KB Home Reports 2013 First Quarter Results
Revenues Up 59% as Deliveries Grow 29% and Average Selling Price
Net Order Value Up 83%; Net Orders Increase 40%
Backlog Value Up 53% to
Three Months Ended February 28, 2013
Revenues increased 59% to
$405.2 millionfrom $254.6 millionfor the first quarter of 2012 as a result of an increase in the number of homes delivered and a higher average selling price. Compared to the year-earlier quarter, revenues were up across all of the Company's homebuilding regions.
- The Company delivered 1,485 homes, up 29% from the first quarter of 2012, reflecting increases in three of its four homebuilding regions.
The overall average selling price of
$271,300was $52,300, or 24%, higher than the year-earlier quarter, marking the Company's 11th consecutive quarter of year-over-year improvement, and its highest first-quarter average selling price since 2006.
- The higher average selling price in the current quarter reflected, among other things, the Company's ongoing strategy of repositioning its operations to serve its core first-time and first move-up homebuyers in higher-performing choice locations in land-constrained growth markets that feature higher household incomes and greater demand for larger homes and more design options, as well as generally rising home prices.
- Average selling prices were higher in all four of the Company's homebuilding regions, with year-over-year increases ranging from 13% in the Central region to 22% in the Southwest region.
Marking the third consecutive quarter that the Company has generated
homebuilding operating income, and the first time it has posted
first-quarter operating income since 2007, the Company produced
operating income of
$.5 millionfor the current quarter, a $31.6 millionimprovement from an operating loss of $31.1 millionfor the year-earlier quarter.
As a percentage of homebuilding revenues, the Company's
homebuilding operating income improved 12.5 percentage points from
an operating loss in the first quarter of 2012.
The housing gross profit margin improved by 680 basis points
to 14.8% from 8.0% in the year-earlier quarter. There were no
inventory impairment charges in the 2013 first quarter,
$6.6 millionof such charges a year ago.
- The current quarter housing gross profit margin improved by 420 basis points from the 2012 first quarter housing gross profit margin, excluding the inventory impairment charges, of 10.6%.
- The year-over-year improvement largely reflects the Company's ongoing strategic actions targeting growth and profitability, which helped to drive higher revenues, reduce homebuyer closing cost allowances and generate greater operating efficiencies.
Reflecting higher homebuilding revenues, the Company's
selling, general and administrative expenses increased to
$59.1 millionin the current quarter from $51.2 millionin the same quarter a year ago. However, as a percentage of housing revenues, these expenses improved by 570 basis points to 14.7%.
- The improved selling, general and administrative expense percentage reflected increased delivery volume and higher average selling prices, along with the Company's focus on containing and leveraging its overhead costs.
- The Company's selling, general and administrative expense percentage was at its lowest first-quarter level since 2007.
- The housing gross profit margin improved by 680 basis points to 14.8% from 8.0% in the year-earlier quarter. There were no inventory impairment charges in the 2013 first quarter, compared to
- As a percentage of homebuilding revenues, the Company's homebuilding operating income improved 12.5 percentage points from an operating loss in the first quarter of 2012.
Interest expense totaled
$15.2 million, compared to $16.3 millionin the year-earlier quarter. In the first quarter of 2012, interest expense included a $2.0 millionloss on the early extinguishment of debt.
In the first quarter of 2013, the Company's financial services
operations generated pretax income of
$2.7 million, compared to $2.0 millionin the year-earlier quarter. In January, the Company in partnership with Nationstar Mortgage LLC, its preferred mortgage lender, formed a mortgage banking company that is expected to begin offering mortgage banking services to the Company's homebuyers in the latter part of the year.
The Company's current quarter net loss narrowed by
$33.3 million, or 73%, to $12.5 million, compared to a net loss of $45.8 millionin first quarter of 2012. On a per share basis, the Company's net loss result also improved significantly to $.16from $.59in the year-earlier quarter.
