Revenues Grew 33% to $1.08 Billion Diluted
Earnings Per Share More Than Doubled to $.63 Net Orders Rose 31%;
Net Order Value Increased 35%; Backlog Value Expanded 28%
KB Home (NYSE: KBH) today reported results for its first quarter
ended February 29, 2020.
“Our principal focus today is the concern for the health and
welfare of our employees, customers and business partners, and
their families, in light of the wide-ranging efforts to contain
COVID-19 and the impact it will have on the global economy. While
our performance in the first quarter was strong, with underlying
market conditions that were robust, these results preceded the
COVID-19 pandemic declaration, and we are now taking actions to
adjust our business in this period of uncertainty,” said Jeffrey
Mezger, Chairman, President and Chief Executive Officer.
“KB Home is well positioned given our strong balance sheet and
over $1.2 billion in liquidity,” continued Mezger. “With our
Built-to-Order model, we are flexible in aligning our business to
demand and building to our sales pace, mitigating inventory risk.
With that foundation, we are diligently managing our operations
with a focus on being both prudent and strategic with our cash
resources. While we continue to close homes and generate revenues,
we are also taking steps to curtail land acquisition and
development until circumstances become more stabilized. We have a
long-tenured, hands-on team that is experienced in navigating
changing market conditions, which will help guide our actions in
this challenging environment.”
Three Months Ended February 29, 2020
(comparisons on a year-over-year basis)
- Revenues increased 33% to $1.08 billion, the highest revenues
for any first quarter since 2007.
- Homes delivered grew 28% to 2,752, with increases in all four
of the Company’s regions.
- Average selling price rose 5% to $389,500.
- Homebuilding operating income increased 92% to $60.2 million.
Homebuilding operating income margin improved 170 basis points to
5.6%. Excluding inventory-related charges of $5.7 million in the
quarter and $3.6 million in the year-earlier quarter, this metric
was 6.1%, compared to 4.3%.
- Housing gross profit margin improved 30 basis points to 17.4%.
Excluding inventory-related charges, housing gross profit margin
increased to 17.9% from 17.6%.
- The housing gross profit margin expansion primarily reflected
the favorable impacts of improved operating leverage due to higher
housing revenues, and lower relative amortization of previously
capitalized interest, which were partly offset by a mix shift of
homes delivered.
- Adjusted housing gross profit margin, a metric that excludes
inventory-related charges and the amortization of previously
capitalized interest, was 21.1%, compared to 21.3%.
- Selling, general and administrative expenses as a percentage of
housing revenues improved 160 basis points to 11.8%, largely due to
increased operating leverage from higher housing revenues.
- The Company's financial services operations generated pretax
income of $5.8 million, up from $2.5 million, mainly reflecting
higher income from its mortgage banking joint venture, KBHS Home
Loans, LLC (KBHS).
- KBHS originated 71% of the residential mortgage loans the
Company’s homebuyers obtained to finance their home purchase,
compared to 64%.
- Total pretax income nearly doubled to $68.8 million.
- The Company’s income tax expense was $9.1 million, compared to
$4.5 million. For each period, the effective tax rate, inclusive of
excess tax benefits from stock-based compensation and other
favorable impacts, was approximately 13%.
- Net income increased 99% to $59.7 million, and diluted earnings
per share increased 103% to $.63.
Backlog and Net Orders (comparisons on
a year-over-year basis)
- Net orders increased 31% to 3,495, the highest first-quarter
level since 2007, with net order value up 35% to $1.38 billion. Net
orders and net order value increased in all four of the Company’s
regions.
- Company-wide, net orders per community averaged 4.6 per month,
compared to 3.7.
- The cancellation rate as a percentage of gross orders improved
to 14% from 20%.
- The Company’s ending backlog rose 26% to 5,821 homes. Ending
backlog value grew 28% to $2.12 billion, compared to $1.66 billion,
reflecting increases in all four regions. Both metrics reached
their highest first-quarter levels in 13 years.
