Investor Presentation - Third Quarter 2020 - Caledonia at Summerlin (Las Vegas)
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Investor
Presentation
Third Quarter 2020
© 2020 KB Home
Caledonia at Summerlin (Las Vegas)
Forward-Looking Statements
Items in this presentation, and statements by KB Home management in relation to this presentation or otherwise, may be “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on current (at the time made) expectations and projections about future events and are subject to risks, uncertainties, and
assumptions about our operations, economic and market factors, and the homebuilding industry, among other things. These statements are not guarantees of future performance. We do not
have a specific policy or intent of updating or revising forward-looking statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements
due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements
include, but are not limited to the following: general economic, employment and business conditions, generally and during the current recession; population growth, household formations and
demographic trends; conditions in the capital, credit and financial markets; our ability to access external financing sources and raise capital through the issuance of common stock, debt or other
securities, and/or project financing, on favorable terms; the execution of any share repurchases pursuant to our board of directors’ authorization; material and trade costs and availability,
particularly lumber; changes in interest rates; our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; our compliance with the terms of our
revolving credit facility; volatility in the market price of our common stock; weak or declining consumer confidence, either generally or specifically with respect to purchasing homes; competition
from other sellers of new and resale homes; weather events, significant natural disasters and other climate and environmental factors; any failure of lawmakers to agree on a budget or
appropriation legislation to fund the federal government’s operations, and financial markets’ and businesses’ reactions to that failure; government actions, policies, programs and regulations
directed at or affecting the housing market (including the Coronavirus Aid, Relief, and Economic Security Act relief provisions for outstanding mortgage loans, tax benefits associated with
purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government
agencies), the homebuilding industry, or construction activities; changes in existing tax laws or enacted corporate income tax rates, including those resulting from regulatory guidance and
interpretations issued with respect thereto; changes in U.S. trade policies, including the imposition of tariffs and duties on homebuilding materials and products, and related trade disputes with
and retaliatory measures taken by other countries; the adoption of new or amended financial accounting standards and the guidance and/or interpretations with respect thereto; the availability
and cost of land in desirable areas and our ability to timely develop acquired land parcels and open new home communities; our warranty claims experience with respect to homes previously
delivered and actual warranty costs incurred; costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or
settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions,
consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals; our ability to
use/realize the net deferred tax assets we have generated; our ability to successfully implement our current and planned strategies and initiatives related to our product, geographic and market
positioning, gaining share and scale in our served markets and in entering into new markets; our operational and investment concentration in markets in California; consumer interest in our new
home communities and products, particularly from first-time homebuyers and higher-income consumers; our ability to generate orders and convert our backlog of orders to home deliveries and
revenues, particularly in key markets in California; our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives;
income tax expense volatility associated with stock-based compensation; the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services; the performance of
mortgage lenders to our homebuyers; the performance of KBHS, our mortgage banking joint venture with Stearns Ventures, LLC; information technology failures and data security breaches; an
epidemic or pandemic (such as the outbreak and worldwide spread of COVID-19), and the control response measures that international, federal, state and local governments, agencies, law
enforcement and/or health authorities implement to address it, which may (as with COVID-19) precipitate or exacerbate one or more of the above-mentioned and/or other risks, and significantly
disrupt or prevent us from operating our business in the ordinary course for an extended period; a continuation of widespread protests and civil unrest related to efforts to institute law enforcement
© 2020 KB Home
and other social and political reforms, and the impacts of implementing or failing to implement any such reforms; and other events outside of our control. Please see our periodic reports and other
filings with the Securities and Exchange Commission for a further discussion of these and other risks and uncertainties applicable to our business.
2 Investor Presentation
Built-to-Order Model Is a Key Differentiator
Advantages of Built-to-Order (“BTO”)
Monthly Absorption Rate per Community
Mitigates Risk
Aligns business to demand, as we build to our sales pace, not to
a targeted delivery goal, which minimizes speculative inventory 4.3
and margin variability associated with carrying a large number of 4.1
finished, but unsold, homes in inventory 3.9
3.6
Operationally Efficient
Working from a large backlog of sold homes, we can manage 3.0
starts to achieve even-flow production at the community level, 2.8 2.8
generating efficiencies in overhead and cost to build 2.5
Higher Visibility
Even-flow production reinforces our preferred position with
subcontractors and provides greater predictability on deliveries
Margin Enhancer
Opportunities for incremental revenue as well as margin
enhancement through lot premiums, structural options and design
studio upgrades
Drives Absorption
Selling and building the home the customer values helps drive 2016 2017 2018 2019
