KBH - Earnings call transcript Q3 2024

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Operator

I would like to welcome everyone to the KB Home 2024 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 24, 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. Third and you thank of Thank to afternoon, review joining today XXXX. the our for Fiscal you, everyone, results Quarter for

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

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

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

Jeffrey Mezger

diluted Jill, you, share per earnings in and year-over-year and the revenues Thank good quarter. in afternoon, double-digit everyone. achieved growth third We

year, remainder margin produce this gross in the With at about revenues for in we we XX%. these billion XXXX are exceeding results, our and positioned $X.X of believe well to expectations a

customer and model growing our year strong, high executing the our choice remain value afford. community levels flexibility offering can work on and customers on our build-to-order to based what and focused we finish As personalized count, maintaining satisfaction they of we

per anticipated cancellation quarter we homes low of rates we results, had and our We of and $X.XX over billion have total details as compressed. diluted than the more during for As the of build share times revenues earnings $X.XX. generated our delivered remained

in Our gross provide X margin moment. was at quarters slightly some seen which will in lower XX.X%, we on a detail the past have than we

operating our margin at range was income Although our guided XX.X%. within

Our performance and market and undersupply Long-term wage homes, demographics drove solid year-over-year. remain up housing an conditions share, by growth, value of and XX% positive, supported book resale household our per new employment, formations. favorable

in and flat Although resale below generated remains markets, are historically We our with limited in quarter, levels the low. orders market very rising of year is points third certain well ago the inventory days is still normalized the at our it period. on net X,XXX price

absorption monthly the X.X although homes Our pace year's average third over pace the decade, in below per with community was quarter third X.X% last past of quarter. line in our slightly

of to and quarter a for homeownership strong pool Our this level, of cancellation from efforts. a sequentially buyers third digital saw historically low close with evidence and rate within indicating increased homes at traffic is their completed. and higher during ready when solid and on able leads the stable remained our year-over-year our communities The marketing desire we

rates demand of each of as pace. August. in last moderated sequentially began interest steps hold net necessary Rates in we our concerns slowing and about weeks in increased, economy as and pricing to adjust remained hesitant were to to elevated weekly environment, took improving demand through buyers June said, That our this August In late with and July. soften orders the strengthened a X

quarter-to-date positive by continue We trend, September. solid see are in urged to and we this sales

XX last lowering rates Reserve and interest this affordability. week, we confidence by Federal With basis further benefit the will believe points consumer

that, our year-over-year the orders, seasonality momentum setting update. will an I'll up and fourth fourth ask ago And a provide a produce we pause soft comparison to and operational enter comparison for with us as Rob? the with quarter, Rob net Given year XXXX normal strong in moment quarter the new even year.

Rob McGibney

our color Thank by additional providing order net begin results. will you, I Jeff. on

Federal the given this X% and stimulate by August about week as month headlines of hesitated Reserve. around increased lower early mortgage concerns orders traffic interest cuts uncertainty net help year-over-year, with Ultimately, Although saw some we buyers do by evidence week expectation rates the the and news demand, decision due fueling on sequentially an of to purchase rates interest in too progressed. transacting increasing their rate to

down. most buy believe incentive is their biggest the rate meets secure we to or While home at not buyers are primary needs the of that the a customers rate price, sensitive, motivation best

Understanding our net have first the half orders year, most this at selectively August. each impacted we pricing community adjusted demand level of in fiscal this which the to favorably we needed the the price and price and taken of in stimulate our as optimize increases pace and of asset, balance considering communities in strategically

Our pricing incentives. price strategy focuses best increasing offering on the versus possible continually

value by dollar personalized equivalent incentives, mortgage care a our price the or in and margin the the emphasize of offering home we of or Although value and rate. more the gross community about incentive the reduction an achieved of the price teams home buyers same an than

by orders lower X levels concession, of we to just utilize prices August and continue relief or incentive I a in mortgage mortgage We expect to improved orders in of, in with the whether the we lower use down that to the rates. of to range, a quarter, concessions consistent quarter did recent on net mortgage dollar able spoke our this the said, fourth be our reduce affordability XX% in conjunction that in had provided net past considering form concessions the began third some amount That quarters. of buy the rate with the in with low mortgage lock

homes delivered X,XXX revenues. As production, the in concessions quarter the third with on under just quarter, of models. X% the homes in over to in quarter, We they X,XXX mortgage averaged started homes nearly including housing ending

we did in XXXX. in than is the XX% XXXX Our to more end expectation having roughly started year homes

of to deliveries. we backlog Given to historical and our production build levels our lower times, backlog more converting have returned

forward, of sold. already aligning continue plan starts which with production will our help to starts our with sales, those keep Going the in balance we majority

the times build delivered the A about sequentially in and in quarter homes on improvement during a quarter XXX factor than Our X-week days. third we delivering homes more was projected.