- Average community count for the quarter rose 3% to 251. Ending
community count of 250 was up slightly.
Balance Sheet as of February 29, 2020
(comparisons to November 30, 2019)
- Cash and cash equivalents totaled $429.7 million, compared to
$453.8 million.
- The Company had total liquidity of $1.22 billion, including
cash and cash equivalents and $787.6 million of available capacity
under its unsecured revolving credit facility. There were no cash
borrowings outstanding under the facility.
- Inventories increased slightly to $3.73 billion.
- Lots owned or under contract decreased slightly to 63,234,
reflecting fewer optioned lots. Approximately 62% of the total lots
were owned and 38% were under contract.
- The Company’s 39,033 owned lots represented an approximately
3.1 years’ supply based on homes delivered in the trailing 12
months.
- Notes payable of $1.75 billion were essentially unchanged.
- The Company’s debt to capital ratio of 41.7% improved 60 basis
points. The Company’s net debt to capital ratio was 35.1%,
essentially unchanged.
- In January 2020, Standard and Poor’s Financial Services
upgraded the Company’s credit rating to BB from BB-, and changed
its rating outlook to stable from positive.
- The Company’s next scheduled debt maturity is on December 15,
2021, when $450.0 million in aggregate principal amount of its
7.00% senior notes become due.
- Stockholders’ equity increased to $2.44 billion from $2.38
billion.
- Book value per share increased to $27.01.
Note Relating to 2020
Guidance
In light of the uncertainty surrounding the spread of COVID-19
and the unprecedented public health and governmental efforts to
contain it, management has withdrawn guidance for its 2020 fiscal
year. Through its experienced leadership team, and supported by a
solid balance sheet and significant liquidity, the Company
continues to engage with customers who maintain a strong desire for
homeownership, deliver homes and generate revenues, while working
closely with its business partners and monitoring cash outflows to
position the Company to navigate through this evolving operating
environment.
Earnings Conference Call
The conference call to discuss the Company’s 2020 first quarter
earnings will be broadcast live TODAY at 2:00 p.m. Pacific Time,
5:00 p.m. Eastern Time. To listen, please go to the Investor
Relations section of the Company’s website at kbhome.com.
About KB Home
KB Home (NYSE: KBH) is one of the largest and most recognized
homebuilders in the United States and has been building quality
homes for over 60 years. Today, KB Home operates in 42 markets
across eight states, serving a wide array of buyer groups. What
sets us apart is how we give our customers the ability to
personalize their homes from homesites and floor plans to cabinets
and countertops, at a price that fits their budget. We are the
first builder to make every home we build ENERGY STAR® certified.
In fact, we go beyond the EPA requirements by ensuring every ENERGY
STAR certified KB home has been tested and verified by a
third-party inspector to meet the EPA’s strict certification
standards, which helps lower the cost of ownership. We also work
with our customers every step of the way, building strong personal
relationships so they have a real partner in the homebuying
process, and the experience is as simple and easy as possible.
Learn more about how we build homes built on relationships by
visiting kbhome.com.
