Revenues Increase 43% to $843 Million;
Diluted Earnings Per Share of $.23
Backlog Value Increases 44% to $1.6
Billion
KB Home (NYSE: KBH), one of the nation’s largest and most
recognized homebuilders, today reported results for its third
quarter ended August 31, 2015. Highlights and developments
include the following:
Three Months Ended August 31,
2015
- Total revenues rose 43% from the
year-earlier quarter to $843.2 million. The Company has posted
year-over-year revenue increases for 16 consecutive quarters.
- Housing revenues increased 36% to
$798.6 million from $586.2 million for the corresponding period of
2014, reflecting greater delivery volume and a higher overall
average selling price.
- The Company delivered 2,236 homes, up
25% from 1,793 homes in the year-earlier quarter.
- The overall average selling price rose
9% to $357,200, compared to $327,000 a year ago, as average selling
prices increased in each of the Company’s four regions.
- Land sale revenues totaled $41.6
million, reflecting activity in the Company’s West Coast, Southwest
and Southeast regions. There were no land sales in the year-earlier
period.
- The Company’s housing gross profit
margin of 16.2% improved by 20 basis points from the second quarter
of 2015 and decreased 260 basis points from 18.8% in the
year-earlier quarter.
- The current quarter included housing
inventory impairment and land option contract abandonment charges
of $3.5 million, compared to $1.0 million of land option contract
abandonment charges in the corresponding quarter of 2014.
- Excluding the amortization of
previously capitalized interest associated with housing operations
and housing inventory impairment and land option contract
abandonment charges in each period, the Company’s third quarter
adjusted housing gross profit margin improved to 21.1%, up 80 basis
points from the second quarter of 2015. On a year-over-year basis,
the current quarter adjusted housing gross profit margin decreased
160 basis points from 22.7% for the year-earlier quarter.
- Selling, general and administrative
expenses as a percentage of housing revenues improved 110 basis
points to 11.9% compared to the second quarter of 2015. This ratio
also improved 50 basis points from 12.4% for the prior-year
quarter.
- Interest expense decreased to $4.4
million from $6.5 million in the year-earlier quarter, as an
increase in interest incurred due to the Company’s higher average
debt level was more than offset by an increase in the amount of
interest capitalized, reflecting a higher amount of inventory
qualifying for interest capitalization in the current quarter.
- Financial services pretax income rose
to $2.7 million from $1.8 million in the year-earlier quarter due
to an increase in the pretax results from Home Community Mortgage,
LLC, the Company’s mortgage banking joint venture with Nationstar
Mortgage LLC, which commenced operations in July 2014.
- The Company’s pretax income rose 18% to
$34.0 million from $28.7 million in the year-earlier quarter.
- Net income totaled $23.3 million, or
$.23 per diluted share, compared to $28.4 million, or $.28 per
diluted share, for the third quarter of 2014.
- Income tax expense was $10.7 million
versus $.3 million in the year-earlier quarter. Income tax expense
for the 2014 third quarter was favorably impacted as a result of
the Company’s deferred tax asset having a full valuation allowance,
which was substantially reversed in the fourth quarter of 2014.
- The Company’s current quarter income
tax expense, which was reduced by $2.5 million of federal energy
tax credits earned from building high-efficiency homes, represented
an effective tax rate of 31.5%.
Nine Months Ended August 31,
2015
- Total revenues rose to $2.05 billion,
up 27% from $1.60 billion in the year-earlier period.
- Housing revenues were $1.93 billion in
2015 and $1.59 billion in 2014.
- Homes delivered increased 13% to 5,616,
compared to 4,986 homes in the nine months ended August 31,
2014.
- The overall average selling price of
$343,400 increased 8% from $318,100 for the year-earlier
period.
- Net income totaled $40.6 million, or
$.42 per diluted share, compared to $65.5 million, or $.68 per
diluted share for the year-earlier period.
- Income tax expense was $16.5 million,
compared to $.8 million for the nine months ended August 31,
2014.