pricing a the stucco. and lumber low continued started range, down are to we've forward, drive months, to Going incentives which reduced focused and build end to cost times biggest we is offset impact are changes, down progress on historical homes lower which costs. single-digit the quarter, The in land of categories were X We range. seen where our third on sequentially of our in recently in the changes helping the

pursuing direct to to affordability enhancing expanding our opportunities reduce aggressively of additional a and range further are customers. We wider potential cost, reach our

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

year-over-year versus lenders. who levels use about In at average was and buyers addition, KBHS cash we $XX,XXX. The to higher see from XX% other customer sequentially payment stable, down satisfaction equating and both

while nearly and XXX. can a household of had customers score significant FICO making the KBHS Even of income average, their customers mortgage who with use $XXX,XXX they our a for attracting was their purchasing home, we qualify who about payment. On are of X/X down first buyers

maintaining on times As lower do daily we levels, high and so improving satisfaction our head year-end, into a emphasis further our engineering products we to continued customer value cost. with direct build

in returns. Our profitability increasing objectives scale, remain consistent and our

community-by-community these on to on growth, time, back customers Jeff. each will in to reinvesting opening returns. a asset by optimize And goals that, margins execute offering value and community on proposition basis to our and our to with turn expect in the I over call We compelling a our our

Jeffrey Mezger

Rob. Thanks,

we than have new of in XX% development, of quarter, we developing land. toward in $X.X million an million with land, going acquiring we invested fiscal and 'XX. acquisition acquiring $XXX embedded and the than in spent more Year-to-date, $XXX more land increase billion over year-over-year all During

with investment XX,XXX lots continue strategy we [indiscernible] price to increased land points. we positioning with our XXXX, We remain controlled, accelerate our over product and lot for respect criteria, company our quarter underwriting growth. diligent As under to the XX% in the ending year-over-year, future

on inventory of for with efficiency, markets. we development to developing our remain lots. share provides capital possible, lots is land Overall, strategy and of The with aligned served product our portfolio wherever manage focused us in and our starts gain composition smaller pricing opportunities our to balancing strong, finished our phases pace in

X market as new become our our new strategy in and position. growth they already a addition to divisions, entry had deliveries we as representation In to business. [ divisions in its as absorb of geographic results. a ] we growing three our market mature, these share and expansion markets, great top which beginning is the solid as These established Charlotte our Boise a overhead are well of X only the are see meaningful newest also of years ago cusp Seattle, cost existing And first our can on to markets contributors

returning our We while meaningfully maintain capital us top cash, also remains in which a to balanced our stockholders. our growth, allocating reinvest approach in enabling priority, to

more highest quarterly equity. we and we earnings of in that of plans shares repurchase million accretive intended year this our amount we the capital we XXXX. do year then year for ongoing our already we repurchased completed both on $XXX be shared diluted the XXXX, an in our shares achieved our earnings repurchasing a outstanding remainder our that the this Since shares buybacks repurchasing XX% to to call. basis in With on We level have of regular plan quarter, allocation per and share beyond on continue the increased return fiscal it share the third in for the to of have last began than part

frame, to third nearly expansion for In to [indiscernible] quarter. footprint. our Time billion returned contributing of the our have the dividends. We in I meaningfully invest serving and homebuyers commitment our team our to towards in recognize entire cash in geographic and want $X.X closing, diversify the performance including we business their

we X are meets years, experienced in customers year-over-year in and in remaining provides budgets. achieve in fiscal With $X which an well billion and business of level track share per purchasing drive year, earnings a revenues over team on diluted about will model $X.X and that management have highest months this that needs with significant to choice the representing We a deliveries in home many their a growth. flexibility

share of around equity favorable on a in and repurchases, increase return and will profitability, with XX.X%. scale This the impact together contribute to of

to As we revenue next guidance look ahead fiscal our is initial for $X.X about XXXX, year billion.

value by return both driving higher now stockholder enhancing as the cash and stockholders well to to as profitably expanding continuing financial Jeff? We for to over that, dividend. I'll repurchases our our committed quarterly are call the to volume, Jeff returns through turn With review. share

Jeff Kaminski

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

we development We stockholders invest roughly approximately million to through the increased land the execution million XX% are reached $XXX of with and robust the us to our enabled share generated compared to range. nearly as cash the that guidance revenues our during and in housing our with repurchases quarter quarter operating XX%, quarterly flow margin our and returned pleased our in our third dividend. and healthy of $XXX high year Combined end prior

