KBH - Earnings call transcript Q2 2024

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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 2024 Second 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 July 18, 2024. 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

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

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

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

addition, other be housing which release and GAAP most can gross comparable charges measure today's excludes is in Investor during inventory-related reconciliation website profit Mezger. any of adjusted Jeff directly of kbhome.com. And and/or our In with measures discussion to on at margin, referenced measure today's its page the press the Relations found non-GAAP non-GAAP a of that, here

Jeffrey Mezger

afternoon, good everyone. and Jill, you, Thank

the high our the was metrics of quarter solid were in end second above performance ranges. key Our with guidance that

a buyers $X the meaningful remainder in We times. both our over to we XXXX our positioned orders and In with are achieve achieved addition, and net comparisons we believe billion backlog order valued value. year-over-year net improvement positive committed for goals build over of of well

details share $X.XX. total of results, As per billion $X.X of revenues and for of detailed earnings generated over we the our

by $XX an Our quarterly of drove income market book XX% cumulative repurchases, of and including and million This undersupply growth, above homes, healthy operating ongoing benefit an with formations. in share resale with up margin. per year-over-year. Longer-term in demographics favorable, were along value during our over wage quarter, share XX% additional new favorable the and housing XX% gross household performance the rising employment, margins second supported conditions remain solid

Personalization we the their the during uncertainty as return this, rise purchase to is second clear all-spec volatility as most Despite quarter, as in stronger mortgage for second sales times than rate create built-to-order consumers, of market quarter differentiator appeal its have are appeal normalizing, did mix rates. Periods to an personalized a have build decisions. see homes which However, buyers. a homeownership for particularly the home of model, our several of company, first-time migrated we key the our of large to for delay even in higher can for is quarters. the is strong our and generated builders and in increases and is production a desire we correlated

We survey buyers are with features on served products our know include our that we markets positioned value that data. affordably in based

their personalize aligning then significantly final payment design elevation budget. their Our sales they of their as selections choice studio, our in buyers with can influence monthly lot, price and their

built While move-in of we've of quick homes order, business the in communities. offered to our always our majority each is

any do achieve given in sell which important and in consistency price from visibility a homes and targets who build-to-order choice to not key large our our in from several move-in in majority are value As inherent a accommodating date. Operationally who to also customers a quicker to housing result, The financially, our work periods deliveries, even approach at provides is as volatility of and while prioritize we a flow gained a we position quarter. satisfy buyers market in the particularly we of production backlog unique model. delivery those benefits need

we In revenue in rates we that strength gross our the lot studio helped margin. Despite quarter, enhance premiums and indicators addition, during the demand. to movement generate the saw that from revenues reinforced in

As of our in the experienced sequentially quarter traffic a communities. higher we level progressed,

the addition, in to earnings seen on comparison cancellation our and was net lowest volatile the our ago our per pace line these orders the call. one that to below to X,XXX positive with grew factors Both quarter average shared levels a a that we during well of of quarter, rates. a rate In the net of X.X have nearly orders year contributed our relative absorption last basis, monthly period. On expectation community we during

community-by-community ask and Rob optimizing each that, a on an to turns. With inventory I'll in high asset pause Rob? basis for operational provide consistent remains generating focus and a Our moment update.

Rob McGibney

Jeff. raised on X.X This the color you, modestly by prices At of second interest absorption given per I helping the communities, pace our order above level net providing majority in our fact decade. community, the additional notable the of our our the average results. volatility and will cost was moving to Thank the is last in mortgage rates above during quarter monthly orders quarter begin offset we concessions. of that X%

concessions slightly our As of first XX% levels to the our in our the at stable our of are of quarter quarters second with were which quarter. compared rate Jeff backlog below of to them. that cancellation historical X XX% compared as have XX% associated Mortgage decisions. mentioned, our flat the roughly of the orders gross us mortgage the averages, purchase some and having beginning confidence their of at remained buyers as low, to quarter improving each orders to concession prior These form in with indicate

we could support strength we demand in our move-in impacted the market mortgage the that the spring, the the extent, given an concessions using we While rates of unfolded as and season conditions buyers. to lower spring incentives selling early these to continued of our use believe

production. X,XXX with our As of are we the We beginning are with starts Together in homes we the for second accelerated quarter homes, on to quarter sequential backlog of believe half early the and homes XXXX as shape fiscal we of our we basis. X,XXX X,XXX the had part started second XXXX, in the well well. positioned a anticipated, we nearly ending about

to build on now And are sequential improvement second as completed a starts X achieved significant a during quarter. in Moving months. We being result, about the our times.