Homebuyer Closing Cost Allowances Reclassification
December 1, 2012, the Company elected to reclassify closing cost allowances it gives to certain homebuyers from selling, general and administrative expenses to construction and land costs in its consolidated statements of operations in order to be more consistent with the practice of other public homebuilders. This had the effect of decreasing both the Company's housing gross profits and selling, general and administrative expenses by $2.1 millionand $4.4 millionfor the three months ended February 28, 2013and February 29, 2012, respectively, which represented .5% and 1.7% of housing revenues, respectively. The reclassification had no impact on consolidated operating income (loss) or net income (loss) amounts previously reported. All prior period amounts have been reclassified to conform to the 2013 presentation.
Backlog and Net Orders
Potential future housing revenues in backlog at February 28, 2013
$703.9 million, up 53% from $460.0 millionat February 29, 2012.
The number of homes in the Company's backlog rose 25% to 2,763 at
February 28, 2013 from 2,203 at
February 29, 2012.
- The number of homes in the Company's backlog rose 25% to 2,763 at February 28, 2013 from 2,203 at
The overall value of first quarter net orders was
$506.8 million, up 83% from $277.5 millionin the year-earlier quarter.
Each of the Company's four homebuilding regions generated a
year-over-year increase in net order value, ranging from 41% in
the Central region to 133% in the
- Each of the Company's four homebuilding regions generated a year-over-year increase in net order value, ranging from 41% in the Central region to 133% in the
Net orders rose 40% to 1,671 in the first quarter of 2013, up from
1,197 in the year-earlier quarter.
The year-over-year increase in net orders reflected double-digit
growth in each of the Company's homebuilding regions, with
increases ranging from 19% in the Central region to 83% in the
- The first quarter cancellation rate as a percentage of gross orders improved to 32% in 2013 from 36% in 2012. As a percentage of beginning backlog, the first quarter cancellation rate was 30% in 2013 and 31% in 2012.
- The year-over-year increase in net orders reflected double-digit growth in each of the Company's homebuilding regions, with increases ranging from 19% in the Central region to 83% in the
Cash, cash equivalents and restricted cash totaled
$668.7 millionat February 28, 2013, up $101.6 millionfrom $567.1 millionat November 30, 2012.
The Company's unrestricted cash and cash equivalents increased by
$99.2 millionto $624.0 millionfrom $524.8 millionat November 30, 2012.
The higher cash balance at
February 28, 2013was primarily due to the capital markets transactions completed in the current quarter, which generated total net proceeds of $332.9 million, as described below.
In the current quarter, the Company's operating activities used
net cash of
$211.0 million, up from $109.6 millionin the first quarter of 2012, largely due to investments in land and land development that drove inventories higher in the first quarter of 2013 compared to the 2012 year-end level.
- The Company's unrestricted cash and cash equivalents increased by
$1.94 billionat February 28, 2013 and $1.71 billionat November 30, 2012.
The Company's land and land development investments totaled
$344.9 millionfor the three months ended February 28, 2013, compared to $112.6 millionfor the prior-year quarter. The Company made strategic investments in each of its homebuilding regions in the current quarter, with the majority made in California, a key driver of the Company's improving results.
The Company owned or controlled 47,312 lots at February 28, 2013,
an increase of 6% from 44,752 lots owned or controlled at
November 30, 2012.
- The Company's land and land development investments totaled
The Company's debt balance of
$1.96 billionat February 28, 2013 increased from $1.72 billionat November 30, 2012, reflecting the public issuance of $230 millionin aggregate principal amount of 1.375% convertible senior notes due 2019, which generated net cash proceeds of $223.1 million.
The Company's next scheduled debt maturity is in 2014, when the
$76.0 millionof its 5 3/4% senior notes become due.
March 12, 2013, the Company entered into a new $200 millionunsecured revolving credit facility with a syndicate of financial institutions. The facility contains an accordion feature under which the aggregate commitment may be increased to up to $300 million, subject to certain conditions and the availability of additional bank commitments. The new facility supports the Company's capital structure by providing an additional source of readily accessible liquidity. To date, the Company has not made any borrowings under this facility.
- The Company's next scheduled debt maturity is in 2014, when the remaining
Stockholders' equity increased to
$473.1 millionat February 28, 2013from $376.8 millionat November 30, 2012, largely due to the Company's public issuance of 6,325,000 shares of its common stock on January 29, 2013, which generated net cash proceeds of $109.8 million.
