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KB Home (KBH)

Participants
Thad Johnson SVP and Treasurer
Jeff Mezger Chairman, President and CEO
Rob McGibney EVP and Co-COO
Jeff Kaminski EVP and CFO
Bill Hollinger SVP and CAO
Matthew Bouley Barclays
Stephen Kim Evercore ISI
Mike Rehaut JP Morgan
Alan Ratner Zelman & Associates
John Lovallo UBS
Deepa Raghavan Wells Fargo
Susan Maklari Goldman Sachs
Jay McCanless Wedbush Securities
Call transcript
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Operator

Good afternoon. My name is Alex, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2022 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the company's opening remarks, we will open the line for questions. being company's will XX. website is replay available call the at kbhome.com, conference recorded be and for Today's through July,

I and turn Johnson, to begin. would over Now, Thad to the Senior Thad, Treasurer. call President, you may Vice like

Thad Johnson

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

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

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

is can press Mezger. their Relations reconciliation In today's found to measures GAAP Jeff our the website most of page release with today's be measures here directly And referenced of discussion in that, and/or on comparable Investor during non-GAAP addition, a the kbhome.com. at

Jeff Mezger

than quarter points our profitability, increased margin Thank over delivered XX% XXX more Good scale, in our stepped financial second growth with significantly to homebuilding expanding up Thad. in you, afternoon, basis operating XX%. We Alongside we everyone. year-over-year by results our revenues. our strong

we a by homes our sold our $X.XX. all homes achieve year. diluted a of a we of the we situated $X.X to that the As XX% billion, at expectations over more as for to well With than are and we earnings need per delivery have backlog margin grew share XX,XXX value result,

revenues most with provide have midpoint $X.X and quarter and XXXX achieving a to KB backlog our guidance toward deliveries company billion The to greater and return stronger beginning over a today visibility margin, is of scale, shape year. also sheet, Home XX% of portfolio are backlog of a XX% roughly us our this much solid including as and good fiscal with about and on in balance gross our We performing healthy an excellent size of contributing of our well. first communities. composition profitability equity

revenues with in of Our West business distribution has footprint a by Coast the diverse our geographically and future our less concentration as backlog. illustrated more region

while with company that our are scale XXXX, the respect rates as along continue with demand. new ongoing and low and time with dynamics. the rates the us healthy, with homes work-from-home We to strength existing the believe our other That in underlying regions. together experienced and we factors be of West, coupled levels home to the from under-supply the moderating are maintaining current growing exceptional changing model inventory. business in increased particularly demographics our industry will long-term Order enable Built-to-Order an at other navigate demand are pressures beginning the believe to our the said, higher trends, market same impacting We prices interest late home inflationary of

orders we XX X% the years. reported net when in Our a ago prior X,XXX, second orders down the were year net highest versus quarter

in from the created year-over-year, some cancellation increase a flat negative were as rate by the order larger rates. the monthly higher orders gross comparison payments were our mortgage affected While buyers net

homes. the cancellation occurring For below averages cancellations historical remain of unstarted our with rate quarter, one-half the about on

was second the single our price X.X in the our pace in absorption quarter, XX net orders community production reported optimize manage inventory. digits, Our continue as to quarter rate and and assets. only ended per we remained At homes in starts with we with finished to aligned our cancellations after monthly start unsold

marked the the our remainder count, ending second growth of planned community our to for beginning the As quarterly with of year. count the quarter increases anticipated in sequential

strong homes difference a feature forward. based functionality support flexibility Built-to-Order price a factors what homebuilders, these smaller our rooms us footage that these levels. the our our our home with the and openings efforts affordability the can community same satisfaction we the contributes our our and most communities environment compelling benefit industry. net as and the in believe is and help these on higher garnered customer plans believe homebuyers, absorption demand that in orders selling reliance highest industry-leading they at is their buyers of provide With help to among for The homes more to is customers We from anticipate typically averages. our already rates our a number budget perform a generate to company We square into makes community This base of value. rotate we as with we energy-efficient attainable model be also driving well in among offering choice home available differentiating lower under interest pressure. going the have New Built-to-Order virtual rates moderating, will floor to count, absorption today's above when the on Together national communities.

well buyers included the of as upgrading not the as their to can choices customers to in preferences of to studios or and addition finishes design again home, based from other our select size the location from lot on our ability their finishes, have also In spend. their

second mortgage our for buyers Loans, XX% quarter buyers strong. strength combined. and reflected and first this first our largest time responding at move And in to is remains the move-up model buyer percentages, first time sequentially of in demand the segments, want Home holding The business XX% use Our and venture, steady two buyers, us to what credit demand KBHS allows need. and our joint that profile for with the

ratios mortgage. income quarter, The products. their cash funded and $XX,XXX a customers of score XXX% at was roughly slight to average improvement of these an payment about FICO and during showed buyers held two-thirds of of sequential to these XX% average translating loans For the down household buyers their fixed-rate XXX. to XXX,XXX about use steady utilize close Loan-to-value conventional

in are While the household a of we their well that income healthy attracting buyers value recognize submarkets, target Built-to-Order income in the we home above who our median preferred location. level with credit personalized

program provide are while the incomes buyers' adjustable-rate if and the conventional to credit loans. needed, flexibility with Our loan their choose, of fixed metrics mortgages type or FHA adjust they versus them

been buyers has with in In wanted their to working addition, who lock KBHS rates. proactive