Forward-Looking and Cautionary
Statements
Certain matters discussed in this press release, including any
statements that are predictive in nature or concern future market
and economic conditions, business and prospects, our future
financial and operational performance, or our future actions and
their expected results are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on current expectations and
projections about future events and are not guarantees of future
performance. We do not have a specific policy or intent of updating
or revising forward-looking statements. Actual events and results
may differ materially from those expressed or forecasted in
forward-looking statements due to a number of factors. The most
important risk factors that could cause our actual performance and
future events and actions to differ materially from such
forward-looking statements include, but are not limited to the
following: general economic, employment and business conditions;
population growth, household formations and demographic trends;
conditions in the capital, credit and financial markets; our
ability to access external financing sources and raise capital
through the issuance of common stock, debt or other securities,
and/or project financing, on favorable terms; the execution of any
share repurchases pursuant to our board of directors’
authorization; material and trade costs and availability; changes
in interest rates; our debt level, including our ratio of debt to
capital, and our ability to adjust our debt level and maturity
schedule; our compliance with the terms of our revolving credit
facility; volatility in the market price of our common stock; weak
or declining consumer confidence, either generally or specifically
with respect to purchasing homes; competition from other sellers of
new and resale homes; weather events, significant natural disasters
and other climate and environmental factors; any failure of
lawmakers to agree on a budget or appropriation legislation to fund
the federal government’s operations, and financial markets’ and
businesses’ reactions to that failure; government actions,
policies, programs and regulations directed at or affecting the
housing market (including the tax benefits associated with
purchasing and owning a home, and the standards, fees and size
limits applicable to the purchase or insuring of mortgage loans by
government-sponsored enterprises and government agencies), the
homebuilding industry, or construction activities; changes in
existing tax laws or enacted corporate income tax rates, including
those resulting from regulatory guidance and interpretations issued
with respect thereto; changes in U.S. trade policies, including the
imposition of tariffs and duties on homebuilding materials and
products, and related trade disputes with and retaliatory measures
taken by other countries; the adoption of new or amended financial
accounting standards and the guidance and/or interpretations with
respect thereto; the availability and cost of land in desirable
areas and our ability to timely develop acquired land parcels and
open new home communities; our warranty claims experience with
respect to homes previously delivered and actual warranty costs
incurred; costs and/or charges arising from regulatory compliance
requirements or from legal, arbitral or regulatory proceedings,
investigations, claims or settlements, including unfavorable
outcomes in any such matters resulting in actual or potential
monetary damage awards, penalties, fines or other direct or
indirect payments, or injunctions, consent decrees or other
voluntary or involuntary restrictions or adjustments to our
business operations or practices that are beyond our current
expectations and/or accruals; our ability to use/realize the net
deferred tax assets we have generated; our ability to successfully
implement our current and planned strategies and initiatives
related to our product, geographic and market positioning, gaining
share and scale in our served markets and in entering into new
markets; our operational and investment concentration in markets in
California; consumer interest in our new home communities and
products, particularly from first-time homebuyers and higher-income
consumers; our ability to generate orders and convert our backlog
of orders to home deliveries and revenues, particularly in key
markets in California; our ability to successfully implement our
business strategies and achieve any associated financial and
operational targets and objectives; income tax expense volatility
associated with stock-based compensation; the ability of our
homebuyers to obtain residential mortgage loans and mortgage
banking services; the performance of mortgage lenders to our
homebuyers; the performance of KBHS, our mortgage banking joint
venture with Stearns Ventures, LLC; information technology failures
and data security breaches; an epidemic or pandemic (such as the
outbreak and worldwide spread of COVID-19), and the measures that
international, federal, state and local governments, agencies, law
enforcement and/or health authorities implement to address it,
which may (as with COVID-19) precipitate or exacerbate one or more
of the above-mentioned and/or other risks; and other events outside
of our control. Please see our periodic reports and other filings
with the Securities and Exchange Commission for a further
discussion of these and other risks and uncertainties applicable to
our business.
