KB Home

Good afternoon. My name is Julian, and I will be your conference operator for today. I would like to welcome everyone to the KB Home 2025 second quarter earnings conference call. All participant lines are in a listen-only mode. Following the company's remarks, there will be an open line for questions. This conference call is being recorded, and a replay will be accessible on the KB Home website until July 23, 2025. I will now turn the call over to Jill Peters, Senior Vice President of Investor Relations. Jill, you may begin.

Thank you, Julian. Good afternoon, everyone, and thank you for joining us today to review our results for the second quarter of fiscal 2025. On the call are Jeff Mezger, Chairman and Chief Executive Officer, Rob McGibney, President and Chief Operating Officer, Rob Dillard, 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 measure 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 is Jeff Mezger.

Thank you, Jill. And good afternoon, everyone. We delivered solid financial results in the second quarter that met or exceeded our guidance ranges across our metrics as we continue to navigate the current environment. With a healthy balance sheet, our financial position and flexibility are strong. We are returning an increasing amount of cash to our shareholders, having repurchased $200 million of our shares in the second quarter. Operationally, we continue to strengthen our business by further reducing our build times and lowering our direct costs. As to market conditions, while longer term, the outlook for the housing market remains favorable, driven by demographics and an undersupply of homes. Consumers are continuing to demonstrate a lack of confidence about the short term, which has impacted their home purchase decisions. Affordability challenges have persisted, compounded by the variability in mortgage interest rates, which remain elevated, as well as macroeconomic and geopolitical uncertainties. These factors resulted in a more subdued demand during the spring selling season. As a result of this softer environment, we are revising our guidance for fiscal 2025. As to the details of our results, we produced total revenues of $1.5 billion and diluted earnings per share of $1.50 in our second quarter. We exceeded our delivery expectations, driven primarily by faster build times, which improved sequentially by seven days and are now back to pre-pandemic levels. We achieved a gross margin of 19.7%, excluding inventory-related charges, above our guidance range. With a focus on prudently managing our costs, our SG&A was at the low end of our guided range at 10.7%, contributing to an operating income margin of 9%. We increased our book value per share to nearly $59, a 10% year-over-year increase. We generated 3,460 net orders in the second quarter. The actions we began to take late in our 2025 first quarter, evaluating base pricing in every community relative to local market conditions, then repositioning our communities with a focus on offering the most compelling value, led to strong net orders in March. However, our net orders declined in April and May, which did not follow the typical spring trajectory. As a result, even though our average community count was in line with our projection and our cancellation rate was fairly steady, our monthly absorption pace per community was 4.5 net orders compared to 5.5 in last year's second quarter. While our net order pace was below our internal goal, we believe it ranks high among the large production home builders. Our focus is on optimizing our assets to generate the highest returns. balancing pace and price on a community-by-community basis. In stronger market conditions, we believe this will yield an annual average absorption pace of about five net orders per month per community, as we would increase price in order to maximize margins rather than run our communities any faster. When the market slows, we would expect a pace of roughly four net orders per month per community. This is not a fixed approach, It allows for flexibility to adjust to changing market conditions as we determine the appropriate pace to achieve the best possible returns. For example, reducing base prices late in our first quarter at the start of the strongest selling period of the year optimizes our assets. Doing so in the fourth quarter, when demand is typically more inelastic and speculative builders are competing to finish their fiscal years, is not the optimal way to manage our assets. The incremental volume in that context tends to be minimal and comes at a great cost to our margins. Finding the right balance comes from adjusting prices to maintain or increase our absorption pace so that each community has the appropriate selling cadence while maximizing margins, returns, and cash flow. Market conditions change over time. And when resell inventory was lower over the past few years, we started more speculative homes, which shifted our business away from our historical mix of between 70% and 75% built to order. As we continue to sell through our inventory, our goal is to steer our business back to this historical range of built to order homes over time. It is our core competency and a key differentiator from a competitive standpoint setting us apart from the other large production home builders. More importantly, from a consumer standpoint, it offers buyer's choice with features we know they value based on our survey data. Our buyers can significantly influence their final sales price as they personalize their choice of lot elevation and design studio selection, aligning their monthly payment with their budget. Our studios also contribute to our high customer satisfaction scores as buyers draw value from that aspect of our process, and they enhance our gross margins. As our built-to-order mix grows, we believe it will drive a higher gross margin for our company over time. Before I turn the call over to Rob McGibney, let me spend a moment addressing our lower guidance for 2025. With market conditions having softened, and taking our net order results from the first half of this year into consideration, resetting our revenue expectation is appropriate. Rob will provide additional details on how we expect to achieve the new range of between $6.3 and $6.5 billion. We anticipate the lower top line will contribute to lower margins, although we continue to pursue additional improvements in build times and direct costs and we are right-sizing our overhead structure to align with our lower volume this year. Let me pause here for a moment and ask Rob to provide more details on our sales, as well as an operational update. Rob.