KBHS locked estimate together with purchase who two-thirds on us the or have backlog, second represented will location with that team, providing buyers with their we at community rates team As of the deliveries. during in end are of ask cash roughly our visibility rates each our both any pause Rob quarter, times good The and can production. locked weekly point for on update with them and be an communication our a operational construction With Rob? standard generally moment me that, at customers, to let cycle. provide build the process and a for of

Rob McGibney

you, Thank Jeff.

cycle more to guidance midpoint in divisions A quarter homes improvement you key times ability the in were shared accomplish the our we about second in in Our March. the factor with this. than of sequential the delivered XXX

we BTO model, data are takes build in historical frequently second the both in quarter plan every getting a in five a the build to with not our home represent in fiscal market perception created than build customers the improved the quarter actually There we and experience to series, based the Relative in our two and the the we than levels, year, sequencing on a is that survey is of our more stage better is second our extension case, were did home construction, In While marked measure by the first projections build we XXXX times cycle delivery our are time longer we months quarter and that which utilize Built-to-Order same days an a on floor standard first the than while May. they acknowledge by times, encouraged library we selected of that times. approaches. of higher progress. our based that stages, not a second in that first plans remain most times speculative year And quarter we plans. our

customized. Our homes personalized, not are

electrical equipment of Our exactly plumbing what products, interior concrete obtain some the studio know trade and their selections to going third and design as is the standardized wood engineered are remain to improving and such windows products, to products such with difficult materials so home, cabinets, materials heating availability as buyers before sequentially. the be And that of group before door partners and the stabilized. finalize our we it we paint, and supply home materials hardware including cooling insulation, seeing start With into the have continue challenged. respect mixed Other dynamics appliances chain, doors, started. is

to from severe As labor, our it COVID-related trade the shortages was impact was in quarter. first than less

we the actions starts suppliers to starts markets us and relief to as week, have through And expect We’d Jeff. we with of XX% needs availability. build creatively will build constraints historical our call the address the are housing delivery over to taken have communicating longer and build our historical watchful services develop overall shifts supply partners but products but times with to supply to which turn our the the keep challenges return term, that, delays contractor in times are prevent to times. quick continue will we future us and through labor progressing. I our the providing last term. build pace returning our teams and trade labor homes expect in suppliers, and simplifying any in construction back to in stabilize of our to the and resilient real-time about working shortages lessen, manage of industry expected from will remain SKUs, some with workarounds second we short believe adding to However, our times help And to and reported quarter still and trade our down helped Overall, and unpredictable, across

Jeff Mezger

I spend in The capital and are allocation. to discuss land wanted Rob. Thanks, my comments prepared final topics

We that at that a believe new their are will opening. well continue we perform in gross XXXX assets and today to communities with position favorable strong margins beyond support

adhering selling communities have acquisition a invested and supply months, staying median close $X.X to and process. growth targeting community per means underwriting the capital have specifics We our of income, depending consistent per the criteria, a development. In current lot geographically prioritized absorption on Utilizing XX six and we an to the past operate. investment. focusing on pace three-year allocation toward disciplined the and between construction currently household land investments our two of month in where we to and costs, assuming future This in prices billion that four through provide

expanded lots and have lot for the us in our We XX,XXX with through contracted or XXXX XXXX. Roughly, prior controlled, during providing owned were XX% XXXX. approximately lots to or our our targets to position one-half needed achieve were lots lots tied-up growth our of owned of

underwritten average selling to a the three time which we in a land gross a owned it As vast balanced our the to prices. strive of the at sustain the point deliver as years ability we up capital to from This result, our run-up tie two to approach margins home allocation. customers. lots before to solid We piece the first to take of typically majority our significant takes were supports

our investments X% the million changing I response over to X Over market outstanding. million $XXX repurchased or an that in our buybacks, past in returned strong million anticipated investments we million and nearly quarterly profitability shares land have stockholders. to the capital cash of over regular that we dividends of to year, of shares tightening to opportunities conditions, continue and $XX addition $XXX stock just to we to as expect redeploy we the nearly land stockholders. included our in With roughly This mentioned, will

Built-to-Order over team are homebuyers. the of Before an equity of I review. the to provides. year this updating that, on it we KB mindful our return a factors to With wrap again future backlog, the navigate for billion, that drive ongoing the our macroeconomic forward XX%, of flexibility anticipated the In will up, an and well will meaningful and commitment revenues the hard thank We With and billion in I homebuyers. believe serving later to conditions call market I their returns well-positioned and like potential entire growth would are to closing, look year. Jeff? Jeff to believe than now XX%. changing over for you together margin given impacting $X financial is Home model turn focused deliver environment expansion our suited this work operating more We to to in scale increase with various we're we $X.X over which our to

