KB Home

Good afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2023 Third 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 lines for questions. Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com, through October 20th. And now I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. You may begin.

Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the third quarter of fiscal 2023. On the call are Jeff Mezger, Chairman, President, and Chief Executive Officer. Rob McGibney, Executive Vice President and Chief Operating Officer. Jeff Kaminski, Executive Vice President and Chief Financial Officer. Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson, Senior Vice President and Treasurer. During this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results and the company does not undertake any obligation to update them. Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statements. In addition, a reconciliation of the non-GAAP measures of adjusted housing gross profit margin, which excludes inventory-related charges, and any other non-GAAP measure referenced during today's discussion to its most directly comparable GAAP measure can be found in today's press release and or on the investor relations page of our website at kbhome.com. And with that, here's Jeff Mezger.

Thank you, Jill, and good afternoon, everyone. We delivered another quarter of strong performance, highlighted by our closings and margins, which exceeded our previous guidance. With these favorable results and our improved outlook for the fourth quarter, we are again raising our revenue and earnings outlook for our 2023 fiscal year. Our business is performing well, and our teams are executing on their plans to balance pace, price and starts, reduce build times, and drive high customer satisfaction while growing their volumes and profits. As for the details of the third quarter, we generated total revenues of $1.6 billion and diluted earnings per share of $1.80. We closed 3,375 homes, a strong outcome that was driven primarily by a continued reduction in build times and fewer cancellations. Our margins were healthy at 11.3% in operating income and a 21.5% gross margin. While the year-over-year comparisons are difficult due to the record profits we achieved in last year's third quarter, our results And the cumulative benefit of ongoing share repurchases drove our book value per share to $48.29, an increase of 18% year over year. The outlook remains healthy for housing market conditions, driven by low existing home inventory and constrained availability of new homes at our price points. With over 140 million combined millennials and Gen Zs, First-time buyers will likely fuel the housing market over the next decade, which is favorable for our business as we primarily serve the first-time and affordable first move-up segments. Demand for our product at our price points was solid. On a per-community basis, our absorption pace averaged 4.3 monthly net orders, higher than our historical pre-pandemic third-quarter average. Although interest rates rose as the quarter progressed, our net orders remained fairly consistent month to month. The combination of an acute shortage of homes, together with the demographic factors I just referenced, led to strong absorption and a cancellation rate that has returned to historical levels. We generated net orders of 3,097 within our guided range, a healthy result during a seasonally slower time of year. While we are pleased with our net orders and pace during the third quarter, we recognize the impact that both higher mortgage rates and overall economic conditions may have on our buyers. With that in mind, and based on normal fourth quarter seasonality, we project a monthly absorption pace of between three and four net orders per community, producing a range of between 2,070 and 2,760 net orders in our fourth quarter. We believe we are well positioned to navigate any possible shift in demand should rates go higher or if the economy softens, and we are prepared to take the steps necessary to adjust to changing conditions, as we have done in past cycles. The flexibility inherent in our built-to-order approach, with buyers selecting their lot, floor plan, and finishes in our design studios, is a meaningful differentiator as buyers are empowered to significantly influence their overall sales price based on their choices. Approximately 70% of our communities offer plans with square footage below 1600, smaller homes which feature similar room counts and livability that are a more affordable option. Offering a range of products and price points that buyers choose gives us early insight in how the market is moving allowing us to adjust appropriately in the homes we model and price points we feature. Our backlog was just over 7,000 homes valued at approximately $3.4 billion. As we saw in our results, our large backlog provides a stable base of deliveries with good visibility on margins. We are now primarily focused on selling the homes we need to support deliveries in the first half of 2024. We started 3,850 homes during the quarter, ramping up our starts to position ourselves for growth, given the steady demand we've experienced. We ended the quarter with close to 7,800 homes in production, of which about 73% are sold, consistent with our targeted range. With that, I'll pause for a moment and ask Rob to provide an operational update.