KB HOME (KBH)

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

OVERVIEW

Revenues are generated from our homebuilding and financial services operations. The following table presents a summary of our consolidated results of operations (dollars in thousands, except per share amounts):

In the 2026 second quarter, the housing market continued to be negatively affected by a combination of persistent affordability pressures, elevated mortgage interest rates, and cautious buyer sentiment, which softened further during the period due to rising inflation, heightened macroeconomic uncertainties and geopolitical tensions, including the military conflict in the Middle East. At the same time, underlying demand drivers, such as favorable demographic trends, an ongoing structural undersupply of homes, and the appeal of new, personalized energy‑efficient homes, drove healthy traffic at our communities and interest in our product offerings.

We generated 3,317 net orders in the 2026 second quarter, a 4% decrease from the year-earlier quarter, with a monthly net order pace per community of 4.0, compared to 4.5 for the prior-year period. Our average community count increased 9% year over year to 278, and our ending community count rose 11% to 280, reflecting our continued investments in land and land development to support future growth. The value of net orders for the quarter was $1.55 billion, down 4% from the year-earlier period, reflecting the lower net order volume, as their $466,800 average selling price was nearly even with the year-ago quarter.

Within this operating environment during the 2026 first half, we maintained the simplified sales approach we implemented more than a year ago. With this approach, we provide a straightforward, transparent base price with limited, if any, concessions or incentives, designed to offer customers a compelling value competitive with area resale home prices. Additionally, while selling through our existing inventory, we continued to emphasize sales of our Built to Order® homes, which are a key industry differentiator for us and typically generate higher gross margins than inventory homes. Our goal is to bring the mix of Built to Order homes delivered to within our historical range of 60% to 70%, compared to approximately 55% in 2025.

Our Built to Order homes are our core competency and their value proposition to prospective customers has increased with the meaningful reduction in our build times over the past few years. Reflecting this demand – and supported in part by our achieving year-over-year build time improvements for Built to Order homes of 22% in the 2026 first quarter and 24% in the 2026 second quarter – we generated predominantly Built to Order net orders in both quarters of our 2026 first half. We believe this momentum will enable us to accomplish our homes delivered mix goal in the 2026 second half and beyond. While our ending backlog at May 31, 2026 was down 5% on a year-over-year basis, our renewed focus on Built to Order contributed to sequential growth in our ending backlog for both the 2026 first and second quarters, with the number of homes at May 31, 2026 up 45% from November 30, 2025. Among other benefits, our larger backlog of Built to Order homes generally provides us with greater visibility into future deliveries and enhanced predictability of housing gross profit margins compared to inventory homes, as the selling price and cost to build are usually known prior to starting the home.

Our strategic shift toward a higher mix of Built to Order home sales contributed to an anticipated temporary trough in deliveries during the 2026 first half, partly due to both the inherent time between sale and delivery of Built to Order homes and our intentional moderation of inventory starts. We expect the higher level of Built to Order sales generated during this period to

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benefit our homes delivered and housing gross profit margins in the third and fourth quarters of the year as well as position us to be a stronger company.

Homebuilding revenues for the three months ended May 31, 2026 were generated from housing operations and nominal land sales. For the three months ended May 31, 2025, homebuilding revenues were generated solely from housing operations. Housing revenues for the 2026 second quarter decreased 27% year over year to $1.11 billion, due to a 23% decrease in the number of homes delivered to 2,395 and a 5% decline in their average selling price to $461,900. Approximately 50% of our homes delivered in the 2026 second quarter were to first-time homebuyers. Our homes delivered as a percentage of backlog at the beginning of the quarter were 66% for the 2026 second quarter, compared to 70% for the year-earlier quarter. This decrease reflects growth in our backlog since the beginning of the year, as well as a lower percentage of homes sold and delivered within the same quarter.

Homebuilding operating income for the three months ended May 31, 2026 was $28.2 million, compared to $131.5 million for the year-earlier period. As a percentage of revenues, homebuilding operating income was 2.5% for the 2026 second quarter, compared to 8.6% for the corresponding 2025 period, reflecting a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of revenues. Operating income in both periods included $5.6 million of inventory-related charges. Our housing gross profit margin was 15.2%, compared to 19.3% for the year-earlier quarter, primarily due to price reductions we implemented in conjunction with our simplified sales strategy to stimulate demand, higher relative land costs and reduced operating leverage. Selling, general and administrative expenses as a percentage of housing revenues increased 200 basis points year over year to 12.7%, mainly due to a decrease in operating leverage from lower housing revenues. Net income and diluted earnings per share for the three months ended May 31, 2026 were $27.3 million and $.43, respectively, compared to $107.9 million and $1.50, respectively, for the three months ended May 31, 2025. Our diluted earnings per share for the 2026 second quarter reflected lower net income, partly offset by a 12% reduction in our weighted-average diluted share count reflecting the impact of our common stock repurchases over the past several quarters.

