mentioned a lot whether commissions. And you then they could versus seeing leverage, of of stand lack moving that, I gradually them think just in you they And increased of us closings the pretty XXXX I'm commissions through a one expect differential. do higher, that's all kind of kind of normalize of not SG&A you today right, a the bit history? 'XX. were as first that peers the part just third-party levels broker percentage But from hoping think at little or because were in help

Jeffrey Mezger

aren't markets the critical, that we where the bit, I can little selling strong a were now you're leveraging deal. do those in up primarily retailers. market a commissions other It's his help brokers negotiate as when technology. whatever to of still it's And were house with a stronger, our think also homes. in you're on go home, -- we And but shared house combination them consumers a we markets, to with go When the the brokers comments Internet for what the inventory our commissions a Jeff -- really that our are versus and completed competing to them

tick XX it did bps. realtor up our commissions So

rate participation was it bps.But think I It's around has running as for a been company at XX and XX% been really changed. hasn't our there the years. in quarter

a participation ticking but built holding little it's spec and when in about were down didn't less a different order. a when we approach business up, the paying they're it's even commission, selling So to in go rate you're where the same,

Operator

from Raymond the Buck with And our next question line of Horne comes James.

Buck Horne

the XXXX. acceleration expecting at you're Looking that for count community

be first-time communities, those additional with just communities you those thinking towards, home starts your to those new about type get of the -- towards would jump-start more entry-level spec again, absorption geared gear As target buyer those rates levels? or potentially to would mix and/or product those

Jeffrey Mezger

that the which are but median were income to and hardest and desirable, a try to the hold going submarket. that it's land with communities with current to those them we and community. we median get spec median household homes the are target find go above can sell if we're product a very are the as inventory, where to to little And the target our spot income, no our on that's first you strategy. in move-up constraint, communities and homes price Buck, try first income, the We time means stay.As primarily, helping going affordable going, to to open

value-engineered. you way series we're that's go -- make if right We start those houses. build in and sales and get at We'll product the built, to So structures we all can sure up we we go inventory they're open new want shake will, situations, very a and get opening framing limited. the and a the but fast as in and as are going, we down city to the designed store, where models design, we the

Buck Horne

ask but answer And this question, anyway. I to I probably think it know the I'll

Just capacity inbound some wondering are any single-family have rental if rental with thoughts for having had discussions discussions operators you've about had recently? any that or looking or any partnerships recent

Jeffrey Mezger

best it that looked bucket Well, to knitting. we're building for it, we that return, at we've sale and always looking find at get our just we sticking time every the

So we're there. going really not interested in

single-family flow that the on rental Some of assets. we're lots is offload deal some seeing need to companies

returns has the now would that lots maybe are getting their right seeing financial some and and a but the of the side that rents it's or whether So developed financing from coming strategy changed those our companies. the whether deal communities we're whatever, it's and bit, flow suggest

Operator

Joe question And from next Deutsche Ahlersmeyer Bank. with the comes

Joseph Ahlersmeyer

in XXXX quick at ask looking discuss I'm backlog. I somewhat versus guide. And your that price ASP revenue because to one terms of fiscal be your the least a Would volume? on delivery relative to you Just at willing

where been line. quarter actually backlog for it then sort ASP be below of it's is I guiding think this to first the the in you're and

as So of heading indicative about closings? order that? where think you're the in sort recent maybe disaggregate how just should you more for would just of Or we 'XX prices

Jeffrey Mezger

the those still of without call, Sure. give big just we and of the on this and revenue the too side call. and We're to Yes. normally give all we plans many want tons you into fourth a right Right how during that revenues fourth of ASPs, shapes refining some now, kind units, quarter detail see during up, quarter diving range on we'll that, details. all now

Joseph Ahlersmeyer

what we busy spend that of about infrastructure that. the spending, next with those year, think guide, target? calling in that Or If this you which industry community of for, that count are would is especially around of an thinking in point? at is sort into then sort an many I the And light of that acceleration represent your been hitting acceleration to some see in that incremental baked the considerations contracts comment have out risk crowding the of

Jeffrey Mezger

difficult have. of moving how be Again, No, as on side close-outs pace selling the many would an supply you're like and conditions sales in just on and raw to the count just get grand peg, worsening there's risk. our sort going a opening number how community to environments lot but with many I communities opened, think very pieces, incremental is any a of not

pretty year development most community community XX% new doing our for count particularly from count about the objective. a of to couple there. some and company. communities support think Rob That's on future quarters last in portfolio continue achieve track always we'll talked hope year But down for highlighted on goes. a we've we see much of the good new path So challenges that out been how in the the right open. and pretty and end.And getting of a it's growth staying up to will job And that community side. Jeff openings, few this middle-of-the-road estimate of about end be There's it a couple there's now, challenges on them,

Operator

with line And McCanless of the our final Wedbush Securities. question from Jay comes

James McCanless

cycle So But may think my guys said quarter. was the fourth first last I had what's the quarter? trough homes? trough the quarter talked moved quarter, third the through answered of to just got in have Was why TV improving from you when that the margins. going question, you some this you of fourth it probably quarter gross us in on mix closing Or about to built the the times third can walk you be

Jeffrey Mezger

pull closings the forward and deliveries were a Yes, about was price higher during bit the have it's as I on remarks, came there into year little earlier those quarter, the lot last as prepared would simple deliveries it fourth overachieved some otherwise of closed a probably sold into margin talked that. the a quarter. of before We increases effect that in

James McCanless

trying -- to sell through other when where some Or are to plans in now square the I start new prices there you're just there? you reset had then and to the question you out what put an to having still, is communities? opportunity cut you smaller areas have footages footage square And the then maybe out

Jeffrey Mezger

about what the why Jay, floor I did covered that's plans we And available. mentioned you've us well. part have in smaller I

smaller we You know trends rotating this really is, feet you're And watch few so this is moved importantly, day, we they in X and help every feedback they built-to-order buy. last offering price a it's hasn't go a hold most drop a that over but in it consumer the a laboratory it If months. and sales seen much it business, evidence what and incrementally We introduce down average, you're can not it wants, plan did, by if rather getting -- real area, on frequencies model, just in into the not. what margin the yet.We're or think plans it on you're consumer and we'll to what We'd smaller do community on on hit and the of model and the haven't do part margin. what closely that there. quickly

a in It's it's the we a community product because pull, can go part already can we've in So it's we levers the the go approved, and and shelf, we plan of past as insert that it on one succeed. plug play. have done lot we model checked, and and help

one it's track closely. very the we So things of

Operator

participation. gentlemen, today's Thank that does for and ladies And your teleconference. you conclude

your disconnect now may You lines.

KB Home (KBH) 20 Sep 232023 Q3 Earnings call transcript