NYSE:KBH KB Home Q3 2023 Earnings Report $53.69 -0.58 (-1.07%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$53.47 -0.22 (-0.41%) As of 04/25/2025 06:02 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast KB Home EPS ResultsActual EPS$1.80Consensus EPS $1.43Beat/MissBeat by +$0.37One Year Ago EPS$2.86KB Home Revenue ResultsActual Revenue$1.59 billionExpected Revenue$1.47 billionBeat/MissBeat by +$114.24 millionYoY Revenue Growth-14.00%KB Home Announcement DetailsQuarterQ3 2023Date9/20/2023TimeAfter Market ClosesConference Call DateWednesday, September 20, 2023Conference Call Time5:00PM ETUpcoming EarningsKB Home's Q2 2025 earnings is scheduled for Tuesday, June 17, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by KB Home Q3 2023 Earnings Call TranscriptProvided by QuartrSeptember 20, 2023 ShareLink copied to clipboard.There are 14 speakers on the call. Operator00:00:00Afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2023 Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Following the company's opening remarks, we will open the lines for questions. Operator00:00:16Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com, through October 20. And now, I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. You may begin. Speaker 100:00:33Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the Q3 of fiscal 2023. On the call are Jeff Mezger, Chairman, President and Chief Executive Officer Rob McGibney, Executive Vice President and Chief Operating Officer Jeff Kaminski, Executive Vice President and Chief Financial Officer Bill Hollinger, Senior Vice President and Chief Accounting Officer and Thad Johnson, Senior Vice President and Treasurer. During this call, items will be discussed that are considered Forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results And the company does not undertake any obligation to update them. Speaker 100:01:22Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission. Actual results could be materially different from those stated or implied in the forward looking statements. In addition, a reconciliation of the non GAAP measures of adjusted housing gross profit margin, which excludes inventory related charges And any other non GAAP measure referenced during today's discussion to its most directly comparable GAAP measure Can be found in today's press release and or on the Investor Relations page of our website at kbhome.com. And with that, here is Jeff Mezner. Speaker 200:02:02Thank you, Jill, and good afternoon, everyone. We delivered another quarter of strong performance, highlighted by our closings and margins, which exceeded our previous guidance. With these favorable results and our improved outlook for the 4th quarter, We are again raising our revenue and earnings outlook for our 2023 fiscal year. Our business is performing well And our teams are executing on their plans to balance pace, price and starts, reduce build times and drive high customer satisfaction while growing their volumes and profits. As for the details of the 3rd quarter, We generated total revenues of $1,600,000,000 and diluted earnings per share of 1.80 We closed 3,375 Homes, a strong outcome that was driven primarily by a continued reduction in build times and fewer cancellations. Speaker 200:03:02Our margins were healthy at 11.3% in operating income and a 21.5 percent gross margin. While the year over year comparisons are difficult due to the record profits we achieved In last year's Q3, our results and the cumulative benefit of ongoing share repurchases drove our book value per share to $48.29 an increase of 18% year over year. The outlook remains healthy for housing market conditions, driven by low existing home inventory and constrained availability of new homes at our price points. With over 140,000,000 combined millennials and Gen Zs, first time buyers will likely fuel the housing market over the Next decade, which is favorable for our business as we primarily serve the first time and affordable first move up segments. Demand for our product at our price points was solid. Speaker 200:04:05On a per community basis, our absorption pace averaged 4.3 monthly net orders, higher than our historical pre pandemic 3rd quarter average. Although interest rates rose as the quarter progressed, Our net orders remain fairly consistent month to month. The combination of an acute shortage of homes, Together with the demographic factors I just referenced led to strong absorption and a cancellation rate that has returned to historical levels. We generated net orders of 3,097 within our guided range, a healthy result during a seasonally slower time of year. While we were pleased with our net orders and pace during the Q3, we recognize the impact of both higher mortgage rates and overall economic conditions may have on our buyers. Speaker 200:04:59With that in mind and based on normal 4th quarter seasonality, We project a monthly absorption pace of between 34 net orders per community, producing a range of between 2,070 and 2,760 net orders in our 4th quarter. We believe we are well positioned to navigate any possible shift in demand Should rates go higher or if the economy softens and we are prepared to take the steps necessary to adjust to changing conditions as we have done in past cycles. The flexibility inherent in our built to order approach with buyers selecting their lot, Floor plan and finishes in our design studios is a meaningful differentiator as buyers are empowered to significantly influence their overall sales price based on their choices. Approximately 70% of our communities Offer plans with square footage below 1600, smaller homes which feature similar room counts and livability that are a more affordable option. Offering a range of products and price points that buyers choose Gives us early insight in how the market is moving, allowing us to adjust appropriately in the homes we model and price points we feature. Speaker 200:06:22Our backlog was just over 7,000 homes valued at approximately $3,400,000,000 As we saw in our results, Our large backlog provides a stable base of deliveries with good visibility on margins. We are now primarily focused on selling the homes we need to support deliveries in the first half of twenty twenty four. We started 3,850 homes during the quarter, Ramping up our starts to position ourselves for growth given the steady demand we've experienced. We ended the quarter with close to 7,800 homes of which about 73% are sold, consistent with our targeted range. With that, I'll pause for a moment and ask Rob to provide an operational update. Speaker 200:07:09Rob? Thank you, Jeff. Speaker 300:07:13Let me begin by providing some color on our net order results. I want to emphasize a point that Jeff made And that our strategy has remained consistent on optimizing each asset on a community by community basis, balancing pace, price and margin. Demand was healthy across our markets, enabling us to raise prices in 65% of our communities, while decreasing prices in only 10%. We offered mortgage concessions as needed, primarily in cases where the buyer did not qualify. Anecdotally, we hear from our teams in the field that buyers are compelled Our divisions executed well on their plans to reduce build times with a 35 day sequential reduction in the 3rd quarter. Speaker 300:08:05As a result, we are currently building homes in approximately 6 months and this progress puts us another step closer to returning to our historical level of between 4 5 months. Further improvement remains a priority, which we expect to achieve by simplifying and refining our product offerings, While leveraging the even flow production inherent in our built to order model and the long term relationships we have developed with our trade partners and suppliers. Lower build times will help to generate incremental deliveries and drive higher inventory turns and cash flow, in addition to helping our sales effort of personalized homes. We are essentially back to business as usual with our supply chain outside of some specific challenges related to roofing materials and electrical equipment, specifically transformers, which has been widely discussed across our industry. We are also seeing an improvement in the availability of labor for our trades. Speaker 300:09:00We significantly reduced our direct costs by over $20,000 in the first half of twenty twenty three relative to their peak in August 2022, which helped to offset the price reductions we did earlier in the year to generate sales. Costs on homes started in the 3rd quarter held steady despite pressure from certain items including concrete, roofing materials and diesel fuel. Going forward, our focus is on incremental cost reductions through value As we work to finish the year strong, our key operational priorities remain centered on executing our built to order business model and maintaining our high Speaker 200:09:45Thanks, Rob. Switching gears to our mortgage joint venture, KBHS Home Loans, 84% of the mortgages funded during the quarter We're financed through our JV, which is meaningfully higher year over year and a positive development as higher capture rates help us manage our backlog more effectively. These buyers continue to have strong credit profiles With about 60% of KBHS customers utilizing a conventional mortgage and over 90% using fixed rate products, The average cash down payment held steady with the 2nd quarter at 15%, equating to roughly $70,000 down. The average household income of our KBHS customers was over $130,000 higher than the median household income in our submarkets and had an average FICO score of 735. Even with 1 half of our buyers purchasing their first home in the quarter, We are tracking buyers above our targeted income levels with healthy credit who can qualify at elevated mortgage rates and make a significant down payment. Speaker 200:10:59These data points underscore the solid demand amid the lack of supply. We sequentially increased our land investment by about $100,000,000 spending approximately $550,000,000 to both acquire and develop land, while remaining diligent with respect to our underwriting criteria, product strategy and price points. Speaker 400:11:23We expect Speaker 200:11:24to accelerate our investment activity in the Q4 and beyond to support our future growth targets. Our lot position stands at roughly 57,100 lots owned or controlled, of which approximately 42,700 are owned, representing just over 3 years supply consistent with our historical level. We continue to focus on developing lots in smaller phases to limit our capital outlays and balance our development phasing with our starts pace to manage our inventory of finished lots. We believe we are well positioned as we currently own or control the vast majority of the lots we need to achieve our delivery growth targets through 2025 and are working on filling the gaps for 2026. We do anticipate our community count will be lower at year end relative to the prior year before growing again in 2024. Speaker 200:12:23As we have shared on previous calls, We had intentionally paused on developing lots in most of our communities from mid-twenty 22 through the Q1 of 2023 Given market conditions at the time, which has delayed many openings into 2024. We now have A significantly higher year over year number of grand openings projected for next year and expect community count growth of 15% in 2024. Our balance sheet is in excellent shape with a leverage ratio of about 30% at the low end of our targeted range. This enables us to continue to allocate our strong operating cash flow toward reinvestment for future growth and the return of capital to our shareholders. Since we began our share repurchase initiative in August 2021, We have deployed approximately $590,000,000 to buy back more than 15,000,000 shares, representing almost 17% of the outstanding shares at that time at an average price below $39 per share. Speaker 200:13:33These repurchases have resulted in a meaningful increase to diluted earnings per share at $0.27 just in the 3rd quarter and an increase of nearly 2 percentage points in our return on equity. Over the same period, Together with our regular quarterly dividends, which we increased in July, we have now returned nearly $700,000,000 to shareholders. In closing, I want to recognize the entire KB Home team for their contributions to our strong Q3 results. We are now projecting roughly $6,300,000,000 in revenues for 2023 at healthy margins and we're positioned for meaningful community count growth in 2024. We remain committed to becoming a larger, more profitable company that will generate solid returns and maximize long term stockholder value. Speaker 200:14:29With that, I'll now turn the call over to Jeff for the financial review. Speaker 400:14:33Jeff? Thank you, Jeff, and good afternoon, everyone. I will now review highlights of our financial performance for the 2023 Q3, discuss our current outlook for the Q4 and provide our full year revenue and community count expectations for 2024. In the Q3, we realized significant construction cycle time improvements favorably impacting our deliveries that resulted in our housing revenues exceeding the upper end of our guidance range. We also generated a solid monthly sales absorption pace of 4.3 net orders per community and a higher than expected operating margin. Speaker 400:15:14In addition, our robust operating cash flow Allowed us to repurchase an additional 1,500,000 shares of our common stock, while ending the quarter with over $600,000,000 of cash and $1,700,000,000 of total liquidity. Our housing revenues were $1,570,000,000 for the quarter compared to 1.8 $4,000,000,000 for the prior year period. This reflected a 7% decrease in the number of homes delivered and an 8% decline in their overall average selling Though down relative to our strong 2022 Q3 results, our current