Our for revenue homes delivered average the overall was driven and quarter prior the in our price. grew year for The X% overall compared to by number X% their $X.XX the $X.XX in to increases billion in growth of billion housing housing revenues period. selling of

of Our year third improvement XX%, the deliveries from significant backlog a rate period. XX% conversion $X,XXX quarter a in of represented earlier

was performance anticipate considered also construction time continued favorably lower guidance. benefit deliveries in have in cancellation improvements delivery by them factors and quarterly these We our rates. impacted current quarter our will and Our cycle fourth

average primarily $XXX,XXX, delivered up of selling will be homes current was $XXX,XXX price our West in a our fourth we third quarter in the overall on from times, range homes housing increase Coast and approximately In mix our the $X.XX of quarter, shift high-rise prior cycle period. billion. in the towards expected This delivered reflected billion revenues XXXX $X.XX to construction region. approximately Based year backlog our project

overall the Coast the to ahead a of higher we our to Looking average in the increase as projecting West mainly are third by year-over-year quarter, quarter, in $XX,XXX an approximately price selling expected region. deliveries of $XXX,XXX from proportion

$XXX third million of year. the XX.X% as in quarter compared $XXX the Operating operating year the for to compared margin period. for prior increased income income million Our homebuilding to XX.X% to earlier

ratio improvements and a assuming expect XX.X% expansion year-over-year we range both SG&A the quarter, representing our homebuilding improvement. margin sequential in to margin housing operating gross of drive inventory-related fourth expense our to in both income the For XX.X%, charges, no and to

as total due housing other shift year year Our incentives. home mix homes delivered, profit XX.X%, demand, to was product offset quarter XX.X% adjustments to result of pricing period. the The compared gross margin along prior margin support to was the primarily buyer and for of for prior with the partly relative by reduced geographic and factors, to impact including the

gross impact higher percentage mainly region resulted mix The company the Coast below of a in West with from average. revenues margins the

points the XX.X% $X.X the basis was and of quarter a in XX million for Excluding of ago, million $X.X year-over-year. down inventory-related year margin our quarter charges

see our margin. quarter to a in fourth improvement gross expect We sequential

Assuming will be profit housing the of inventory-related we to fourth charges, our range XX.X%. margin believe gross in XX% no quarter

expense of to basis as selling, general by X.X% operating compared housing leverage primarily for points higher increased quarter year, Our from and the administrative ratio prior due improved XX.X% the revenues. in XX to

sequential expected our housing in in improve ratio revenues, SG&A quarter another expense quarterly to approximately increase the fourth believe further will by we Supported X.X%.

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

$X.XX XX%. to we million diluted $XXX.X the tax We effective expect income to quarter reported for third XXXX compared our share be rate net fourth the quarter of or for the $XXX.X diluted The approximately share earnings well per as as Overall, year higher per the XX% share have past period. we several quarters. stock for prior earnings $X.XX repurchases diluted the or increase million over were per completed

to community Turning now count.

average communities the as X% of XXX from XXX and XX% end for quarter at the to quarter communities We open third with of the Our range earlier our in We third XXXX year XXX fourth XX% XXX of increased [indiscernible]. sales, compared quarter. XXX in the XXXX increase still the community to count. community will count average resulting year-end [ the believe ] quarter be in a ended

current were land under quarter Jeff As of XX% of in during quarter, the $XXX and the prior contributing owned in increase mentioned, of XX% our land a over to land the and lots we quarter year. end, pipeline the same the growth development significant which investment were from new invested acquisitions million at quarter to third XX,XXX represented XX% contract.

cash had of we under billion, outstanding. At $XXX $X.XX our quarter $X.XX with and credit end, of billion unsecured available including total borrowings million facility liquidity revolving no cash

investments, to quarter, the remaining of in During general land cost authorization, million the expected intend X.XX in share under the volume repurchase X.X we economic environments. a roughly common an and shares million, our operating third drive in common to increasing $XXX addition current our improvement historic full $XXX our shares our shares million we XX.X%. leverage cost return repurchase XX.X%. maintaining of market repurchased considerations while repurchased of the shares of we significantly of on equity low cash ratio and market approximately million on total at to continue stock flow, to to with housing our have at our of per land Year-to-date, stock based With outlook, average an needs, $XX.XX timing investment price year opportunities helping liquidity our and pace,

quarter midpoint expectations and execution housing XX%, goals both revenues for of an third performance in we is to higher call. earnings the believe our the financial with are with XXXX guidance, $X.X and well for quarter we positioned January housing solid In we revenues XXXX. are fourth full over our pleased results approximately our drive our summary, our expect and and during Using exceeding XXXX both operational of income operating initial XXXX our shared of fourth quarter margin year billion, achieve

leveraging scale, book stockholder value. our built-to-order As enhance uniquely approximately per mentioned, growth accelerating focus Jeff our returns produce expansion We business long-term $X.X our revenues our and in in and our share we model portfolio also will growth by ongoing compelling believe reaching larger expanding housing measurable community and expect on profitable strong XXXX billion. value

