Revenues Increase 29% to $580
Million
Net Income of $8 Million or $.08 Per Diluted
Share
Net Order Value Up 25% to $753 Million;
Backlog Value Up 30% to $1.1 Billion
KB Home (NYSE: KBH), one of the nation’s largest and most
recognized homebuilders, today reported results for its first
quarter ended February 28, 2015. Highlights and developments
include the following:
Three Months Ended February 28,
2015
- Total revenues of $580.1 million rose
29% from $450.7 million in the year-earlier quarter, driven by
growth in the Company’s housing and land sale revenues. The
Company’s total revenues have increased on a year-over-year basis
for 14 consecutive quarters.
- Housing revenues grew 19% to $524.8
million in the current quarter from $440.1 million for the
corresponding quarter of 2014. The Company delivered 1,593 homes in
the first quarter, representing an increase of 10% from 1,442 homes
delivered in the year-earlier quarter.
- The overall average selling price of
homes delivered grew 8% to $329,500, up from $305,200 a year ago,
reflecting a shift in the geographic mix of deliveries and
generally favorable conditions in the Company’s served markets.
* Average selling prices in the Company’s West Coast, Central
and Southeast homebuilding regions increased 5%, 13% and 3%,
respectively, compared to the same quarter of 2014, while the
average selling price in its Southwest homebuilding region
decreased 4%.
- Land sale revenues increased to $53.0
million from $8.1 million a year ago, primarily due to the
Company’s current quarter sale of a large parcel in northern
California as part of its strategic emphasis on enhancing asset
efficiency by executing on targeted opportunities to monetize
certain land positions.
- Homebuilding operating income totaled
$14.4 million, compared to $17.7 million in the year-earlier
quarter. The current quarter included a $6.0 million gain on the
sale of land, compared to a $1.0 million gain in the prior-year
quarter.
- The Company’s housing gross profit
margin decreased 260 basis points to 15.1% from 17.7% in the
year-earlier quarter. Excluding the amortization of previously
capitalized interest and land option contract abandonment charges
in each period, the Company’s first quarter adjusted housing gross
profit margin was 19.5% in 2015 and 21.8% in 2014.
- The year-over-year decline in the
housing gross profit margin was primarily due to higher land and
construction costs, start-up field costs associated with new home
community openings, competitive pricing pressures, and the
close-out of certain higher margin communities within the Company’s
West Coast homebuilding region in the latter part of 2014.
- Selling, general and administrative
expenses as a percentage of housing revenues improved 40 basis
points to 13.5% from 13.9% in the year-earlier quarter even as the
Company increased staffing levels during the current quarter to
support community count growth and a higher number of deliveries
anticipated in the second half of 2015.
- Interest expense decreased to $5.3
million from $11.3 million in the year-earlier quarter due to an
increase in the amount of the Company’s inventory qualifying for
interest capitalization in the current quarter, partly offset by an
increase in interest incurred.
- Financial services operations generated
pretax income of $1.7 million in the current quarter and $1.6
million in the year-earlier quarter. The current quarter results
included $.4 million of pretax income from Home Community Mortgage,
LLC, the Company’s mortgage banking joint venture with Nationstar
Mortgage LLC that commenced operations in July 2014.
- The Company’s total pretax income of
$10.5 million for the first quarter of 2015 was nearly even with
$10.8 million for the year-earlier period.
- The 2014 first quarter included a gain
of $3.2 million on the sale of the Company’s interest in an
unconsolidated joint venture.
- Net income for the current quarter
totaled $7.8 million, or $.08 per diluted share, compared to $10.6
million, or $.12 per diluted share, for the first quarter of 2014.
- Income tax expense of $2.7 million for
the current quarter reflected the favorable impact of $1.4 million
of federal energy tax credits the Company earned from building
high-efficiency homes, resulting in an effective tax rate of
approximately 26%. The year-earlier quarter included income tax
expense of $.2 million.
Backlog and Net Orders
- Potential future housing revenues in
backlog rose 30% to $1.11 billion at February 28, 2015 from
$851.6 million at February 28, 2014.
- The Company’s backlog at
February 28, 2015 was comprised of 3,505 homes, up 22% from
2,880 homes in backlog at February 28, 2014.
- The number of homes in backlog and
corresponding backlog value at February 28, 2015 reached their
highest first-quarter levels since 2008.
- Net order value rose 25% to $753.2
million, up from $600.2 million in the year-earlier quarter,
marking the Company’s 12th straight quarter of year-over-year
increases.
- All four of the Company’s homebuilding
regions posted year-over-year growth in net order value, ranging
from 6% in the West Coast homebuilding region to 125% in the
Southwest homebuilding region.