quarter delivery performance reflected Continued construction cycle time improvements and lower cancellation rates. We anticipate similar positive factors benefiting our 4th quarter deliveries and have considered them in our updated outlook. Based on our current backlog, expected construction cycle times And incremental move in ready home deliveries, we anticipate our 2023 4th quarter housing revenues will be in a range of 1.55 to $1,650,000,000 In the Q3, our overall average selling price Homes delivered was approximately $466,000 compared to approximately $509,000 in the prior year period, primarily reflecting a mix shift away from our higher priced West Coast region along with lower year over year pricing and Higher mortgage interest rate and other concessions in the current quarter. Speaker 400:16:54For the Q4, we are projecting an increase of $20,000 in the overall average selling price to approximately $486,000 due to an expected mix shift towards higher price West Coast deliveries. Our 3rd quarter homebuilding operating income totaled $179,200,000 as compared to $325,100,000 in the year earlier period, which was a 3rd quarter record. Operating income margin reached 11.3 percent, exceeding the high end of our guidance by more than 100 basis points due to both our gross profit margin and SG and A expense ratio surpassing expectations. The current quarter included abandonment charges of $600,000 versus $8,500,000 of inventory related charges a year ago. For the Q4, we expect our homebuilding operating income margin, excluding the impact of any inventory related charges, will be approximately 10.5%. Speaker 400:17:59Our housing gross profit margin for the quarter was 21.5%, down 520 basis points from the prior year period and 80 basis points higher than the midpoint of our guidance range. The margin result relative to the prior year was primarily due to price decreases and other concessions aligned to housing market conditions, particularly the higher mortgage rate environment as well as higher construction costs and a shift in the mix of homes delivered. Excluding inventory related charges from both periods, our 21.5% margin for the quarter was down 5.50 basis points year over year. We expect to see a sequential decline in our 4th quarter gross margin due to both the pull forward of higher margin deliveries Into the Q3 and the fact that a majority of our expected 4th quarter deliveries were contracted in the Q1 when we implemented selective pricing adjustments and offered other buyer concessions to improve our sales base. Gross margins relating to 2023 1st quarter sales contracts represented a trough and the gross margin on orders taken in the second and third As a result, we believe the 4th quarter deliveries will reflect a gross margin inflection point. Speaker 400:19:23Assuming no inventory related charges, we expect our 4th quarter housing gross profit margin will be approximately 20.5%. At the same time, our expected full year margin of approximately 21.3% is slightly above our prior guidance Due to the strength of our Q3 performance and higher full year revenue expectations providing incremental leverage and fixed costs included in cost of goods Our selling, general and administrative expense ratio of 10.2% for the quarter increased by 130 basis As we position our business for growth in 2024 housing revenues, we believe that our 4th quarter SG and A expense ratio will be about 10%. Our income tax expense for the Q3 of $44,600,000 represented an effective tax rate of 23% compared to 22% for the prior year period. We expect our effective tax rate for the 2023 4th quarter to be approximately 24%. Overall, we reported net income for the Q3 of $149,900,000 or $1.80 per diluted share compared to $255,300,000 or $2.86 per diluted share for the prior year period, which were the highest Q3 levels in our history. Speaker 400:21:00Turning now to community count. Our Q3 average of 240 increased 9% from the year earlier quarter. We ended the quarter with 230 communities open for sales. This compared to 227 communities at the end of the 2022 Q3. We believe our 2023 year end community We invested $555,000,000 in land, Land development and fees during the Q3 with $199,000,000 or 36% of the total representing new land acquisitions. Speaker 400:21:40We ended the quarter with a pipeline of over 57,000 lots owned or under contract that we expect will support a Significant number of new community openings to drive community count growth in 2024. At quarter end, we had total liquidity of $1,700,000,000 including $612,000,000 of cash and $1,080,000,000 available under our unsecured revolving credit facility with no cash borrowings outstanding. During the Q3, our Board of Directors increased the quarterly cash dividend on our common stock to $0.20 per share, up 33% from $0.15 per share. In addition, we repurchased approximately 1,500,000 shares of our common stock at a total cost of $82,500,000 while driving our quarter end leverage ratio to historic low of 30.6%. With $325,000,000 remaining under our current common stock repurchase authorization, we intend to continue to repurchase shares With the pace, volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our shares and the housing market in general economic environments. Speaker 400:23:05Year to date, we have repurchased 5,700,000 shares at an average cost 9% below our book value per share at the end of the Q3. Shifting to our expectations for 2024, we are forecasting full year housing revenues in a range of 6 $500,000,000 to $7,000,000,000 supported by our anticipated 2023 year end backlog, expected cycle time improvements and community count growth and assumed stable housing market conditions throughout next year. We expect more than 150 new community openings over the next 5 quarters to drive sequential increases in any community count beginning in the second quarter next year. We believe our 2024 year end community count will be up about 15% year over year. In summary, we are very pleased with our solid Q3 financial performance and strong operational execution and believe we are well positioned to achieve our goals for the 2023 Q4. Speaker 400:24:12In addition, Considering our Q3 performance and expected Q4 results, we have raised our full year 2023 outlook With forecasted housing revenues of approximately $6,300,000,000 up $300,000,000 compared to the midpoint of our prior guidance and a 30 basis point improvement in our operating margin, excluding inventory related charges to about 11.3%. We believe our ongoing focus on accelerating profitable growth and expanding our returns by leveraging our larger scale, Strong community portfolio and uniquely compelling built to order business model will, along with our stock repurchase activity, produced measurable enhancements in both book value per share and stockholder value in future periods. We will now take your questions. John, please open the lines. Operator00:25:09Thank you, sir. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment please while we poll for questions. Operator00:25:39And the first question comes from the line of Matthew Bouley with Barclays. Please proceed with your question. Speaker 500:25:45Good afternoon, everyone. Thanks for taking the questions. Maybe just to start off the question on the kind of pricing strategy here. I think you said you were able to Raise price in 65 percent of communities. Curious how that trended as you got into August and maybe September Given this latest move in interest rates and strategically thinking about sort of what happened a year ago, where you guys sort of Chose to protect the backlog perhaps at the expense of orders in the near term. Speaker 500:26:19How are you kind of thinking about how that may play out here into the Q4? Thank you. Speaker 200:26:27Matt, I'll answer the second half of the question first and then Kick it to Rob for any comments on the pricing trends month to month in the quarter. But we're in a totally different spot than we were A year ago, first off, interest rates moved really quickly and the buyers were in shock basically because their payments moved so much if their rates weren't locked. This year, while rates have picked up, it's been a more gradual increase and the buyers have been digesting them and moving with us. So The buyer psyche and the backlog, I think, are in far better shape than a year ago. And at the same time last year, our backlog was really extended because of our Build times, we were selling a lot of houses and we couldn't get them built in through the system in our historical time frames. Speaker 200:27:19So you had a much larger backlog to protect and we're more sensitive to a year ago than we are today where our backlog It is now down, really in balance with our build time. So we like how we're positioned with the backlog to support Our revenue projections and you don't have to go to the extreme to protect the backlog the way we did last year. So As things go forward, if something happens and demand shifts, if that were to occur, we would take the steps we need real time on a per community basis. And both Rob and I shared in our comments that we evaluate every community every week and its pace price optimize the asset And some go up and most did in the quarter, but we'll be moving pretty quickly. We don't have the same dynamic as last year. Speaker 200:28:13Rob, any thoughts on pricing? I know every community is a different story, but anything you want to add on that? Well, I just said Speaker 300:28:23it was fairly broad based. The price increases we implemented in the Q3 across the majority of our footprint, Every division had at least some communities where we lifted price during the quarter. And I don't necessarily track it by week or by month, But all the way through August, despite rates increasing, as we as Jeff mentioned, balance base, price margin, optimize the asset, we had many communities where we Continued to raise prices based on those dynamics. So really didn't see a slowdown. Obviously, we're sensitive to what's going on with rates in the market. Speaker 300:28:57But If the demand is there and we're selling faster than our targeted pace, we're going to continue leaning on price and improving margins in those communities where we've got the pace. Speaker 500:29:08Got it. That's very helpful color there. Thank you both. Second one, just kind of zooming into the margin outlook. I think you Sort of highlighted that the 4th quarter margin might be reflecting a more challenging environment on sales back in the first Quarter. Speaker 500:29:25So, I guess just any color around early 2024, what might be some of those Puts and takes assuming the Q4 is the trough, I think you said margins were better on sales in Q2 and Q3. Any additional color on the kind of magnitude there, whether it's on those cost reductions you mentioned, some price increases that were occurring at that time? How can we think about that early 2024 gross margin? Thank you. Speaker 400:29:52Sure. Just looking at gross margins, just Pointing out for the full year, we're actually up a little bit incrementally versus our last quarter guide, which we're obviously pleased about. And we had some dynamic shifting some of those margins quarter to quarter. And as you rightly point out, the 4th quarter is impacted by the selling environment earlier in the year when we had a lot Pricing activity and whatnot to help support our sales pace. When we look out into 2024, as I mentioned, our current order activity and backlog Definitely supports an improving trend for 2024, but as we all know, gross margins impacted by both favorable and unfavorable factors We're leaving the housing market and general economic environments, which can impact things like sales price and sales pace So need for concessions, build costs, etcetera, etcetera. Speaker 400:30:45So we are encouraged by the favorable trend we're seeing in the order gross margins. We'll come back and provide a more detailed outlook for 2024 during the Q4 call, including obviously quantitative and numbers On the quarterly trends and what we see for the full year, so far so good and we like the trend that we're seeing right now with our relating to our margins embedded in the orders. Operator00:31:15Thank you. And our next question comes from the line of Stephen Kim with Evercore. Please proceed with your question. Speaker 600:31:24Yes. Thanks very much, guys. Appreciate all the color. And I guess My first question relates to mortgage. I think you referred to mortgage incentives, and I guess I'm thinking mortgage rate buy down specifically. Speaker 600:31:38That's something that I know that you all have not really felt like you've really needed to use all that much. I was curious if you could sort of talk about in this quarter that we just that you're reporting, What was the percentage, if you will, of the sales that you made that did have a mortgage rate buy down? Would you expect that to increase? And is it is that something that you are going into the market and sort of buying forward commitments for? Or are you doing it more on a case by case basis? Speaker 200:32:18Steve, you asked 5 questions there. Well, We'll do our best. Again, I can let Rob go into the specifics. But at a high level, if you think of our business, we're built to order and on a Built to order sale and with that customer, you're working to lock the rate and it costs a little more because you're further out, but They want comfort knowing they'll get the rate when the home is completed. And other than that, we're not really doing Financing concessions on our built order sales. Speaker 200:32:51That buyer picks everything, like I said in my comments, and it's all about the best price for the best value, and they build it, And they're happy at that price. But whether it was the higher can rate earlier in