KB HOME
CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Three Months Ended
February 29, 2020 and February 28, 2019
(In Thousands, Except Per Share
Amounts - Unaudited)
Three Months Ended
February 29, 2020
February 28, 2019
Total revenues
$
1,075,935
$
811,483
Homebuilding:
Revenues
$
1,072,382
$
808,788
Costs and expenses
(1,012,187
)
(777,449
)
Operating income
60,195
31,339
Interest income
935
1,105
Equity in income (loss) of unconsolidated
joint ventures
1,905
(406
)
Homebuilding pretax income
63,035
32,038
Financial services:
Revenues
3,553
2,695
Expenses
(962
)
(1,024
)
Equity in income of unconsolidated joint
ventures
3,222
802
Financial services pretax income
5,813
2,473
Total pretax income
68,848
34,511
Income tax expense
(9,100
)
(4,500
)
Net income
$
59,748
$
30,011
Earnings per share:
Basic
$
.66
$
.34
Diluted
$
.63
$
.31
Weighted average shares
outstanding:
Basic
89,842
86,972
Diluted
94,205
96,962
KB HOME
CONSOLIDATED BALANCE
SHEETS
(In Thousands - Unaudited)
February 29, 2020
November 30, 2019
Assets
Homebuilding:
Cash and cash equivalents
$
429,706
$
453,814
Receivables
297,215
249,055
Inventories
3,728,616
3,704,602
Investments in unconsolidated joint
ventures
57,147
57,038
Property and equipment, net
64,453
65,043
Deferred tax assets, net
312,166
364,493
Other assets
129,719
83,041
5,019,022
4,977,086
Financial services
33,812
38,396
Total assets
$
5,052,834
$
5,015,482
Liabilities and stockholders’
equity
Homebuilding:
Accounts payable
$
236,981
$
262,772
Accrued expenses and other liabilities
621,558
618,783
Notes payable
1,749,148
1,748,747
2,607,687
2,630,302
Financial services
2,043
2,058
Stockholders’ equity
2,443,104
2,383,122
Total liabilities and stockholders’
equity
$
5,052,834
$
5,015,482
KB HOME
SUPPLEMENTAL
INFORMATION
For the Three Months Ended
February 29, 2020 and February 28, 2019
(In Thousands, Except Average
Selling Price - Unaudited)
Three Months Ended
February 29, 2020
February 28, 2019
Homebuilding revenues:
Housing
$
1,071,810
$
798,171
Land
572
10,617
Total
$
1,072,382
$
808,788
Homebuilding costs and
expenses:
Construction and land costs
Housing
$
885,481
$
661,328
Land
572
9,527
Subtotal
886,053
670,855
Selling, general and administrative
expenses
126,134
106,594
Total
$
1,012,187
$
777,449
Interest expense:
Interest incurred
$
30,962
$
34,788
Interest capitalized
(30,962
)
(34,788
)
Total
$
—
$
—
Other information:
Amortization of previously capitalized
interest
$
34,575
$
30,547
Depreciation and amortization
7,929
7,914
Average selling price:
West Coast
$
610,200
$
607,500
Southwest
316,400
326,400
Central
292,900
285,000
Southeast
292,000
298,100
Total
$
389,500
$
370,900
KB HOME
SUPPLEMENTAL
INFORMATION
For the Three Months Ended
February 29, 2020 and February 28, 2019
(Dollars in Thousands -
Unaudited)
Three Months Ended
February 29, 2020
February 28, 2019
Homes delivered:
West Coast
794
497
Southwest
603
483
Central
968
824
Southeast
387
348
Total
2,752
2,152
Net orders:
West Coast
979
699
Southwest
765
533
Central
1,217
926
Southeast
534
517
Total
3,495
2,675
Net order value:
West Coast
$
598,416
$
420,461
Southwest
257,220
170,839
Central
373,481
284,266
Southeast
153,537
146,521
Total
$
1,382,654
$
1,022,087
February 29, 2020
February 28, 2019
Homes
Value
Homes
Value
Backlog data:
West Coast
1,228
$
712,218
917
$
533,076
Southwest
1,400
456,024
976
315,797
Central
2,237
680,904
1,816
537,351
Southeast
956
275,405
922
272,060
Total
5,821
$
2,124,551
4,631
$
1,658,284
KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
(In Thousands, Except Percentages and Per Share
Amounts - Unaudited)
This press release contains, and Company management’s discussion
of the results presented in this press release may include,
information about the Company’s adjusted housing gross profit
margin and ratio of net debt to capital, neither of which is
calculated in accordance with generally accepted accounting
principles (“GAAP”). The Company believes these non-GAAP financial
measures are relevant and useful to investors in understanding its
operations and the leverage employed in its operations, and may be
helpful in comparing the Company with other companies in the
homebuilding industry to the extent they provide similar
information. However, because they are not calculated in accordance
with GAAP, these non-GAAP financial measures may not be completely
comparable to other companies in the homebuilding industry and,
thus, should not be considered in isolation or as an alternative to
operating performance and/or financial measures prescribed by GAAP.