and a studio are realizing of the our enhancements rhythm systems simplification, efficiency that given are construction benefits in design most product of back processes in in We schedules chain the and return areas. predictable supply and

our our have Delivering X shorter X- to buyers a improvement we that the to even end months. appealing we lowered as spec X-month will closer drive home Now focused personalized to high on to personalized frame in gap home between time the of are times homes a narrows. a to our a range, historical home build times build XX-day X.X-month make and built-to-order more further built-to-order

the referenced. quarter, this are built-to-order more homes as representing orders seeing benefit We the with second our Jeff than XX% of of in net

turns faster our inventory expand of available addition, improve construction population times In homes delivery. and for the

Before rates our through help the provide buyers. in in as as our been financed rate closings, having capture mortgages our I venture, our year joint the had mortgages buyers Loans. benefits XX% Higher joint KBHS the more and with quarter. prior company through financed effectively of backlog who funded the compared in We wrap up, I credit will as which XX% visibility a Home more their review capture our our quarter us to manage of our during well increase metrics solid venture

our we of levels who the versus cash purchasing customers average, their was addition, while payment making The about FICO attracting XXX,XXX, In of about slightly and buyers home, equating they our KBHS KBHS first On are payment. was we use with customer other $XX,XXX. higher see XXX. Even a average down qualify who income their can household up satisfaction of had buyers a over year-over-year, customers down lenders. XX%, significant from to for score X/X mortgage

our on year to our With XXXX value first us, behind a underwriting to half the standards over with our acquiring daily Jeff. on orders open that, in I pace adhering on driving increase back time, improving our strong lower with broadly, and to lots the high and while satisfaction focused are to more build turn of and by direct grow products scale, our to price cost. More a to our times returns emphasis further returns. And the we profitability are objectives customer communities and and now call margins our maintaining will balancing engineering levels, net close

Jeffrey Mezger

Rob. Thanks,

$XXX invested land in total, to million $XXX and develop lots nearly acquire the over to we already we quarter, another XX% of year-over-year. million an During own, that increase

for and price are we the future points. growth product criteria, in XXXX We position our strategy respect diligent company underwriting while remaining to with land our accelerating investment as

adjusting also flexible We our of are remain will conditions, warrant. market pace and we conditions macroeconomic in of investment as mindful

roughly XX,XXX over in owned. XX,XXX condition. the ending owned XX%, by or position lot these our controlled, finished which quarter lots XX,XXX over owned grew of Of lots, with a are We were

locations, are and mix of with including our geographic cost composition the portfolio basis. pleased We the quality the of

is focus manage capital Our possible finished with and space in inventory wherever smaller developing on to lots balancing our lots. development start our phases of efficiency,

lots as We as achieve our for need targets we control the well in our all of that to or currently majority own XXXX delivery the deliveries XXXX.

in our served have to the our each reach in have position we of road least maps at markets. stated top divisions place the X As past, in

place. we the Overall, top For their currently to those top have serve. step those share upside the we in and a ranking; opportunities divisions is that X, feel we growth in for we X plans significant through markets top targeted the achieve in are markets, in taking already next divisions have X

cash a in generate capital. strong a continue We to level this taking allocating are balanced and approach flow of

second stockholders We billion April the are and quarterly our the share to we repurchase authorization during cash which that quarter. reinvesting well significant our in utilizing approved Board our dividend, as raised through in a as growth returning program, $X

also to to business. cash that, priority growth our Having cash top generating said the our are Our growth goals of is return we to and sufficient invest accomplish in stockholders.

previously I had serving year a our and over both share for entire shares of and basis $XXX returned minimum a diluted of million our began in million, this KB in we we this stockholders. In Home repurchasing Since the to solid of repurchased have time, $XXX million. thank guided then $X raising team closing, range to shares to to than XXXX, $XXX to now returns. period more contributing level we repurchases outstanding per to want commitment the Over share in earnings homebuyers the to our on performance. repurchase we regular accretive XX% their billion we're While our cash of to have

as We realizing business our operations faster normalizing build chain. times a potential supply the steady return are to a of our given and rhythm

are of choices buyers preference benefit what for a model demonstrating flexibility on can and see the based in afford. and making they our Our built-to-order value

year. this together backlog, well in achieve and our with healthy $X.X which revenue a to homes production is balanced have projection our We billion starts,

count and future committed growth, continue returns lot as which better stockholder growth diversified the We divisions to today of value drive expanding community few will business Our relative their execute driving company we newest ramp driving the as through volume to our in count up and capital past remain on. is years well returning profitable to our as stockholders, our to scale.

