KB Home
Jun 21, 2016

KB Home Reports 2016 Second Quarter Results

Total Revenues Up 30% to $811 Million; Net Income Increases 63% to $16 Million

Net Order Value Increases 14% to $1.20 Billion

LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH) today reported results for its second quarter ended May 31, 2016.

"We delivered a strong second quarter performance," said Jeffrey Mezger, president and chief executive officer. "We generated considerable increases in deliveries and revenues, and posted a substantial improvement in earnings, despite charges related to our strategic decision to transition out of the Metro Washington, D.C. area. Our second quarter results reflect the success of our targeted positioning in attractive growth markets and the distinctive home-buying experience we offer to consumers."

"We are encouraged by the continued improvement in housing market conditions across the country and by the recent increase in participation from first-time homebuyers, historically our primary customer segment," said Mezger. "We believe we are particularly well-positioned to leverage our strength in serving the demand from this demographic with dynamic product offerings. With favorable market trends and our financial and operational progress in the first half of the year, we have positive momentum in our business heading into the remainder of 2016."

Three Months Ended May 31, 2016 (comparisons on a year-over-year basis)

Six Months Ended May 31, 2016 (comparisons on a year-over-year basis)

Backlog and Net Orders (comparisons on a year-over-year basis)

Balance Sheet (as of May 31, 2016)

Earnings Conference Call

The conference call to discuss the Company's second quarter 2016 earnings will be broadcast live TODAY at 2:00 p.m. Pacific Daylight Time, 5:00 p.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 homebuilders in the United States and an industry leader in sustainability, building innovative and highly energy- and water-efficient new homes. Founded in 1957 and the first NYSE-listed homebuilder (ticker symbol: KBH), the company has built nearly 600,000 homes for families from coast to coast. Distinguished by its personalized homebuilding approach, KB Home lets each buyer choose their lot location, floor plan, décor choices, design features and other special touches that matter most to them. To learn more about KB Home, call 888-KB-HOMES, visit www.kbhome.com or connect on Facebook.com/KBHome or 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; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms; material and trade costs and availability; changes in interest rates; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; our compliance with the terms of our revolving credit facility; volatility in the market price of our common stock; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors, including the severe prolonged 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 benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities; the availability and cost of land in desirable areas; our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; our ability to use/realize the net deferred tax assets we have generated; our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market positioning (including our transition out of the Metro Washington, D.C. area), gaining share and scale in our served markets, and increasing our housing gross profit margins and profitability; our operational and investment concentration in markets in California; consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California; our ability to generate cash from our operations, enhance our asset efficiency, increase our operating income margin and improve our return on invested capital; the ability of our homebuyers 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 Six Months and Three Months Ended May 31, 2016 and 2015

(In Thousands, Except Per Share Amounts — Unaudited)

 
Six Months Ended May 31, Three Months Ended May 31,
2016   2015 2016   2015
Total revenues $ 1,489,421   $ 1,203,090   $ 811,050   $ 622,969  
Homebuilding:
Revenues $ 1,484,204 $ 1,198,692 $ 808,462 $ 620,804
Costs and expenses (1,439,274 ) (1,166,432 ) (782,524 ) (602,942 )
Operating income 44,930 32,260 25,938 17,862
Interest income 286 255 134 152
Interest expense (5,667 ) (13,456 ) (1,970 ) (8,118 )
Equity in loss of unconsolidated joint ventures (1,428 ) (758 ) (825 ) (411 )
Homebuilding pretax income 38,121   18,301   23,277   9,485  
Financial services:
Revenues 5,217 4,398 2,588 2,165
Expenses (1,730 ) (1,892 ) (871 ) (928 )
Equity in income (loss) of unconsolidated joint ventures (784 ) 2,365   (197 ) 1,951  
Financial services pretax income 2,703   4,871   1,520   3,188  
Total pretax income 40,824 23,172 24,797 12,673
Income tax expense (12,100 ) (5,800 ) (9,200 ) (3,100 )
Net income $ 28,724   $ 17,372   $ 15,597   $ 9,573  
Earnings per share:
Basic $ .33   $ .19   $ .18   $ .10  
Diluted $ .31   $ .18   $ .17   $ .10  
Weighted average shares outstanding:
Basic 86,704   91,974   84,196   91,995  
Diluted 97,060   101,470   94,720   101,544  
 

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands — Unaudited)

 
May 31,
2016
November 30,
2015
Assets
Homebuilding:
Cash and cash equivalents $ 274,849 $ 559,042
Restricted cash 3,517 9,344
Receivables 151,066 152,682
Inventories 3,525,089 3,313,747
Investments in unconsolidated joint ventures 65,213 71,558
Deferred tax assets, net 770,396 782,196
Other assets 112,790   112,774
4,902,920 5,001,343
Financial services 12,923   14,028
Total assets $ 4,915,843   $ 5,015,371
 
Liabilities and stockholders' equity
Homebuilding:
Accounts payable $ 190,327 $ 183,770
Accrued expenses and other liabilities 456,645 513,414
Notes payable 2,632,127   2,625,536
3,279,099 3,322,720
Financial services 1,575 1,817
Stockholders' equity 1,635,169   1,690,834
Total liabilities and stockholders' equity $ 4,915,843   $ 5,015,371
 

KB HOME

SUPPLEMENTAL INFORMATION

For the Six Months and Three Months Ended May 31, 2016 and 2015

(In Thousands, Except Average Selling Price — Unaudited)