absorption and customer satisfaction KBH Peer Group Average*
© 2020 KB Home
3 Investor Presentation * Includes CAA (2016), DHI, LEN, MDC, MTH, NVR, PHM, TMHC, TOL, TPH. Source: Wells Fargo.
Built-to-Order Model Attracts Largest Demand Segments of Market
A Leader in the First-Time Buyer Segment While Drawing a Mix of Buyers to Our Communities
Q3 2020 Buyer Profile
(Based on Homes Delivered)
BTO enhances
13%
value through
Position our product choice of lot,
9% Invest in land
to target the square footage,
positions within
median household floor plan and
prime growth
59% income in each elevation, and then
19% submarkets
submarket the ability to
personalize in our
Design Studios
FIRST-TIME 2ND MOVE-UP
While we primarily target the first-time buyer, our model also appeals
1ST MOVE-UP ACTIVE ADULT to move-up buyers and empty nesters who can make a different set of
choices in the same community
© 2020 KB Home
4 Investor Presentation
Dedicated to Providing World Class Customer Service
• KB Home’s personalized, customer-centric Built-to-Order business model enables us to develop
long-term relationships with our customers
• Our community teams partner with customers through each major step of their purchase of a KB
home: sale – mortgage – studio – construction – closing – post closing
• Customers recognize the value of our partnership. Recent customer surveys conducted by
independent, third-party sources such as TrustBuilder® and ConsumerAffairs have given KB
Home exceptional customer satisfaction ratings.
© 2020 KB Home
5 Investor Presentation TrustBuilder® data as of September 15, 2020.
Significant Progress Over Past Three Years
($ in millions except EPS and BVPS)
2017 LTM Q3 2020 Improvement
Deliveries 10,909 11,725 7%
Housing Revenues $4,335 $4,503 4%
HB Operating Income $283 $363 28%
Pretax Income $290 $403 39%
Diluted EPS $1.85 $3.32 79%
Stockholders’ Equity $1,926 $2,565 33%
Book Value per Share $22.13 $28.33 28%
Debt to Capital 54.7% 40.5% 14.2 pps
© 2020 KB Home
6 Investor Presentation
Third Quarter 2020
© 2020 KB Home
7 Investor Presentation
Regional Overview
Q3 2020 Homebuilding Revenues Q3 2020 Homes Delivered
• Principal markets: West Coast Central West Coast Central
24%
30%
– West Coast: California 38% 38%
$995M 2,545
and Washington
10% 25%
Southeast
– Southwest: Arizona 22% Southwest 13%
Southeast
and Nevada Southwest
– Central: Colorado
and Texas Q3 2020 Net Order Value Q3 2020 Backlog Value
– Southeast: Florida West Coast Central West Coast Central
27%
and North Carolina 29%
42%
46%
$1.6B $2.6B
10%
Southeast 11%
17% 18% Southeast
© 2020 KB Home
Southwest Southwest
8 Investor Presentation
Third Quarter 2020 Highlights
(all comparisons on a year-over-year basis)
• Revenues totaled $999.0 million, reflecting the impact from the COVID-19 Q3 2020 Q3 2019 % Change
pandemic during our 2020 second quarter
• Homebuilding operating income was $88.9 million
Housing Revenues $979.1 $1,152.6 -15%
– Homebuilding operating income margin increased 150 basis points to 8.9%.
Excluding inventory-related charges, homebuilding operating income margin
improved 180 basis points to 9.6%. Deliveries 2,545 3,022 -16%
– Housing gross profit margin increased 140 basis points to 19.9%. Excluding
inventory-related charges, housing gross profit margin increased 170 basis Average Selling Price $384,700 $381,400 1%
points to 20.6%.
– Selling, general and administrative expenses as a percentage of housing
Net Orders 4,214 3,325 27%
revenues improved slightly to 11.0%
• Net income grew 15% to $78.4 million
Net Order Value $1,643.8 $1,276.2 29%
• Net orders increased 27% to 4,214, our highest third-quarter level since 2005.