Backlog and Net Orders
- Potential future housing revenues in
backlog grew 44% to $1.59 billion at August 31, 2015, from
$1.10 billion at August 31, 2014, reflecting substantial
year-over-year increases in each of the Company’s four regions.
These increases ranged from 27% in its West Coast region to 194% in
its Southwest region.
- The Company’s backlog at
August 31, 2015 increased 36% to 4,664 homes, compared to
3,432 homes in backlog at August 31, 2014.
- The number of homes in backlog and
corresponding backlog value at August 31, 2015 reached their
highest third-quarter levels since 2008 and 2007,
respectively.
- The value of net orders generated in
the current quarter rose 23% to $773.3 million from $629.2 million
in the year-earlier period, marking the Company’s 14th consecutive
quarter of year-over-year increases.
- Each of the Company’s four regions
produced year-over-year growth in net order value, ranging from 9%
in its West Coast region to 117% in its Southwest region.
- Net orders grew 19% to 2,167 for the
quarter, compared to 1,827 in the year-earlier quarter.
- The cancellation rate as a percentage
of gross orders of 30% was nearly even with the third quarter of
2014, and as a percentage of beginning backlog was 20% versus 24% a
year ago.
- The Company’s overall average community
count for the third quarter increased 30% to 257 from 197 for the
year-earlier quarter.
- The Company had 252 communities open
for sales at August 31, 2015, up 26% from 200 communities a year
ago.
Balance Sheet
- Cash, cash equivalents and restricted
cash totaled $378.0 million at August 31, 2015 and $383.6
million at November 30, 2014.
- Inventories increased to $3.40 billion
at August 31, 2015 from $3.22 billion at November 30, 2014,
reflecting the Company’s investments in land acquisition and
development during the current year.
- The Company’s land-related investments
totaled $701.6 million for the nine months ended August 31, 2015
and $1.19 billion for the corresponding period of 2014.
- At August 31, 2015, the Company
maintained a geographically diverse land pipeline comprised of
47,344 lots, including 39,003 lots owned and 8,341 lots controlled
under land option contracts.
- Notes payable totaled $2.63 billion at
August 31, 2015, compared to $2.58 billion at November 30,
2014, reflecting the Company’s first quarter underwritten public
issuance of $250 million in aggregate principal amount of senior
notes, which was partly offset by the retirement of the remaining
$199.9 million in aggregate principal amount of its 6 1/4% senior
notes at their maturity on June 15, 2015.
- On August 7, 2015, the Company entered
into an amended and restated revolving loan agreement with a
syndicate of financial institutions that increased the commitment
under the Company’s unsecured revolving credit facility from $200
million to $275 million and extended its maturity from March 12,
2016 to August 7, 2019.
- The Company had no cash borrowings
outstanding under its unsecured revolving credit facility as of
August 31, 2015.
- The Company’s ratio of debt to capital
was 61.6% as of August 31, 2015, compared to 61.8% as of
November 30, 2014. The ratio of net debt to capital was 57.9% at
both August 31, 2015 and November 30, 2014.
Management Comments
“Our third quarter results showed broad-based improvement in
virtually all key operational and financial metrics across our four
regions,” said Jeffrey Mezger, president and chief executive
officer of KB Home. “In particular, we achieved appreciable growth
in homes delivered, revenues and pretax earnings in the third
quarter largely through the execution of our core strategies. This
performance reflects our measurably expanded community count and
success in converting the robust backlog we built during the first
half of this year into deliveries. Moving forward, we remain
focused on improving profitability by expanding our housing gross
profit margin and increasing operating leverage as we continue to
build up the scale of our business. Based on the progress we have
made on our strategic priorities, our significantly higher backlog,
and the continued improvement in housing market fundamentals, we
are anticipating a strong finish to the year. Furthermore, we
expect to maintain this momentum into 2016.”