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

Operator

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

Unknown Analyst

$X.X we in XXXX, It if I XXX Maybe I'm of I'll that sounds see a really talking can ASP sure like we should start QX billion due you're little that here on if unpack next an to outlook bit. for year. around that to but mix revenue not into draw

kind play of $X.X be talk driven? driven, about community So to I price more volume sort growth it volume going And does side? into we guess guess is I how that of the billion,

Jeff Kaminski

provide level, high our estimate We decided quarter. count, our assumptions a $X.X absorption the On community to Matt, our backlog, high-level our starts, all this we our billion. some believe of Yes. guidance support

around Given where the results, economically the cetera, keep the with geopolitical, we're very particularly Fed actions et decided it our high the line the macroeconomic, at uncertainty will election We level really guidance that of for to and some of today keep cetera. be what number. et only and the really rest year, top

So this not a of to of lot it. or dive going we're into detail the point at time, components of in provide some

point driving see like we much you of guidance our come you discuss on but next we point key typical do. from the back of normally to view in January that and we're same at growth usually assume the a the fair expectations in time above, going and till metrics when absorption of to and wait to year, community guys all in probably you're pretty As all for volume

Unknown Analyst

enough. Fair Okay.

got you heard sort your ago. focusing adjusting than significant relative incentives Secondly, toggling you've rather prices degree, mentioned really few mortgage rates months of to a correctly. strategy a Obviously, on I home lower you of now if to

to a willing you're will How right? QX. home like prices, between on little around little a here back turn around as lower And really But where on here early? did -- is environment direction you're lower should given sounds rates that too prices in you a Or scenario have So we pull my it and to you mortgage gone? other a did got the how approach see is around trend August how rate question kind Any as of there of approach into concessions that you color is demand the adjusting you expect what that where improve. sort could to environment? start home going start bit rate in

Jeffrey Mezger

to want take you that? do Rob,

Rob McGibney

Sure.

rates obviously, Rates for for good They're consumer, for buyer. big of are us. the challenge. been has good big been So lower piece our that. a Affordability a have

and off better So on happy need weaker and offer focused we part mortgage our a sales to the in pace weaker optimize then as of that, can we're from that remarks, perspective, weakening, August. the down to as in that the June, a July. buy certainly and lower come put see asset. drive throughout the in than latter through it selling move and the our was in And biggest still found And we of June we as incentive. versus market to prepared started them the of down, the the we just fairly we've home got biggest some are who strong we in as mentioned quarter. play And communities done value little home prices to that

we same price had time, again. the were where others we At lifting

what to should without which to come on they the But hit each we rates to that margins our further and gets and that as levels asset or our revenue, gross individually of needs buyer if to volume continue overall optimize managing able expand orders. to we're each do that come just pursuing assets. that to expect those community to needs having lower really down be certainly, and it So what incentives down, lower

Operator

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

Stephen Kim

Matthew's going to I'm question. follow up on

XX,XXX that $X.X because figure. really encouraging implies is Just a billion closings, probably more. And it or

that from I'm community in want that about is your flattish on to to And count reach count, right next be inflection is I that the you're of likely this addressed happen? in talked absorptions couple expect it Is count of think going make you've interplay level Is the you forward. end next imminent? year? headroom it's this you terms of sure it understanding it currently from I at? and kind there's Or that But And so of you absorptions. in think of community just community absorptions of to something point to here the that by sort months. the when --

Jeff Kaminski

going detail company really know the Like and Yes. I much too we target let outlook year. where top wanted the range not guys on more next to line you said, for to the for Steve, we're comment we're heading. in

months look a a as cycle over we think here with the next I lot the to macroeconomic situation and spring and few the particularly very get out season. election forward play through strong selling and will we whatnot, hopefully

had into on the conditions rate. rate And as improve we improve As quite driver coming incentive-based on think area. there's absorptions bit next down, like mortgage We've not talk quarters. we need than yes, we'd and We've that had and to the a in to will and last demand far an room less a extensively going room a over be We're the rates for always do year. do start see demand we as Hopefully, quite that, as the absorptions, company. as that to incentivize to. -- us bit, to more several mortgage

rate before From cover rates crystal a selling do. lot get and of expecting for has lower there's point. strong more pretty a that condition to couple a past don't years so, a more to season personal conditions. with the or of any consumer given of view, these spring right a that we to see higher I ground given But environment ball But the we're outlook, you a of have the point little on any been than

range the out on but holding of year into macro, we the you. back kind kind of more until have visibility for a we're next details of lot we did So to want

back I lack and said, you. for in provide lot Like we'll January more point. please of to at come details a this just forgive So us

Stephen Kim

revenues Well, certainly higher for. of than most a I mean, I Great. level people were it's looking think

it. hear had the over So a issues your I If I and like to then encouraging mothball communities. perspective, about that operating margin, you've opportunity internal wanted level that to targeting about past you're your several talk From think for the is that I the you longer-term see know margin. years,

interest You expense goods cost had running through your of sold.