Net order value increased 29% to $1.64 billion. Both metrics increased in all of
our four regions. Backlog Homes 6,749 6,230 8%
• Total liquidity of $1.51 billion included cash and cash equivalents of $722.0
million and available capacity of $787.6 million under our revolver
Backlog Value $2,567.7 $2,296.8 12%
• Lots owned or under contract were 60,278
– Approximately 63% of the total lots were owned and 37% were under contract
Ending Community Count 232 254 -9%
– Owned lots represented an approximately 3.3 years’ supply, based on homes
delivered in the last 12 months
• The ratio of debt to capital improved 460 basis points to 40.5% Average Community Count 238 255 -7%
• Stockholders’ equity increased to $2.57 billion, and book value per share
© 2020 KB Home
Absorption (net orders per
increased 11% to $28.33 5.9 4.3 36%
community, per month)
9 Investor Presentation
Housing Revenues
($ in millions)
$1,542
$1,339
$1,220
$1,153
$1,092
$1,072
$1,018
$979
$910
$867
$798
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
10 Investor PresentationAverage Selling Price
($ in thousands)
$408
$402
$395 $393
$390 $390
$385
$381
$371 $368
$364
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
11 Investor PresentationAverage Selling Price by Region
($ in thousands)
West Coast Southwest
3% -11% 4% 5%
$331 $318
$662 $322
$605 $307
$589 $592
Q3 20 Q3 19 FY 19 FY 18 Q3 20 Q3 19 FY 19 FY 18
Central Southeast
4% -1% -3% 2%
$310 $297 $287 $294 $293 $287
$294 $297
Q3 20 Q3 19 FY 19 FY 18 Q3 20 Q3 19 FY 19 FY 18
© 2020 KB Home
12 Investor PresentationHomebuilding Operating Income Margin*
10.7%
9.6% 9.7%
9.3%
7.8%
7.3%
6.1% 6.1%
5.6% 5.5%
4.3%
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
*Excludes inventory-related charges. See Appendix: Reconciliation of Non-GAAP Financial Measures.
13 Investor PresentationHousing Gross Profit Margin – Reported
19.9% 19.6%
18.2% 18.5%
18.0% 18.1%
17.1% 17.4% 17.1% 17.2%
16.1%
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
As a result of adopting ASC 606, the Company changed the classification and timing of certain model complex costs beginning in fiscal 2019. These changes favorably impacted our
housing gross profit margin and negatively impacted our SG&A expense ratio in each quarter of fiscal 2019.
14 Investor PresentationHousing Gross Profit Margin – Adjusted*
23.7%
23.1% 22.8% 23.1%
22.2% 21.9% 22.3%
21.4% 21.3% 21.1% 21.3%
20.6%
19.9%
18.7% 18.7% 18.9% 18.7%
17.6% 17.9% 17.7% 17.6%
16.7%
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
Gross Margin excluding inventory-related charges a Amortization of previously capitalized interest
© 2020 KB Home
*Excludes inventory-related charges and amortization of previously capitalized interest. See Appendix: Reconciliation of Non-GAAP Financial Measures.
As a result of adopting ASC 606, the Company changed the classification and timing of certain model complex costs beginning in fiscal 2019. These changes favorably impacted our housing
gross profit margin and negatively impacted our SG&A expense ratio in each quarter of fiscal 2019.
15 Investor PresentationSG&A Expense Ratio
13.4%
12.6%
12.1%
11.8%
11.0%* 11.1% 11.0%
10.4%
9.4%*
9.0% 9.1%
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
*Represents year-over-year record low quarterly ratios
As a result of adopting ASC 606, the Company changed the classification and timing of certain model complex costs beginning in fiscal 2019. These changes favorably impacted our housing
gross profit margin and negatively impacted our SG&A expense ratio in each quarter of fiscal 2019.