- In the Company's Central homebuilding
region, which primarily consists of its operations in Texas, net
order value was up 34% from a year ago.
- Net orders increased 24% from the
year-earlier quarter to 2,189, mainly due to the Company’s higher
average community count.
- The current quarter cancellation rate,
both as a percentage of gross orders and as a percentage of
beginning backlog, improved to 25% from 30% a year ago.
- The Company’s overall average community
count for the first quarter increased 22% to 231, up from 190 for
the year-earlier quarter.
- The Company ended the current quarter
with 235 communities open for sales, up 25% from 188 communities a
year ago.
Balance Sheet
- Cash, cash equivalents and restricted
cash increased to $573.6 million at February 28, 2015,
compared to $383.6 million at November 30, 2014, largely due to
proceeds received from a senior notes offering completed in the
current quarter, partly offset by cash used in operating
activities.
- The Company had no borrowings
outstanding under its $200 million unsecured revolving credit
facility at February 28, 2015.
- Inventories of $3.25 billion at
February 28, 2015 were essentially even with the $3.22 billion
at November 30, 2014.
- The Company’s investments in land
acquisition and development totaled $201.6 million for the first
quarter of 2015 and $354.3 million for the corresponding quarter of
2014.
- Notes payable of $2.82 billion at
February 28, 2015 rose from $2.58 billion at November 30, 2014,
mainly reflecting the Company’s current-quarter underwritten public
issuance of $250 million in aggregate principal amount of 7.625%
senior notes due 2023.
- The Company currently plans to use a
portion of the net proceeds from the issuance to repay $199.9
million in aggregate principal amount of its 6 1/4% senior notes at
their maturity on June 15, 2015.
- The Company’s ratio of debt to capital
was 63.8% as of February 28, 2015 compared to 61.8% as of November
30, 2014. The ratio of net debt to capital was 58.4% at February
28, 2015 and 57.9% at November 30, 2014.
Management Comments
“We are pleased with the robust growth in our first quarter net
orders, net order value and backlog levels, which was fueled
primarily by our expanded community count and healthy buyer
demand,” said Jeffrey Mezger, president and chief executive
officer. “Having successfully opened 32 new home communities across
our geographic footprint, we ended the quarter with 25% more active
communities than we had a year ago, positioning us well as we enter
the spring selling season and setting the foundation for a strong
finish to 2015. With our expanding community count, we are poised
to generate further momentum in our business and prepared to
capture pent-up demand for housing as it is unlocked by improvement
in fundamental demographic, economic and housing market
dynamics.”
“We extended our positive revenue growth trajectory during the
quarter, driven by increases in both the number of homes delivered
and the average selling price compared to a year ago,” continued
Mezger. “As we anticipated, our housing gross profit margin was
tempered in the quarter; however, with our rising community count
providing a strong start entering the spring selling season and the
leverage benefits we are anticipating from projected higher
revenues, we expect to produce sequential margin improvement in
each of the remaining quarters of 2015, and to significantly narrow
the year-over-year gap in our gross margin percentage by the end of
the year. Moreover, as the year unfolds, we also anticipate
accelerated growth in our revenues as well as greater operating
leverage to bolster our bottom-line performance. We believe that
further progress on the execution of our strategies to enhance our
top-line growth, profitability, asset efficiency and return on
invested capital will be a catalyst that, along with the benefits
of our larger community count, will enable us to deliver strong
financial and operational results in the second half of this
year.”
Earnings Conference Call
The conference call on the first quarter 2015 earnings will be
broadcast live TODAY at 8:30 a.m. Pacific Daylight Time, 11:30 a.m.
Eastern Daylight Time. To listen, please go to the Investor
Relations section of the Company’s website at www.kbhome.com.
About KB Home
KB Home is one of the largest and most recognized homebuilding
companies in the United States. Since its founding in 1957, the
company has built more than half a million quality homes. KB Home's
unique homebuilding approach lets each buyer customize their new
home from lot location to floor plan and design features. As a
leader in utilizing state-of-the-art sustainable building
practices, all KB homes are highly energy efficient and meet strict
ENERGY STAR® guidelines. This helps to lower monthly utility costs
for homeowners, which the company demonstrates with its proprietary
KB Home Energy Performance Guide® (EPG®). KB Home has been named an
ENERGY STAR Partner of the Year Sustained Excellence Award winner
for four straight years and a WaterSense® Partner of the Year for
four consecutive years. A FORTUNE 1,000 company, Los Angeles-based
KB Home was the first homebuilder listed on the New York Stock
Exchange, and trades under the ticker symbol "KBH." For more
information about KB Home, call 888-KB-HOMES, visit www.kbhome.com, or connect with KB Home on
Facebook.com/KBHome and Twitter.com/KBHome.