"Our strategies targeting growth and profitability are working as
evidenced by our significantly improved financial and operational
results in the first quarter," said
"We also made major strides during the quarter to support accelerating
our future growth," continued Mezger. "We raised more than
Earnings Conference Call
The conference call on the first quarter 2013 earnings will be broadcast
live TODAY at
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: general
economic, employment and business conditions; 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 result in, among other negative impacts on our consolidated
financial statements, additional impairment or land option abandonment
charges, lower revenues and operating and other losses; conditions in
the capital, credit and financial markets (including residential
consumer mortgage lending standards, the availability of residential
consumer mortgage financing and mortgage foreclosure rates); material
prices and availability; labor costs and availability; changes in
interest rates; inflation; our debt level, including our ratio of debt
to total 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, but
not limited to, the Dodd-Frank Act, tax credits, tax incentives and/or
subsidies for home purchases, tax deductions for residential consumer
mortgage interest payments and property taxes, tax exemptions for
profits on home sales, and programs intended to modify existing mortgage
loans and to prevent mortgage foreclosures), the homebuilding industry,
or construction activities; decisions by lawmakers on federal fiscal
policies, including those relating to taxation and government spending;
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 related to water intrusion issues at certain of our
|CONSOLIDATED STATEMENTS OF OPERATIONS|
For the Three Months Ended
(In Thousands, Except Per Share Amounts — Unaudited)
|Costs and expenses||(402,362||)||(283,044||)|
|Operating income (loss)||454||(31,149||)|
|Equity in loss of unconsolidated joint ventures||(435||)||(72||)|
|Homebuilding pretax loss||(15,017||)||(47,372||)|
|Equity in income of unconsolidated joint venture||1,091||142|
|Financial services pretax income||2,659||1,970|
|Total pretax loss||(12,358||)||(45,402||)|
|Income tax expense||(100||)||(400||)|
|Basic and diluted loss per share||$||(.16||)||$||(.59||)|
|Basic and diluted average shares outstanding||79,401||77,090|
|CONSOLIDATED BALANCE SHEETS|
(In Thousands — Unaudited)
|Cash and cash equivalents||$||624,044||$||524,765|
|Investments in unconsolidated joint ventures||123,210||123,674|
|Liabilities and stockholders' equity|
|Accrued expenses and other liabilities||353,130||340,345|
|Mortgages and notes payable||1,963,753||1,722,815|
|Total liabilities and stockholders' equity||$||2,900,637||$||2,561,698|
For the Three Months Ended
(In Thousands — Unaudited)
|Costs and expenses:|
|Construction and land costs|
|Selling, general and administrative expenses||59,097||51,212|
|Loss on early extinguishment of debt||—||2,003|
|Depreciation and amortization||$||1,436||$||971|
|Amortization of previously capitalized interest||18,705||12,669|
For the Three Months Ended
|Average sales price:|
|Backlog data (dollars in thousands):|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Three Months Ended February 28, 2013 and
(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 housing gross profit margin, excluding inventory impairment charges, which is not calculated in accordance with generally accepted accounting principles ("GAAP"). The Company believes this non-GAAP financial measure is relevant and useful to investors in understanding 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 housing gross profit margin, excluding inventory impairment charges is not calculated in accordance with GAAP, this measure 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 the operating and financial performance measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement its respective most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting the Company's operations.
Housing Gross Profit Margin, Excluding Inventory Impairment Charges
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 housing gross profit margin, excluding inventory impairment charges:
|Housing construction and land costs||(343,265||)||(231,832||)|
|Housing gross profits||59,551||20,063|
|Add: Inventory impairment charges||—||6,572|
|Housing gross profits, excluding inventory impairment charges||$||59,551||$||26,635|
|Housing gross profit margin as a percentage of housing revenues||14.8||%||8.0||%|
|Housing gross profit margin, excluding inventory impairment charges, as a percentage of housing revenues||14.8||%||10.6||%|
Housing gross profit margin, excluding inventory impairment charges, is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs before inventory impairment charges associated with housing operations recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. The Company believes housing gross profit margin, excluding inventory impairment charges, 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 of housing gross profit margin between periods. This financial measure assists management in making strategic decisions regarding product mix, product pricing and construction pace. The Company also believes investors will find housing gross profit margin, excluding inventory impairment charges, relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of charges for inventory impairments.
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