16 Investor PresentationHealthy Land Portfolio
Lots by Region at August 31, 2020
• Total inventory of approximately
$3.67 billion at August 31, 2020 West Coast
15,352
26% Central
37% 22,527
• Lots owned or under contract totaled
60,278 at August 31, 2020 Southwest
17%
20%
10,450
Southeast
11,949
Lot Position at August 31, 2020
Optioned
22,168
37%
Owned
38,110
63%
© 2020 KB Home
17 Investor PresentationAverage Community Count
252 255 253 251
244 247
238
232
222
215 217
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2018 2019 2020
© 2020 KB Home
18 Investor PresentationNet Order Value
($ in millions)
$1,644
$1,533
$1,383 $1,362
$1,276
$1,173
$1,059
$1,022 $1,018
$738
$688
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
19 Investor PresentationBacklog Value
($ in millions)
$2,568
$2,297
$2,237
$2,173
$2,125
$2,035
$1,967
$1,903
$1,814
$1,658
$1,434
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
20 Investor PresentationNet Orders per Community per Month
5.9
5.5 5.4
4.6
4.2 4.3
4.1
3.7 3.7
2.9
2.4
'18 '19 '20 '18 '19 '20 '18 '19 '20 '18 '19
First Quarter Second Quarter Third Quarter Fourth Quarter
© 2020 KB Home
21 Investor PresentationGenerating Significant Levels of Gross Operating Cash Flow
($ in millions)
$2,110 $2,183
$1,875
$741
$222 $251
($1,442)
($1,624)
($1,888)
2018 2019 LTM Q3 2020
Gross Cash provided by Operating Activities Land Acquisition and Development Investment Net Cash provided by Operating Activities
© 2020 KB Home
(As Reported)
22 Investor PresentationCapital Structure
Debt to Capital
54.7%
49.7%
42.3%
40.5%
2017 2018 2019 Q3 2020
Liquidity & Debt Maturity Profile
August 31, 2020
($ in millions)
$722
$788 Senior Notes
$450 $350 $350 Unrestricted Cash
$300 $300
Revolver Availability
© 2020 KB Home
Liquidity 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Coupon 7.0% 7.5% 7.625% 6.875% 4.8%
23 Investor PresentationThe ESG Difference
© 2020 KB Home
24 Investor PresentationLeadership in Sustainable Homebuilding
146,000+
ENERGY STAR
Homes
11,000+
Solar Homes
16,000+
WaterSense &
WaterSmart Homes
$780 Million
Utility Bill Savings
1.5 Billion Gallons
Energy Savings Comparison
Water Conserved Our proprietary tool demonstrating the lower
Annually cost of homeownership possible
with a KB home*
5 Billion Pounds
© 2020 KB Home
Fewer CO2 Emissions KB Home provides this comparison for every
floor plan at each of our communities
25 Investor Presentation * Lower cost of homeownership is relative to a typical new or resale home.Giving Back to Our Communities
© 2020 KB Home
26 Investor PresentationRobust Corporate Governance
Governance Practices: A Snapshot
Independent
• Nine of our ten directors are independent Three-Year Annualized Total
Stockholder Return (2017-2019)
• Independent directors lead all Board committees
30%
Accountable
• Directors are elected annually under a majority voting
standard 22%
• In 2020, our directors received an average of 96%
support
• Directors and senior executives are subject to strong 13%
stock ownership requirements
• Executive officers are subject to a robust incentive
compensation claw-back policy
Aligned KB Home Dow Jones U.S. S&P 500
• We have one class of outstanding voting securities that Home
allows each holder one vote for each share held Construction
Index
• No supermajority voting requirements
• In 2020, our Say-on-Pay proposal received 92%
© 2020 KB Home
support
27 Investor PresentationSummary
© 2020 KB Home
28 Investor PresentationKB Home – A Compelling Story
Key Takeaways Return on Invested Capital
10.4%*
9.5%
Well positioned
7.4%
Existing geographic footprint offers potential for substantially
larger scale in markets selected for their long-term economic
and demographic growth potential
Compelling
Focused on first-time buyers while appealing to move-up buyers
2017 2018 2019
and empty nesters, thereby targeting the largest homebuyer
demand segments
Return on Equity
Advantages of BTO
14.4%*
Sell and build the home the customer values, which helps drive
absorption. With a large backlog of sold homes, we can manage 12.2%
starts to achieve even-flow production at the community level, 10.0%
generating efficiencies in overhead and cost to build, and we
have greater predictability on deliveries.
Demonstrated leadership in sustainability
With an industry-leading 140,000+ ENERGY STAR homes
delivered, we are committed to helping our buyers lower the cost
of homeownership. Our ENERGY STAR homes are up to 30%
2017 2018 2019
more efficient than standard new homes built to code.
© 2020 KB Home
29 Investor Presentation *Excludes the impact to net income of the 2018 non-cash charge of $112.5 million due to the TCJA.