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;
adverse market conditions, including an increased supply of unsold
homes, declining home prices and greater foreclosure and short sale
activity, among other things, that could negatively affect our
consolidated financial statements, including due to additional
impairment or land option contract abandonment charges, lower
revenues and operating and other losses; conditions in the capital,
credit and financial markets (including residential mortgage
lending standards, the availability of residential mortgage
financing and mortgage foreclosure rates); material prices and
availability; subcontracted trade labor costs and availability;
changes in interest rates; inflation; our debt level, including our
ratio of debt to capital, and our ability to adjust our debt level,
maturity schedule and structure and to access the equity, credit,
capital or other financial markets or other external financing
sources, including raising capital through the public or private
issuance of common stock, debt or other securities, and/or project
financing, on favorable terms; our compliance with the terms and
covenants of our revolving credit facility; weak or declining
consumer confidence, either generally or specifically with respect
to purchasing homes; competition for home sales from other sellers
of new and resale homes, including lenders and other sellers of
homes obtained through foreclosures or short sales; weather
conditions, significant natural disasters and other environmental
factors; government actions, policies, programs and regulations
directed at or affecting the housing market (including the
Dodd-Frank Act, tax credits, tax incentives and/or subsidies for
home purchases, tax deductions for residential mortgage interest
payments and property taxes, tax exemptions for profits on home
sales, programs intended to modify existing mortgage loans and to
prevent mortgage foreclosures 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; decisions
regarding federal fiscal and monetary policies, including those
relating to taxation, government spending, interest rates and
economic stimulus measures; the availability and cost of land in
desirable areas; our warranty claims experience with respect to
homes previously delivered and actual warranty costs incurred,
including our warranty claims and costs experience at certain of
our communities in Florida; legal or regulatory proceedings or
claims; 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 with respect to product,
geographic and market positioning (including our efforts to expand
our inventory base/pipeline with desirable land positions or
interests at reasonable cost and to expand our community count,
open additional new home communities for sales, sell higher-priced
homes and more design options, increase the size and value of our
backlog, and our operational and investment concentration in
markets in California), revenue growth, asset optimization
(including by effectively balancing home sales prices and sales
pace in our new home communities), asset activation and/or
monetization, local field management and talent investment,
containing and leveraging overhead costs, gaining share in our
served markets and increasing our housing gross profit margins and
profitability; consumer traffic to our new home communities and
consumer interest in our product designs and offerings,
particularly from higher-income consumers; cancellations and our
ability to realize our backlog by converting net orders to home
deliveries; our home sales and delivery performance, particularly
in key markets in California; our ability to generate cash from our
operations, enhance our asset efficiency, increase our operating
income margin and/or improve our return on invested capital; the
manner in which our homebuyers are offered and whether they are
able to obtain residential mortgage loans and mortgage banking
services, including from Home Community Mortgage; the performance
of Home Community Mortgage; information technology failures and
data security breaches; 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 28,
2015 and 2014
(In Thousands, Except Per Share Amounts —
Unaudited)
Three Months 2015 2014
Total revenues $
580,121 $ 450,687
Homebuilding: Revenues $
577,888 $ 448,267 Costs and expenses (563,490 ) (430,548 )
Operating income 14,398 17,719 Interest income 103 168 Interest
expense (5,338 ) (11,276 ) Equity in income (loss) of
unconsolidated joint ventures (347 ) 2,590 Homebuilding
pretax income 8,816 9,201
Financial services:
Revenues 2,233 2,420 Expenses (964 ) (852 ) Equity in income (loss)
of unconsolidated joint ventures 414 (6 ) Financial services
pretax income 1,683 1,562
Total pretax income
10,499 10,763 Income tax expense (2,700 ) (200 )
Net income
$ 7,799 $ 10,563
Earnings per share:
Basic $ .08 $ .13
Diluted $ .08
$ .12
Weighted average shares outstanding:
Basic 91,954 83,745
Diluted 101,700
93,946
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands — Unaudited)
February 28,2015
November 30,
2014
Assets Homebuilding: Cash and cash equivalents $
