KB Home, which opens a new community at Five Knolls in Santa Clarita Saturday, reported results Thursday for its third quarter ended August 31, 2015.

Highlights and developments include the following:

Three Months Ended August 31, 2015
Total revenues rose 43% from the year-earlier quarter to $843.2 million. The Company has posted year-over-year revenue increases for 16 consecutive quarters.

Housing revenues increased 36% to $798.6 million from $586.2 million for the corresponding period of 2014, reflecting greater delivery volume and a higher overall average selling price.

The Company delivered 2,236 homes, up 25% from 1,793 homes in the year-earlier quarter.

The overall average selling price rose 9% to $357,200, compared to $327,000 a year ago, as average selling prices increased in each of the Company’s four regions.

Land sale revenues totaled $41.6 million, reflecting activity in the Company’s West Coast, Southwest and Southeast regions. There were no land sales in the year-earlier period.

The Company’s housing gross profit margin of 16.2% improved by 20 basis points from the second quarter of 2015 and decreased 260 basis points from 18.8% in the year-earlier quarter.

The current quarter included housing inventory impairment and land option contract abandonment charges of $3.5 million, compared to $1.0 million of land option contract abandonment charges in the corresponding quarter of 2014.

Excluding the amortization of previously capitalized interest associated with housing operations and housing inventory impairment and land option contract abandonment charges in each period, the Company’s third quarter adjusted housing gross profit margin improved to 21.1%, up 80 basis points from the second quarter of 2015. On a year-over-year basis, the current quarter adjusted housing gross profit margin decreased 160 basis points from 22.7% for the year-earlier quarter.

Selling, general and administrative expenses as a percentage of housing revenues improved 110 basis points to 11.9% compared to the second quarter of 2015. This ratio also improved 50 basis points from 12.4% for the prior-year quarter.

Interest expense decreased to $4.4 million from $6.5 million in the year-earlier quarter, as an increase in interest incurred due to the Company’s higher average debt level was more than offset by an increase in the amount of interest capitalized, reflecting a higher amount of inventory qualifying for interest capitalization in the current quarter.

Financial services pretax income rose to $2.7 million from $1.8 million in the year-earlier quarter due to an increase in the pretax results from Home Community Mortgage, LLC, the Company’s mortgage banking joint venture with Nationstar Mortgage LLC, which commenced operations in July 2014.

The Company’s pretax income rose 18% to $34.0 million from $28.7 million in the year-earlier quarter.

Net income totaled $23.3 million, or $.23 per diluted share, compared to $28.4 million, or $.28 per diluted share, for the third quarter of 2014.

Income tax expense was $10.7 million versus $.3 million in the year-earlier quarter. Income tax expense for the 2014 third quarter was favorably impacted as a result of the Company’s deferred tax asset having a full valuation allowance, which was substantially reversed in the fourth quarter of 2014.

The Company’s current quarter income tax expense, which was reduced by $2.5 million of federal energy tax credits earned from building high-efficiency homes, represented an effective tax rate of 31.5%.

Nine Months Ended August 31, 2015

Total revenues rose to $2.05 billion, up 27% from $1.60 billion in the year-earlier period.

Housing revenues were $1.93 billion in 2015 and $1.59 billion in 2014.

Homes delivered increased 13% to 5,616, compared to 4,986 homes in the nine months ended August 31, 2014.

The overall average selling price of $343,400 increased 8% from $318,100 for the year-earlier period.

Net income totaled $40.6 million, or $.42 per diluted share, compared to $65.5 million, or $.68 per diluted share for the year-earlier period.

Income tax expense was $16.5 million, compared to $.8 million for the nine months ended August 31, 2014.

Backlog and Net Orders

Potential future housing revenues in backlog grew 44% to $1.59 billion at August 31, 2015, from $1.10 billion at August 31, 2014, reflecting substantial year-over-year increases in each of the Company’s four regions. These increases ranged from 27% in its West Coast region to 194% in its Southwest region.

The Company’s backlog at August 31, 2015 increased 36% to 4,664 homes, compared to 3,432 homes in backlog at August 31, 2014.