Jeff Kaminski

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

in are We with reflected which results key virtually pleased the all improvements financial second metrics. quarter

we $XXX senior plans X.X today million eight-year net million common of quarter notes during senior X.X% in of and In repurchased redeem addition, the the with September. our earlier to issuance notes proceeds completed to the X.XX% stock use or shares maturing

$X.XX will $X.XX Our housing our to on of for our in year current cycle in number billion we delivered. and price range $X.XX period, XX% times the overall construction revenues our housing reflecting average quarter revenues quarter of backlog, prior selling homes a billion the and $X.XX same anticipate billion. increase third XXXX be approximately Based billion of increased from the in the

the full selling $XXX,XXX In revenues year, backlog. of increases our well-positioned in price regions the new supported achieve delivered to homes we $X.X are months, the are standards XX prices second XX% projecting the second construction topline selling period, of in overall to from each included the based quarter our to operational housing ending quarter, we this year-over-year of housing to to the market Southwest prices with our year We footprint. past in conditions average of range reflecting forecast of across four our on Average in in $XXX,XXX the our Southeast region billion. over ranging homes prior $X.X in For believe opening from billion which communities full successful higher us XX% strong our enabled were and raise region. the year increased

For an year in up operating housing our and compared operating both XXXX of quarters. ASP in immaterial of to $XXX.X overall meaningful projecting reflecting are Homebuilding our the income will XXXX quarter, to in gross margin second the earlier $XXX,XXX. We was points be price profit $XXX,XXX. expense average in Inventory-related believe the third selling were basis million $XXX.X full year XX.X% quarter, an to to approximately due XX% as XXX for million we both SG&A ratio. increase margin and charges XXXX improvements the

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

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

The pricing profit for to expenses second gross costs the expanded quarter XXX the from growth. construction higher margin supporting and of metric the XX.X%, favorable capitalized up partially and housing by points Our quarter lower basis prior current environment offset previously amortization year reflected future increased period. interest,

our improvement inflation trend input cost with continued margin Our demonstrates gross price in success increases. selling offsetting

material largely cost during start with we process. when and we addition, of have able locking inflation strategy In the our to labor been of the each impact construction costs home, mitigate

profit this and margin, full-year further margin we trend, to charges in in be midpoint. third-quarter quarter. fourth year-over-year no gross at Considering representing XXX housing the Assuming expected in charges, the point range approximately our believe expect favorable of to profit improvement sequential increase XX.X%, housing increase inventory-related we’d gross a XXXX basis a our will inventory-related excluding XX.X% a XX.X%

external interest a increase of significant time. customers The period Our year-over-year million. venture, joint X.X% an The our our revenues due $XX.X sales banking for quarter, these operating X.X%. for will the rate services basis rates lock XXXX to lower point interest $X financial within their as increase costs, XXXX Considering in lock reflected quarter mortgage selling, mortgage commitments to improvement rate increased was the pre-tax KBHS current continuing growth. revenues actions increases accounting in wanted full-year quarter believe extended elected anticipated quarter. X.X% XX.X% by SG&A leverage mortgage from expenses quarter. commissions lock will home general with in for income be the of customers a contain of the ratio rate most second support the for At quarter, to improvement X.X%, probability partly XXX largely our of treatment loans, from expense in mainly commitments to income third effect longer. the and improved increases. in the ratio ratio further working were or days administrative was over be on to XX% had our high pull-forward the range The proactive year-over-year KBHS and who due higher XX lock Pretax higher in quarter rate end favorable operations offset of from our and million to of and expense was outstanding future the of we representing approximately in the to a locks

our pull-forward of the the financial year. not pre-tax services overall impact first the XXXX shifted projected has While to changed, income earnings half some for

approximately services the of As the $XX in result, we a million year. now financial of anticipate pre-tax earnings second half

$XX.X Our X year for quarter impacts income XXXX on tax increase the an of energy XX% the federal the represented point to to tax tax effective compared The due expense percentage the XX%, of entirely rate was quarter. credits period. second for prior favorable million, was

or We of approximately or year produced as $XXX.X full-year expect the quarter the rate XXXX, $X.XX Overall, share second quarters to period. for well our million diluted prior the $X.XX share effective net of tax income to remaining compared we per per be for XX%. for $XXX.X diluted as million the

count. Turning now community to

X year-over-year during anticipate drive the will X% to share, quarter year quarter we market the approximately second third up Our open ended development with will XX ending year-earlier ended XX,XXX To We and and was the current with invested lots of and Moody's Investor in and we invested new a increase or X% billion with communities, of openings nearly increased community I connection XXXX, $X.X approximately in XX% selling in increase a openings XXX senior reaffirmed communities continued the to community total plan XXX fourth million land XX, quarter. year-end mentioned quarter. land rating the bond first and XXX have offering and use outlook sequential with Service September issuance of from significant community outstanding believe the more $XXX notes our count year-end, on stable. our XXXX approximately full In In sell-offs up under revised of land small from land the our the of average July the quarter on to quarter owned compared We quarter. $XXX its sequential new We in a reflect development. during we million which, redemption XX% X.X% by credit maturing positive at net half contract. of XXXX. XXXX. proceeds BaX the from for followed development, We earlier, XX of

