Jeffrey Mezger. Chairman, President & Chief Executive Officer

Transcription

1 Jeffrey Mezger Chairman, President & Chief Executive Officer

2 Why KB Home (NYSE: KBH) ENDURING 60-year history in homebuilding with strong brand recognition TARGETED Focused on largest demand segments: first-time, first move-up buyers DIVERSIFIED Operations in 36 markets in 7 states identified for their significant growth potential. Presence in 13 of the top 20 housing markets 1. 14% 12% 52% 22% First-time 2nd move-up 1 Source: Local Leaders 2016, Builder magazine 1st move-up Active Adult WEST COAST CALIFORNIA SOUTHWEST ARIZONA NEVADA CENTRAL COLORADO TEXAS SOUTHEAST FLORIDA NORTH CAROLINA 2016 KB Home 2

3 Why KB Home (NYSE: KBH) EXPERIENCED Corporate management team 1 average 21 years in the industry and Regional Presidents average 29 years PROGRESSING Significant improvement in key financial metrics over the past four years 2 COMPELLING Strategy to increase stockholder value through accelerating profitable growth, increasing returns, and achieving targeted leverage ratio 1 Section 16 officers to Q LTM 2016 KB Home 3

4 Where We ve Been ($ in millions) Achieve Profitability Build Scale; Accelerate Profitability Returns-Focused Growth Total Revenues $3,500 $3,388 $3,032 $3,000 $2,500 $2,401 $2,097 $2,000 $1,316 $1,560 $1,500 $1, Q LTM Pretax Income (Loss) $175 $100 $25 $(50) $(125) $(200) $(181) $(79) $38 $95 $127 $ KB Home 4

5 Significant Progress in Past Four Years 2012 Q LTM Average Selling Price Deliveries Housing Revenues Operating Income Margin Pretax (Loss) / Income Diluted EPS Stockholders Equity Book Value per Share Net Debt-to-Capital Ratio 1 $246,500 $360,500 6,282 9,349 $1.5 billion $3.4 billion (1.3)% 4.9% $(79) million $164 million $(.76) $1.16 $377 million $1.7 billion $4.89 $ % 58.2% 1 See Appendix for reconciliation of non-gaap to GAAP measure 2016 KB Home 5

6 Where We Are Today We expect continued improvement in housing market conditions. Multiple drivers to support demand Increasing household formation Favorable demographics Job and income growth Credit restrictions are easing; credit availability is expanding Supply remains low Existing home inventory is limited New home starts are well below historically normalized levels Demand is increasing in the more affordable submarkets of each city in which we operate Driven primarily by first-time and first move-up buyers Continued momentum in net orders up 14% in first 6 weeks of Q KB Home 6

7 Where We Are Headed Returns Focused Growth. We plan to continue growing our business while increasing returns. Execute Core Business Strategy Increase scale, expand market share in existing footprint Improve profitability per unit and operating margin Monetize Deferred Tax Asset Accelerate utilization of DTA as pretax income continues to grow Improve Asset Efficiency Improve absorption per community Continue reactivating communities Sell non-core assets Deploy excess cash Key Three-Year Targets Grow revenues, expand operating margin, accelerate earnings ROIC in excess of 10% Net debt-to-capital ratio of 40% to 50% 2016 KB Home 7

8 Core Business Strategy: KB2020 Customer Operations Establish a Top 5 position in our served markets by building communities that offer a compelling combination of affordability, choice and personalization Land Product 2016 KB Home 8

9 It Starts With the Customer Customer Operations Target first-time and first move-up buyers with products that are affordably priced for the median household income of the submarket Land Product 2016 KB Home 9

10 Target Highest Demand Customers Expertise in serving first-time and first move-up buyers, together averaging ~80% of our deliveries over past 15 years. Proprietary market research and customer surveys guide submarket and price point strategy and priorities Product positioning determined locally by Division President based on customer surveys and competitive market analysis Offer products that are affordable for the greatest concentration of demand in our submarkets, closely aligned with median incomes 2016 KB Home 10

11 Investing in Land Customer Operations Invest in and develop land positions within prime growth submarkets that provide a 2-3 year supply of land/lots per community Land Product 2016 KB Home 11

12 Focused Investment Approach Leverage proprietary market research, customer surveys and relationships to identify the right parcels in terms of location, product, price point and deal structure. Committed to existing geographic footprint potential for significant upside Emphasize metro areas that have the potential to sustain a minimum of 800 deliveries Individual assets to generally offer no more than 2 product lines, maximum of lots Evaluate investments in today s dollars with a focus on returns 2016 KB Home 12

