KB Home(US:KBH)2020-03-27 03:55Financial Data and Key Metrics Changes - The company reported a 34% increase in housing revenues year-over-year, reaching $1.1 billion, driven by a 28% rise in homes delivered and a 5% increase in overall average selling price [19][20] - Homebuilding operating income rose 92% year-over-year to $60.2 million, with an operating margin improvement of 170 basis points to 5.6% [20][21] - Net income for the quarter increased by 99% year-over-year to $59.7 million, with diluted earnings per share more than doubling to $0.63 [21][22] - The leverage ratio improved to 41.7%, a 60 basis point improvement from the end of the previous fiscal year [23][24] Business Line Data and Key Metrics Changes - The backlog at the end of the first quarter increased to 5,821 homes valued at $2.1 billion, up 28% year-over-year [13] - The cancellation rate remained healthy at 17% quarter-to-date, indicating strong buyer commitment [12][21] - The company maintained a built-to-order model, which aligns production with demand and minimizes inventory risk [13][26] Market Data and Key Metrics Changes - The company experienced a 7% increase in net orders relative to the prior year for the first two weeks of March, but this turned to a cumulative 5% decline by the end of the month due to COVID-19 impacts [11][12] - Website visits increased nearly 50% in March, with conversions to sales leads up over 20% compared to the prior year [8][10] Company Strategy and Development Direction - The company is focused on maintaining a solid balance sheet and liquidity, with over $1.2 billion in liquidity and no goodwill on the balance sheet [10][24] - The strategy includes curtailing land acquisition and development in response to market uncertainties while continuing to engage with buyers in backlog [15][40] - The company emphasizes a built-to-order model to enhance flexibility and mitigate risks during market disruptions [26][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate through the current health crisis, citing a strong financial position and effective operational strategies [26][19] - The management team is closely monitoring market conditions and adapting strategies as necessary, with a focus on maintaining cash flow and managing costs [15][40] - There is an expectation of strong demand for homeownership post-crisis, as buyers seek safety and security in their living situations [57][58] Other Important Information - The company has shifted to virtual sales tools and appointment-only visits to ensure safety during the pandemic [7][8] - The management team highlighted the importance of maintaining relationships with land sellers and developers to manage business effectively during disruptions [15][40] Q&A Session Summary Question: Can you discuss the backlog and delivery plans? - Management indicated that the backlog typically represents a 5 to 5.5 months' supply of deliveries and that they are actively working to complete homes and facilitate closings [30][31] Question: How is the mortgage market affecting closings? - Management reported that they are currently able to close homes without issues, despite some changes in the mortgage market [34] Question: How are you managing land spend during this time? - The company is pulling back on land investments and focusing on maintaining flexibility in commitments while monitoring market conditions [40][41] Question: What is the approach to pricing in the current environment? - Management stated that they do not see an urgency to adjust pricing at this time, as demand remains stable and they have a solid backlog [54][55] Question: How are you addressing potential buyer cancellations due to unemployment? - Management is proactively reaching out to buyers in backlog to understand their situations and maintain engagement [78][79]