record approximately charge in We a of expect the $X million to quarter. third early this of debt for extinguishment

are in $X.X of the value repurchased approximately $XXX year-over-year with we our per full a During In by over ended leaving current embedded X.X the the a quarter million for book Board quarter year, repurchases common of and billion. of the Directors' million we share summary, available with shares pleased our results of stock robust quarter-end margin XX%. We second authorization. backlog second potential increase quarter, for strong of value $XX.XX, will we operating million, for revenue and $XX deliver financial our performance expect our under supported

are to to the well-positioned second interest higher managing are of expanded business mortgage margins higher generate the the carefully and and revenues in believe response the We environment in half year. we rate

the equity the excess Our remained a our XX%. return consistent full have with on generating of first year of financial expectation quarter projections in of from end XXXX

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

Operator

with Our the this question-and-answer Instructions] Bouley question time, Please we a of be conducting At your comes first session. from line [Operator question. you. will with Barclays. Thank proceed Matthew

Matthew Bouley

the afternoon, Thank everyone. Good questions. you for taking

today at the think that the visibility XXXX. you mentioned as Jeff I of first M, top, some it stands you your backlog quarter into gives

and offerings in backlog see result, over to smaller for here about kind how hard of of you. market starting your we consumer square the as a is, the in or beyond changes question looking studio, design we a visibility of that? should XXXX are the thinking as about my moves towards you just but result footage those the changes the month, think without profitability of course, current some how think either past about should changes Thank guidance, all So in

Jeff Mezger

the what our question. just spend were it far, changed specifically Good we data We at was quarter in order dollar all behavior in footage was the because home stayed changed interest really so most has Matt. activity, analyzed the recent so after they consumer nothing the the nothing had studio, rates the in that that Sure, And frankly, picking of saw the and really very consistent. May run-up. in

back absorb in interest closed payment, about If the so in made the the the metrics homes comments credit rate they income far still an at you that buy quarter, buyer more XXX go and actually of average that to the seen I our could down and they're we've choosing. profile than

think the it's rates So these I seen, we've commitment going the all they far higher same same that still They picking afford or be so I of pressures think comfortable homes of been orders moderation they be they're a consumer features. digesting the payment may kind on. the these it. where in or and because paused of not But with than just everything more can may that cost of this, making

to will hold. little bit we of a and percent percentage bit will As price were and a spend revenue, tracks lower the a smaller available little in this so time ahead base lower before, a the same returns But studio. the we the if percentage as over plans home have have margins shared it pick it's revenue if and look studio home, buyers smaller we've functionality with our the typically

you little you bit have your turn that's little comparable just make still You you operating per profit margin but still have overall margins, less inventory, lower a healthy unit, revenue.

I so But really find far, shifted their interesting. the we're the preferences, watchful of which trends. consumer So hasn't

Matthew Bouley

Got it.

color. you that for Okay, interesting. Thank

cancellations. the on one Second

that the relatively on I homes. cancellations unstarted that's is you as that curious, were And number the of entered one, had spiked two already just sort that quickly you I -- of or either the completed, is that remind guess, as do where may one-time into sort spec if is, what be? started, in that guess cancellations have a rate could said I'm what I of of incentivize homes one. or guess, kind Thanks, presumably finished a I folks part and turns you part it what margin on impact of us would So the future partially that had those occurred be contract? typical you a recently think to quarter home adjustment just moving half cancellation side of again.

Jeff Mezger

Okay. question, to that parts A Matt. few

in that cancellations home, occurred at they the did studio. they a finalized not because a of the the locked we interest before cases hadn't lot have On rate started

that get on We where with if sales didn't contracted. bucket their and in when rate fully that's were rate good for their consumers other then especially after price start, a them focused for loan. right? approved, our KBHS been think up were think thought and it we that in for tells in that times or that stay loan more years rid buyer, you tell loan I there is our versus of a some originally way, they lock always or perspective, they revenue predictability fear in digits, can ended surprised I'd payments their therefore, after qualify they the about bad. biggest So would we their And has have when a them lock get this do first fully because rate. far fear the do can what loaded they time they it is the flip now actually single a start approval loaded order to loan,

loan months, the they us they six and buyers homes have books our four, these three, to the their their for now five, home emotionally home close. because committed way on are very So completed. and wait know is to along they're they now, right in on approved, And been the they've be committed equity for to

already of So it converting backlog. our close low and is hold remains we can that the very our year and the rate for lot on picked, and to weighed did why hold home and incentive committed part great do personalized on built. the us have house we backlog having not they've and to predictable that after in, that get their guidance to they comfort we're the we offer know the that frankly, is And the a on frankly, they is approved loan they're things