545,641 $ 356,366 Restricted cash 27,984 27,235 Receivables 143,697
125,488 Inventories 3,246,383 3,218,387 Investments in
unconsolidated joint ventures 73,502 79,441 Deferred tax assets,
net 822,632 825,232 Other assets 119,873 114,915 4,979,712
4,747,064
Financial services 10,145 10,486
Total
assets $ 4,989,857 $ 4,757,550
Liabilities and
stockholders’ equity Homebuilding: Accounts payable $
161,902 $ 172,716 Accrued expenses and other liabilities 397,245
409,882 Notes payable 2,824,170 2,576,525 3,383,317
3,159,123
Financial services 1,970 2,517
Stockholders’
equity 1,604,570 1,595,910
Total liabilities and
stockholders’ equity $ 4,989,857 $ 4,757,550
KB HOME SUPPLEMENTAL INFORMATION
For the Three Months Ended February 28,
2015 and 2014
(In Thousands, Except Average Selling
Price — Unaudited)
Three Months 2015 2014
Homebuilding revenues:
Housing $ 524,841 $ 440,127 Land 53,047 8,140 Total $
577,888 $ 448,267 Three Months 2015 2014
Homebuilding costs and expenses: Construction and land costs
Housing $ 445,383 $ 362,106 Land 47,035 7,168
Subtotal 492,418 369,274 Selling, general and administrative
expenses 71,072 61,274 Total $ 563,490 $
430,548 Three Months 2015 2014
Interest
expense: Interest incurred $ 45,003 $ 39,280 Interest
capitalized (39,665 ) (28,004 ) Total $ 5,338 $ 11,276
Three Months 2015 2014
Other information:
Depreciation and amortization $ 2,725 $ 2,067 Amortization of
previously capitalized interest 22,293 17,485
Three Months 2015 2014
Average selling price: West Coast $
550,600 $ 525,200 Southwest 274,800 286,400 Central 238,000 210,400
Southeast 264,200 256,300 Total $ 329,500 $
305,200
KB HOME SUPPLEMENTAL
INFORMATION
For the Three Months Ended February 28,
2015 and 2014
(Dollars in Thousands — Unaudited)
Three Months 2015 2014
Homes delivered:
West Coast 414 346 Southwest 237 161 Central 653 595 Southeast 289
340 Total 1,593 1,442 Three Months 2015 2014
Net orders: West Coast 552 506 Southwest 389 181 Central 870
757 Southeast 378 321 Total 2,189 1,765 Three
Months 2015 2014
Net order value: West Coast $ 317,557 $
299,283 Southwest 108,658 48,388 Central 227,043 168,973 Southeast
99,918 83,528 Total $ 753,176 $ 600,172
February 28, 2015 February 28, 2014 Backlog Homes Backlog Value
Backlog Homes Backlog Value
Backlog data: West Coast 731 $
403,780 580 $ 328,676 Southwest 476 125,819 208 57,648 Central
1,706 419,490 1,510 320,926 Southeast 592 160,189 582
144,303 Total 3,505 $ 1,109,278 2,880 $
851,553
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURESFor the Three Months Ended February 28,
2015 and 2014(In Thousands, Except Percentages — 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, both of which are not
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 the adjusted housing gross profit
margin and the ratio of net debt to capital are not calculated in
accordance with GAAP, these 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 2015 2014 Housing revenues $ 524,841 $
440,127 Housing construction and land costs (445,383 ) (362,106 )
Housing gross profits 79,458 78,021 Add: Amortization of previously
capitalized interest 22,293 17,485 Land option contract abandonment
charges 448 433 Adjusted housing gross profits $
102,199 $ 95,939 Housing gross profit margin as a
percentage of housing revenues 15.1 % 17.7
%
Adjusted housing gross profit margin as a percentage of housing
revenues 19.5 % 21.8
%
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 amortization of
previously capitalized interest and land option contract
abandonment charges recorded during a given period, 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 and enhances the comparability
between periods. This non-GAAP financial measure isolates the
impact that the amortization of previously capitalized interest and
land option contract abandonments 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 the amortization of
previously capitalized interest and land option contract
abandonment charges. This financial measure assists management in
making strategic decisions regarding product mix, product pricing
and construction pace.
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURES(In Thousands, Except Percentages —
Unaudited)
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 28, November 30, 2015 2014 Notes payable $
2,824,170 $ 2,576,525 Stockholders’ equity 1,604,570
1,595,910 Total capital $ 4,428,740 $ 4,172,435
Ratio of debt to capital 63.8 % 61.8 % Notes payable
$ 2,824,170 $ 2,576,525 Less: Cash and cash equivalents and
restricted cash (573,625 ) (383,601 ) Net debt 2,250,545 2,192,924
Stockholders’ equity 1,604,570 1,595,910 Total
capital $ 3,855,115 $ 3,788,834 Ratio of net debt to
capital 58.4 % 57.9 %
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 and restricted cash,
by capital (notes payable, net of homebuilding cash and cash
equivalents and restricted cash, 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.
KB HomeKatoiya Marshall, Investor Relations
Contact310-893-7446kmarshall@kbhome.comorSusan Martin, Media
Contact310-231-4142smartin@kbhome.com
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