We have which expect drive again on year year-over-year our will in return we guidance, full our incrementally equity. increase raised an

to As forward you turn call look the we financial to Jeff through move I'll the now that, our the Jeff? over remainder review. on business. With 'XX, for we of updating

Jeff Kaminski

will and quarter and current third Thank afternoon, I our Jeff, our cover you, XXXX now second the full good provide of quarter year. highlights for everyone. outlook performance financial and

our a generated billion our in that in execution common and reinvest expectations and pleased top a liquidity. are quarter interest robust flow, us return and enabling We our second margin, produced across through rate period healthy stock higher business, exceeding environment. Alongside to to all end mortgage over cash amid financial $X.X volatile stockholders double-digit key performance the repurchases our quarterly line our capital operating with dividend uncertain results metrics of we with

second of our by Our highest of the from for slight X% XX%, delivered, number times from in billion cycle current XXXX second in in our the backlog selling represented the down $X.X quarter quarter since partially and a quarter period, X% to as revenues the the $X.XX be of average overall homes build in and lower rate Based cancellation improved rate of increase range construction year anticipate the housing rate a XXXX on a the number in both XX% housing current significant conversion well period. a were offset decrease due will for billion year delivered the improvement times price. The reflecting backlog, quarter as homes earlier our billion. prior quarter we third revenues to of the our $X.XX

million continued $XXX anticipated the we revenues and from billion our of year on in prior quarter, generate the range in our reflecting increased price increase at delivered the of $XXX,XXX the market housing average to $X.X billion, second of the guidance. homes and based prior in geographic shifts selling Additionally, in midpoint year, versus an for improvement overall full our conditions to In $X.X period, build product housing times, expect to $XXX,XXX mix.

charges of ASP earlier the projecting sequential million $XXX,XXX. Homebuilding abandonment The third are of approximately $X.X $XXX.X expect selling Coast XXXX $X.X will to price average quarter million year year average believe price mix due and of selling operating approximately million compared the the region, quarter. in $XXX.X in For year We our a quarter, was increase X ago. regions. $XXX,XXX has as a which be an we quarter our fourth our to overall deliveries versus to from of the current highest income current West $XXX,XXX a for included the the million higher quarter full in

incurred Excluding position the period, future for higher administrative quarter general primarily operating XX.X% reflecting was prior expenses our and to selling, our the compared for XX.X% operations inventory-related charges, year in current growth. margin to as

be our margin, to income inventory-related XX.X% any quarter the to excluding of of impact operating XXXX homebuilding the expect We XX.X%. range charges, third in

inventory-related we range full excluding charges, operating again, any to year, be the the expect in For of margin, our XX.X% XX.X%. to

quarter XX.X% with margin year housing even second earlier was XXXX profit Our gross of quarter. the

XX gross Excluding margin by XX.X%. in to inventory-related both points charges periods, our decreased basis

year quarter are a we XX.X% XX.X% housing XX.X% XXXX of full in the to charges, to profit gross in margin third forecasting a of inventory-related the range margin no XX.X%. range and Assuming

to associated was planned second XXXX in mainly Our for for and compared the administrative selling, general expense expenses XX.X% with year will in higher other in quarter XX.X%. the ratio will X.X% growth quarter, XXXX XXXX range marketing the housing believe reflecting the quarter second increase be X.X% and full SG&A ratio and third ratio to be count XX.X% about We of community our revenue. expense our and

Moving on from operating income.

$XX.X in Another the the item. held a million ownership gain our and in technology was company, earnings line contributor pretax which the to was other in quarter interest a on of an privately current interest sale included

million expense represented compared tax second the income Our for of the year tax effective $XX.X XX.X% quarter an XX.X% to for rate prior of period.

the to both be quarter earnings approximately period. $XXX.X year-over-year XX% the for of year in or produced effective million XXXX or $X.XX per third and diluted our year for over share to quarter in second We approximately prior we share tax income the expect reflected for the of $XXX.X our full several rate net and favorable diluted impact repurchases the improvement share for be $X.XX million The to share XX%. income past Overall, quarters. the the per growth X% XX% per net compared

Turning now to community count.

