KB Home(KBH) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements For Q2 2025, KB Home reported total revenues of $1.53 billion and net income of $107.9 million, a decrease from $1.71 billion and $168.4 million in Q2 2024, respectively, with total assets at $7.02 billion and Cash flow from operations at -$165.9 million for the first six months of 2025 | Financial Metric | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | Six Months Ended May 31, 2025 | Six Months Ended May 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,529.6 million | $1,709.8 million | $2,921.4 million | $3,177.6 million | | Net Income | $107.9 million | $168.4 million | $217.4 million | $307.1 million | | Diluted EPS | $1.50 | $2.15 | $3.00 | $3.91 | | Balance Sheet Item | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $308.9 million | $598.0 million | | Inventories | $5,913.3 million | $5,528.0 million | | Total Assets | $7,017.6 million | $6,936.2 million | | Notes Payable | $1,892.9 million | $1,691.7 million | | Total Stockholders' Equity | $3,990.5 million | $4,060.6 million | | Cash Flow Activity (Six Months Ended) | May 31, 2025 | May 31, 2024 | | :--- | :--- | :--- | | Net cash from operating activities | ($165.9 million) | $90.0 million | | Net cash used in investing activities | ($20.4 million) | ($29.0 million) | | Net cash used in financing activities | ($102.0 million) | ($144.1 million) | Segment Information The company operates through four homebuilding segments and one financial services segment, with the West Coast segment being the largest contributor to revenues ($1.26 billion) and pretax income ($145.6 million) for the six months ended May 31, 2025 | Homebuilding Segment (Six Months Ended May 31) | Revenues 2025 | Revenues 2024 | Pretax Income 2025 | Pretax Income 2024 | | :--- | :--- | :--- | :--- | :--- | | West Coast | $1,261.8 million | $1,256.7 million | $145.6 million | $152.9 million | | Southwest | $627.0 million | $641.8 million | $114.1 million | $110.5 million | | Central | $558.6 million | $696.3 million | $46.2 million | $85.1 million | | Southeast | $464.4 million | $568.4 million | $33.3 million | $70.8 million | - Inventory impairment and land option contract abandonment charges for the six months ended May 31, 2025, totaled $7.0 million, a significant increase from $2.5 million in the prior-year period[28] Financial Services The financial services segment's pretax income decreased by 37% to $15.7 million for the six months ended May 31, 2025, compared to $24.8 million in the prior year, driven by lower revenues and reduced equity income from the unconsolidated mortgage joint venture (KBHS) | Financial Services (Six Months Ended May 31) | 2025 | 2024 | | :--- | :--- | :--- | | Total Revenues | $9.6 million | $14.4 million | | Equity in income of unconsolidated joint venture | $9.2 million | $13.5 million | | Pretax Income | $15.7 million | $24.8 million | Inventories Total inventories increased to $5.91 billion as of May 31, 2025, up from $5.53 billion at November 30, 2024, primarily due to growth in land under development to $3.80 billion, with $55.0 million of interest costs capitalized | Inventory Component | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Homes completed or under construction | $2,117.7 million | $1,990.1 million | | Land under development | $3,795.7 million | $3,537.9 million | | Total | $5,913.3 million | $5,528.0 million | Inventory Impairments and Land Option Contract Abandonments The company recognized no inventory impairment charges in the first six months of 2025 or 2024, but land option contract abandonment charges significantly increased to $7.0 million for the six months ended May 31, 2025, from $2.5 million in 2024 - Land option contract abandonment charges were $5.6 million for Q2 2025 and $7.0 million for the six months ended May 31, 2025[41] - No inventory impairment charges were recognized for the three-month and six-month periods ended May 31, 2025 and 2024[39] Debt and Financing Total notes payable increased to $1.89 billion as of May 31, 2025, from $1.69 billion at November 30, 2024, primarily due to drawing $200.0 million from the unsecured revolving credit facility, while remaining in compliance with all debt covenants | Debt Instrument | May 31, 2025 | November 30, 2024 | | :--- | :--- | :--- | | Unsecured revolving credit facility | $200.0 million | $0 | | Senior unsecured term loan | $359.2 million | $358.8 million | | Senior notes | $1,330.6 million | $1,329.7 million | | Total | $1,892.9 million | $1,691.7 million | - As of May 31, 2025, the company had $881.7 million available for cash borrowings under its $1.09 billion credit facility[68] Commitments and Contingencies The company faces various commitments and contingencies, including a warranty liability of $97.7 million, approximately 280 construction defect claims in Florida, a subpoena from the U.S. Department of Justice regarding ENERGY STAR homes, and Outstanding performance bonds totaling $1.44 billion - The company is addressing approximately 280 outstanding claims in Florida related to Chapter 558, alleging construction defects, primarily concerning stucco and water-intrusion issues[93] - On October 2, 2023, the company received a subpoena from the U.S. Department of Justice regarding the inspection, rating, and marketing of its ENERGY STAR certified homes. The company is cooperating with the government[96] - As of May 31, 2025, the company had $1.44 billion in outstanding performance bonds and $82.7 million in letters of credit to secure project completions[94] Stockholders' Equity During the first half of 2025, the company repurchased 4.5 million shares of its common stock for $250.0 million, with $450.0 million remaining available under the current share repurchase authorization, and paid a quarterly cash dividend of $0.25 per share in Q2 2025 - In the first half of 2025, the company repurchased 4,488,614 