The number of homes in backlog and corresponding backlog value at August 31, 2015 reached their highest third-quarter levels since 2008 and 2007, respectively.

The value of net orders generated in the current quarter rose 23% to $773.3 million from $629.2 million in the year-earlier period, marking the Company’s 14th consecutive quarter of year-over-year increases.

Each of the Company’s four regions produced year-over-year growth in net order value, ranging from 9% in its West Coast region to 117% in its Southwest region.

Net orders grew 19% to 2,167 for the quarter, compared to 1,827 in the year-earlier quarter.

The cancellation rate as a percentage of gross orders of 30% was nearly even with the third quarter of 2014, and as a percentage of beginning backlog was 20% versus 24% a year ago.

The Company’s overall average community count for the third quarter increased 30% to 257 from 197 for the year-earlier quarter.

The Company had 252 communities open for sales at August 31, 2015, up 26% from 200 communities a year ago.

Balance Sheet

Cash, cash equivalents and restricted cash totaled $378.0 million at August 31, 2015 and $383.6 million at November 30, 2014.

Inventories increased to $3.40 billion at August 31, 2015 from $3.22 billion at November 30, 2014, reflecting the Company’s investments in land acquisition and development during the current year.

The Company’s land-related investments totaled $701.6 million for the nine months ended August 31, 2015 and $1.19 billion for the corresponding period of 2014.

At August 31, 2015, the Company maintained a geographically diverse land pipeline comprised of 47,344 lots, including 39,003 lots owned and 8,341 lots controlled under land option contracts.

Notes payable totaled $2.63 billion at August 31, 2015, compared to $2.58 billion at November 30, 2014, reflecting the Company’s first quarter underwritten public issuance of $250 million in aggregate principal amount of senior notes, which was partly offset by the retirement of the remaining $199.9 million in aggregate principal amount of its 6 1/4% senior notes at their maturity on June 15, 2015.

On August 7, 2015, the Company entered into an amended and restated revolving loan agreement with a syndicate of financial institutions that increased the commitment under the Company’s unsecured revolving credit facility from $200 million to $275 million and extended its maturity from March 12, 2016 to August 7, 2019.

The Company had no cash borrowings outstanding under its unsecured revolving credit facility as of August 31, 2015.

The Company’s ratio of debt to capital was 61.6% as of August 31, 2015, compared to 61.8% as of November 30, 2014. The ratio of net debt to capital was 57.9% at both August 31, 2015 and November 30, 2014.

Management Comments

“Our third quarter results showed broad-based improvement in virtually all key operational and financial metrics across our four regions,” said Jeffrey Mezger, president and chief executive officer of KB Home. “In particular, we achieved appreciable growth in homes delivered, revenues and pretax earnings in the third quarter largely through the execution of our core strategies. This performance reflects our measurably expanded community count and success in converting the robust backlog we built during the first half of this year into deliveries. Moving forward, we remain focused on improving profitability by expanding our housing gross profit margin and increasing operating leverage as we continue to build up the scale of our business. Based on the progress we have made on our strategic priorities, our significantly higher backlog, and the continued improvement in housing market fundamentals, we are anticipating a strong finish to the year. Furthermore, we expect to maintain this momentum into 2016.”

About KB Home

KB Home is one of the largest and most recognized homebuilding companies in the United States. Since its founding in 1957, the company has built more than half a million quality homes. KB Home’s unique homebuilding approach lets each buyer customize their new home from lot location to floor plan and design features. As a leader in utilizing state-of-the-art sustainable building practices, all KB homes are highly energy efficient and meet strict ENERGY STAR® guidelines. This helps to lower monthly utility costs for homeowners, which the company demonstrates with its proprietary KB Home Energy Performance Guide® (EPG®). KB Home has been named an ENERGY STAR Partner of the Year Sustained Excellence Award winner for five straight years and a WaterSense® Partner of the Year for four consecutive years. A FORTUNE 1,000 company, Los Angeles-based KB Home was the first homebuilder listed on the New York Stock Exchange, and trades under the ticker symbol “KBH.” For more information about KB Home, call 888-KB-HOMES, visit www.kbhome.com.