     
Six Months Ended May 31, Three Months Ended May 31,
2016 2015 2016 2015
Homebuilding revenues:
Housing $ 1,480,054 $ 1,129,762 $ 807,408 $ 604,921
Land 4,150   68,930   1,054   15,883  
Total $ 1,484,204   $ 1,198,692   $ 808,462   $ 620,804  
 
 
Homebuilding costs and expenses:
Construction and land costs
Housing $ 1,247,131 $ 953,659 $ 682,303 $ 508,276
Land 10,401   63,169   6,411   16,134  
Subtotal 1,257,532 1,016,828 688,714 524,410
Selling, general and administrative expenses 181,742   149,604   93,810   78,532  
Total $ 1,439,274   $ 1,166,432   $ 782,524   $ 602,942  
 
 
Interest expense:
Interest incurred $ 92,509 $ 94,202 $ 46,258 $ 49,199
Interest capitalized (86,842 ) (80,746 ) (44,288 ) (41,081 )
Total $ 5,667   $ 13,456   $ 1,970   $ 8,118  
 
 
Other information:
Depreciation and amortization $ 5,602 $ 5,560 $ 2,821 $ 2,835
Amortization of previously capitalized interest 66,239   47,736   35,557   25,443  
 
 
Average selling price:
West Coast $ 564,800 $ 565,500 $ 570,200 $ 579,000
Southwest 285,700 275,400 284,900 275,800
Central 262,300 237,900 264,000 237,800
Southeast 275,200   271,800   278,400   278,800  
Total $ 345,600   $ 334,200   $ 346,700   $ 338,500  
 
KB HOME

SUPPLEMENTAL INFORMATION

For the Six Months and Three Months Ended May 31, 2016 and 2015

(Dollars in Thousands — Unaudited)

 
Six Months Ended May 31, Three Months Ended May 31,
2016   2015 2016   2015
Homes delivered:
West Coast 1,089 873 581 459
Southwest 742 516 392 279
Central 1,671 1,390 906 737
Southeast 780   601   450   312
Total 4,282   3,380   2,329   1,787
 
 
Net orders:
West Coast 1,550 1,322 995 770
Southwest 900 921 541 532
Central 2,111 2,046 1,210 1,176
Southeast 960   915   503   537
Total 5,521   5,204   3,249   3,015
 
 
Net order value:
West Coast $ 910,493 $ 756,311 $ 572,882 $ 438,754
Southwest 262,625 258,213 155,337 149,555
Central 581,457 535,424 328,242 308,381
Southeast 273,101   256,094   146,541   156,176
Total $ 2,027,676   $ 1,806,042   $ 1,203,002   $ 1,052,866
 
 
 
May 31, 2016 May 31, 2015
Backlog Homes Backlog Value Backlog Homes Backlog Value
Backlog data:
West Coast 1,199 $ 703,346 1,042 $ 617,354
Southwest 763 218,047 729 200,697
Central 2,282 638,052 2,145 558,681
Southeast 961   269,657   817   234,091
Total 5,205   $ 1,829,102   4,733   $ 1,610,823
 

KB HOME
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
For the Six Months and Three Months Ended May 31, 2016 and 2015
(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:

Six Months Ended May 31,   Three Months Ended May 31,
2016   2015 2016   2015
Housing revenues $ 1,480,054 $ 1,129,762 $ 807,408 $ 604,921
Housing construction and land costs (1,247,131 ) (953,659 ) (682,303 ) (508,276 )
Housing gross profits 232,923 176,103 125,105 96,645
Add: Amortization of previously capitalized interest (a) 65,757 47,736 35,551 25,443
Inventory-related charges (b) 7,563   984   6,384   536  
Adjusted housing gross profits $ 306,243   $ 224,823   $ 167,040   $ 122,624  
Housing gross profit margin as a percentage of housing revenues 15.7 % 15.6 % 15.5 % 16.0 %
Adjusted housing gross profit margin as a percentage of housing revenues 20.7 % 19.9 % 20.7 % 20.3 %

(a) Represents the amortization of previously capitalized interest associated with housing operations.
(b) Represents inventory impairment and land option contract abandonment charges associated with housing operations.

Adjusted housing gross profit margin is a non-GAAP financial measure, which the Company calculates by dividing housing revenues less housing construction and land costs excluding (1) amortization of previously capitalized interest associated with housing operations and (2) 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 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 community location and product mix, product pricing and construction pace.

KB HOME
RECONCILIATION 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:

May 31,
2016
  November 30,
2015
Notes payable $ 2,632,127 $ 2,625,536
Stockholders' equity 1,635,169   1,690,834  
Total capital $ 4,267,296   $ 4,316,370  
Ratio of debt to capital 61.7 % 60.8 %
 
 
Notes payable $ 2,632,127 $ 2,625,536
Less: Cash and cash equivalents and restricted cash (278,366 ) (568,386 )
Net debt 2,353,761 2,057,150
Stockholders' equity 1,635,169   1,690,834  
Total capital $ 3,988,930   $ 3,747,984  
Ratio of net debt to capital 59.0 % 54.9 %

The ratio of net debt to capital is a non-GAAP financial measure, which the Company calculates by dividing notes payable, net of homebuilding cash and cash equivalents and restricted cash, by capital (notes payable, net of homebuilding cash and cash equivalents and restricted cash, plus stockholders' equity). The most directly comparable GAAP financial measure is the ratio of debt to capital. The Company believes the ratio of net debt to capital is a relevant and useful financial measure to investors in understanding the leverage employed in the Company's operations.

KB Home
Investor Relations Contact:
Jill Peters, 310-893-7456
jpeters@kbhome.com
or
Media Contact:
Susan Martin, 310-231-4142
smartin@kbhome.com

Source: KB Home

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