the year or late last year and we had some inventory build up, We actually also started some more inventory homes to have that choice available if the customer wants it. And that's where you fall into the situation where you typically have to offer some type of financing concession or mortgage concession, as you call it, To move that inventory. So the where we had that type of activity was on the specs, not on built to order sales. But Rob, you want to give them the numbers on the magnitude or any trends you saw from Q2 to Q3? Speaker 300:33:42Sure. The trend, Stephen, didn't really change that much. I mean, as Jeff mentioned, any mortgage Buydowns or points that we paid primarily went to move in inventory homes that were later along in the cycle and closer to closing. But As far as the total percentage on mortgage concessions, it was roughly the same quarter over quarter, 1.6 I believe as a percentage of revenue this quarter versus 1.5 or 1.6 last quarter. So it stayed relatively flat quarter on quarter. Speaker 700:34:17Yes, I appreciate that. Speaker 600:34:18I mean, I think that it's really interesting how you're able to See your demand remaining strong despite not really having to rely very much on rate buy downs. I think there's a misconception on Extremely well qualified. So that's really encouraging. I did want to shift gears and ask about your community count Decline, this is something that I know you've attributed to Slower development sort of in the back half of last year, but it seems like maybe you had hoped that you would be able to maybe Make up some ground, no pun intended, and you weren't able to. You didn't exceed the higher end of your order range, right? Speaker 600:35:14So it's not like you sold out of a lot more communities. It sounds like you had ran into some maybe more difficulty sort of getting that last to open the community than you expected. Could you elaborate on what is happening there on the community development side? Is it just generally getting a lot Harder than you would have expected? Speaker 200:35:36Stephen, in general terms, I can say it is harder. And it's interesting As the labor base has reset and the supply chain has settled down, if there's an area where labor is still tighter, it's in the land development side. And I think in part, It's because of the push pull with all the federal money being spent on infrastructure. And a lot of our contractor base has been They're getting stretched because of all the government work that's going on. And between that and Processing times are taking longer to get permits out of the city to start development than we projected early in the year. Speaker 200:36:14So both of those Our plan and component is not because we oversold and sold through necessarily faster. We just had a lot of communities that rolled over and With how our year ends in November, if we get a community ready to open in November, it would be a soft opening And we'll wait till January to hit it harder in a better selling environment. So that'll play into it as well. I I don't know, Rob, if there's anything else you want to add on. Speaker 300:36:44I think that covers that. And we also touched in our Remarks in the beginning, some of the issues with electrical equipment, specifically transformers, and that's out there as well. We've got a number of Communities that we know it's coming, we just don't know when. They're generally ready to go outside of waiting for those to be installed and energized. So It is getting more challenging, whether it's that or just getting things processed through the municipalities. Speaker 300:37:08But we're confident about the communities that we've got coming and They're going to start showing up here as we move forward. Operator00:37:19Thank you. Our next question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question. Speaker 800:37:31Jeff, last quarter you kind of made a comment that you wouldn't be surprised Maybe a better than seasonal back half of the year. And I think one of the comments you made at the time was that you were starting to see kind of month over month improvement in the demand For build to order products, I think specs were definitely more desired maybe later last year, earlier this year, and you were starting to see a little bit of a shift there. The Q3 order results in the guide for 4Q kind of implies more of a normal seasonal pattern, which there's nothing wrong with that. I'm just curious if you think about the comments you made last quarter. Has anything changed as far as the buyers kind of relative demand between build to order and spec that might be causing that Subtle shift in the guide versus your comments? Speaker 200:38:16Well, I think our customers in Q3, we actually shifted to more built order sales and less Inventory, but in part it's because we had less inventory to sell, I think. It's still a situation where There is no inventory in the markets that we're in at our price points. There's a lot of cities where inventory is still quoted in weeks, maybe a month and a half. And then you think, okay, half of those listings aren't even habitable. It's like a teardown that's available for sale. Speaker 200:38:47So there's not a lot of Inventory choice for the customer today, and I think that's part of what's if you couple that with the demographic demand and you have A lot of people need a roof over their head and not a lot of houses to choose from. And then in between, you've got rates that have been slowly ticking up and it's a math equation and we stay on top of it, but at some point that customer may say, I don't want to buy and I'm going to wait for a better time and then you got to go Find the next customer. So I think you phrased it the right way, Alan, in that as these rates have continued upward, I think it has brought it back down to what I'll call a more normal seasonal pattern is what we're expecting. In part, we just don't know Where rates are headed from here, they could go up, they could go down. They don't seem to be in sync necessarily each month with what's going on with The T Bills and the tenure and whatnot, but I would say we're expecting a seasonally normal 4th quarter. Speaker 800:39:54That's helpful. And I appreciate that and certainly recognize the rate environment has changed. So I appreciate you talking through that. Second question, maybe this one's better for Jeff Kaye. Just on the 24 revenue guide, I didn't do the exact math here, but sounds like that'll be Up 5% or 10% year over year. Speaker 800:40:16If I'm doing the math correctly, I think your backlog, at least in units, is going to be down Probably about 20% entering next year. So is there any way you can kind of just parse out that revenue increase between Price, better cycle times and order growth in 2024, just to kind of give us a rough idea of where that Directional growth is coming from. Speaker 400:40:42Sure, sure. So a couple of things. We're looking to rebuild community accounts as we go through the years. I talked about Prepared comments and you can see sort of the cadence on that a bit. I mean, it's a little early to call it by quarter at this point, but We're looking relatively flat going to the end of the Q1 and then starting to increase sequentially. Speaker 400:41:05So obviously, with a Higher community count, the booming community count that always helps your sales and in turn your deliveries. Construction cycle times are pretty big one for We're looking to Speaker 300:41:16hang on to the gains Speaker 400:41:17that we've already experienced and we had a really, really solid third quarter Our performance along those factors and looking to have a really nice 4th quarter as well. And just by holding those gains, it pulls in Additional units into the year, both in the 'twenty three and assuming you hold on to those gains in the 'twenty four as well. So those are probably the 2 Largest factors affecting it for 2024. And if you back up and look at a big picture for a minute, it's pretty early, Obviously, to forecast the full year, we haven't even sold units in the Q3 yet really. And Yes, we'll be updating that again as we get into the Q1. Speaker 400:42:00We always like to give our first kind of look or expectation during this quarter's call and then we'll Fine as Operator00:42:12we go from there. Thank you. And the next question comes from the line of John Lovallo with UBS. Please proceed with your question. Speaker 900:42:19Good evening, guys. Thank you for taking my questions. And this one sort of dovetails, Jeff, off on the answer to the last question there from Alan. The 4 to 5 month cycle time that you guys think about is normalized. We had 35 days of sequential improvement in the quarter. Speaker 900:42:41I guess the question is, is the low hanging fruit There is such a thing kind of taken care of at this point. I mean, how quickly could you get back to that 4 to 5 months? I mean, could we expect Another decline very similar to what we saw sequentially in the Q4? Speaker 200:42:57Rob, you want to take that? Speaker 300:43:00Yes, John, I would be surprised. We've had some pretty significant gains over the last couple of quarters, and I think we get into an area where we See some amount of diminishing returns just on the improvement that we're able to make, but we do have our eyes our sights I said on getting back to that 4 months to 5 months and we're only 30 days away from that. So I don't think it's going to take us a long time to get there, but I would be surprised Just looking into this next quarter that we see that same kind of improvement like another month off of cycle time, but Certainly over the next 2, 3 quarters driving to get towards that old historical build time of 4 to 5 months. Speaker 900:43:40Okay. That's helpful. Thank you. And then I'm not sure if I got the numbers right here, but I think for orders you guys you talked about 3 to 4 For the absorption, so 2,070 to 2,760, I believe were the numbers. I think it's a fairly wide range and it's Understandable given some of the uncertainties out there. Speaker 900:43:59But I guess what I'm trying to understand is what sort of drives the high or low end of the range? I mean, what are the variables? Is it really just contingent upon interest rates? And if that is the fact the big factor, if rates would remain where they are today, Would that put you in position for the higher end of that range? Or do you need rates to actually fall from here? Speaker 200:44:21We're not assuming they're going to fall, John. So if rates were to hold where they are, we'd Probably be around the midpoint if rates go up, you may tilt down to the low point. We also have some communities opening this quarter and depending on when they open, If we hit our opening dates, it helps orders and if they miss their opening date, it will hurt orders. So we've got That variable as well, but what we were trying to guide is really it's a we view it right now as a pretty normal environment and We expect normal absorption rates and part of our balancing price and pace, we're not going to let them run above 4. If a community is selling well, we'd rather Operator00:45:14Thank you. And the next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question. Speaker 700:45:22Hi. Thanks for taking my question. Good afternoon, everybody. I wanted to focus a little bit The balance in terms of fiscal 2024, how you're thinking about capital deployment? You laid out an aggressive Community count growth target for the end of the year and how you think about You've been deploying capital or capital allocation as it relates to funding your organic Needs, which obviously take priority generally speaking, compared to share repurchase This year, I think you've done $250,000,000 I believe a share repurchase in the 1st three quarters. Speaker 700:46:15Does your do your capital anticipated capital needs for next year, would that kind of affect or I guess Lower, let's say, all else equal, the potential for a similar amount of share repurchase, should we look for something perhaps more moderate? Just any kind of directional thoughts there would be helpful. Speaker 400:46:39Sure. Yes. Well, I think as we've indicated Past few quarters, we see this stock buyback strategy as a very powerful tool right now, particularly given our leverage Low leverage ratio and very strong cash generation in the business. We are Investing in land, as you mentioned, and we do want to stay focused on that and on growing the business, but we do believe it's an and equation, not an or equation at this point. And for many years, we had a dual strategy of delevering, frankly, and Taking our debt levels down while reinvesting in the business and given our current leverage ratio and what we perceive for the future and our targets, That debt reduction need is no longer there. Speaker 400:47:27So we're pivoting more towards share repurchases combined with reinvestment in the business Towards growth at favorable returns. So, I listened, I don't know how many factors impacting Our share buyback strategy and the decisions we make on a quarter to quarter basis, so there are a lot of things that go into it. But certainly, all things being equal, we'd like to continue Down that path, we think it's been very positive for the company and very positive for our shareholders, and we'd like to see that continue. And if things Pan out is expected for next year. We do plan to continue that. Speaker 700:48:06Okay. Yes. No, I appreciate that, Jeff. I guess I was just Wondering about maybe the rate of repurchase potentially moderating a little bit, not necessarily either or, But I guess we'll have to see how next year plays out. Speaker 400:48:22Yes. I view it right now, Mike, that Yes, we're at a very comfortable level of repurchases. We've still been growing cash balances and all the ratios are staying very well aligned. So