And time have at are this by most those the of issues of kind -- you things think I behind and improved. point,

So to at company whether or not. the opportunity operating call the materially long-term today, margin is I'm not for or trying figure it, out or higher you're so than where XX% like

you you can us an for So what is long-term a give of for margin appropriate sense think operating company? kind the range

Jeff Kaminski

Sure.

a we'll I'll margin. count, in of with a have certainly little additional this well operating consumer. that upside as little through more bit there's hopefully, growing But and maybe scale one. nonquantitative community on with gains, We -- share on growing market coming through as affordability, favorable see expansion a obviously, we our some scale, the think market So talk focus through maybe lot for

points been the incentives same we've today a incentives that just given at in could You've that's seen we digit, SG&A the with over offering margin. trending higher double months, for price here same where time, with quarters, we think the that the And ratio us break margins the a they've been mark on attainable, line. especially several to incrementally top a and that XX% at XX have purely add of lot past just the that gross pullback

that that get potential think So year certainly to goal for we're is margin, short area, going there again, to area. next the the on if macro environment I where in And operating company a improve we'll there. improve can that we of in see, guiding based on company

Operator

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

John Lovallo

factors gave the -- you XX.X% margin, in some just outlook. I'm on of to quarter, curious the gross relative the XX the know XX.X% I but the

move if quarter, of a as same increase sequential maybe what's And that then fourth you just us help there. of the the along we the please? bucket kind was bit, delta Just lines, understand what little those driver into could the

Jeff Kaminski

questions. Yes. Yes. very Both good

of just of So that in than to guidance, currently, as line all midpoint mix carrying driven Coast A the on And we the mentioned quarter Coast quarter. itself relative of to is guidance the lower the the prepared was business Virtually lot came the from West in I that our the remarks, by relative it company had business. top on average. West margins upside the our

we bit in little for was Obviously, that drag nice terms. So margin to quarter percent of it a have had the that on the dollar a was it.

The other that I negative. factors pricing two was a was mentioned

we moves. So price favorable. some in side, homebuyer incentives little positive a total see did actually bit were the total on the concessions quarter But

the was those in third Coast won't the especially the the and basis mix. X So West quarter, it have in West the guidance sequentially, the additional some deliveries revenues miss, on a quarter. really we but fourth look year-over-year was, factors the but it it Coast as as the were drivers, delta be high of as as largest three will far you was as When at

there So of little there. will bit drag be a

quarter. third improving upside, the on Coast between West the we're But quarter looking fourth also margins at and

guide a very be a detailed based there'll on it. So into mean, And I always, forecast. as we less margins little going

house, consolidated. up rolled rolled actually to we gets actually division which our a community, gets it by is started to backlog, with house So and up it's

us So vast often with the just of is factor pricing majority our known The get the books homes the in costs. which quarter and closed. for known already on deliveries swing are

look So in like what the mix the quarter. does factor

in same And that sold about quarterly also, of we the deliveries closed are run quarter. XX% and typically

our and guidance pretty of do we where have estimates how this deliveries, are that numbers improvement those get at we we obviously at the that But us in see see just the we'll that confident beginning the quarter So the sequential provided. looks progresses quarter. to pretty point, to but and we're solid

John Lovallo

case. but seem tell That folks going as That's margins that from of really seeing coming down. helpful. battling a put gross you the that cautious is market. not a is is And already are the getting I existing home builders inventory This feedback Okay. back that, the story, doesn't new that the some to rates we're they're well, to lower-than-expected that. can be into come We're more

are inventories that existing incentives in the and down. guys up much in talking pretty check education come back able home You to will markets as on be being pare you going about some rates

I correctly I'm that on do sort you and in Just markets. sure how of make your certain existing back thoughts dynamic understanding want to see home inventory of coming that

Jeffrey Mezger

right the I think John, shaped you it way.

I not sell of need there's they out want more There's that don't there's up. overall current to they lot housing think them home enough locked their but people to help that resale inventory the because -- of a will move product if are market. or

I up. call days food think a unlock remarks, the the the on inventory very as prepared still favorable. I bit. What thing all we in market it little the And is up whole housing will if come would chain shared opens

the submarkets So there's still. And we levels pricing price that ticking inventory it markets. most at operate. submarket inventories it's is in the we a in where on headlines pretty affordable at, it's coming at every have down inventory up, pretty Down of quickly been the city. you clearing more higher point up, And to but on do, by at operate when limited than of submarket while the you look lot

favorably a in very as up we're compete think we opens to good some. So resale position

Operator

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

Unknown Analyst

maybe any, those? settlement, and more brokers, [indiscernible] on And generally with views your I are Mike. potential brokers? maybe that any just from follow net wanted changes impacts NER wanted you're if there of I up kind on to if any ask for recent to making the with