Operator

you. Thank

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

Stephen Kim

Yeah. guys. with and think I customer. continue If that, of I line much, thinking the to could important Thanks very interesting it's behavior respect the of your

sort talked it's forth. and suggested but of overall math, really marketplace that it's activity, evidence lot seeing about about slowdown in You that of really the the is a just weren't in you psychology, there some so fear

to mortgage six, then buyers points, so builders X% are that's by, rate well and went they're cut they to in My mortgage home from the five drop the to say, that had XXX the basis A investors could need how spend had to my points option us that what their probably on doing related rate four point a with to do rate understanding could you meaning theoretically. feel full is of you to that, buy they doing just down in and the order the a price of gave let's when a rate needs a percentage buy sort see much do it is But information studio. was, where and with understanding math. get increase percentage payment mortgage like down you about footage that, question your lot affordability you the in you back downs. I rate, say, So buy prices

and responding that the all and a to So that reassessing? now? it's that as And it's do actually downs is you buy Or whether reflecting it's wanted more just way doing numbers? they're would I correct, right suggest psychology are if what think are you sort whether that that people that's pause you think rate of that's check was about, about

Jeff Mezger

your assumption Stephen, correct. is

and You three can down not We're a lower or points today. buy that rate payment. four for doing the offer

fixed best them. for couple not days, I lot Built-to-Order is, cost own downwards fixed let on, arms home, give our around four qualify points. arm now it their rate think of inventory that, an than have things the that down buying pricing XX-year do XX-year a move them four, XXX And we are we've homes they're can a you're the if of years the a -- don't favorable settled and get done and that arms will to take buyer is that the a six, I that a rate our moving for really But value. yet, locking at the create one buyers approach to X%. and more But taking arm on touched not around you XX would and price,

for they're already wanted and they out So is it there not yet moving what customer the there either. if that's

their not figure having prices not So dealing they're digestion on maybe I the know. peaked. trying shoehorn else what in they're today's can it's everything we're that, gas equation it now, there in, with But I in prices whether and don't homes actually they're trying with right they're to job and math is is. believe rates comfortable buyer to buyer XXXX period, situation, inflation interest that a to right absorb and do similar that's where at this to in Ukraine today it we're And these ran rates. -- It's we're out, now what just happened when afford

and best we'll getting it value, focused foot, personalize So how home staying goes. per see price we're on the the

Stephen Kim

Yeah. And very interesting. that's

I shift, a your of in had, average saw shot could the of nature? onetime-ish up sort we second mix The think, to sort temporary quarter was in and anything of just second question order if wondering bit. price did there I from jumped If about XXX it the Is quarter? the order quite is a you first I some there really terms want to XXX, particular, which average about in price, I talk in talk communities? price that in talk selling

Jeff Mezger

that? Yeah. take Rob, want you to

Rob McGibney

Yeah.

that up. that I been the I just challenges know, everything it's and does price lift with we've pace been expect it's moving on I seen. as quarter-over-quarter. continue affordability ongoing increasing not think that the It's keep don't on sequentially rate would that

the the of So I were really And challenges even it's that I and divisions majority other regionally we've May, think our yeah, some April, that, lift really we're that that's lift seeing talked anything continuing off. by in with that to than less expect that of driven prices to through so communities, ongoing in would that to know But continue and forward But I Steve. going about. why just we don't expect level we've had. don't price

Operator

you. Thank

question question. comes Rehaut next the proceed Morgan. with Please from of your Mike JP Our with line

Michael Rehaut

starting one your Good everyone. some if of markets, as ago both how certain or days if for just price price of in of it you that know markets Thanks. increasing a if if would well react and and yourselves, many might reductions would kind that into not the incentives, you're across that if mix to or about do to lower-priced or in reductions I shift Thanks that afternoon, what or yourselves wanted you more all the path seeing sure of you that as in to become think to I changes. across incentives the of issue, couple broader market of of sense, a an are color or in broadly a put I to of that's case that reacting is but but I'm it you incentives the -- are or price action? increase combination And competitors always. see be combination terms playbook KB lot the were just were along targeted you large don't anything towards in you as of revert terms to reductions. a products your if markets acting, expect if you're the an perhaps wanted get there's markets either aware of communities. talked