we're not even close to that point. And Like I said, we'll see how it plays out, but that's the overall strategy. Speaker 400:48:38Hopefully, that's helpful for you. Speaker 700:48:41Yes. No, that's great. I guess secondly, and I'm sorry if I missed this earlier, I think Rob laid out that During the quarter, you raised price in 65% of your communities, lower than 10%. I'm curious on that, If there's an ability to maybe drill down a little further, curious on the 65%, what was the Rough degree of magnitude of those price increases and also as I think someone else kind of asked earlier and I apologize, but didn't I didn't hear the answer, but how pricing kind of progressed in August September as Seasonality returned as rates kind of moved a little bit higher, if perhaps those price increase Trends kind of moderated or maybe just completely subsided. Love any color there as well. Speaker 200:49:42Rob, you want to go through it again? Speaker 300:49:45Sure. So I guess just to take your the last part first, I think we touched on that before, but we really didn't see it change dramatically as far as the increases from week to week or from month to month in the quarter. Despite rates moving up in August, we still had a good number of communities who were selling faster than our planned pace. So in those communities, we continue to lift price. As far as the magnitude of the increases on the 65% we were increased, across the company that was about $9,000 Operator00:50:27Thank you. And our next question comes from the line of Truman Patterson with Wolfe Research. Please proceed with your question. Speaker 1000:50:35Hey, good afternoon, everyone. Thanks for taking my questions. Clearly, you all have been discussing increasing the investment spend Going into the back part of the year, are you actually finding many or any kind of quick turn finish lot deals And whether this is contemplated in the year end 2024 community count growth of 15%. And then big picture, some in the industry have been moving towards an option to heavier land strategy. I'm just would love to get your thoughts on potentially deploying more land banking further down, moving further into option, land, etcetera. Speaker 200:51:21At Terminal, we are seeing some finished lot deals And the landmark, it appears to be freeing up a little bit. So that's encouraging. None of those would be included in Our guide for next year, when we're doing our planning until it's land committee approved, nothing gets counted in anything. It's out there, but it's not part of community count. So if we are able to snag some, it may Come out of 'twenty four with more, who knows, we'll see. Speaker 200:51:53As to Land Bank, I can't speak for any of the other builders. Our view has been with the size of the communities we're buying, we don't want to do the land bank, we don't need to. And I hate to give the margin away because it is diluted, the margin because the land bankers taken some of the margin And it doesn't really mitigate risk. So you're not de risking, you're just moving money around. And we'd rather focus on Phasing our developments, having as few finished slots hanging around us as possible in just real time. Speaker 200:52:32We've got a known sales pace. We know where we're headed. We can pull the trigger on some more development. And What's happened is costs have gone up. The development side of land is actually now higher than the land side itself. Speaker 200:52:46So, you can control your development and, it's just we think right now it's the best approach for us because We can keep lifting our margin a bit along the way. Speaker 1000:52:58Okay, perfect. And then, the SG and A Moving a little bit higher, I think a lot of that's lack of leverage, right, just from the closings differential. But One of your peers mentioned that they were seeing increased third party broker commissions. I'm just hoping you could help us think through that, where do kind of Broker commissions stand as a percentage of closings today versus history and whether or not you all expect them to kind of Gradually normalized because they were at pretty depressed levels in 2021 and the 1st part of 2022. Speaker 200:53:35When the markets were stronger, it's a combination of strong markets, but also leveraging our Technology and what we can do now with the Internet where the brokers aren't as critical, consumers still go to them to help them negotiate the deal. And our I think Jeff shared it in his comments that our commissions were up a little bit, Primarily in that we when you're selling a completed inventory home, you're really competing with other retails. It's a house versus a house and we go to whatever the market commissions are for brokers on those homes. So it did take up Our realtor commissions 20 bps, I think it was in the quarter, 30 bps. But our participation rate really hasn't changed. Speaker 200:54:24It's been Running around 65% as a company and has been there for years. So even when we were paying a little less in commission, the participant Patient rate didn't go down and it was taken up, it's holding about the same, but it's a different business approach when you sell and expect them to build to order. Operator00:54:46Thank you. And our next question comes from the line of Buck Horne with Raymond James. Please proceed with your question. Speaker 1100:54:54Hey, thanks. Good evening, guys. Looking at the community count acceleration that you're expecting for 2024, As just thinking about the mix of those communities, would those be geared more towards, again, entry level first time buyer type product And or would you potentially gear those towards or jump start those new communities with additional spec home starts To get those absorption rates to your target levels? Speaker 200:55:25Yes, Buck, The communities we're opening are spot on with our current product and price strategy. We try to target The median household income in that submarket, and if it's a land constrained, very desirable With no inventory, you can go a little above median income. We try to hold the median income, which means our communities are going to target first time and Affordable first move up primarily and that's where we're going to stay. As to the spec homes to get them going, we find that those are the hardest homes to sell It's helping the community. So unless it's a new product series in a city where we're opening up and we want to Shake down the framing design, if you will, and make sure the structures are all designed the right way and value engineered. Speaker 200:56:18We'll go start inventory in those situations, but they're very limited. We go as fast as we can to get the models built. We open the store. We get sales going and we build houses. Speaker 1100:56:30All right, perfect. Thank you for the color there. And I think I probably know answer this question, but I'll ask it anyway. Just wondering if you've had any recent discussions or having any thoughts about Single family rental partnerships or have had any inbound discussions with rental operators that are looking for some capacity recently? Speaker 200:56:52Well, we're always looking at that Buck. And every time we've looked at it, we find that we get the best return just Building it for sale and sticking to our knitting. So we're really not interested in going there. Some of the deal flow we're seeing on lots is Single family rental companies that need to offload some assets. So that would suggest that Whether it's the financing side and getting our communities developed or whether it's the financial returns and the rents and whatever, Maybe their strategy has changed a bit, but some of the lots we're seeing right now are deal flow coming from those companies. Operator00:57:32Thank you. And the next question comes from Joe Ahlersmeyer with Deutsche Bank. Please proceed with your question. Speaker 1200:57:40Hey, thanks. Good afternoon, everybody. Just a quick one on the fiscal 2024 revenue guide. Would you be willing to At least discuss that somewhat in terms of price versus volume. And I ask because I'm looking at your delivery ASP relative Your backlog, I think this is the Q1 where it's actually been below the backlog ASP and then you're sort of guiding for it to be in line. Speaker 1200:58:07So should we maybe just think about the more recent order prices as indicative of where you're heading in 2024 For closings or how would you sort of disaggregate that? Speaker 400:58:17Sure. Yes, right now, we normally during this call just kind of give a big range On the revenue side, without diving into too many details, we're still refining some of those plans right now and we want to see how the Q4 shapes up and we'll give you Tons of detail on all that, ASPs, units, revenues and all that during the Q4 call. Speaker 1200:58:42Okay, understood. And then thinking about the community count guide, especially in light of the comment around some of the crowding out Of the infrastructure spending, those contractors are sort of busy with that. If we see an acceleration in that spend next year, which I think is what Many in that industry have been calling for. Would that represent an incremental risk to you hitting that target? Or is that acceleration sort of baked into your considerations at this point? Speaker 400:59:12No. I think any Sort of worsening in supply conditions would be an incremental risk. Again, community count is a very difficult number to peg. There's a lot of moving It's not just on the grand opening side and how many communities get opened, but just on sales pace and what the selling environment is like as well and how many closeouts you're going to have. So we think right now it's pretty much middle of the road estimate for end of year community count is We're up about 15% from this year end and we'll see how it goes. Speaker 400:59:46There's some challenges out there. Rob highlighted a few of them. Jeff talked about a couple on the Development side, but there's always challenges in getting communities open. We've been doing a pretty good job staying on track in most of our openings, particularly last couple of quarters and hope to continue down that path and achieve a new Community count and new community portfolio that will support future growth for Speaker 201:00:12the company. That's the objective. Operator01:00:17Thank you. And our final question comes from the line of Jay McCanless with Wedbush Securities. Please proceed with your question. Speaker 1301:00:25Hey, thanks everyone. So my first question, I think you may have answered this when you talked about the Mix of what's closing in the Q4, but last quarter you guys had said that the Q3 was probably going to be the trough in gross margins. Was it just the cycle times improving on some of the to be built homes? Or can you walk us through Why the trough got moved to 4th quarter from 3rd quarter? Speaker 401:00:54Yes, I talked a little bit about it during the prepared remarks. There was pull forward of higher margin Closings Speaker 301:01:01into the Speaker 401:01:01quarter, we overachieved on deliveries and a lot of those deliveries were sold earlier Last year before some of the price increases came into the fact that would have otherwise closed in the Q4, it's probably as simple as that. Speaker 1301:01:19And then the other question I had, in the areas where you're having to cut Price is still is there an opportunity maybe to put some smaller square footage plans out there or you're just trying to sell through what you have now and then reset To square footages when you start out in new communities. Speaker 201:01:41Jack, that's in part why I mentioned what I did about the smaller floor We have available and you've covered us a lot. You know in a built to order business, you're really a consumer laboratory. Every day, You're getting feedback on what the consumer wants, what they think and most importantly, what they buy. So we watch the trends closely on Frequencies by plan in this area, in this community, is it rotating to smaller plans or not? And if it is, and we haven't seen real Evidence of it, yes, we're down incrementally a few feet on average, but it's not it hasn't moved much Over the last 9 months, if it did, we can quickly go introduce a smaller model into the model park and we'll do so To help sales there, we'd rather do that and hold margin than just drop price on what you're offering and hit the margin. Speaker 201:02:39So it's One of the levers we've pulled and we've done a lot in the past, in part because we have product on the shelf we can go plug and play. It's already planned checked, it's approved, and we can go insert it as a model and help that community succeed. So it's one of the things we track very closely. Operator01:03:00And ladies and gentlemen, that does conclude today's teleconference. Thank you for your participation. You may now disconnect yourRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallKB Home Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) KB Home Earnings HeadlinesKB Home Announces the Grand Opening of Its Newest Community Within Entrada del Oro, a Desirable ...April 25 at 5:43 PM | gurufocus.comKB Home Announces the Grand Opening of a New Community at Summerlin, a Premier Las Vegas Master ...April 25 at 5:43 PM | gurufocus.comGold Alert: The Truth About Fort Knox Is ComingOwning physical gold isn’t the best way to profit. I’ve found a better way to invest in gold—one that’s already performing nearly twice as well as gold this year and looks ready to go much higher. If you wait for the news to hit, you’ll already be too late.April 28, 2025 | Golden Portfolio (Ad)KB Home Announces a Rare Opportunity to Own a New Home in a Prime Moorpark, California Location ...April 25 at 5:43 PM | gurufocus.comKB Home Announces the Grand Opening of a New Community at Summerlin, a Premier Las Vegas Master