Jeffrey Mezger

seeing now? and process. whatever be. the share what else, to don't It's But would with still why very come our we're you like in And the we're trying early watching right strategy Rob, everyone movements up

Rob McGibney

like it's in flux. process. Jeff It's Yes. kind It's of mentioned, a

be we tell us sales And to last process think that the of because come evolution our they buyers I had for are it's they will signed what up the now situations continue chose had know the commission. are agreements want where had covering that that But and over and up time. that with work evolve the months the into the a little couple we've really realtor for. that in sign signed a of required some field to didn't they the compensation. interesting to And also not realtor in buyers on didn't hook speed bit some had to customers we've -- defines office with agreement that seeing terms buyers over

that can. change addition same now is any it's their we pay to pretty we And compensation we a show X%, typically play realtor. in be the one more. that and and can with So cost time, home for that we relationships focused cost extra fairly compensating our that we're And team. otherwise the them on buyer removing the us the with will. but We We wouldn't to if we at significant have realtors is require agreement not procuring have and bring affordability up the it. cause them But truly value And if cooperating and value they're you working for business, the and they're want with sale, now us them and tough, that continue with they to working directly we're and to with we beginning that them.

Sometimes pay. the then what it's is agreement if buyer paying that's we're to that going says flat a X%, fee that

that a orders, saw statistic our our marketing So say flux. simple that QX reach out. to we programs, things buyer it our points how But participation going learn and to it's working advertising outreach X in directly and sequentially. is other trying continue website about are would reach straightforward, just and we strategy down digital We'll about I our main that was still playing a percentage focus and our and that through be home. see buyer, adjust one interesting to approach process as to for more realtor offer our purchasing that

direct in sure to NIR continue just settlement that's the a but if numbers not we're correlation or the new watching something around kind movement to that of that's the going if closely. So and process,

Unknown Analyst

lower build than historical you normalized bring thorough your That maybe to helpful. to kind cycle of times somewhat an Do was average opportunity time? those over Maybe times very on moving having and cycle think your recently. there's

Rob McGibney

of Yes, days. absolutely. are our We've divisions today building to lower we've than little ways end a that. of go another lower the lot XX about divisions, that to historical average, to got But got still many get a

the are XXX-day them range. time build of in Some

for does all place much quite in It's quarter, a It not return were think to we've But deliveries pulling our little programs from a available in whether labor. accelerating future got us, much divisions slower. so those just other ratio. So as that's I continue build times. of

focused definitely on. we're something So

little and at when get I to we think down it's closer to team in building high nobody what be That get I building an I was opportunity days company of but kind close. in much months going goal, can. our a Vegas, get for XX sale us. from even our point a on about X longer hear likes we average, were If we X houses can may -- just to was that to our divisions we're of think but this, are outlier to we'll I that too

Operator

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

Alan Ratner

so Guys, good all Thanks details far. for afternoon. the

very to First, K, on too and finely. ask outlook, I'm I Jeff 'XX be not careful the going parse guess, to it to you

number mentioned of Your year, you of homes the make about message your kind gives pointed just XX%. next down year-over-year thinking pretty the that one to confidence roughly was under has things been under right to roughly that and I you backlog homes consistently clear. growth believe your flat production. basis, this gave I'm the a in And you backlog sure I production the But on year-over-year. you was because want

to get spring are target? going in view grow of specs an be can to those ahead building incremental in times spec there? are a from your you like increase into I'm optimism year closings that demand the out, hit we next though allowed this your and Or what closing Should given mix and just figure you just that more you built spec spring even given improving trying a confident backlog building and to delivered of your is was standpoint, expect forward that cycle and So taking came lower. homes you

Jeff Kaminski

our with and time way. because us, that's time spring. increment expect we for based forward you that it's I where the combined plans improving have been cycle all on a on things and cycle look comment nice the our a see start right expect of the actually yes, generator our should big pretty said has revenues. to Yes, it the But important backlog go what and to factor going the in we a into on that

Alan Ratner

Got it.

efficiency Okay. sheet, That's helpful. And then the second asset question, on kind side. balance of

You cash stock. your on flow balance with roughly basis. breakeven today year-to-date, I guys a cash and done great at free the a have allocation, buying And look as capital the you're cash job really back

late. share increased, owned X sitting of it's option of land of supply has similar Your still is to but the where years, been kind which is X to

guys, to your builders free in but or other it So to conversion fourth for your need that how maybe would owned years that something like flow. would cash XXX% cash to kind Other quarter close, builders you about order set assuming I'm be are. X X seem to of we closer XXX% move get roughly should quarter generation or of a see to of forward? a some earnings have number supply where land going generation will solid think you cash target