to community average a low count, Our our third the year-over-year XXX quarter average for up single year count quarter quarter We end to quarter X% anticipate up decreased To of with in million contract X% as the during with expected XX% the we XXXX year-end sellouts our openings, second to in be over sequentially. digits quarter, our second were of XXX. land XXXX to were which the year the ended XX% in impact of of from percentage in pipeline second we compared and of to anticipating and communities, growth compared in believe with sequentially prior lots XXX and flat a range to of XXXX. last flat significantly an earlier resulting mid- quarter XX% quarter new year-end continued This community single-digit and increase be and year-over-year fourth the more the roughly We quarter. development year. The community XX% prior to of X will count we in communities higher of average increasing in contract. XXXX line drive in same year ago. market open the count while the increase community our year under third on of year-over-year drive high be the XX% up we of XXX owned expect top period focused invested the our now XX,XXX community ended as selling a the remain over number under half time, is growth XXXX, lots, $XXX and count quarters share. At than quarter of also We the community are the the will a

Board strong a approved We of BaX, $X.XX Moody's reflecting the an $X.XX management. market of the expansion, We of During our of Investors disciplined per the and ratio quarter, to repurchased share and in scale record cash common debt-to-capital dividend across XXX,XXX our nearly to stock. rating regions, outstanding with April, $X the to $XX.XX to position company's our up common XX.X%. sheet billion deleveraging share repurchase quarterly our per anticipated a the increase and approach price upgraded quarter at track the of ended debt balance company's In shares during an from authorized quarter. stock average Service

pleased continue intend repurchases mentioned, through allocation timing opportunities under expect capital by Jeff market of quarterly our our through based to of billion be stock community As returning approach land strong while sustain new quarter to cash we openings and credit We over the total At conclusion, our million the general of including cash $X.X investments investment land to and and with and and expanding and quarter and scale execution. repurchase stockholders to liquidity nearly second repurchases our flow, financial very outlook, liquidity we intend to volume billion, balanced cash. In common economic our and no are focus on was with $XXX cash pace, dividends. shares operational our price end, on share revolving needs, our the considerations maintaining to market our housing facility solid and unsecured of environment. borrowings outstanding shares performance available capacity also of $X.X

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

Operator

[Operator of Instructions] the John And the first from line question Lovallo with comes UBS.

John Lovallo

it, so the it the of quickly, The third it. to of step-up thinking about, revenue quarter of imply seems relatively call XX-ish one, It you're it, be percent flat outlook quarter do third way will the $X.X like the fourth the margin quarter fourth this math. looks sequential the like to And from sort call just in gross billion, about back first kind trying envelope of would that quarter.

thinking that be And bit there correctly. there? are little would question are So the on of first leverage about is front? gross kind why more What and we the takes the puts not a margin the

Jeff Kaminski

Right.

correctly. of it yes, you First all, about thinking are

You pretty the math did accurately. the on fly

we're On the gross leverage, lot side. things facing of a margin on the

that in that about the year, had coming most on rate mortgage we the As not incentives that actually had pressure margins. like able expectation of down happened of as people, out point back-end interest talked of the put of being bit reduce rates we've little and earlier a some this has unfortunately there to an we, and

year And the to despite it. the we've we're some been go price factors of mix but we're into more of guidance the able right work the honestly, pricing gross of of is We deliveries half towards look now outlook majority been on XXXX. with our despite the happy we the that, through raise pretty second year, incrementally raise back actually and rate fairly full the difficult, year of had to on incrementally margin those Obviously, side, largest just that during some in company this but especially some well, end being the we're for has been are the half the the but And communities in as we've pleased for of that mortgage seeing shift some to and headwind limited in that able all those powering headwinds. we've outlook points increases continuing the pretty quarter.

John Lovallo

Yes, sense. makes

near-term would and you think your I the part first as then the lots, about take confidence we mean, Or majority about what you and feeling just second, on pipeline? spend? of kind should about daringly, expect deliveries And the in of gas to you land you And the you the you how sort versus is future talking the now owned that last demand. through -- your of are had point? sort building I that front, of at thinking satisfy guess foot quarter, frame Okay. Is better that off of controlled XXXX. needed how I XXXX to this of you're are land the

Jeffrey Mezger

a are type solid in really underwriting we not remains pedal our break. John, median affordability, submarket can strained as in approach, of sensitivity prepared allow now, There good our right question. shared comments. to from accomplish Demand we that is to what and products a It's and targeting the incomes, that. very us

isn't a strategy. that in readily available So there's in healthy tension, locations type a to all that achieve of land

right So are we're down. to investments, enough looking and our deal expand that not we if finding we as now it flow at would slow

We standards. remaining in are, however, diligent our

for and think will land our on expect up making comfortable we're So we're investments with be the year, we this. year-over-year, pretty returns spend we the the and significantly