13 Product Design & Customer Choice Customer Operations Design products that maximize value to the customer, creating a base product with a standardized set of functions and features at a competitive price per square foot, while also providing structural choices and leveraging the Studio for personalization Land Product 2016 KB Home 13

14 Build the Home Customers Want Customers choose lot, floor plan, structural options and elevation; then personalize homes through the Studio. In-house architecture team integrates customer survey data in product design Minimize costs while maintaining quality Offer a home that meets or exceeds customers value expectations Utilize standardized product series, which has multiple benefits Lowers direct costs Ability to open models faster Informs us on pricing, cost and customer preferences Incorporate energy efficient features into product design to help lower the total cost of homeownership 2016 KB Home 14

15 Our Competitive Advantage 2016 KB Home 15

16 Operational Model Customer Operations Built-to-order model drives efficient, low-cost production through disciplined and scalable operations Land Product 2016 KB Home 16

17 Built-to-Order is Efficient & Predictable Utilize single business model nationally and share best practices to drive consistent and measurable execution on a daily basis. Standardized reporting Companywide provides visibility and clarity to execution, consistent employee training Significant advantages of built-to-order Manage to an even-flow production process, which is more efficient Reinforces our preferred position with subcontractors Minimizes speculative inventory and margin variability Provides predictability on deliveries Centralized scheduling and even-flow production enables leverage on overhead Fewer superintendents needed to achieve delivery volume KB Home

18 Customer Satisfaction Customer Operations Provide high customer satisfaction from sale to delivery Land Product 2016 KB Home 18

19 Customer First Focus High-level customer experience through extensive communication from sale to delivery and beyond. Infrastructure and process in place to deliver exceptional service Alignment between Division President and entire team on customer satisfaction standards Community Teams serve as leadership of each community, owning the home buying process together with the customer Weekly contact with buyers on status of home All homes expected to be delivered 100% complete and on-time Customer satisfaction score is currently 91%; target is 95% 2016 KB Home 19

20 Core Business Strategy Takeaways Compelling strategy that can produce continued growth in our financial results and greater stockholder value. Key elements of strategy reflect disciplined and fact-based approach to offering the right locations, products and price to appeal to first-time, first move-up buyers Significant upside opportunity in current footprint Focused effort on improving profitability per unit Strike the optimal balance between pace and price Contain direct costs and leverage SG&A on higher revenue base Capture efficiency benefits from scale and standardized product series 2016 KB Home 20

21 Significant Reduction in DTA Accelerate utilization of DTA as pretax income continues to grow. ($ in millions) $900 $750 $825 $782 $757 $600 $450 $300 < $350 $150 $ Q Target 2016 KB Home 21

22 Improve Asset Efficiency We can internally generate cash flow to support our future growth and attain our 3-year targets. Achieve higher absorption rates per community Extend multi-year effort to reactivate communities Reduced inactive inventory by ~$320 million from peak through Q3 2016, including ~$160 million from Q through Q Continue to sell non-core assets Land in excess of near-term requirements Incremental investment in development not justified Located in areas outside our served markets Land entitled for certain products not aligned with our primary offerings Target inactive inventory to represent < 4% of total inventory in 2019, down from 43% at its peak Deploy excess cash for debt reduction and land investment 2016 KB Home 22

23 Optimize Our Assets Balance pace and price to drive the highest returns in each community. Typical target of 4 net orders per community, per month Multiple levers to find the right balance Adjust prices up or down to hold absorption at optimal pricing Refine elevation and lot premium pricing Adjust standard features to influence price/margin Review price relative to square footage across product offering Introduce new models to move up or down in square footage and price Stop selling and re-establish the reservation process to verify the adjustments have the desired effect prior to re-grand opening Current improvement in absorptions driven by stronger pace from underperforming communities 2016 KB Home 23

24 Roadmap to Increase Stockholder Value Increase Scale Enhance Profitability Strengthen Cash Flow Achieve Objectives Grow community count and optimize absorptions, ASPs Drive higher profitability per unit Generate higher cash flow from operations Attain ROIC in excess of 10% Deliver low to mid double-digit annual revenue growth Expand operating margin Accelerate use of DTA, improve asset efficiency, deploy excess cash Realize net debt-tocapital of 40% to 50% 2016 KB Home 24

25 Key Financial Targets 2019 Returns-Focused Growth Housing Revenues > $5 billion Operating Income Margin 8% to 9% Return on Invested Capital > 10% Return on Equity Low-to-mid double-digit Net Debt-to-Capital Ratio 40% to 50% 2016 KB Home 25

26 Appendix: Net Debt-to-Capital Reconciliation 2016 KB Home 26

27 Net Debt-to-Capital Reconciliation ($ in millions) 2016 KB Home 27