KB Home Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Stephen Kim - Evercore ISI - Analyst : Thanks very much, guys. Appreciate all the color as always on and yes, congrats on the good results. Couple of questions. Number one, I was wondering if you could give us a sense for what we should be thinking about for in 2024, a kind of a targeted level of operating cash flow as a percentage of net income that can have cash for sorry, cash conversion, what sort of level we should be thinking about for you? And then also from a longer-term perspective, operating margin profitability has been improving. What do you think a level of a longer term sustainable operating margin can be for your company? I'm sort of thinking maybe 13% or something like that was wondering if you could respond to that?

Question: Stephen Kim - Evercore ISI - Analyst : Now that's just one, Jeff.

Question: Stephen Kim - Evercore ISI - Analyst : Appreciate that. Thanks very much, guys. It's really encouraging. Second question relates to the big news regarding the NAR's settlement that obviously, I think has created a lot of turmoil. What I'm intrigued about is the potential for this confusion and the relatively quick timeframe by which all these changes need to be made, whether that might result in a somewhat dysfunctional retail market that large builders such as yourselves can capitalize on with your Internet presences, which I know you've substantially bolstered over the last several years. And so my question is, can you give us a sense for what share of your leads today are generated through the Internet and do those Internet driven leads carry a lower SG&A burden on when they ultimately come through in sales?

Question: Alan Ratner - Zelman & Associates - Analyst : Hey, guys. Good afternoon and nice quarter and appreciate all the color so far. So my first question, and I really appreciate all the statistics you gave on the credit side. I was admittedly a little surprised from one of your competitors last week kind of talked a little bit about and some rising early-stage red yellow flags or red flags and some of their customer credit metrics like credit card delinquencies and things like that. And I just want to make sure I'm thinking about your commentary in the same vein because I think a lot of the statistics you gave are maybe on closings and kind of more representative of might what might have been going on six months or so ago. So can you just be clear that you are not seeing any signs of stress in kind of real time in terms of the consumers that are coming through your model homes today?

Question: Alan Ratner - Zelman & Associates - Analyst : Right. Okay.

Question: Alan Ratner - Zelman & Associates - Analyst : Yes, that makes sense. And I appreciate the clarification on that. So my second question is on kind of the land portfolio and nice pickup in land acquisition activity in the quarter. Your lot count and I'm looking at this correctly, is down about 10% year-over-year, down almost 40% from two years ago. And your years' supply of land is kind of hovering in that 4-ish year metric, which is among the lower in the industry. And I'm just curious, is that would you say that by design as an effort to kind of improve your capital efficiency or turnover or is that land supply? I know you mentioned you've got all the land you need for '25, but would you like to see that land pipeline a little bit higher than it is currently?

Question: John Lovallo - UBS - Analyst : Hey, guys, thank you for taking my questions. The first one is, can you just help us with the drivers of the 60 basis point gross margin beat versus your expectations in the first quarter and then help us with sort of the walk from the first quarter to the second quarter in terms of factors like deleverage, impact mix, net price, et cetera? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 20, 2024 / 9:00PM, KBH.N - Q1 2024 KB Home Earnings Call

Question: John Lovallo - UBS - Analyst : Got it. That's helpful, Jeff. And then if we think about the slight uptick in the outlook for SG&A as a percentage of sales to 10.2%, I mean that's coming with slightly fewer communities than you were previously expecting a little bit of an uptick in sales. But I guess the question is, you know, does that reflect the need for higher broker commissions or higher marketing spend, things of that nature. What exactly is driving that slight uptick?

Question: Michael Rehaut - J.P. Morgan Securities - Analyst : Hi, this is [Andrew ozion from Mike]. I appreciate taking my question. I guess just more on the longer-term side, should we be expecting any kind of change to your mix going forward as you grow? I believe in 4Q, your closings, your mix was roughly 50% entry level, 25% move up and the rest

Question: Michael Rehaut - J.P. Morgan Securities - Analyst : Thanks for the help. [I'll pass it on]

Question: Susan Maklari - Goldman, Sachs & Co. - Analyst : Thank you. Good aftertnoon everyone. My first question is thinking about the potential for lower rates, maybe an increase in activity on the ground in general, you see that as we move through the year. But what about the ability to retain the improvements that you've seen in the build times in the cycle times and to retain the labor force and to keep things moving at the rate that they have been more recently?

Question: Susan Maklari - Goldman, Sachs & Co. - Analyst : Okay. That's helpful. And then maybe just turning to capital allocation. Can you talk a little bit about how you're thinking of that is in continuing to buy back some stock, which is nice to see if anything there that's changed or incremental and how we should be thinking about it?

Question: Rafe Jadrosich - BofA Securities - Analyst : Thank you. Thanks for taking my question. But can you talk about the level of inflation you're seeing today on maybe on a cash basis in terms of land and development costs as well as materials.

Question: Rafe Jadrosich - BofA Securities - Analyst : That's really helpful. And just remind us how much of the development costs are is on? Is that as a percentage of the total land cost typically?

Question: Jay McCanless - Wedbush Securities - Analyst : Hey, good afternoon. So the first question I had maybe sticking on the lien topic for a second. You're looking at lots to 2026 and beyond, what are you seeing in terms of land cost inflation for those further-out lots? And from a competitive standpoint, we've heard from some of your competitors that the land market, especially this spring is more fierce than it is normally. So maybe if you could talk about the inflation and what the competitive backdrop looks like?

Question: Jay McCanless - Wedbush Securities - Analyst : Okay, thank you. And then, Jeff, Kay, last quarter you talked about how I think roughly 30% of production in the quarter were [spec] homes with a goal of being more like 25%. Could you talk about where specs are now and how we should think about that mix in terms of the gross margin guide for the second quarter and for the rest of the year?