Operator

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

Stephen Kim

on the for outlook take longer-term [indiscernible] growth.

sense sort so from are strategy you volume give you of be expecting you about the a -- But think to what growth achieve? you're or longer-term or for of or here setting in to X. quarter what land next able can up your talked perspective, kind growth, us a revenue a quarter I

Jeffrey Mezger

be in build and top in and have city, for a and that #X more X want the market. I market. the possibly every several it's scale on X working every we into in year Steve, that over top the X or And more making opportunity the and their have inroads we the targets ground-up to we're we're next into shared the

range little of count on we more each the XX% bit and in strategy count between revenue we in growth. a price capital, continued over fuel average, XX% our community share year market growth how city. of probably the So means, community can investment That a With allocating it's XX% to growth about think the and around we're system.

your do each it's line all pencil. and revenue now deals that strategy that. hit them ground built we'll It's a market, the we bottom than have limits divisions up be a to XX% little invest. the what we right growth, that, go if XX% on in on and But to would you'll growth higher to with don't So find up

Stephen Kim

That's it. was That's I what great. Got for. looking exactly Yes.

so not can And that [indiscernible] and larger expect some we of those about or this into in second about can absorption. which be leads expect the of little you this above kind absorptions kind question, that [indiscernible] to my that of guess normal? thinking kind suggest you -- to a historical new things I levels. there factoring we other to be [indiscernible] expect there? numbers whether should to that why talked we or a [indiscernible] relates absorptions are [indiscernible] Are the of absorption increase

Jeffrey Mezger

shot the we've Steve, but you things we'll were higher equation easily count over rates. same profits. the there's And optimize strategy balancing absorption the targeting, little know, a our infill And areas absorption margin the for along a no a we while. we higher more can kind it. with really got location we'll because it's profit are in we think floor our working. growth now, higher our what that -- X.X your rates nice connection, as because X, for your move inventory, run at to in a with current quite assume move which of they community. it's X.X. If balance. at heard we'll of we're if on per build a it we our time, time, and But take as And it. California, absorption and rate to a you a I'll if a to We're than have go And higher, an our where can't But asset, community time and been replaceable, could margins go of land margins take I optimize you'd it best replace about was bad for around talking the margins XX% each question, see way at you we've is

always asset. and can but unit between the will growth toggle count it optimize and any growth you And so do math the we to get, community be

Operator

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

Michael Rehaut

months, throughout Wanted obviously, zero little bit the first progressed throughout bit recently. a Has how into come third more perhaps. -- more mortgage a the demand rate a in down or to bit felt of far to of closing being this kind areas the earlier kind and came little on first month, you alluded has terms up quarter maybe little -- impacted even you of quarter. incentives in so bit costs Rates a other of X.X have elevated concessions

rates? Just wanted demand on a in recent pricing to get sense has weeks take any And and progressed? the move several with for how last the

Jeffrey Mezger

They've held I'll thing, the Mike, concessions to up. that one steady. to to clarify it's Rob not that ask answer relative question are the rhythm and demand, but just

last they little early time year unfolded of at stronger as go up the call. a the bit we saw in about before conditions because down April the rates and that may came expect our We the March of

on they the not want go we some Rob, this the thought you So we're not down would. demand just commentary quarter? give time. do seeing to the up They're way concessions going through

Rob McGibney

Sure.

mentioned, the consistent might, summer remained really across the slow that drive in very do one X mortgage but second fairly sales, our as month our was we of footprint change. We of that. net per here, things they rate move much and, into does demand individual change see quarter as month hit the didn't that, per business to I more and on a and it community. we every month and to offer a get really we relatively to X.X In really to pullback last the always not say a or regions the would we seasonally the terms as an well We addition basis. that couple from the in But over orders performed portfolio thought month we mentioned on didn't each of had we flat see incentives quarter, single just of month to down, expect basis quarters. It's Jeff achieved we

Michael Rehaut

love that. you get maybe Okay. longer very how just term. at No, XXXX. helpful. about would look what from to little I I bit thoughts appreciate And to a your XXXX, guess, secondly, gross margins on that's to you did XXXX think

about averaged You XX%.

of last changed of XX%, X.X that's your this in words put consistent to to mid-XX%. What's don't level? And view the You've to in you allowed been more hold mouth. I year, kind around higher kind years your want on in

decide to sustainability continue of want if might gross factors a going but lower which forward? to X bit potential that any that, the So mind lots, shift your option on the thoughts shift current carry perhaps sometimes to margin, a if impact to more have strategy And you little come margins.