See Appendix: ROIC Calculation Detail and ROE Calculation DetailAppendix
© 2020 KB Home
30 Investor PresentationROIC Calculation Detail
($ in thousands)
Net Operating Profit After Tax 2017 2018 2019
Net income (a) $ 180,595 $ 282,865 $ 268,775
Adjustments:
Interest (income) expense, net (618) (3,514) (2,158)
Loss on early extinguishment of debt 5,685 -- 6,800
Amortization of previously capitalized interest 215,396 202,760 156,803
Income tax impact (b) (83,100) (46,000) (36,800)
Net operating profit after tax $ 317,958 $ 436,111 $ 393,420
Average Invested Capital (Book Value)
Average notes payable $ 2,496,389 $ 2,232,331 $ 1,945,458
Average stockholders’ equity 1,799,849 1,959,425 2,211,312
Average invested capital (c) $ 4,296,238 $ 4,191,756 $ 4,156,770
Return on Invested Capital 7.4% 10.4% 9.5%
(a) Net income for 2018 excluded the non-cash charge of $112.5 million related to the TCJA, which was enacted in December 2017.
(b) Represents the total adjustments to net income multiplied by the Company’s effective tax rates, which were 37.7% for 2017; 23.1% for 2018; and 22.8% for 2019. The rate for 2018
© 2020 KB Home
excluded the impact from the TCJA-related charge.
(c) Average notes payable and stockholders’ equity for the trailing five quarters.
31 Investor PresentationROE Calculation Detail
($ in thousands)
Net Income 2017 2018 2019
Pretax income $ 289,995 $ 367,965 $ 348,175
Income tax expense (a) (109,400) (85,100) (79,400)
Net income $ 180,595 $ 282,865 $ 268,775
Average stockholders’ equity (b) $ 1,799,849 $ 1,959,425 $ 2,211,312
Return on equity 10.0% 14.4% 12.2%
(a) Income tax expense for 2018 excluded the non-cash charge of $112.5 million related to the TCJA, which was enacted in December 2017.
© 2020 KB Home
(b) Average stockholders’ equity for the trailing five quarters.
32 Investor PresentationReconciliation of Non-GAAP Financial Measures
2018 2019 2020
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Housing Gross Profit Margin
Housing Gross Profit Margin - As Reported 16.1% 17.1% 18.0% 18.1% 17.1% 17.2% 18.5% 19.6% 17.4% 18.2% 19.9%
Housing inventory-related charges 0.6 0.6 0.7 0.6 0.5 0.4 0.4 0.3 0.5 0.5 0.7
Housing gross profit margin excluding inventory-related charges 16.7 17.7 18.7 18.7 17.6 17.6 18.9 19.9 17.9 18.7 20.6
Amortization of previously capitalized interest 4.7 4.5 4.4 4.1 3.7 3.7 3.4 3.2 3.2 3.2 3.1
Housing Gross Profit Margin - As Adjusted 21.4% 22.2% 23.1% 22.8% 21.3% 21.3% 22.3% 23.1% 21.1% 21.9% 23.7%
Homebuilding Operating Income Margin
Homebuilding Operating Income Margin - As Reported 5.1% 6.8% 8.6% 9.1% 3.9% 5.1% 7.4% 10.5% 5.6% 5.7% 8.9%
Homebuilding inventory-related charges 0.5 0.5 0.7 0.6 0.4 0.4 0.4 0.2 0.5 0.4 0.7
Homebuilding operating income margin
excluding inventory-related charges 5.6% 7.3% 9.3% 9.7% 4.3% 5.5% 7.8% 10.7% 6.1% 6.1% 9.6%
© 2020 KB Home
The Company believes these non-GAAP financial measures, which assist management in making certain decisions, are relevant and useful to investors in understanding its operations and in
33 Investor Presentation providing meaningful period-to-period comparisons, and may be helpful in comparing the Company with other homebuilding companies to the extent they provide similar information.Deferred Tax Asset Value and Protection
• At Aug. 31, 2020, KB Home had net deferred tax assets (DTA) of approximately $241 million
• To support the realization of the DTA, KB Home has undertaken a number of steps to avoid
experiencing an “ownership change” under federal tax laws
• The primary protection is a Rights Agreement approved by stockholders in 2009 and in 2018
(which extended the latest expiration to Apr. 30, 2021). The Rights Agreement provides
authority for the distribution of dilutive stock purchase rights in connection with an acquisition of
4.9% or more of KB Home’s outstanding common stock.
• At Aug. 31, 2020, there were 90.5 million shares of common stock outstanding
© 2020 KB Home
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