Jeff Mezger

we're new company give the they Mike, you resale, this, different you is are an you There’s One field. philosophy seeing resale and I'll on the have of what so here. out eye what some competitors home you in have and the share and couple every and the moving peers degrees very with keep today would sub-market the that also color well Rob every observation there on on or the of a every then even strength I of to challenged, together, this performing market isn't city city. that sub-markets together. And and [indiscernible] different it's doing. in then this not city there’s fact, sub-markets that are moving that are from can other is In are there weakness

its markets the what they which own for interesting each XX And market as are what's for traded we falling years. now, had me where evolution industry an again years for So all personality, is two same. has is, back this in

think to like normal back the and in-migration So start going of income down to and types are those settle growth job to things I things. growth more and things

so when Then see underwrite country think as let have builder moderate are our through too and opening We're navigate more we're average above those to we years to returns been, what's aggressive observed, three happened continuing the to ago of average lot we what years going generate industry, a peers some and a that me above margins in where -- you and and ignore just thing the that's position all, the without and here normalize, at if price of one-time you our that get who a community versus pricing selling dramatically. of our you'll inventory last we understand some may something. reported going of to things price and up So, as Rob tied that we have that's them, behavior that. that gap drive communities room And be just much may products a close. is your lot three assets. parts up premium while a have we I and too in versus well, move this underwrote we of it to resale And we move you be have operating And far, mediums to there when have of margins over target know resale. the above

the pace we at said, got need they tools field? but at we'll to optimize we've right we right like maybe all rotating seeing tools to we Rob, margin. really and some we're think six from four, absorption That to all to we competitive, we So on go being down and give you And the go left think the they the position work to what hold come need color to in the five, margins and navigate to and all price our off want we be paces, our the were have and the through at, between this now. thing

Rob McGibney

Yeah.

Jeff sub-market It mentioned depends You the to kind more have of that. seen what it location, and as starting creep on city and region, the incentives we see a the on said, in on incentive it level depends the really, the sometimes up game within we're to seeing.

base to to left, comments, the a getting with this homes mentioned Jeff his heavier so give that in seen incentives create on is the giving price to giving you in plan, those been to way. the that hard year. are buyer a I've of get footage choice, specific the carrying And are focus some Primarily seeing is, some year, own square our and can right the then get have builders' as a that color it's real higher we the select inventory their shift the close go end to of by level. incentivizing delivered start So them smaller be it ability -- fiscal increase. queue homes But what load, affordability for

incentive and model. So with we're playing game sticking our not business the

Michael Rehaut

quarter lot. of I'm year-over-year. as to final Okay. very slightly -- sure XXX thoughts helpful. are still representing a reduced fiscal Fair the secondly, XXX, count in from this the year-end very 'XX. Thanks for plans XX% healthy you guess just lot I enough. kind That's stages of community Any growth a

or directionally I you of be believe or more past, terms double-digit? in if maybe continued growth terms -- in be of again thoughts could like something kind next degree should expect growth any this a in of in we year. you magnitude for mid-single-digit approaching the any breaching But it metric said would directionally So expecting perhaps of sense of

Jeff Mezger

handle it. can Jeff

Jeff Kaminski

Yeah. color community of count. Mike, just bit a little on

this at communities some develop too especially that As that land we're out bring are we've year, them. some building on to and And some you vintage 'XX know, seeing. Jeff, But far remarks into we us. nice strongly of price the we'll prepared really while. been insightful positions through gave market I very good as we land of to we the during thought don't statistics point for inherent a of still of really guide for those with bank his and the it going a believe uncertainty in communities be

XX last So to tightening as than see But what could closeouts as factors. we stores point next But cetera, we'll the et depending and little we'll this are able guys on and anticipating over to bit it growth on for significant growth. happens believe the But months investing hopefully further those well community a we've more new And quarter the third the on communities count. combination growth of time some again bubble go goes we in ground, to more be be that the in relating at with XXXX year we're been up year. assets you at build we'll in hopeful two And more the saw on account. continued as having those that we see revenue to support deploying be into communities. open-selling on times, give

Operator

you. Thank

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

Alan Ratner

increases. the overall, push or back maybe to I that the good you've future healthy a little retrace is first a there even increases has I guess question of I market environment demand or in last an to of year over say chain. pretty of two. increases be pretty this still times. along back seeing some it alluded guys be my on bit price seen would that shift kind hopefulness opportunity on obviously, suppliers bit there given to the push guys, cycle either you Hey all Thanks great of the kind for Jeff, the detail would like little seem guess favorable on the question the for though side, you And might more passing afternoon. been as cost on may your about the supply suppliers always. are

any update some? So from I'm any optimism progress that price real-time being Is be there there on what's suppliers? the could made increases there curious, or your

Jeff Mezger

Yeah. lumber of we're next and to get then why and Rob, and don't everything? start seeing labor that level you with what

Rob McGibney

mean benefit main part dropped has I won't cost few first seeing months. of that closings degree has see moved Yeah. the the that of our the over drastically in of XXXX. And to lumber the been in driver up, not until the has has. but everything that today, lumber lumber We're we but increases, certainly, starts last

of -- substantial of magnitude, of kind $XX,XXX material in it QX 'XX in up order just I mean component framing, was increase. was material , $XX,XXX so 'XX to of versus framing roughly Just up framing up

have in Now we're back just tracking the in composites the fives months those come link now we're a that down, XX,XXX versus ago. random seeing few

coming some the So benefit there on definite side. is lumber

be there cost we is tailwinds as from and on there there some between and sales seeing lag coming far start cost the what that decreases starts increases, As a when expect that we're usually the pursuing out well. to side as definitely -- that other seeing we're the we there'll