PlanApril 25 at 5:43 PM | gurufocus.comKB Home Announces a Rare Opportunity to Own a New Home in a Prime Moorpark, California Location ...April 25 at 5:43 PM | gurufocus.comSee More KB Home Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like KB Home? Sign up for Earnings360's daily newsletter to receive timely earnings updates on KB Home and other key companies, straight to your email. Email Address About KB HomeKB Home (NYSE:KBH) operates as a homebuilding company in the United States. It operates through four segments: West Coast, Southwest, Central, and Southeast. It builds and sells various homes, including attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, second move-up, and active adult homebuyers. The company also provides financial services, such as insurance products and title services, as well as mortgage banking services, including residential consumer mortgage loans to homebuyers. It has operations in Arizona, California, Colorado, Florida, Idaho, Nevada, North Carolina, Texas, and Washington. The company was formerly known as Kaufman and Broad Home Corporation and changed its name to KB Home in January 2001. KB Home was founded in 1957 and is based in Los Angeles, California.View KB Home ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Texas Instruments: Earnings Beat, Upbeat Guidance Fuel RecoveryMarket Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of Earnings Upcoming Earnings AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025)Booking (4/29/2025)América Móvil (4/29/2025)Pfizer (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 14 speakers on the call. Operator00:00:00Afternoon. My name is John, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2023 Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Following the company's opening remarks, we will open the lines for questions. Operator00:00:16Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com, through October 20. And now, I would like to turn the call over to Jill Peters, Senior Vice President, Investor Relations. Thank you, Jill. You may begin. Speaker 100:00:33Thank you, John. Good afternoon, everyone, and thank you for joining us today to review our results for the Q3 of fiscal 2023. On the call are Jeff Mezger, Chairman, President and Chief Executive Officer Rob McGibney, Executive Vice President and Chief Operating Officer Jeff Kaminski, Executive Vice President and Chief Financial Officer Bill Hollinger, Senior Vice President and Chief Accounting Officer and Thad Johnson, Senior Vice President and Treasurer. During this call, items will be discussed that are considered Forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results And the company does not undertake any obligation to update them. Speaker 100:01:22Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission. Actual results could be materially different from those stated or implied in the forward looking statements. In addition, a reconciliation of the non GAAP measures of adjusted housing gross profit margin, which excludes inventory related charges And any other non GAAP measure referenced during today's discussion to its most directly comparable GAAP measure Can be found in today's press release and or on the Investor Relations page of our website at kbhome.com. And with that, here is Jeff Mezner. Speaker 200:02:02Thank you, Jill, and good afternoon, everyone. We delivered another quarter of strong performance, highlighted by our closings and margins, which exceeded our previous guidance. With these favorable results and our improved outlook for the 4th quarter, We are again raising our revenue and earnings outlook for our 2023 fiscal year. Our business is performing well And our teams are executing on their plans to balance pace, price and starts, reduce build times and drive high customer satisfaction while growing their volumes and profits. As for the details of the 3rd quarter, We generated total revenues of $1,600,000,000 and diluted earnings per share of 1.80 We closed 3,375 Homes, a strong outcome that was driven primarily by a continued reduction in build times and fewer cancellations. Speaker 200:03:02Our margins were healthy at 11.3% in operating income and a 21.5 percent gross margin. While the year over year comparisons are difficult due to the record profits we achieved In last year's Q3, our results and the cumulative benefit of ongoing share repurchases drove our book value per share to $48.29 an increase of 18% year over year. The outlook remains healthy for housing market conditions, driven by low existing home inventory and constrained availability of new homes at our price points. With over 140,000,000 combined millennials and Gen Zs, first time buyers will likely fuel the housing market over the Next decade, which is favorable for our business as we primarily serve the first time and affordable first move up segments. Demand for our product at our price points was solid. Speaker 200:04:05On a per community basis, our absorption pace averaged 4.3 monthly net orders, higher than our historical pre pandemic 3rd quarter average. Although interest rates rose as the quarter progressed, Our net orders remain fairly consistent month to month. The combination of an acute shortage of homes, Together with the demographic factors I just referenced led to strong absorption and a cancellation rate that has returned to historical levels. We generated net orders of 3,097 within our guided range, a healthy result during a seasonally slower time of year. While we were pleased with our net orders and pace during the Q3, we recognize the impact of both higher mortgage rates and overall economic conditions may have on our buyers. Speaker 200:04:59With that in mind and based on normal 4th quarter seasonality, We project a monthly absorption pace of between 34 net orders per community, producing a range of between 2,070 and 2,760 net orders in our 4th quarter. We believe we are well positioned to navigate any possible shift in demand Should rates go higher or if the economy softens and we are prepared to take the steps necessary to adjust to changing conditions as we have done in past cycles. The flexibility inherent in our built to order approach with buyers selecting their lot, Floor plan and finishes in our design studios is a meaningful differentiator as buyers are empowered to significantly influence their overall sales price based on their choices. Approximately 70% of our communities Offer plans with square footage below 1600, smaller homes which feature similar room counts and livability that are a more affordable option. Offering a range of products and price points that buyers choose Gives us early insight in how the market is moving, allowing us to adjust appropriately in the homes we model and price points we feature. Speaker 200:06:22Our backlog was just over 7,000 homes valued at approximately $3,400,000,000 As we saw in our results, Our large backlog provides a stable base of deliveries with good visibility on margins. We are now primarily focused on selling the homes we need to support deliveries in the first half of twenty twenty four. We started 3,850 homes during the quarter, Ramping up our starts to position ourselves for growth given the steady demand we've experienced. We ended the quarter with close to 7,800 homes of which about 73% are sold, consistent with our targeted range. With that, I'll pause for a moment and ask Rob to provide an operational update. Speaker 200:07:09Rob? Thank you, Jeff. Speaker 300:07:13Let me begin by providing some color on our net order results. I want to emphasize a point that Jeff made And that our strategy has remained consistent on optimizing each asset on a community by community basis, balancing pace, price and margin. Demand was healthy across our markets, enabling us to raise prices in 65% of our communities, while decreasing prices in only 10%. We offered mortgage concessions as needed, primarily in cases where the buyer did not qualify. Anecdotally, we hear from our teams in the field that buyers are compelled Our divisions executed well on their plans to reduce build times with a 35 day sequential reduction in the 3rd quarter. Speaker 300:08:05As a result, we are currently building homes in approximately 6 months and this progress puts us another step closer to returning to our historical level of between 4 5 months. Further improvement remains a priority, which we expect to achieve by simplifying and refining our product offerings, While leveraging the even flow production inherent in our built to order model and the long term relationships we have developed with our trade partners and suppliers. Lower build times will help to generate incremental deliveries and drive higher inventory turns and cash flow, in addition to helping our sales effort of personalized homes. We are essentially back to business as usual with our supply chain outside of some specific challenges related to roofing materials and electrical equipment, specifically transformers, which has been widely discussed across our industry. We are also seeing an improvement in the availability of labor for our trades. Speaker 300:09:00We significantly reduced our direct costs by over $20,000 in the first half of twenty twenty three relative to their peak in August 2022, which helped to offset the price reductions we did earlier in the year to generate sales. Costs on homes started in the 3rd quarter held steady despite pressure from certain items including concrete, roofing materials and diesel fuel. Going forward, our focus is on incremental cost reductions through value As we work to finish the year strong, our key operational priorities remain centered on executing our built to order business model and maintaining our high Speaker 200:09:45Thanks, Rob. Switching gears to our mortgage joint venture, KBHS Home Loans, 84% of the mortgages funded during the quarter We're financed through our JV, which is meaningfully higher year over year and a positive development as higher capture rates help us manage our backlog more effectively. These buyers continue to have strong credit profiles With about 60% of KBHS customers utilizing a conventional mortgage and over 90% using fixed rate products, The average cash down payment held steady with the 2nd quarter at 15%, equating to roughly $70,000 down. The average household income of our KBHS customers was over $130,000 higher than the median household income in our submarkets and had an average FICO score of 735. Even with 1 half of our buyers purchasing their first home in the quarter, We are tracking buyers above our targeted income levels with healthy credit who can qualify at elevated mortgage rates and make a significant down payment. Speaker 200:10:59These data points underscore the solid demand amid the lack of supply. We sequentially increased our land investment by about $100,000,000 spending approximately $550,000,000 to both acquire and develop land, while remaining diligent with respect to our underwriting criteria, product strategy and price points. Speaker 400:11:23We expect Speaker 200:11:24to accelerate our investment activity in the Q4 and beyond to support our future growth targets. Our lot position stands at roughly 57,100 lots owned or controlled, of which approximately 42,700 are owned, representing just over 3 years supply consistent with our historical level. We continue to focus on developing lots in smaller phases to limit our capital outlays and balance our development phasing with our starts pace to manage our inventory of finished lots. We believe we are well positioned as we currently own or control the vast majority of the lots we need to achieve our delivery growth targets through 2025 and are working on filling the gaps for 2026. We do anticipate our community count will be lower at year end relative to the prior year before growing again in 2024. Speaker 200:12:23As we have shared on previous calls, We had intentionally paused on developing lots in most of our communities from mid-twenty 22 through the Q1 of 2023 Given market conditions at the time, which has delayed many openings into 2024. We now have A significantly higher year over year number of grand openings projected for next year and expect community count growth of 15% in 2024. Our balance sheet is in excellent shape with a leverage ratio of about 30% at the low end of our targeted range. This enables us to continue to allocate our strong operating cash flow toward reinvestment for future growth and the return of capital to our shareholders. Since we began our share repurchase initiative in August 2021, We have deployed approximately $590,000,000 to buy back more than 15,000,000 shares, representing almost 17% of the outstanding shares at that time at an average price below $39 per share. Speaker 200:13:33These repurchases have resulted in a meaningful increase to diluted earnings per share at $0.27 just in the 3rd quarter and an increase of nearly 2 percentage points in our return on equity. Over the same period, Together with our regular quarterly dividends, which we increased in July, we have now returned nearly $700,000,000 to shareholders. In closing, I want to recognize the entire KB Home team for their contributions to our strong Q3 results. We are now projecting roughly $6,300,000,000 in revenues for 2023 at healthy margins and we're positioned for meaningful community count growth in 2024. We remain committed to becoming a larger, more profitable company that will generate solid returns and maximize long term stockholder value. Speaker 200:14:29With that, I'll now turn the call over to Jeff for the financial review. Speaker 400:14:33Jeff? Thank you, Jeff, and good afternoon, everyone. I will now review highlights of our financial performance for the 2023 Q3, discuss our current outlook for the Q4 and provide our full year revenue and community