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KB Home (KBH)

Q2 2012 Earnings Call

June 29, 2012 11:30 am ET


Jeffrey T. Mezger - Chief Executive Officer, President and Director

Jeff J. Kaminski - Chief Financial Officer and Executive Vice President


Susan Maklari - UBS Investment Bank, Research Division

Michael Rehaut - JP Morgan Chase & Co, Research Division

Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division

Anto Savarirajan - Goldman Sachs Group Inc., Research Division

Ivy Lynne Zelman - Zelman & Associates, Research Division

Daniel Oppenheim - Crédit Suisse AG, Research Division

Adam Rudiger - Wells Fargo Securities, LLC, Research Division



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Good day, everyone, and welcome to KB Home's 2012 Second Quarter Earnings Conference Call. Today's conference is being recorded and webcast on the KB Home's website at The recording will be available via telephone replay until 4:30 p.m. Eastern Time on July 7 by calling (719) 457-0820 and using the replay access code of 8933147. The replay will also be available through KB Home's website for 30 days.

KB Home's discussion today may include certain predictions and other forward-looking statements that reflect management's current expectations or forecasts of market and economic conditions and the company's business activities, prospects, strategy and financial and operational results. These statements are not guarantees of future performance. And due to a number of risks, uncertainties and other factors outside of its control, KB Home's actual results could be materially different from those expressed and/or implied by the forward-looking statements. Many of these risk factors are identified on KB Home's filings with the SEC, which the company urges you to read with care.

The discussion today may also include references to non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures to those most directly comparable GAAP financial measures and of Regulation G require information -- required information is provided in the company's earnings release issued earlier today, which is posted on the Investor Relations page of the company's website under Recent Releases and through the Financial Information News Releases linked on the right-hand side of the page.

And now your host for today's call, Mr. Jeff Mezger. Mr. Mezger, please go ahead, sir.

Jeffrey T. Mezger

Thank you, Rufus, and good morning, everyone. Thank you for joining us today to discuss our second quarter results. With me this morning are Jeff Kaminski, our Executive Vice President and Chief Financial Officer; and Bill Hollinger, our Senior Vice President and Chief Accounting Officer.

My remarks today will provide you with highlights of the second quarter, a brief overview of how we see the macroeconomic environment, an outline of our growth strategies and review of our performance drivers to restore profitability. Then Jeff will walk you through our detailed financial results, after which, I will make a few closing comments and then we'll be pleased to take your questions.

I'd like to begin today's call by saying that as our overall results reflect, we continue to make significant progress against our strategic objectives. Most importantly, we expect to achieve profitability by the fourth quarter of 2012 and also for the full year 2013.

Before we discuss the macroeconomic environment, let me share with you some of the financial highlights from the quarter. Net orders were 2,049, up 3% year-over-year and up 71%, compared to the first quarter of 2012. While our net orders were up 3%, the net order value of $503 million increased 18% year-over-year and 81% over the first quarter of 2012.

Our backlog continues to grow substantially. We ended the second quarter with 2,962 homes in backlog, representing $693 million in potential future housing revenues, up 38% year-over-year and 51% over Q1 2012. Our revenues grew to $303 million in the quarter, up 11% from a year ago.

We significantly reduced our net loss to $24 million or $0.31 a share from a net loss of $69 million or $0.89 a share in the same period of 2011. We generated positive net cash flow for the quarter while continuing to fuel future growth. We spent $83 million on land and development, growing our lot count by almost 1,600 lots from the first quarter of 2012. We ended the quarter with our lot count up 21% from a year ago.

We are pleased with the progress of our transition to Nationstar, our new preferred lender. Nationstar began accepting new applications from homebuyers on May 1. We've been very impressed with what we are seeing thus far and are confident that this alliance, although it did not have a significant impact on our second quarter, will have a positive impact on our business and financial performance in the future.

Before I discuss the second quarter results in detail, I would like to provide you with our view of the current macroeconomic environment. Sustained job growth and improved consumer confidence are key drivers in an economic recovery, and both have demonstrated variability in recent months. Job growth has shown signs of improvement, although it is unclear whether this growth is at a level that will sustain an economic recovery. We're also concerned that consumer confidence has now declined for 4 consecutive months. I'm pleased to say, however, that the overall housing market appears to have largely stabilized and is moving into a period of recovery.

Real estate remains very localized, and the pace of recovery varies by city. Specific to the markets in which KB Home operates, we are seeing improvements in virtually every one of our 32 markets across the country. In fact, dynamics have improved significantly over the past 90 days as compared to late last year or early this year, with declining inventory levels and heightened consumer demand.

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