Jeff Kaminski

Sure.

the So yes, just a margins. few comments on

So company, when you in cetera, fixed labor, Not only the that costs the margin in helps a supplier on on some et are of scale included market. lot. at but look particularly side, the leveraging the materials,

So divisions there's large a our each company's on that's achieving markets. scale the served why the within company, of within such focus a in

direct capital very amortization is interest to our we've to two, you margin know, improvement factor That a been particularly over a of structure and is debt that's went continues in Mike, and recent now Moody's that as structure some that with that for really that's have so line, status the way now. And slightly good. period in levels future we're either the the on in stay we good we nice to company. Number and the capital just tremendous the well the things amount and side grow, inventory that's of shape side very received, decreasing, prior, capital also a really upgrade with and done mentioned, a our constant our as new of on right our potential as margin. and down things, you fact, interest back So to and balance the our favorable or there sustainable work years compared BaX

strategies, XX%, can XXs, far cost it, margins, here. our with think expand higher fact, I the in as of scale we you as they're market served achieve we certainly total if are from levels and And move look sustainability sustainable call things I our sustainable forward So as top let's as in goes, line. even of build upon and at we could think grow very we and some low margins as company that supplier

as go. see we we'll So

single experience I we think largest could just reduction of the that is tailwind incentives.

playing generate As gained you they these they people rates in think just been these game to buyers. for interest don't stay in the that levels seeing away. a sizable an most reach not while a from company. face rates We've incentive-based order our to the fairly are of along here we're term. with us really know, higher although But the could for And that may that low were at, long that for there's be go margin pickup once not affordability

margin my are on that those -- thoughts guess, So the question. high-level I

as option as we own our they're on seeing count of of lots out side view lot take pretty focused and margin strategy, they're we're go. internally community just if that a not available. far point things. If lots expanding We'll we're developing As change not, there much from option on and the

pleased last hopefully, overall, the So we'll level Very few and the we've the pretty that pleased with out. But in And shakes we been margins. the see that build experiencing in how years. upon those can sustained higher expansion future. with

Operator

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

Anika Dholakia

for Matt Dholakia Anika on have today. You

first within So at target range. X that X build you months, said which X I to times are now off, around your think is historic

this maybe to wondering then or what the to range there's further and is target still on levers you're this there. if push taking get Just if

Jeffrey Mezger

Rob?

Rob McGibney

than past. been have the in foot on faster take gas off satisfied X than We've not We've months. built going our about we're We're months. in businesses had many So X faster to We've yes, X that that. a X months. range the at Not X of months. to that with talked

there out are opportunities there. still I think

rhythm in much We as opportunities we're being that additional reap more and the years are the chain divisions been our ones with a now opportunity And the an performing us several working build kind better driving others, back that for but have That we've and to to systems, driving the our better we've simpler than down some with that's proactive cadence, things are create performing things think much they times I of product going the used out, doing an cost getting business. so for that with should. simplifying that's about provides benefits get combined really formula. keep in the also divisions and building stable, aligned supply just underperforming for talking overall like for quarters that processes that to

Anika Dholakia

it. studio be that seeing helpful. the utilizing thoughts maybe like guess, consumers Any in my the what specifically, options you then and demand. And Got I are upgrades? Super in more on resiliency and helpful. second design around guys question, you trends about would talked buyer

Jeffrey Mezger

share very high and down why they're in we're X very spending that, of can $XX,XXX has that said like When the some, it's very putting interesting, been profile spend a for always much been in the buyer. first-time size time the they're credit not first studio average moved for buyers. the the XX% the it's income $XXX,XXX It's the a XX has FICO, is dollars Having pretty quarters, with think well-heeled and around you last over and the of the to homes and to consistent. What studio move many selecting studio they're quarters. has but consistent the we

not consumer that even we've preference in really prices with any operating at. seeing higher change been So the

Operator

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

Alan Ratner

Nice quarter, the for and far. thanks so all details

longer and expected. seen bit have little trends this mentioned, higher than rates is stayed you digging question, bit, -- for have a First a the in to regional but we maybe obviously,

flat sequentially, Southeast some in roughly And where decent pretty inventories inventory. other at surprising would I XX% resale low think higher in or probably seen off we stands quarter. a decent your development have kind the look rate, a increases bit, albeit region, by your incredibly you see be normally, XX% orders, I sequential the if one may moving resale pretty in overlaps a of is and markets may levels. And of order second certain kind to uptick seen of not out little that at performance macro that also we've

that? you seeing doing a in the are resale what you kind just discuss can if are Do markets? to on you more certain front. of And hoping feel so, you So competition to was respond little bit what like you're seeing