count expectations for 2024. In the Q3, we realized significant construction cycle time improvements favorably impacting our deliveries that resulted in our housing revenues exceeding the upper end of our guidance range. We also generated a solid monthly sales absorption pace of 4.3 net orders per community and a higher than expected operating margin. Speaker 400:15:14In addition, our robust operating cash flow Allowed us to repurchase an additional 1,500,000 shares of our common stock, while ending the quarter with over $600,000,000 of cash and $1,700,000,000 of total liquidity. Our housing revenues were $1,570,000,000 for the quarter compared to 1.8 $4,000,000,000 for the prior year period. This reflected a 7% decrease in the number of homes delivered and an 8% decline in their overall average selling Though down relative to our strong 2022 Q3 results, our current quarter delivery performance reflected Continued construction cycle time improvements and lower cancellation rates. We anticipate similar positive factors benefiting our 4th quarter deliveries and have considered them in our updated outlook. Based on our current backlog, expected construction cycle times And incremental move in ready home deliveries, we anticipate our 2023 4th quarter housing revenues will be in a range of 1.55 to $1,650,000,000 In the Q3, our overall average selling price Homes delivered was approximately $466,000 compared to approximately $509,000 in the prior year period, primarily reflecting a mix shift away from our higher priced West Coast region along with lower year over year pricing and Higher mortgage interest rate and other concessions in the current quarter. Speaker 400:16:54For the Q4, we are projecting an increase of $20,000 in the overall average selling price to approximately $486,000 due to an expected mix shift towards higher price West Coast deliveries. Our 3rd quarter homebuilding operating income totaled $179,200,000 as compared to $325,100,000 in the year earlier period, which was a 3rd quarter record. Operating income margin reached 11.3 percent, exceeding the high end of our guidance by more than 100 basis points due to both our gross profit margin and SG and A expense ratio surpassing expectations. The current quarter included abandonment charges of $600,000 versus $8,500,000 of inventory related charges a year ago. For the Q4, we expect our homebuilding operating income margin, excluding the impact of any inventory related charges, will be approximately 10.5%. Speaker 400:17:59Our housing gross profit margin for the quarter was 21.5%, down 520 basis points from the prior year period and 80 basis points higher than the midpoint of our guidance range. The margin result relative to the prior year was primarily due to price decreases and other concessions aligned to housing market conditions, particularly the higher mortgage rate environment as well as higher construction costs and a shift in the mix of homes delivered. Excluding inventory related charges from both periods, our 21.5% margin for the quarter was down 5.50 basis points year over year. We expect to see a sequential decline in our 4th quarter gross margin due to both the pull forward of higher margin deliveries Into the Q3 and the fact that a majority of our expected 4th quarter deliveries were contracted in the Q1 when we implemented selective pricing adjustments and offered other buyer concessions to improve our sales base. Gross margins relating to 2023 1st quarter sales contracts represented a trough and the gross margin on orders taken in the second and third As a result, we believe the 4th quarter deliveries will reflect a gross margin inflection point. Speaker 400:19:23Assuming no inventory related charges, we expect our 4th quarter housing gross profit margin will be approximately 20.5%. At the same time, our expected full year margin of approximately 21.3% is slightly above our prior guidance Due to the strength of our Q3 performance and higher full year revenue expectations providing incremental leverage and fixed costs included in cost of goods Our selling, general and administrative expense ratio of 10.2% for the quarter increased by 130 basis As we position our business for growth in 2024 housing revenues, we believe that our 4th quarter SG and A expense ratio will be about 10%. Our income tax expense for the Q3 of $44,600,000 represented an effective tax rate of 23% compared to 22% for the prior year period. We expect our effective tax rate for the 2023 4th quarter to be approximately 24%. Overall, we reported net income for the Q3 of $149,900,000 or $1.80 per diluted share compared to $255,300,000 or $2.86 per diluted share for the prior year period, which were the highest Q3 levels in our history. Speaker 400:21:00Turning now to community count. Our Q3 average of 240 increased 9% from the year earlier quarter. We ended the quarter with 230 communities open for sales. This compared to 227 communities at the end of the 2022 Q3. We believe our 2023 year end community We invested $555,000,000 in land, Land development and fees during the Q3 with $199,000,000 or 36% of the total representing new land acquisitions. Speaker 400:21:40We ended the quarter with a pipeline of over 57,000 lots owned or under contract that we expect will support a Significant number of new community openings to drive community count growth in 2024. At quarter end, we had total liquidity of $1,700,000,000 including $612,000,000 of cash and $1,080,000,000 available under our unsecured revolving credit facility with no cash borrowings outstanding. During the Q3, our Board of Directors increased the quarterly cash dividend on our common stock to $0.20 per share, up 33% from $0.15 per share. In addition, we repurchased approximately 1,500,000 shares of our common stock at a total cost of $82,500,000 while driving our quarter end leverage ratio to historic low of 30.6%. With $325,000,000 remaining under our current common stock repurchase authorization, we intend to continue to repurchase shares With the pace, volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our shares and the housing market in general economic environments. Speaker 400:23:05Year to date, we have repurchased 5,700,000 shares at an average cost 9% below our book value per share at the end of the Q3. Shifting to our expectations for 2024, we are forecasting full year housing revenues in a range of 6 $500,000,000 to $7,000,000,000 supported by our anticipated 2023 year end backlog, expected cycle time improvements and community count growth and assumed stable housing market conditions throughout next year. We expect more than 150 new community openings over the next 5 quarters to drive sequential increases in any community count beginning in the second quarter next year. We believe our 2024 year end community count will be up about 15% year over year. In summary, we are very pleased with our solid Q3 financial performance and strong operational execution and believe we are well positioned to achieve our goals for the 2023 Q4. Speaker 400:24:12In addition, Considering our Q3 performance and expected Q4 results, we have raised our full year 2023 outlook With forecasted housing revenues of approximately $6,300,000,000 up $300,000,000 compared to the midpoint of our prior guidance and a 30 basis point improvement in our operating margin, excluding inventory related charges to about 11.3%. We believe our ongoing focus on accelerating profitable growth and expanding our returns by leveraging our larger scale, Strong community portfolio and uniquely compelling built to order business model will, along with our stock repurchase activity, produced measurable enhancements in both book value per share and stockholder value in future periods. We will now take your questions. John, please open the lines. Operator00:25:09Thank you, sir. We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. Thank you. One moment please while we poll for questions. Operator00:25:39And the first question comes from the line of Matthew Bouley with Barclays. Please proceed with your question. Speaker 500:25:45Good afternoon, everyone. Thanks for taking the questions. Maybe just to start off the question on the kind of pricing strategy here. I think you said you were able to Raise price in 65 percent of communities. Curious how that trended as you got into August and maybe September Given this latest move in interest rates and strategically thinking about sort of what happened a year ago, where you guys sort of Chose to protect the backlog perhaps at the expense of orders in the near term. Speaker 500:26:19How are you kind of thinking about how that may play out here into the Q4? Thank you. Speaker 200:26:27Matt, I'll answer the second half of the question first and then Kick it to Rob for any comments on the pricing trends month to month in the quarter. But we're in a totally different spot than we were A year ago, first off, interest rates moved really quickly and the buyers were in shock basically because their payments moved so much if their rates weren't locked. This year, while rates have picked up, it's been a more gradual increase and the buyers have been digesting them and moving with us. So The buyer psyche and the backlog, I think, are in far better shape than a year ago. And at the same time last year, our backlog was really extended because of our Build times, we were selling a lot of houses and we couldn't get them built in through the system in our historical time frames. Speaker 200:27:19So you had a much larger backlog to protect and we're more sensitive to a year ago than we are today where our backlog It is now down, really in balance with our build time. So we like how we're positioned with the backlog to support Our revenue projections and you don't have to go to the extreme to protect the backlog the way we did last year. So As things go forward, if something happens and demand shifts, if that were to occur, we would take the steps we need real time on a per community basis. And both Rob and I shared in our comments that we evaluate every community every week and its pace price optimize the asset And some go up and most did in the quarter, but we'll be moving pretty quickly. We don't have the same dynamic as last year. Speaker 200:28:13Rob, any thoughts on pricing? I know every community is a different story, but anything you want to add on that? Well, I just said Speaker 300:28:23it was fairly broad based. The price increases we implemented in the Q3 across the majority of our footprint, Every division had at least some communities where we lifted price during the quarter. And I don't necessarily track it by week or by month, But all the way through August, despite rates increasing, as we as Jeff mentioned, balance base, price margin, optimize the asset, we had many communities where we Continued to raise prices based on those dynamics. So really didn't see a slowdown. Obviously, we're sensitive to what's going on with rates in the market. Speaker 300:28:57But If the demand is there and we're selling faster than our targeted pace, we're going to continue leaning on price and improving margins in those communities where we've got the pace. Speaker 500:29:08Got it. That's very helpful color there. Thank you both. Second one, just kind of zooming into the margin outlook. I think you Sort of highlighted that the 4th quarter margin might be reflecting a more challenging environment on sales back in the first Quarter. Speaker 500:29:25So, I guess just any color around early 2024, what might be some of those Puts and takes assuming the Q4 is the trough, I think you said margins were better on sales in Q2 and Q3. Any additional color on the kind of magnitude there, whether it's on those cost reductions you mentioned, some price increases that were occurring at that time? How can we think about that early 2024 gross margin? Thank you. Speaker 400:29:52Sure. Just looking at gross margins, just Pointing out for the full year, we're actually up a little bit incrementally versus our last quarter guide, which we're obviously pleased about. And we had some dynamic shifting some of those margins quarter to quarter. And as you rightly point out, the 4th quarter is impacted by the selling environment earlier in the year when we had a lot Pricing activity and whatnot to help support our sales pace. When we look out into 2024, as I mentioned, our current order activity and backlog Definitely supports an improving trend for 2024, but as we all know, gross margins impacted by both favorable and unfavorable factors We're leaving the housing market and general economic environments, which can impact things like sales price and sales pace So need for concessions, build costs, etcetera, etcetera. Speaker 400:30:45So we are encouraged by the favorable trend we're seeing in the order gross margins. We'll come back and provide a more detailed outlook for 2024 during the Q4 call, including obviously quantitative and numbers On the quarterly trends and what we see for the full year, so far so good and we like the trend that we're seeing right now with our relating to our margins embedded in the orders. Operator00:31:15Thank you. And our next question comes from the line of Stephen Kim with Evercore. Please proceed with your question. Speaker 600:31:24Yes. Thanks very much, guys. Appreciate all the color. And I guess My first question relates to mortgage. I think you referred to mortgage incentives, and I guess I'm thinking mortgage rate buy down specifically. Speaker 600:31:38That's something that I know that you all have not really felt like you've really needed to use all that much. I was curious if you could sort of talk about in this quarter that we just that you're reporting, What was the percentage, if you will, of the sales that you made that did have a mortgage rate buy down? Would you expect that to