Jeff Kaminski

inventory PACE running. company view, we're an one the have view on We focus the are we're the up of from high typically, what turn. in inventory point communities out tops the we the once on communities that the with of from there, And asset our Right. industry and of efficiency relatively doing point of absorption mostly turning

us The as cash. efficiency times So as been a big really basis. in focused. has still earlier, mentioned operating Rob course, lot that's of margin goes. can it. if primary the as of can asset -- a don't reduction room and generator generate of some far just about we cash expansion we for And we of on to a the build we're business, that think a on that's us focus incremental some we're go-forward And there's And think that. cash on top lot achieve generate that's where for

as monetization on very sheet. on and The is can continue carefully is outlook So thing to based nice for us from shareholder-friendly cash a flow the on driver, and capital, allocate I we'll would which one condition I for term land focus it forward of it's we balance very think capital point better. important. us allocation sheet more Big cash our in been particularly really today, as balance our view. leverage in with don't to ever

for a that's So favorable as us well. big

Operator

with of comes the Our America. next of question Bank Rafe line Jadrosich from

Rafe Jadrosich

cost First, that I bit. mentioned come just direct wanted down little you to had -- a

you going cost Can direct are And forward You've seen the also, seeing land some the on outlook opportunity. side? inflation on today then you what talk about

Jeffrey Mezger

right your that's Rob, alley. up

Rob McGibney

Okay.

be It's that's trade of And simple the seeing a look whether still out working ongoing to got So to we in the we've got value down. to think costs suppliers cost the but we've and San whether our We've we're and been on. relief at But the Direct, It introducing they're going to those terms get that yes, got we're of throughout I the just type we've it's offer a with to a affordable projects. rid the think models partners necessarily that and less offsets costs simplifying engineering and driving of elevation, for we're driving it rebidding, options based to homes, new that. Antonio, get an things in price not trying that. little home, getting things an from we've outside the of process, and example, from conditions in going may more elevated direct for as point, box-on-box like they're construction, our continue down more of like I are. overhangs some or simplified sequentially. driven market on busy opportunities come on and it's initiatives company effort on buyers of affordability better how

we'll continuing in I'm we're well of to on cost. expect more on that market what the and direct drive course, lower take give terms cost just see everything the there question opportunity sorry, decreases real summit the that of rebidding to as was And cost us I So coming. land negotiating side will

Rafe Jadrosich

of you're what cost today, land seeing level in [indiscernible]. Just and inflation of terms what

Rob McGibney

Well, there's of an in ongoing most our markets. land grab

in back we it saw down So from that, what cost. and the land say raw definitely puts slowed stabilized and pressure some 'XX development certainly both 'XX. on and that's side I'd the

a that's level. land cost, I higher So on stabilized, the they've side stabilized the generally development now of say but -- at would on

So us. incorporating we're make lot revenue, into we're deals percentage higher yes, our see to we sense that overall doing necessarily do as of that a land not between all And land development, but and of our cost, only underwriting.

down, good So that deal or up forward. as we underwriting hurdles, land move the costs still maybe feel got something do we portfolio about sure to each we hits but just else has direct making process talked our focused the like about, going and go on that's and our

Rafe Jadrosich

second the And we think two the just versus spec now? do differential between then mix question your margin segments? right about where how is And is BTO

Rob McGibney

we've to terms of drop and probably we like range. to the in had, and we we XX-XX do our we see to been like historical for more which It's what on themselves, and sales, home more a we're -- of roughly get That's down BTO a the that home primary it's margins XX-XX. off So focus. expect keep is ratio in selling XX-XX. higher the the reasons come closer somebody when personalizing is that And one that

doing. and we're to continue that's what business going is selling model primary Our homes, personalized

Operator

from Our comes Trevor Wolfe with question next Allinson Research. line of the

Unknown Analyst

want Alan's on regarding your bank. land question follow to up I

several you is -- percentage a recently? Or towards these option levels higher stay has at you've XX% timing? that lot quarters. over different option or that function the last near jumped has a expect couple there there? the gravitate Your of your And really just of do next approach Is to been quarters been that of kind level back

Jeffrey Mezger

Land on deal can't. it is can love touched some Rob markets and you some you option the fact most And rolling the markets do on in every you'd buy to in competitive. we're Trevor, of very a that

a a as at movement, investing And percentage we're our of seeing phased go half buy within is and to to And above. I grow I But phased can up bigger growth where that option also We're a of our XX share. takedowns, would of platform the with option a takedown from buying time, business months going create it both half may out. percentage it now of you over growth you deals. successful look more all in it. as purchases the bulk today. it's see we mission lot been We're have our deals and primary and right today seeing think more where We capture the our we're is it some more you'll our little more say

Unknown Analyst

like Clearly, makes order lot Florida few a in of a an Yes, little have looks second standpoint, geography. last lot on the sense. gotten a from And Texas was and question then attention months of overall improved it to maybe the demand central your about bit for how and quarter-over-quarter company a and Southeast but Florida Texas throughout the business trended the only to sequentially, has softer be how quarter average, relative you it guys down that overall? compares the modestly

Jeffrey Mezger

Rob?