Alan Ratner

you appreciate And land rethinking earlier I'd drill the Are are But on the line second, it on bit sure whether finish deals more in with down that. move is to reference there to option deals the you're new to kind bit be a perhaps not taken that you those? year, comment. coming in forward guidance pulling you've you're of over new contract? of there putting last spend what's love entered shifted if last little more strategy just mentioned any few -- land to updated comments is can side? about back. talk year a in on your markets contemplation investments, of the you tightening markets know I there if I or the some over about under that you Great. on your a the a qualitative that's there land little just I'm

Just or so kind spend the shifting the market? see next year of going the talk you a over little about where given bit land

Jeff Mezger

a growth 'XX. Alan, comment I and we for made I need control that own with the we rate would and everything it nice already couple 'XX in

make drive sense investment 'XX we're more where until set and to is demand end is sellers things, where more as for there even land in 'XX up and try clarity we there. going to and look and So more up end it at grow to to doesn't

that. see to a so We cash structural is so a are this of either And step two, things ability market, right where position this coming clarity on what pulling land until you case, be then openness more of out now. seeing to one. do right in spend there shift that's close is do we'll brief normally what We're have now less it does you'll with real land flexibility deposits, land, a the set loan should have so on to like that because working have to spend sellers time reallocate time And play, grow movement But we it instead to And mean? the in your year our until company, there that, we back means on to was in options to in smaller think nice extended the capital. our times start take to you'd be up clarity. is, I I we going digestion is, over referring or what you're is is it how step

Operator

you. Thank

proceed with question. Lovallo John with comes question your line next of Our from the UBS. Please

John Lovallo

guys, questions. Hi taking you thank for my

us be the order in The helpful? first quarter of you with cadence us give monthly second that color if the you into is, any would help June can could one sort

Jeff Mezger

to you Rob, take that? want

Rob McGibney

the fairly specific see ongoing in get of last to to April, would softness did March increased seeing to. has June, too months. as I numbers, in consistent similar cadence a We're cancellations the we of say, been May into and some May. order is but Not Sure. over softening couple

is being or was we're as now we it optimize we've right going a what we're about what asset, that sales to each locked Jeff of think the about exercise on of I that's looking to get frozen community part at But actions up pace now. through now just that. paces trying right that also do as decide got, taking earlier and each moving earlier, with an talking talked that of to part community-by-community basis to kind and buyers

John Lovallo

Got it. -- then And

Jeff Mezger

QX John, down normalizing, that over are markets COVID, from third prior orders sequentially one COVID, I through of relevant. is our that cadence the assuming here just before year. normal are If I'd for time that the is we're years this our the XX% think our QX. That's add normally, quarter to to typically to here things in five

when moves comp look if count And seasonality, wouldn't a QX cadence not it a have and we whatnot. so, similar did we And this stronger in in to year, and it me at due sell-outs surprise have bit community But from you basis, bit normal strong XXXX it a last a our XXXX QX we because had were business. QX as 'XX, a actually every it's third. than not there is as and quarter year and fourth we to in seasonality did

expect to trend you're year. going a see of develop So I seasonal more would here this a

John Lovallo

obviously, question payment? then That's the down folks do helpful. and But is you second percentage down to you cancellations that about that what extent. the Appreciate is, the that. some payment meaningful, $XX,XXX actually probably refund lock of helps And talked

Jeff Mezger

approval house. the mean before number. the it's had I only that is I because you rejected at long know loan we the Rob, rare, which we start

Rob McGibney

a earnest two that deposit payment answers that we're things. talking inability unless different to I think, I'm buyer's are down sure we're back. the money your typically And if it's we're every keeping that really if qualify earnest mean, case about, not the Yeah. I and typically question. money giving versus that in

John Lovallo

talking more the was XX,XXX. about I

Rob McGibney

down keeping that's earnest buyer I Yeah. mean if the the yeah, Well, we're all keeping deposit a that really the deposit. not cancels, money of we're payment,

John Lovallo

Okay, Thank you, guys.

Operator

Please Our Deepa with next proceed Fargo Wells from the line Raghavan with of your question. question comes Securities.

Deepa Raghavan

prices evening, you competitive lower. the what's of also taking adjusting higher, are for able But from interesting incentive -- yet. peers comment Thanks some everyone. playing industry my the some are to taking good the be incentives not to questions. response ones It's taking big they're Because Hi, including know game general you're the overall? your

commentary just competitive to share able on industry-level So you're response? any curious,

Jeff Mezger

market to call the something want I I may We're do I'll and and get be that what generally inventory, you the buyer correction, to buyer that. or on a the to think touched seeing have Rob it. may wants built not Deepa, so they've think Builders it. have already home

price So to gets or commissions do incentives built you incentive move could some access game by have we've knows of had type time, played, giving We're inducing price either that them both, who moves people value. seeing bit their yet values or or lower be home where creative. not And inventory. versus already always over offer to the it's better deal. somebody that's a we've the always on never best buying customer just giving buy and that for that focus we a But best it a of really a to them radical the some here a realtor pretty gotten try higher what a there and little little and as of bit doing