increase? And is it is that something that you are going into the market and sort of buying forward commitments for? Or are you doing it more on a case by case basis? Speaker 200:32:18Steve, you asked 5 questions there. Well, We'll do our best. Again, I can let Rob go into the specifics. But at a high level, if you think of our business, we're built to order and on a Built to order sale and with that customer, you're working to lock the rate and it costs a little more because you're further out, but They want comfort knowing they'll get the rate when the home is completed. And other than that, we're not really doing Financing concessions on our built order sales. Speaker 200:32:51That buyer picks everything, like I said in my comments, and it's all about the best price for the best value, and they build it, And they're happy at that price. But whether it was the higher can rate earlier in the year or late last year and we had some inventory build up, We actually also started some more inventory homes to have that choice available if the customer wants it. And that's where you fall into the situation where you typically have to offer some type of financing concession or mortgage concession, as you call it, To move that inventory. So the where we had that type of activity was on the specs, not on built to order sales. But Rob, you want to give them the numbers on the magnitude or any trends you saw from Q2 to Q3? Speaker 300:33:42Sure. The trend, Stephen, didn't really change that much. I mean, as Jeff mentioned, any mortgage Buydowns or points that we paid primarily went to move in inventory homes that were later along in the cycle and closer to closing. But As far as the total percentage on mortgage concessions, it was roughly the same quarter over quarter, 1.6 I believe as a percentage of revenue this quarter versus 1.5 or 1.6 last quarter. So it stayed relatively flat quarter on quarter. Speaker 700:34:17Yes, I appreciate that. Speaker 600:34:18I mean, I think that it's really interesting how you're able to See your demand remaining strong despite not really having to rely very much on rate buy downs. I think there's a misconception on Extremely well qualified. So that's really encouraging. I did want to shift gears and ask about your community count Decline, this is something that I know you've attributed to Slower development sort of in the back half of last year, but it seems like maybe you had hoped that you would be able to maybe Make up some ground, no pun intended, and you weren't able to. You didn't exceed the higher end of your order range, right? Speaker 600:35:14So it's not like you sold out of a lot more communities. It sounds like you had ran into some maybe more difficulty sort of getting that last to open the community than you expected. Could you elaborate on what is happening there on the community development side? Is it just generally getting a lot Harder than you would have expected? Speaker 200:35:36Stephen, in general terms, I can say it is harder. And it's interesting As the labor base has reset and the supply chain has settled down, if there's an area where labor is still tighter, it's in the land development side. And I think in part, It's because of the push pull with all the federal money being spent on infrastructure. And a lot of our contractor base has been They're getting stretched because of all the government work that's going on. And between that and Processing times are taking longer to get permits out of the city to start development than we projected early in the year. Speaker 200:36:14So both of those Our plan and component is not because we oversold and sold through necessarily faster. We just had a lot of communities that rolled over and With how our year ends in November, if we get a community ready to open in November, it would be a soft opening And we'll wait till January to hit it harder in a better selling environment. So that'll play into it as well. I I don't know, Rob, if there's anything else you want to add on. Speaker 300:36:44I think that covers that. And we also touched in our Remarks in the beginning, some of the issues with electrical equipment, specifically transformers, and that's out there as well. We've got a number of Communities that we know it's coming, we just don't know when. They're generally ready to go outside of waiting for those to be installed and energized. So It is getting more challenging, whether it's that or just getting things processed through the municipalities. Speaker 300:37:08But we're confident about the communities that we've got coming and They're going to start showing up here as we move forward. Operator00:37:19Thank you. Our next question comes from the line of Alan Ratner with Zelman and Associates. Please proceed with your question. Speaker 800:37:31Jeff, last quarter you kind of made a comment that you wouldn't be surprised Maybe a better than seasonal back half of the year. And I think one of the comments you made at the time was that you were starting to see kind of month over month improvement in the demand For build to order products, I think specs were definitely more desired maybe later last year, earlier this year, and you were starting to see a little bit of a shift there. The Q3 order results in the guide for 4Q kind of implies more of a normal seasonal pattern, which there's nothing wrong with that. I'm just curious if you think about the comments you made last quarter. Has anything changed as far as the buyers kind of relative demand between build to order and spec that might be causing that Subtle shift in the guide versus your comments? Speaker 200:38:16Well, I think our customers in Q3, we actually shifted to more built order sales and less Inventory, but in part it's because we had less inventory to sell, I think. It's still a situation where There is no inventory in the markets that we're in at our price points. There's a lot of cities where inventory is still quoted in weeks, maybe a month and a half. And then you think, okay, half of those listings aren't even habitable. It's like a teardown that's available for sale. Speaker 200:38:47So there's not a lot of Inventory choice for the customer today, and I think that's part of what's if you couple that with the demographic demand and you have A lot of people need a roof over their head and not a lot of houses to choose from. And then in between, you've got rates that have been slowly ticking up and it's a math equation and we stay on top of it, but at some point that customer may say, I don't want to buy and I'm going to wait for a better time and then you got to go Find the next customer. So I think you phrased it the right way, Alan, in that as these rates have continued upward, I think it has brought it back down to what I'll call a more normal seasonal pattern is what we're expecting. In part, we just don't know Where rates are headed from here, they could go up, they could go down. They don't seem to be in sync necessarily each month with what's going on with The T Bills and the tenure and whatnot, but I would say we're expecting a seasonally normal 4th quarter. Speaker 800:39:54That's helpful. And I appreciate that and certainly recognize the rate environment has changed. So I appreciate you talking through that. Second question, maybe this one's better for Jeff Kaye. Just on the 24 revenue guide, I didn't do the exact math here, but sounds like that'll be Up 5% or 10% year over year. Speaker 800:40:16If I'm doing the math correctly, I think your backlog, at least in units, is going to be down Probably about 20% entering next year. So is there any way you can kind of just parse out that revenue increase between Price, better cycle times and order growth in 2024, just to kind of give us a rough idea of where that Directional growth is coming from. Speaker 400:40:42Sure, sure. So a couple of things. We're looking to rebuild community accounts as we go through the years. I talked about Prepared comments and you can see sort of the cadence on that a bit. I mean, it's a little early to call it by quarter at this point, but We're looking relatively flat going to the end of the Q1 and then starting to increase sequentially. Speaker 400:41:05So obviously, with a Higher community count, the booming community count that always helps your sales and in turn your deliveries. Construction cycle times are pretty big one for We're looking to Speaker 300:41:16hang on to the gains Speaker 400:41:17that we've already experienced and we had a really, really solid third quarter Our performance along those factors and looking to have a really nice 4th quarter as well. And just by holding those gains, it pulls in Additional units into the year, both in the 'twenty three and assuming you hold on to those gains in the 'twenty four as well. So those are probably the 2 Largest factors affecting it for 2024. And if you back up and look at a big picture for a minute, it's pretty early, Obviously, to forecast the full year, we haven't even sold units in the Q3 yet really. And Yes, we'll be updating that again as we get into the Q1. Speaker 400:42:00We always like to give our first kind of look or expectation during this quarter's call and then we'll Fine as Operator00:42:12we go from there. Thank you. And the next question comes from the line of John Lovallo with UBS. Please proceed with your question. Speaker 900:42:19Good evening, guys. Thank you for taking my questions. And this one sort of dovetails, Jeff, off on the answer to the last question there from Alan. The 4 to 5 month cycle time that you guys think about is normalized. We had 35 days of sequential improvement in the quarter. Speaker 900:42:41I guess the question is, is the low hanging fruit There is such a thing kind of taken care of at this point. I mean, how quickly could you get back to that 4 to 5 months? I mean, could we expect Another decline very similar to what we saw sequentially in the Q4? Speaker 200:42:57Rob, you want to take that? Speaker 300:43:00Yes, John, I would be surprised. We've had some pretty significant gains over the last couple of quarters, and I think we get into an area where we See some amount of diminishing returns just on the improvement that we're able to make, but we do have our eyes our sights I said on getting back to that 4 months to 5 months and we're only 30 days away from that. So I don't think it's going to take us a long time to get there, but I would be surprised Just looking into this next quarter that we see that same kind of improvement like another month off of cycle time, but Certainly over the next 2, 3 quarters driving to get towards that old historical build time of 4 to 5 months. Speaker 900:43:40Okay. That's helpful. Thank you. And then I'm not sure if I got the numbers right here, but I think for orders you guys you talked about 3 to 4 For the absorption, so 2,070 to 2,760, I believe were the numbers. I think it's a fairly wide range and it's Understandable given some of the uncertainties out there. Speaker 900:43:59But I guess what I'm trying to understand is what sort of drives the high or low end of the range? I mean, what are the variables? Is it really just contingent upon interest rates? And if that is the fact the big factor, if rates would remain where they are today, Would that put you in position for the higher end of that range? Or do you need rates to actually fall from here? Speaker 200:44:21We're not assuming they're going to fall, John. So if rates were to hold where they are, we'd Probably be around the midpoint if rates go up, you may tilt down to the low point. We also have some communities opening this quarter and depending on when they open, If we hit our opening dates, it helps orders and if they miss their opening date, it will hurt orders. So we've got That variable as well, but what we were trying to guide is really it's a we view it right now as a pretty normal environment and We expect normal absorption rates and part of our balancing price and pace, we're not going to let them run above 4. If a community is selling well, we'd rather Operator00:45:14Thank you. And the next question comes from the line of Michael Rehaut with JPMorgan. Please proceed with your question. Speaker 700:45:22Hi. Thanks for taking my question. Good afternoon, everybody. I wanted to focus a little bit The balance in terms of fiscal 2024, how you're thinking about capital deployment? You laid out an aggressive Community count growth target for the end of the year and how you think about You've been deploying capital or capital allocation as it relates to funding your organic Needs, which obviously take priority generally speaking, compared to share repurchase This year, I think you've done $250,000,000 I believe a share repurchase in the 1st three quarters. Speaker 700:46:15Does your do your capital anticipated capital needs for next year, would that kind of affect or I guess Lower, let's say, all else equal, the potential for a similar amount of share repurchase, should we look for something perhaps more moderate? Just any kind of directional thoughts there would be helpful. Speaker 400:46:39Sure. Yes. Well, I think as we've indicated Past few quarters, we see this stock buyback strategy as a very powerful tool right now, particularly given our leverage Low leverage ratio and very strong cash generation in the business. We are Investing in land, as you mentioned, and we do want to stay focused on that and on growing the business, but we do believe it's an and equation, not an or equation at this point. And for many years, we had a dual strategy of delevering, frankly, and Taking our debt levels down while reinvesting in the business and given our current leverage ratio and what we perceive for the future and our targets, That debt reduction need is no longer there. Speaker 400:47:27So we're pivoting more towards share repurchases combined with