shares for $250.0 million. $450.0 million remains authorized for future repurchases as of May 31, 2025[100] - A quarterly cash dividend of $0.25 per share was declared and paid in the second quarter of 2025[102] Management's Discussion and Analysis (MD&A) Management reported that market conditions softened in Q2 2025 due to housing affordability concerns and elevated mortgage rates, leading to a 13% year-over-year decline in net orders, prompting a new pricing strategy and a downward revision of full-year 2025 guidance for housing revenues to between $6.30 billion and $6.50 billion Overview of Operations In Q2 2025, the company faced a softer market with subdued demand, resulting in net orders falling 13% year-over-year to 3,460, a 10% decrease in Q2 housing revenues to $1.52 billion, and diluted EPS falling 30% to $1.50 - Market conditions softened in Q2 2025 due to housing affordability concerns, elevated mortgage rates, and weakening consumer confidence[106] - Net orders for Q2 2025 were down 13% year-over-year to 3,460, with a monthly net order pace per community of 4.5, compared to 5.5 in the prior year[107] - A new pricing strategy was implemented, reducing selling prices and other homebuyer concessions to stimulate demand. This led to an 8% decrease in the average selling price of net orders for the quarter[108] Homebuilding Operations Analysis Homebuilding revenues for Q2 2025 fell 10% to $1.52 billion, driven by an 11% decrease in homes delivered, with Operating income dropping 30% to $131.5 million, and housing gross profit margin contracting by 180 basis points to 19.3%, while ending backlog value was down 27% year-over-year to $2.29 billion | Metric (Q2) | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Homes Delivered | 3,120 | 3,523 | -11% | | Housing Gross Profit Margin | 19.3% | 21.1% | -180 bps | | Adjusted Housing Gross Profit Margin | 19.7% | 21.2% | -150 bps | | SG&A as % of Housing Revenues | 10.7% | 10.1% | +60 bps | | Metric (Q2) | 2025 | 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Orders | 3,460 | 3,997 | -13% | | Net Order Value | $1.61 billion | $2.03 billion | -21% | | Cancellation Rate | 16% | 13% | +3 p.p. | | Ending Backlog Value | $2.29 billion | $3.12 billion | -27% | Liquidity and Capital Resources The company ended Q2 2025 with $1.19 billion in total liquidity, including $308.9 million in cash and $881.7 million available on its credit facility, shifting capital allocation towards share repurchases ($250.0 million in H1 2025) and scaling back land and development investments, resulting in a debt-to-capital ratio increase to 32.2% - Total liquidity was $1.19 billion at the end of Q2 2025, consisting of cash and available credit facility capacity[159] - The company is scaling back land and development investments (down 23% YoY in Q2) while increasing share repurchases ($250.0 million in H1 2025)[111][163] - The debt-to-capital ratio increased to 32.2% at May 31, 2025, from 29.4% at November 30, 2024, due to $200.0 million in borrowings under the credit facility[169] - Net cash used in operating activities was $165.9 million for the first six months of 2025, a reversal from $90.0 million provided in the prior year, mainly due to a $390.6 million increase in inventories[182] Outlook Due to persistent soft market conditions, KB Home has revised its 2025 full-year guidance downwards, expecting housing revenues between $6.30 billion and $6.50 billion, with an average selling price of $480,000 to $490,000, and a housing gross profit margin of 19.0% to 19.4% | 2025 Full Year Guidance | Revised Projection | Prior Year (2024) | | :--- | :--- | :--- | | Housing Revenues | $6.30 billion - $6.50 billion | $6.90 billion | | Average Selling Price | $480,000 - $490,000 | $486,900 | | Housing Gross Profit Margin | 19.0% - 19.4% | 21.1% | | Ending Community Count | Approx. 250 | 258 | | Q3 2025 Guidance | Projection | Prior Year (Q3 2024) | | :--- | :--- | :--- | | Housing Revenues | $1.50 billion - $1.70 billion | $1.75 billion | | Average Selling Price | $470,000 - $480,000 | $480,900 | | Housing Gross Profit Margin | 18.1% - 18.7% | 20.7% | - The company expects to repurchase between $100.0 million and $200.0 million of its common stock in the third quarter of 2025[202] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk profile since November 30, 2024, except for increased interest rate risk exposure due to $200.0 million in cash borrowings outstanding under its variable-rate Credit Facility as of May 31, 2025 - The primary change in market risk is related to the $200.0 million of variable-rate debt drawn from the Credit Facility, which is subject to interest rate fluctuations based on SOFR[213] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of May 31, 2025, with no material changes in internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of May 31, 2025[216] PART II. OTHER INFORMATION Legal Proceedings & Risk Factors The company refers to Note 17 of the financial statements for details on legal proceedings, and reports no material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended November 30, 2024 - For legal proceedings, the report refers to Note 17 in the financial statements[217] - No material changes to risk factors were reported since the last Annual Report[218] Share Repurchases During Q2 2025, KB Home repurchased 3,734,675 shares of its common stock for a Total Cost of $200.0 million, with $450.0 million remaining available under its board-authorized share repurchase program as of May 31, 2025 | Period (2025) | Total Shares Purchased | Average Price Paid per Share | Total Cost | | :--- | :--- | :--- | :--- | | March | 0 | N/A | $0 | | April | 2,072,237 | $52.56 | $108.9 million | | May | 1,662,438 | $54.79 | $91.1 million | | Q2 Total | 3,734,675 | $53.55 | $200.0 million | - As of May 31, 2025, $450.0 million remained available for repurchase under the existing authorization[219]