Earnings Conference Call
The conference call on the third 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 five 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 events,
significant natural disasters and other climate and environmental
factors, including the severe prolonged serious drought and related
water-constrained conditions in the southwest United States and
California; 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; 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 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 and scale
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 and revenues; 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 Nine Months and Three Months Ended
August 31, 2015 and 2014
(In Thousands, Except Per Share Amounts —
Unaudited)
Nine Months Three Months 2015
2014 2015 2014
Total revenues $ 2,046,247 $
1,604,908 $ 843,157 $ 589,214
Homebuilding: Revenues $ 2,038,896 $ 1,596,894 $ 840,204 $
586,231 Costs and expenses (1,970,654 ) (1,510,973 ) (804,222 )
(552,321 ) Operating income 68,242 85,921 35,982 33,910 Interest
income 342 393 87 110 Interest expense (17,850 ) (26,289 ) (4,394 )
(6,455 ) Equity in income (loss) of unconsolidated joint ventures
(1,180 ) 1,161 (422 ) (751 ) Homebuilding pretax income
49,554 61,186 31,253 26,814
Financial services: Revenues 7,351 8,014 2,953 2,983
Expenses (2,802 ) (2,563 ) (910 ) (859 ) Equity in income (loss) of
unconsolidated joint ventures 3,023 (289 ) 658 (277 )
Financial services pretax income 7,572 5,162 2,701
1,847
Total pretax income 57,126 66,348 33,954
28,661 Income tax expense (16,500 ) (800 ) (10,700 ) (300 )
Net
income $ 40,626 $ 65,548 $ 23,254 $ 28,361
Earnings per share: Basic $ .44 $ .74
$ .25 $ .31
Diluted $ .42 $ .68
$ .23 $ .28
Weighted average shares
outstanding: Basic 92,005 88,389 92,065
91,793
Diluted 101,605 98,614
101,874 102,070
KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands — Unaudited)
August 31,2015
November 30,2014
Assets Homebuilding: Cash and cash equivalents $
352,952 $ 356,366 Restricted cash 25,028 27,235 Receivables 159,576
125,488 Inventories 3,401,737 3,218,387 Investments in
unconsolidated joint ventures 72,800 79,441 Deferred tax assets,
net 810,016 825,232 Other assets 114,352 114,915 4,936,461
4,747,064
Financial services 12,035 10,486
Total
assets $ 4,948,496 $ 4,757,550
Liabilities and
stockholders’ equity Homebuilding: Accounts
payable $ 178,604 $ 172,716 Accrued expenses and other liabilities
497,158 409,882 Notes payable 2,630,732 2,576,525 3,306,494
3,159,123
Financial services 1,776 2,517
Stockholders’
equity 1,640,226 1,595,910
Total liabilities and
stockholders’ equity $ 4,948,496 $ 4,757,550
KB HOME SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended
August 31, 2015 and 2014
(In Thousands, Except Average Selling
Price — Unaudited)
Nine Months Three Months 2015 2014 2015
2014
Homebuilding revenues: Housing $ 1,928,395 $
1,586,173 $ 798,633 $ 586,231 Land 110,501 10,721
41,571 — Total $ 2,038,896 $ 1,596,894
$ 840,204 $ 586,231 Nine Months Three Months
2015 2014 2015 2014
Homebuilding costs and expenses:
Construction and land costs Housing $ 1,622,530 $ 1,292,224 $
668,871 $ 476,016 Land 103,446 13,034 40,277
3,408 Subtotal 1,725,976 1,305,258 709,148 479,424 Selling,
general and administrative expenses 244,678 205,715
95,074 72,897 Total $ 1,970,654 $ 1,510,973
$ 804,222 $ 552,321 Nine Months Three
Months 2015 2014 2015 2014
Interest expense: Interest
incurred $ 140,789 $ 127,041 $ 46,587 $ 44,603 Interest capitalized
(122,939 ) (100,752 ) (42,193 ) (38,148 ) Total $ 17,850 $
26,289 $ 4,394 $ 6,455 Nine Months
Three Months 2015 2014 2015 2014
Other information:
Depreciation and amortization $ 8,413 $ 6,923 $ 2,853 $ 2,537
Amortization of previously capitalized interest 99,488
