KB Home(US:KBH)2020-06-25 02:00Financial Data and Key Metrics Changes - In Q2 2020, total revenues were $914 million, with diluted earnings per share of $0.55, representing an 8% year-over-year growth [8][29] - The housing gross profit margin increased by 100 basis points year-over-year to 18.2%, contributing to a 19% increase in pretax income [9][31] - The leverage ratio improved by 430 basis points year-over-year to 41.5%, with a net ratio of 32.4% [9] Business Line Data and Key Metrics Changes - The company delivered 2,500 homes during the quarter, a decrease in the number of homes delivered by 10% year-over-year [28][29] - The average selling price of homes delivered was approximately $364,000, slightly down year-over-year, but expected to increase in the second half of the year [30][31] - Homebuilding operating income decreased slightly to $51.6 million, but the operating income margin increased by 60 basis points to 5.7% [31] Market Data and Key Metrics Changes - Gross orders declined by 4% year-over-year in March, with a significant drop of about 60% in April, but began to recover in May as markets reopened [15][16] - The cancellation rate increased to 43% in Q2, primarily affecting homes that had not yet been started [20] - The company ended the quarter with a backlog of 5,800 buyers, with a backlog value of $1.9 billion, a decrease of 12% year-over-year [19][29] Company Strategy and Development Direction - The company remains committed to a built-to-order strategy, which allows for alignment with demand and minimizes inventory risk [25][26] - The company has enhanced its virtual selling capabilities, allowing customers to engage in the home buying process remotely [12][55] - The focus is on maintaining a strong balance sheet and enhancing liquidity while navigating through the uncertainties posed by COVID-19 [41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to restore higher volume delivery levels and improve efficiency as the market stabilizes [8][27] - The company anticipates housing revenues for Q3 2020 to be in the range of $820 million to $880 million, with full-year revenues projected between $3.75 billion and $3.95 billion [29] - Management acknowledged the risks associated with the ongoing pandemic but remains optimistic about the recovery and future opportunities [27][41] Other Important Information - The company increased its cash balance by $145 million sequentially and by nearly $450 million year-over-year, ending the quarter with $1.4 billion in liquidity [13][40] - The joint venture's capture rate increased to 76%, driving income up about 90% year-over-year [22] Q&A Session Summary Question: Orders and Market Trends - A participant inquired about the lighter orders in Q2 and June, suggesting the company may have been more aggressive in scrubbing the backlog and closing communities [44] - Management responded that the aggressive approach was necessary to ensure the viability of homes being built, and noted that orders strengthened in June [46] Question: Incentives and Demand - A follow-up question addressed the trend of incentives and demand in June [47] - Management indicated that incentives remained low and that demand was solid, with prices raised in about 60% of communities [49] Question: Built-to-Order Strategy - A participant asked about the impact of the built-to-order strategy on cancellations and orders [51] - Management confirmed that cancellations were primarily on homes not yet started, and that built-to-order homes performed better than inventory homes [52] Question: Virtual Selling Capabilities - A question was raised regarding the company's virtual home selling capabilities and the percentage of orders completed online [54] - Management acknowledged a significant number of homes sold virtually and expressed optimism about refining the business model to leverage these tools [55] Question: Cancellations and Employment Status - A participant inquired about the reasons behind cancellations and the employment status of buyers [67] - Management noted that the largest driver of cancellations was job loss or long-term furloughs, but did not foresee another wave of unemployment impacting the current backlog [68] Question: Revenue Guidance and Backlog Conversion - A question was posed about the revenue guidance for Q3 and potential bottlenecks in construction [70] - Management explained that while cycle times have lengthened for permits, build times have remained stable, and they are focused on clearing the backlog [73] Question: Demand Characterization - A participant asked about the sources of recent demand increases, particularly regarding first-time buyers and relocations [74] - Management noted an increase in first-time buyers and some relocation trends due to remote work opportunities [75]