KB Home Q4 2024 Earnings Call Transcript

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

Question: Stephen Kim - Evercore ISI - Analyst : Yeah. Thanks very much, guys. Appreciate all the color as usual. Jeff, it's not going to be the same without you, but best of luck and thanks for all the help over the years.

Question: Stephen Kim - Evercore ISI - Analyst : Yeah. Great. You gave a lot. So I'm trying to digest all of it. But I think one of the things that really sticks out is the backlog turnover -- the implied backlog turnover ratios, which clearly are going up. And I think you indicated that the cycle times actually really didn't improve significantly at all quarter to quarter. And so I'm curious, as you look into like the first quarter and then the rest of next year, it looks like you're calling for a backlog turnover ratio to be up pretty meaningfully. It looks like, on average, somewhere probably approaching 70% or more? And I'm curious how much of that is due to an improving cycle time in your view versus maybe carrying more spec inventory on your balance sheet.

Question: Stephen Kim - Evercore ISI - Analyst : Great. Yeah, that's really helpful. And then you also gave some -- Jeff Mezger you gave some comments about the order pace that you had seen in the first six weeks and doing a little bit of math it seems that you're looking for you're probably looking for orders to be flat for the year for a for the quarter, which means that the remainder of the quarter is going to be probably up about 7% Colo, which is about how much your community count was up year over year at the end of the year. So basically, you're calling for flattish year-over-year type absorptions for the rest of your first quarter. So I just wanted to confirm that, that's actually -- that's generally correct. And then secondly, with respect to absorptions and what we can expect going forward, in 2025, are the communities that you have opened likely to generate stronger absorptions for any particular reason worth calling out, whether it be the geographic location, whether it be their size or something of that nature that would lend them to having maybe so much stronger absorptions even if the demand environment is consistent year over year.

Question: John Lovallo - UBS Securities - Analyst : Hi, guys. So thank you for taking my questions as well. And Jeff, best of luck to you on your retirement. First question is the 20% to 21% range for the gross margin is on the wider side, but understandable given the volatility in rates and the importance of the spring season. I guess the question is what are the main factors besides rates that could drive the high or low end of that range? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 13, 2025 / 10:00PM, KBH.N - Q4 2024 KB Home Earnings Call

Question: John Lovallo - UBS Securities - Analyst : Yeah, makes perfect sense. And then Jeff, you talked about just inventory levels. Obviously, there's a lot of concern in the market about overall inventory. So I was just hoping maybe you could flesh out those comments a little bit. I mean it does appear that on a national basis, that inventory is in pretty good shape. But there are some markets where it has stood out as increasing. So maybe just if you can go a little bit around the horn, if you will, and just give us thoughts on what you're seeing.

Question: Matthew Bouley - Barclays Capital Inc - Analyst : Hi. Good afternoon, everyone. Thank you for taking the questions. I'm glad to hear everyone's well in Los Angeles there, and also best wishes to Jeff K. in the future. I wanted to go back to the Q1 order guide and on that view that -- or on that data, that absorptions look like they're down

Question: Matthew Bouley - Barclays Capital Inc - Analyst : Okay. Got it. I just wanted to double click on the incentives and concessions. And if there was any type of assumption there. I guess on the second question, just thinking about the starts versus sales over the balance of the year, I know you mentioned the sales came in a little lighter than expectations in Q4. But you did start a little bit more homes than you sold in Q4. And just -- I guess it goes back to the margin question. But is there a margin level at which you would look to hold the line a little bit more and dial back on starts? Or just how are you thinking about maintaining that balance between starts and margins depending on how this market evolves this year?

Question: Michael Rehaut - JPMorgan - Analyst : Thanks. Good afternoon, everyone, and I hope everyone's safe with all the unfortunate tragedies in LA. And also, Jeff, it's been -- Jeff K., it has been great working with you and best of luck going forward. Just wanted to dial in a little bit on the gross margin guidance and make sure we're understanding it properly. In terms of the modest sequential reduction in 1Q to 4Q, if that's more just simply a function of operating leverage? I believe you said you're assuming a similar type of incentive environment, 1Q versus 4Q. So I just wanted to make sure that I was getting that correctly and conversely going forward from 1Q to the rest of the year, getting closer to the midpoint if that's also more again, a function of operating leverage versus anything else?

Question: Michael Rehaut - JPMorgan - Analyst : Well, sequentially, right, because you're talking about on your gross margins being -- taking a little bit of a step down versus 4Q and then looking forward, the margins improving a little bit to get from to the midpoint of the full year.

Question: Michael Rehaut - JPMorgan - Analyst : Right. That's no Good. Understood. Appreciate that. And I guess, secondly, I just also wanted to dial in a little bit on incentives or mortgage concessions, I believe I heard right from Rob talking about the percent of communities where offer incentives being roughly similar to the last two or three quarters. I just wanted to dial in if that statement holds true, if you were to compare the level of incentives that you're offering at the beginning of the fourth quarter towards the end of the -- versus the end of the fourth quarter? And if part of the reason perhaps because your orders did miss maybe with your internal projections, if there was any type of -- it sounded like also a view of -- to the extent you held incentives, you're willing to hold margin a little bit, not do some of those base price reductions and you took the hit on the volume if that's the right way to think about how you approach the quarter versus maybe the industry itself being a little bit more consolidatory on incentives on the broader market basis?

Question: Alan Ratner - Zelman & Associates - Analyst : Hey, guys. Good afternoon. And I just want to echo everybody else's comments. Thinking about all you guys with the fires out there, and good luck to Jeff K. on the upcoming retirement. My first question on the community count guide. Admittedly, that was a little bit lighter than we were expecting. And it sounds like the dip in the fourth quarter you view as temporary. But I'm just curious, when I look at your lot count, it's ramped up pretty meaningfully over the last year to two. I know that there's obviously lags there. But are there any delays driving that flattish community count through the year, either on development or maybe some communities getting pushed out either in California, the cost of these fires or in the Southeast because of the hurricanes? Or was this really consistent with your expectations all along

Question: Alan Ratner - Zelman & Associates - Analyst : Got it. Okay. I appreciate that, Jeff. Second question, I know it's very early days as far as the potential impact from all of these fires. But California is about one-third of your business. And I'm curious just how you're thinking about how this might play out for your business? I know there's no direct overlap thankfully, with your active communities. But do you anticipate any either acceleration in cost inflation as the labor pool gets diverted to repair and then fixing damaged homes or rebuilding damaged tons. Any changes you anticipate to the permitting process or insurance. Maybe just talking broadly about your insurance vis-a-vis some of these more mature markets as well. I think a cash flow question there, but any thoughts going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 13, 2025 / 10:00PM, KBH.N - Q4 2024 KB Home Earnings Call

Question: Michael Dahl - RBC Capital Markets - Analyst : Thanks for taking my questions. And just back on margins and incentive dynamic. I guess the simple question is if incentives crept up through the quarter, demand slowed a missed your expectations later in the quarter and then it sounds like first six weeks started off slow. Why is the -- why is the assumption of flat incentives for the quarter and the year, the right one to make at this point, especially with rates continuing to creep buyer?

Question: Michael Dahl - RBC Capital Markets - Analyst : Got it. Okay. And then just a quick one, just to make sure I heard it right in response to the step early question. The pace assumptions, did you say for the year, the right assumption or what you're currently planning for is about flat on a per community basis.