Deepa Raghavan

earnings of last appear in amount any of was the locked you backlog Versus fair. That's because call, in incorporating are your second last quarter. It good doesn't Okay form of your already half slowdown as guide?

are last just the within second roughly on to but half So puts we from you I there if call? any and the versus takes curious, ask the heard time wanted

Jeff Kaminski

time the quality Right. on able close period be of the and the part. now to The of just backlog in large The this assurance really have frankly, backlog, level right the and confidence higher quarter next a we'll our ranges the quarters advantage is the of reflects guidance and we that those main homes. of were which the just less tightening in couple changes

we cases have locked well So interest we of those very costs. actually lot prices, of the know cases are customers have majority qualified, that a rates. the vast the we the know mortgage are In

see expect don't latest cycle the of to And there. very the inventory side in can other rate we've as a for we through fourth started example to successful on our thin out that homes very, of spike this been homes still have we and in is either in we some lot layer there or that homes So see reselling that. in system gone if or third it, we've are of do supposed volatility on very quarter, close

most So can otherwise reselling quickly were sold in any homes than are higher that or prices cases fairly they reselling at at. and originally are coming off

lot But out next good of happen, there So we're as of of look, these there delivering is in six uncertainty results. from is right pretty really we feel confident. now. as can there I our months, a that far things view mean, lot shape the

Operator

Thank you.

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

Susan Maklari

SG&A Thank you. My first down Good over time. your continues come nicely is, afternoon, everyone. really to question

As coming do through. where improvement think about time to conditions seasonality we or on of over that to you Can in as normal get ground? the moderating change sustain and to underlying your normalizing there that some this maybe maybe could you’ve ability And that realized? things the talk

Jeff Kaminski

time on a We've it's putting now number the as nicely improvement the the basically same Right. a a down growth, hit for SG&A future in glide number, that in business. as on you've been basis. nice in path single At towards on been of to digit we've growth for SG&A, progressing noted resources also been we've quarterly

that the see and some managing do we have to tell. to based that better. what quickly on we're a number company. for pull the it we I it's rate, below that continue and for year numbers level. fact far numbers time we drop ability business of SG&A or to and as the watching carefully macro conditions approaching I see satisfying But believe -- some make And be it growth XX% think on the do full investment back we'll run digit to will single long-term as So in whether not, guide its and

in So continue future times like these, well both the it, focused will we'll quarters. appropriately as like see, to and term near said, business very we'll tell. we time on as quarters for But manage particularly I stay

Susan Maklari

see thoughts everything sort Okay. And there last the you obviously cadence? and How quarter was on the consider going valuations And about you repurchases move the are to so back week the you in buying over this thinking potential that it or of stock forward? when any just operationally. then encouraging just going on

Rob McGibney

run Susan, view be have as the make things want have on land is the shared sure are capital side. slowing, we And approach. always we the balanced we've If want have capital to to we to a you the the business. and to opportunistic

has are, we'll they our comfort buy we back. that our it ability and redeployed going actions be And values the capital ahead, so, mind that where a do we'll we And number we're that not speak approach as to have more if stock would willing are keep time. right something do sighted the we'll balanced up. short We have this at be to But look right don't set we share. in now to and

Operator

Thank you.

line question McCanless proceed your Wedbush. with with Please of Jay question. the final Our from comes

Jay McCanless

especially be I head supply that question what's Hey, to getting fitting that thanks kind chain still me for June? where in. guess limiting you Are places to of and happening up, had, I you seems in better? be there the opening first might now any sales, going are

Jeff Mezger

take to want you Rob, that?

Rob McGibney

were locations our better matching to and of at chain that, days out where to Vegas time there away shifted communities with between where from not least stabilize has but we're Austin softening sales some mind, a construction limited. cadence. cycle and there supply lot we've limiting There to a most where Jay. appearing if moved up generally, It lot picking communities, Yeah. still more But on we're the come become our that market of sales bit a some locations limiting, are getting and

Jay McCanless

in cycle then you. time just Got And Okay. digging improvement. the on

say than three internal on fashion improvement you were actually are timely more in your you more subs? now that with goods six that Or about getting was ago? wondering worked a months you or Just processes

Rob McGibney

I that the side. impacts about had through that the from capacity first in labor certainly freed the think We quarter up which a the some talked we lot in combination. a COVID, spike has it's of got better,

we're what I and supply to the up open shows spots were until what job get, are we and still on to in going think kind we're products of but we seeing chain, it's it to going still see. the up know able get -- some truck the we necessarily don't bright

we've So better. the simplification I of our of partners upcoming come that's done whether needs has our from or most own with about think and efforts the some improvement our trade getting teams efforts, communication our just

Now moving. houses to into the quarters workarounds that we're keep several and finding it

Operator

gentlemen, this Thank Ladies teleconference. you. for today's your and Thank concludes you participation.

You may now disconnect your lines.