Rather, these non-GAAP financial measures should be used to
supplement their respective most directly comparable GAAP financial
measures in order to provide a greater understanding of the factors
and trends affecting the Company’s operations.
Adjusted Housing Gross Profit
Margin
The following table reconciles the Company’s housing gross
profit margin calculated in accordance with GAAP to the non-GAAP
financial measure of the Company’s adjusted housing gross profit
margin:
Three Months Ended
February 29, 2020
February 28, 2019
Housing revenues
$
1,071,810
$
798,171
Housing construction and land costs
(885,481
)
(661,328
)
Housing gross profits
186,329
136,843
Add: Inventory-related charges (a)
5,672
3,555
Housing gross profits excluding
inventory-related charges
192,001
140,398
Add: Amortization of previously
capitalized interest (b)
34,575
29,986
Adjusted housing gross profits
$
226,576
$
170,384
Housing gross profit margin
17.4
%
17.1
%
Housing gross profit margin excluding
inventory-related charges
17.9
%
17.6
%
Adjusted housing gross profit margin
21.1
%
21.3
%
(a) Represents inventory impairment and land option contract
abandonment charges associated with housing operations.
(b) Represents the amortization of previously capitalized
interest associated with housing operations.
Adjusted housing gross profit margin is a non-GAAP financial
measure, which the Company calculates by dividing housing revenues
less housing construction and land costs excluding (1) housing
inventory impairment and land option contract abandonment charges
(as applicable) recorded during a given period and (2) amortization
of previously capitalized interest associated with housing
operations, by housing revenues. The most directly comparable GAAP
financial measure is housing gross profit margin. The Company
believes adjusted housing gross profit margin is a relevant and
useful financial measure to investors in evaluating the Company’s
performance as it measures the gross profits the Company generated
specifically on the homes delivered during a given period. This
non-GAAP financial measure isolates the impact that housing
inventory impairment and land option contract abandonment charges,
and the amortization of previously capitalized interest associated
with housing operations, have on housing gross profit margins, and
allows investors to make comparisons with the Company’s competitors
that adjust housing gross profit margins in a similar manner. The
Company also believes investors will find adjusted housing gross
profit margin relevant and useful because it represents a
profitability measure that may be compared to a prior period
without regard to variability of housing inventory impairment and
land option contract abandonment charges, and amortization of
previously capitalized interest associated with housing operations.
This financial measure assists management in making strategic
decisions regarding community location and product mix, product
pricing and construction pace.
Ratio of Net Debt to
Capital
The following table reconciles the Company’s ratio of debt to
capital calculated in accordance with GAAP to the non-GAAP
financial measure of the Company’s ratio of net debt to
capital:
February 29, 2020
November 30, 2019
Notes payable
$
1,749,148
$
1,748,747
Stockholders’ equity
2,443,104
2,383,122
Total capital
$
4,192,252
$
4,131,869
Ratio of debt to capital
41.7
%
42.3
%
Notes payable
$
1,749,148
$
1,748,747
Less: Cash and cash equivalents
(429,706
)
(453,814
)
Net debt
1,319,442
1,294,933
Stockholders’ equity
2,443,104
2,383,122
Total capital
$
3,762,546
$
3,678,055
Ratio of net debt to capital
35.1
%
35.2
%
The ratio of net debt to capital is a non-GAAP financial
measure, which the Company calculates by dividing notes payable,
net of homebuilding cash and cash equivalents, by capital (notes
payable, net of homebuilding cash and cash equivalents, plus
stockholders’ equity). The most directly comparable GAAP financial
measure is the ratio of debt to capital. The Company believes the
ratio of net debt to capital is a relevant and useful financial
measure to investors in understanding the leverage employed in the
Company’s operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200326005630/en/
Jill Peters, Investor Relations Contact (310) 893-7456 or
jpeters@kbhome.com Cara Kane, Media Contact (321) 299-6844 or
ckane@kbhome.com
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