KB Home — Q1 2022 Form 10-Q Summary
Business context and reporting period
KB Home reported results for the three months ended February 28, 2022, compared with the same period in 2021. Its homebuilding operations span four U.S. regions; financial services includes insurance and title services, while mortgage services are provided through an unconsolidated joint venture.
Financial and operating metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $1.399 billion | $1.142 billion |
| Pretax income | $178.1 million | $123.6 million |
| Net income | $134.3 million | $97.1 million |
| Diluted EPS | $1.47 | $1.02 |
| Homebuilding operating margin | 12.2% | 10.0% |
| Housing gross profit margin | 22.4% | 20.8% |
- Homebuilding revenue rose 23%; 2,868 homes were delivered, essentially flat year over year, while average selling price increased 22% to $486,100.
- Net orders declined 2% to 4,210, but net order value increased 15% to $2.15 billion. Ending backlog rose 29% by homes to 11,886 and 55% by value to $5.71 billion.
- Operating cash flow was negative $251.0 million, versus negative $79.3 million, primarily reflecting a $405.9 million inventory increase. Investing cash use was $17.9 million; financing provided $219.5 million, including net revolver borrowings of $250 million.
- Cash and cash equivalents totaled $242.7 million at quarter-end. Total liquidity was $1.07 billion, including $831.4 million available under the revolving credit facility.
- Notes payable were $1.935 billion, up $249.9 million from November 30, 2021; debt-to-capital was 38.2%, versus 35.8%. The company reported compliance with debt covenants.
- Effective tax rate was 24.6%, compared with 21.4%. The company reported no interest expense in the income statement because interest incurred was capitalized.
Material changes versus prior year
- Net income increased 38% and diluted EPS increased 44%. Homebuilding pretax income increased 47%; financial services pretax income was roughly flat.
- Housing gross margin expanded 160 basis points, with favorable pricing and lower relative capitalized-interest amortization more than offsetting higher construction costs. SG&A declined to 10.2% of housing revenue from 10.7%.
- Construction cycle times lengthened approximately two weeks versus Q4 2021. Deliveries as a share of beginning backlog fell to 27% from 37%, and average community count was down 4% year over year.
- Land and land-development investment increased 27% to $704.7 million. Inventory rose $395.0 million from November 30, 2021.
Outlook, risks, and unusual items
- Management projected Q2 2022 housing revenue of $1.55–$1.65 billion, average selling price of about $490,000, homebuilding operating margin of 14.3%–14.7%, and housing gross margin of 24.4%–25.0%, assuming no inventory-related charges.
- For full-year 2022, management forecast housing revenue of $7.20–$7.60 billion, average selling price of $490,000–$500,000, homebuilding operating margin of 16.0%–16.6%, housing gross margin of 25.5%–26.3%, ending community count of about 255, and return on equity above 27%. These are forward-looking estimates, not guarantees.
- Management cited strong housing demand and backlog, but expected supply-chain, labor, permitting and construction-service constraints to persist. Inflation, rising mortgage rates, reduced mortgage availability, COVID-19 disruptions, and the Ukraine conflict and related sanctions could pressure demand, costs, deliveries and margins.
- Florida construction-defect matters included approximately 554 outstanding Chapter 558 noticed claims; the company said losses could exceed accruals but could not reasonably estimate any excess. A Northern California townhome defect matter settled for about $12 million, covered by the existing self-insurance accrual.
- Performance bonds outstanding were $1.15 billion; letters of credit totaled $45.3 million across facilities. Management did not expect a material amount to be called.
- On April 7, 2022, the board authorized up to $300 million of share repurchases; none had been made under that authorization as of the filing date. Q1 purchases of 319,815 shares were for employee tax withholding, not program repurchases.
Important facts for investors to verify
- Whether backlog converts into deliveries and revenue on schedule despite extended construction cycles and community-opening delays.
- Whether pricing continues to offset material, labor and other construction-cost inflation, especially given margin differences across regions.
- Whether mortgage-rate increases, affordability and buyer cancellations affect orders, backlog and average selling prices.
- Cash use and debt levels as KB Home invests in land and development; confirm covenant headroom and upcoming debt maturities, including $353.2 million due in fiscal 2022 and $351.7 million in fiscal 2023.
- Potential costs and insurance recoveries for Florida construction-defect claims and other warranty, self-insurance and legal contingencies.
- Actual performance against the company’s 2022 guidance and the conditions underpinning its non-GAAP margin targets.