Rob McGibney

talked a and little resale about the it -- Yes, we inventory. was

where is example, average, Jacksonville, look approaching historical supply longer-term than the inventory, like months an X up you it's which it months the at it's of now, market got market. resale about we've and more division a really give year-over-year. I is X.X by to Just

more that is a Florida there of think pressure on Orlando factor was is the markets And there got. that we've some resales. So similar, from I

August. that make some have in. to seen the were did those our lift move at that we looked effective the pace, those bounced we have to we we've in sales prices And lower as been So needed fairly sales of that and back areas

if approach different those and point. competitor, from too, a It's find buyer a Antonio of say, to taken taken both bigger We've seen steps would I as market. we've But Austin San as up. back And start become markets, Texas, we've to far resale is there. inventory price you similar climb to similar, go profile. really the

week that sales certain with in where and into on And headed communities. month continuing of included saw it prices of with lowering in back, again, then Some each we're things and August, September. come pleased improving the

we're and also strong September, our really traffic. As we activity early on look seeing leads at

So through here us quarter. as good optimism we fourth it the look gives

Operator

KBW. the from Rahmani comes of Jade with question next Our line

Jade Rahmani

for target to say, pace you're what on X.X%. Could and you comment Absorption your what expecting, dipped is just next year?

Jeffrey Mezger

this answered earlier along Sure. question I could have Stephen's line.

question. for the thanks So

we part And optimize X.X were at a the strong If that's it's illustration time in And early that take really the you back we're hold to we X, the when springtime. of pace. asset, the have to minimum. over about X you price year, found an balance at markets look have month the going 'XX at the price, what -- were in month is a and

lot we've you'll or a And So let you or some what steps large take position to X at the done to run a of it do even communities. if you our X X. like that's in easily submarket in get have X replenishable, you -- it's

where we've we're the headed. we in we're market run day been around look at as at volatility some on end based month So and demand, X where we're real right the year, at to navigating a of this going and

But ceiling, a that's that's floor. a certainly not

So us given I think improve, its own that range stated lift above though. the in see if story community you'd the to X%. is markets the sorry, got we've were I'm we'll average every has

Jade Rahmani

honing demand market? you quarter that's largest in would your since how on saw in California, characterize you the And the trends

Jeffrey Mezger

Rob, do you want to that? handle

Rob McGibney

for us. Yes. strong It's has California -- been

to for strongest It's has a California and a terms California really in pleased to divisions Southern of demand been do Inland kept continues our I add don't has that. They in story on with very QX chucking of done good lot Empire our in sales. overall, well. been have us. to one well.

Operator

of line with Susan from the final And Maklari Sachs. comes our question Goldman

Susan Maklari

about The today? step perhaps think decision-making candidates? attention willingness a their how Do election, buyer both having process of these My first into on to that, is an question and the effect sentiment. having from people's you more gotten that's market lot

Jeffrey Mezger

sides That's us. doing Susan, housing. both hear about help it's Well, encouraging for pleasing, talking to things to

Our industry continues to underbuild.

an that navigating industry help. anything and do that have affordability as issues real can We they a would be we're

it all be a when relocating changing, things thing. them buying up things, a dealing those retire. The has it's they are a Most time married, decision. baby, catch they And consumer life with. would lot of home that getting make triggers if having of promotion, there demotion good whether we're that whatever structural will to some are still because a we frankly, ever some take do, up, So catch

all drive And all going home those have to All been need those on change things ownership. the year. your

rates of So I think there peak pause was would and traffic something does something, visits because community. interest necessarily leads at for human in as slid, to favorable. being Everything rates think nature Fed somebody's platform of but think now very right was or But the we that's what not helpful, consumer went out reaction an the they're thought up, the instant later, the driver -- now And went either the don't if sooner be move August, of the have. to think I decisions and where interest almost will saw with just principal stuck, things, the were I made. a up, side they everybody they I a And that's it housing. think I for month going do it's

Susan Maklari

Yes.

on Okay. studios. last That's helpful the And one color. then just design question

outlook thinking and options demand fourth picking through for and people and the spending in about the year. quarter that that are things the As saw the side noted the on we they're studios? design the Any even next changes the and and the you movements in there into amount

Jeffrey Mezger

really spending the static. spending years. But we what couple keep the are hasn't of and buyers pretty percentage sharing It's the they're been in moved that on price a

Operator

teleconference. And question-and-answer you. conclude your participation. ladies today's you for Thank the concludes and and also does gentlemen, Thank this that session,

You may disconnect. now

KB Home (KBH) 24 Sep 242024 Q3 Earnings call transcript