Jeffrey Mezger

Rob, that? want take you to do

Rob McGibney

question. a Sure. competitor. always It's Resale, our biggest good

We've always to tethered stay to pricing. resale got focused it. on we're So

exploded. big premium. to changes be We talk in coming think have levels going demand don't you up. mean something reasonable we're into is really think, specifically resale talking at like supply. X.X from, I about any Tampa to like double resale about earlier levels -- to I months was I X.X headline yet But have have year-over-year. But months to supply when you of Florida related I the a we've markets, seen today, going looking and inventory They're dig of the

well months, it a has has of and than the X formidable more So was it increased supply still the less norms. historical was when become while competitor it's it than below

norm I to X of considered That close be imbalanced. months think is historical supply. would

that into we seeing big adjust from needed yet. say that will per it, an So as of something community all the sales one on and It's some month impact definitely X stay regions Florida per I in of as each of we're a eye the impact tuned in wouldn't performed so quarter, our just month I our that above sales keeping with them but probably mentioned certainly earlier, Every to well. though. quarter,

Alan Ratner

Perfect. I that appreciate detail.

the land question Second on front.

in one are sequentially, always tied talked increased to a second quarter XX% as deals is locked way count. due things lot up I rose shows lot back about XXXX where highlight meaningful and of or your diligence lot know rate. either before got And a past, of of it a when count count I of or been kind in increase your lot So have to up the quarter an total we've in find your you to in these such this go by the

lots out what I you seen to can that XX,XXX little not these all owned are through has quarter to in seems has a of was sudden been X what all a because went contracted lots this fact quarter. But where terms a and of hoping given pricing, us pretty this or historically. for what significant like type increase option growth compared assuming it negotiation come the it opposed we've is that as you centered, lots So give I'm color of

Jeffrey Mezger

there's the and We're impact the be the working A community timing lot that Alan, it's fits market's of we sometimes to the put on count. our been entitle headed. land pulled rate out lots grow up of you demand, staffed sellers is and And the community hammering secured. where times need the X, To and had money the did the and and or demand, count dynamics since and see dry that off inventory are now. COVID chips keep a let's with for when months, details intensively X the it, division powder see whatever COVID, you point, before We X, our few are we of couple rises, agreement with our could we've control no starts. Ever years. purchase over to your last some a value. working and where many teams And past the then do. no up markets to interest it intentionally table We've pretty have

our be to diligent we're to accountable our go we're have and deals, them But and product mentioned that shared, deal I've up underwriting adequate geography of holding it's finding to already in the then our continuing and encouraging standards hit in to underwriting I As divisions flow. And standards. tie the tension returns. healthy and deals

were hundred now and controlled. many, we owned successful the secured seeing large in it's our of right X not it's in lot the So the or X system, and lots around we've quarter, deals, growth deals XXX and that in all or markets we're our many

and a trajectory portfolio nice it's 'XX like up for the pretty So and the strategy we and 'XX. setting

Operator

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

Susan Maklari

to a bit is to question want first My the gross back I go margin.

quantify perhaps benefiting seen that profitability And about go there of that? coming where You also the and rates your comment premiums made you talk you you a time profitability? and the think can upgrades are then you that over buyers could bit lot as could more power, from and down potential that having business. Can how the it have benefit a purchasing to upside

Jeff Kaminski

premiums lot margin like that, improvement back we're of And on this the we on it's in studios. incentives and mentioned part unusually come the first that eliminate there for company, The at the rate. all take level then before, I if I'll of percentage second can being an interest Susan. high basis mortgage full -- out else Sure, equal.

et land we upside a if stay pretty us. equal, for equal, it's hold values cetera, costs assuming So significant

So that really some gives future I about margins. me potential alone, gross think, the factor for good feelings

good coming gone of looking things you on affordability, headlines And still and side start When ASPs spend. and we're use our even been lot up have studio news as buyers use studio on the process. part often the pull studio premiums the see we've seeing mainly to as on there's as and is studio, the lot to at the sales the like a why relative we community very to We differentiator our per absorption in the talked the high of as believe do that's pace reason past, buyers and a studio And more peers. we side affordability, in.

try our it's base do still area incrementally margins, margin where higher of an but cream focused close market take a that to have options we than and despite But kind where from there. Lot is pretty it to studio to We'll our big it not of keep area. add We side that, focus always it premiums comes on it. go really sales house and we dollars on in.