reinvestment in the business Towards growth at favorable returns. So, I listened, I don't know how many factors impacting Our share buyback strategy and the decisions we make on a quarter to quarter basis, so there are a lot of things that go into it. But certainly, all things being equal, we'd like to continue Down that path, we think it's been very positive for the company and very positive for our shareholders, and we'd like to see that continue. And if things Pan out is expected for next year. We do plan to continue that. Speaker 700:48:06Okay. Yes. No, I appreciate that, Jeff. I guess I was just Wondering about maybe the rate of repurchase potentially moderating a little bit, not necessarily either or, But I guess we'll have to see how next year plays out. Speaker 400:48:22Yes. I view it right now, Mike, that Yes, we're at a very comfortable level of repurchases. We've still been growing cash balances and all the ratios are staying very well aligned. So we're not even close to that point. And Like I said, we'll see how it plays out, but that's the overall strategy. Speaker 400:48:38Hopefully, that's helpful for you. Speaker 700:48:41Yes. No, that's great. I guess secondly, and I'm sorry if I missed this earlier, I think Rob laid out that During the quarter, you raised price in 65% of your communities, lower than 10%. I'm curious on that, If there's an ability to maybe drill down a little further, curious on the 65%, what was the Rough degree of magnitude of those price increases and also as I think someone else kind of asked earlier and I apologize, but didn't I didn't hear the answer, but how pricing kind of progressed in August September as Seasonality returned as rates kind of moved a little bit higher, if perhaps those price increase Trends kind of moderated or maybe just completely subsided. Love any color there as well. Speaker 200:49:42Rob, you want to go through it again? Speaker 300:49:45Sure. So I guess just to take your the last part first, I think we touched on that before, but we really didn't see it change dramatically as far as the increases from week to week or from month to month in the quarter. Despite rates moving up in August, we still had a good number of communities who were selling faster than our planned pace. So in those communities, we continue to lift price. As far as the magnitude of the increases on the 65% we were increased, across the company that was about $9,000 Operator00:50:27Thank you. And our next question comes from the line of Truman Patterson with Wolfe Research. Please proceed with your question. Speaker 1000:50:35Hey, good afternoon, everyone. Thanks for taking my questions. Clearly, you all have been discussing increasing the investment spend Going into the back part of the year, are you actually finding many or any kind of quick turn finish lot deals And whether this is contemplated in the year end 2024 community count growth of 15%. And then big picture, some in the industry have been moving towards an option to heavier land strategy. I'm just would love to get your thoughts on potentially deploying more land banking further down, moving further into option, land, etcetera. Speaker 200:51:21At Terminal, we are seeing some finished lot deals And the landmark, it appears to be freeing up a little bit. So that's encouraging. None of those would be included in Our guide for next year, when we're doing our planning until it's land committee approved, nothing gets counted in anything. It's out there, but it's not part of community count. So if we are able to snag some, it may Come out of 'twenty four with more, who knows, we'll see. Speaker 200:51:53As to Land Bank, I can't speak for any of the other builders. Our view has been with the size of the communities we're buying, we don't want to do the land bank, we don't need to. And I hate to give the margin away because it is diluted, the margin because the land bankers taken some of the margin And it doesn't really mitigate risk. So you're not de risking, you're just moving money around. And we'd rather focus on Phasing our developments, having as few finished slots hanging around us as possible in just real time. Speaker 200:52:32We've got a known sales pace. We know where we're headed. We can pull the trigger on some more development. And What's happened is costs have gone up. The development side of land is actually now higher than the land side itself. Speaker 200:52:46So, you can control your development and, it's just we think right now it's the best approach for us because We can keep lifting our margin a bit along the way. Speaker 1000:52:58Okay, perfect. And then, the SG and A Moving a little bit higher, I think a lot of that's lack of leverage, right, just from the closings differential. But One of your peers mentioned that they were seeing increased third party broker commissions. I'm just hoping you could help us think through that, where do kind of Broker commissions stand as a percentage of closings today versus history and whether or not you all expect them to kind of Gradually normalized because they were at pretty depressed levels in 2021 and the 1st part of 2022. Speaker 200:53:35When the markets were stronger, it's a combination of strong markets, but also leveraging our Technology and what we can do now with the Internet where the brokers aren't as critical, consumers still go to them to help them negotiate the deal. And our I think Jeff shared it in his comments that our commissions were up a little bit, Primarily in that we when you're selling a completed inventory home, you're really competing with other retails. It's a house versus a house and we go to whatever the market commissions are for brokers on those homes. So it did take up Our realtor commissions 20 bps, I think it was in the quarter, 30 bps. But our participation rate really hasn't changed. Speaker 200:54:24It's been Running around 65% as a company and has been there for years. So even when we were paying a little less in commission, the participant Patient rate didn't go down and it was taken up, it's holding about the same, but it's a different business approach when you sell and expect them to build to order. Operator00:54:46Thank you. And our next question comes from the line of Buck Horne with Raymond James. Please proceed with your question. Speaker 1100:54:54Hey, thanks. Good evening, guys. Looking at the community count acceleration that you're expecting for 2024, As just thinking about the mix of those communities, would those be geared more towards, again, entry level first time buyer type product And or would you potentially gear those towards or jump start those new communities with additional spec home starts To get those absorption rates to your target levels? Speaker 200:55:25Yes, Buck, The communities we're opening are spot on with our current product and price strategy. We try to target The median household income in that submarket, and if it's a land constrained, very desirable With no inventory, you can go a little above median income. We try to hold the median income, which means our communities are going to target first time and Affordable first move up primarily and that's where we're going to stay. As to the spec homes to get them going, we find that those are the hardest homes to sell It's helping the community. So unless it's a new product series in a city where we're opening up and we want to Shake down the framing design, if you will, and make sure the structures are all designed the right way and value engineered. Speaker 200:56:18We'll go start inventory in those situations, but they're very limited. We go as fast as we can to get the models built. We open the store. We get sales going and we build houses. Speaker 1100:56:30All right, perfect. Thank you for the color there. And I think I probably know answer this question, but I'll ask it anyway. Just wondering if you've had any recent discussions or having any thoughts about Single family rental partnerships or have had any inbound discussions with rental operators that are looking for some capacity recently? Speaker 200:56:52Well, we're always looking at that Buck. And every time we've looked at it, we find that we get the best return just Building it for sale and sticking to our knitting. So we're really not interested in going there. Some of the deal flow we're seeing on lots is Single family rental companies that need to offload some assets. So that would suggest that Whether it's the financing side and getting our communities developed or whether it's the financial returns and the rents and whatever, Maybe their strategy has changed a bit, but some of the lots we're seeing right now are deal flow coming from those companies. Operator00:57:32Thank you. And the next question comes from Joe Ahlersmeyer with Deutsche Bank. Please proceed with your question. Speaker 1200:57:40Hey, thanks. Good afternoon, everybody. Just a quick one on the fiscal 2024 revenue guide. Would you be willing to At least discuss that somewhat in terms of price versus volume. And I ask because I'm looking at your delivery ASP relative Your backlog, I think this is the Q1 where it's actually been below the backlog ASP and then you're sort of guiding for it to be in line. Speaker 1200:58:07So should we maybe just think about the more recent order prices as indicative of where you're heading in 2024 For closings or how would you sort of disaggregate that? Speaker 400:58:17Sure. Yes, right now, we normally during this call just kind of give a big range On the revenue side, without diving into too many details, we're still refining some of those plans right now and we want to see how the Q4 shapes up and we'll give you Tons of detail on all that, ASPs, units, revenues and all that during the Q4 call. Speaker 1200:58:42Okay, understood. And then thinking about the community count guide, especially in light of the comment around some of the crowding out Of the infrastructure spending, those contractors are sort of busy with that. If we see an acceleration in that spend next year, which I think is what Many in that industry have been calling for. Would that represent an incremental risk to you hitting that target? Or is that acceleration sort of baked into your considerations at this point? Speaker 400:59:12No. I think any Sort of worsening in supply conditions would be an incremental risk. Again, community count is a very difficult number to peg. There's a lot of moving It's not just on the grand opening side and how many communities get opened, but just on sales pace and what the selling environment is like as well and how many closeouts you're going to have. So we think right now it's pretty much middle of the road estimate for end of year community count is We're up about 15% from this year end and we'll see how it goes. Speaker 400:59:46There's some challenges out there. Rob highlighted a few of them. Jeff talked about a couple on the Development side, but there's always challenges in getting communities open. We've been doing a pretty good job staying on track in most of our openings, particularly last couple of quarters and hope to continue down that path and achieve a new Community count and new community portfolio that will support future growth for Speaker 201:00:12the company. That's the objective. Operator01:00:17Thank you. And our final question comes from the line of Jay McCanless with Wedbush Securities. Please proceed with your question. Speaker 1301:00:25Hey, thanks everyone. So my first question, I think you may have answered this when you talked about the Mix of what's closing in the Q4, but last quarter you guys had said that the Q3 was probably going to be the trough in gross margins. Was it just the cycle times improving on some of the to be built homes? Or can you walk us through Why the trough got moved to 4th quarter from 3rd quarter? Speaker 401:00:54Yes, I talked a little bit about it during the prepared remarks. There was pull forward of higher margin Closings Speaker 301:01:01into the Speaker 401:01:01quarter, we overachieved on deliveries and a lot of those deliveries were sold earlier Last year before some of the price increases came into the fact that would have otherwise closed in the Q4, it's probably as simple as that. Speaker 1301:01:19And then the other question I had, in the areas where you're having to cut Price is still is there an opportunity maybe to put some smaller square footage plans out there or you're just trying to sell through what you have now and then reset To square footages when you start out in new communities. Speaker 201:01:41Jack, that's in part why I mentioned what I did about the smaller floor We have available and you've covered us a lot. You know in a built to order business, you're really a consumer laboratory. Every day, You're getting feedback on what the consumer wants, what they think and most importantly, what they buy. So we watch the trends closely on Frequencies by plan in this area, in this community, is it rotating to smaller plans or not? And if it is, and we haven't seen real Evidence of it, yes, we're down incrementally a few feet on average, but it's not it hasn't moved much Over the last 9 months, if it did, we can quickly go introduce a smaller model into the model park and we'll do so To help sales there, we'd rather do that and hold margin than just drop price on what you're offering and hit the margin. Speaker 201:02:39So it's One of the levers we've pulled and we've done a lot in the past, in part because we have product on the shelf we can go plug and play. It's already planned checked, it's approved, and we can go insert it as a model and help that community succeed. So it's one of the things we track very closely. Operator01:03:00And ladies and gentlemen, that does conclude today's teleconference. Thank you for your participation. You may now disconnect yourRead morePowered by