59,471 51,752 21,769 Nine Months Three
Months 2015 2014 2015 2014
Average selling price: West Coast
$ 571,500 $ 549,300 $ 579,800 $ 579,700 Southwest 279,500 277,500
285,200 270,800 Central 244,600 219,200 256,000 223,000 Southeast
278,100 256,500 287,300 264,300 Total $
343,400 $ 318,100 $ 357,200 $ 327,000
KB HOME SUPPLEMENTAL INFORMATION
For the Nine Months and Three Months Ended
August 31, 2015 and 2014
(Dollars in Thousands — Unaudited)
Nine Months Three Months 2015 2014 2015
2014
Homes delivered: West Coast 1,498 1,288 625 458
Southwest 888 521 372 185 Central 2,212 2,167 822 807 Southeast
1,018 1,010 417 343 Total 5,616 4,986
2,236 1,793 Nine Months Three Months 2015 2014
2015 2014
Net orders: West Coast 1,886 1,618 564 529
Southwest 1,305 590 384 198 Central 2,864 2,587 818 745 Southeast
1,316 1,066 401 355 Total 7,371 5,861
2,167 1,827 Nine Months Three Months 2015 2014
2015 2014
Net order value: West Coast $ 1,088,175 $ 949,794
$ 331,864 $ 305,840 Southwest 368,394 155,592 110,181 50,692
Central 758,592 598,011 223,168 178,657 Southeast 364,169
289,179 108,075 94,059 Total $ 2,579,330 $
1,992,576 $ 773,288 $ 629,248 August 31, 2015
August 31, 2014 Backlog Homes Backlog Value Backlog Homes Backlog
Value
Backlog data: West Coast 981 $ 586,862 750 $ 463,643
Southwest 741 204,802 257 69,621 Central 2,141 571,433 1,768
396,838 Southeast 801 222,381 657 174,038
Total 4,664 $ 1,585,478 3,432 $ 1,104,140
KB HOMERECONCILIATION OF NON-GAAP
FINANCIAL MEASURESFor the Nine Months and Three Months Ended
August 31, 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, therefore, 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:
Nine Months Three Months 2015 2014 2015
2014 Housing revenues $ 1,928,395 $ 1,586,173 $ 798,633 $
586,231 Housing construction and land costs (1,622,530 ) (1,292,224
) (668,871 ) (476,016 ) Housing gross profits 305,865 293,949
129,762 110,215 Add: Amortization of previously capitalized
interest associated with housing operations 83,050 59,471 35,314
21,769
Housing inventory impairment and land
option contract abandonment charges
4,516 1,803 3,532 1,013 Adjusted
housing gross profits $ 393,431 $ 355,223 $ 168,608
$ 132,997 Housing gross profit margin as a percentage
of housing revenues 15.9 % 18.5 % 16.2 % 18.8 % Adjusted housing
gross profit margin as a percentage of housing revenues 20.4 % 22.4
% 21.1 % 22.7 %
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 (a) amortization
of previously capitalized interest associated with housing
operations and (b) housing inventory impairment 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. This
non-GAAP financial measure isolates the impact that the
amortization of previously capitalized interest associated with
housing operations, and housing inventory impairment and land
option contract abandonment charges 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 associated with housing operations,
and housing inventory impairment 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:
August 31, November 30, 2015 2014 Notes payable $
2,630,732 $ 2,576,525 Stockholders’ equity 1,640,226
1,595,910 Total capital $ 4,270,958 $ 4,172,435
Ratio of debt to capital 61.6 % 61.8 % Notes payable
$ 2,630,732 $ 2,576,525 Less: Cash and cash equivalents and
restricted cash (377,980 ) (383,601 ) Net debt 2,252,752 2,192,924
Stockholders’ equity 1,640,226 1,595,910 Total
capital $ 3,892,978 $ 3,788,834 Ratio of net debt to
capital 57.9 % 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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150924005324/en/
KB HomeInvestor Relations:Katoiya Marshall,
310-893-7446kmarshall@kbhome.comorMedia:Susan Martin,
310-231-4142smartin@kbhome.com
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