you cost versus builders. lots, all gross of think premiums there's area on about a one another the positive profit, think focus It's But lot it's of to developed a to extent community. incremental if I almost, pure incrementally no could to lot it's those you lot get margins.

offering absorption or and out low without pricing everyday order more the there, without to incentives we're how operate community. personalization in an business huge our model homes choice less the base back offering on it the discounting to those our and like thing, business, drive forward on incentive that's X buyers So pace we is at to for which factors. And look really on to above-average how getting we again, looking

Susan Maklari

Yes.

gave from demand? in you your the some And through of about That's think through Okay. the at you your how last consumer comments. I seems and when expand And months that today? has contrast the consumer at buyer maybe more have this of It in stats of so. data higher you do the back, business health come that's think stress. come like the consumer about points all? thinking rates step coming buyer made various that prepared you you in or the we And about competitor changed morning companies and helpful financial color. a lot around consumers profile comments even the of that landscape that's comments there? that couple do a across your then to under different being in Are been how seeing of the to and anything the There's perhaps about And different perhaps down as pool start guess level.

Jeffrey Mezger

buyer. they're score first-time think I observed down. the you script it, their his well-heeled much up. I a But touched Rob on how Susan. the loads was income quote levels, debt it's quoted and -- in are I FICO -- we putting

Credit Car it outside see higher. is, there's cost lot You of whatever a home the balances are of of pressure all living loans, statistics. in their ownership. card in it

would this through there pretty help credit it in business more a of your ago. things, of and assume debt would we down, little doing so benefiting is years we they're And have to I a burden tune that down higher a going say, very enough there's I that was if improve the think where operate are But couple we're able challenged, you're you rates too, than lot navigate affordability. and don't buyer to think we to little come a strong more it. And So demand profile soon, customer. credit but is to help with what successfully rates we anytime came sensitive are can to

Operator

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

James McCanless

also were on in solid those that orders community side could the expect average, do up you about relative talk quarter? Rob, what region during guess, the Southeast the absorptions the communities? in going to I the the Is on later were you you there. And a was more pretty regions down know catch I year? overall this said and of to function but West in

Rob McGibney

by count There's bit. We've up. delays community going of do that it a little a bit pushed catch some I getting get just to communities just and Part out not Florida, little expect are but communities open. had that general driven in is in away

the have the Las the both than community really demand we've a talk I Texas to in That think Southwest, of if Vegas are very really. rate, sequentially highest So JK, the actually drove specific result. sales a was about I bit. well. don't relatively you've in there sales stat, West, businesses down but strong. When in regions was the overall, California continued got remained did normalized community, well performed all better Inland can we Those the lower little count normal. back know, net rate it But had Empire sync, in

the in So mentioned we've below about, inventory still clouds we'll as the and is well Florida any in outside see been reading of that I it. before, which historical really monitor continue to uptick us. don't out norms, think I watch But I for storm there

James McCanless

holding little product more year? fourth with a back California be gross but sounds gross Got you're in a concessions. it. enough like more big What's you And It might positive not amount there? aggressive I shift of not you sounds it full a for margin, like why guess especially on then margin just also decent the pricing to quarter. getting guide, mortgage the get the cover on pricing,

Jeff Kaminski

one margins advantages BTO gross of of forecast based on we the Jay, and it's backlog, our a business.

And for roll out mainly we fourth right particularly selling the which in through the that year. the before the that seeing in divisions anticipate of mix them fourth of deliver the quarter homes we're business we a see, mix telling and sales the the the mix lot sales, we're basically, now and we and what move-in-ready out numbers third backlog in and the you our and what up, end quarter, of all into visibility of We will in have selling deliver the season, spring future. the between

the tons gross the of consistency our of ranges with have estimates now pretty pleased seeing not consistent there. our there's are closer in progressing. in coming So to in guesswork been as we're been end we'll really guys We've high keep and margin, how what we business updated you the go. we're And and And quarters. several past in the things and for

range lifted incrementally full right to very and monitor the year continue now, we'll So it. we up

things that to because to and a able to the for of what get to help we're beginning the thought with macro, more we're incentives year, pleased and be little able do on pricing rate that but did We initiatives that. interest able through the side do the have at similar of with We not but been expect, we and been the see seeing offset we'd within we've different other company, reasons. pattern now to a

Operator

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

now may lines. You your disconnect

KB Home (KBH) 18 Jun 242024 Q2 Earnings call transcript