We continue to take a balanced approach to capital allocation, guided by market conditions and our priorities of investing in land and land development to support future growth and returning capital to our stockholders. Our investments in land and land development for the 2026 second quarter totaled $495.8 million, a 4% decrease compared to the year-earlier quarter. During the 2026 second quarter, we repurchased 1.4 million shares of our common stock at a total cost of $75.0 million, compared to 3.7 million shares at a total cost of $200.0 million in the year-earlier quarter. For the 2026 first half, we invested $1.06 billion in land and land development, representing a 26% decrease from the corresponding year-earlier period, and repurchased 2.2 million shares of our common stock at a total cost of $125.0 million. We ended the 2026 second quarter with total liquidity of $1.12 billion, including cash and cash equivalents and $923.4 million of available capacity under the Credit Facility. We had $275.0 million of cash borrowings outstanding under the Credit Facility at May 31, 2026.

Although our ending backlog value at May 31, 2026 decreased 7% year over year to approximately $2.14 billion, we believe we are well positioned to achieve our projections for the 2026 third quarter and full year, as described below under “Outlook.”

HOMEBUILDING

Financial Results. The following table presents a summary of certain financial and operational data for our homebuilding operations (dollars in thousands, except average selling price):

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Revenues. Homebuilding revenues for the three months ended May 31, 2026 consisted of housing revenues and nominal land sale revenues. In the three months ended May 31, 2025, homebuilding revenues were generated solely from housing operations. Housing revenues for the 2026 second quarter declined 27% from the year-earlier quarter due to decreases of 23% in the number of homes delivered and 5% in their overall average selling price. Each of our homebuilding reporting segments posted year-over-year decreases in second quarter housing revenues, ranging from 17% in our Southeast segment to 47% in our Southwest segment. The decline in the overall number of homes delivered primarily resulted from our having 19% fewer homes in backlog at the be

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Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Our discussion and analysis below is primarily focused on our 2025 and 2024 financial results, including comparisons of

our year-over-year performance between these years.  Discussion and analysis of our 2023 fiscal year specifically, as well as the

year-over-year comparison of our 2024 financial performance to 2023, are located under Part II, Item 7 – Management’s

Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal

year ended November 30, 2024, filed with the SEC on January 24, 2025, which is available on our investor relations website at

investor.kbhome.com and the SEC website at www.sec.gov.

RESULTS OF OPERATIONS

Overview.  Revenues are generated from our homebuilding and financial services operations.  The following table presents

a summary of our consolidated results of operations (dollars in thousands, except per share amounts):

Housing market conditions in 2025 were challenging despite solid underlying drivers, mainly favorable demographic

trends in population growth and household formation, along with relatively steady employment levels and an ongoing structural

undersupply of new homes.  Compared to 2024, demand was softer as tepid consumer confidence, macroeconomic and

geopolitical uncertainties, affordability challenges and persistently elevated mortgage loan interest rates over the course of the

year limited the pool of actionable buyers and caused many of those buyers to hesitate on making purchase decisions.  At the

same time, during 2025, we believe we executed well operationally, maintaining high customer satisfaction levels, further

improving build times, lowering construction costs and balancing pace and price to optimize each asset.  Additionally, to help

navigate the current environment, we implemented a simplified sales strategy focused on providing a straightforward,

transparent base price, with limited, if any, concessions or incentives, that is intended to offer to our customers a compelling

value competitive with area resale home prices.  With this strategy, which we began instituting on a community-by-community

basis in mid-February 2025 to stimulate demand, we both reduced selling prices relative to applicable market conditions and

lowered or eliminated other homebuyer concessions.

With these market dynamics, our net orders in 2025 decreased 11% year over year to 11,596, and the pace of monthly net

orders per community was 3.7 compared to 4.4 in 2024.  Reflecting the price reductions we put in place per our sales strategy,

and expanded on in certain underperforming communities to align with local demand, the value of our net orders for 2025 was

down 17% year over year as a result of the decline in net orders and a 6% decrease in the overall average selling price of net

orders to $463,200.

In the 2025 fourth quarter, our net orders and net order value decreased 10% and 17%, respectively, year over year.  Our

cancellation rate as a percentage of gross orders for the 2025 fourth quarter was 18%, compared to 17% for the 2024 fourth

quarter and, together with our improved build times compared to a year ago, our homes delivered as a percentage of backlog at

the beginning of the quarter increased to 84% for the 2025 fourth quarter from 69% for the year-earlier quarter.

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Homebuilding revenues for 2025 and 2024 were comprised of housing revenues and nominal land sale revenues.  Our 2025

housing revenues of $6.21 billion declined 10% from the previous year due to a 9% decrease in the number of homes delivered

to 12,902 and a slight decrease in the overall average selling price of those homes to $481,400.  Approximately 50% of our

homes delivered in 2025 were to first-time homebuyers.  Homebuilding operating income for 2025 was $507.1 million,

compared to $763.9 million for 2024 and, as a percentage of homebuilding revenues was 8.2%, compared to 11.1%.  Our

homebuilding operating income margin for 2025 primarily reflected a lower housing gross profit margin and an increase in

selling, general and administrative expenses as a percentage of housing revenues.  Our housing gross profit margin for 2025

was 18.6%, compared to 21.0% for 2024, due to price reductions, higher relative land costs, geographic mix, and an increase in

inventory-related charges, partly offset by lower construction costs.  Our selling, general and administrative expenses as a

percentage of housing revenues of 10.4% for 2025 increased 40 basis points year over year, primarily reflecting higher

marketing expenses associated with our expanded community count, higher relative general and administrative expenses, and

decreased operating leverage from lower housing revenues.  General and administrative expenses for 2025 included

$16.0 million of stock-based compensation expense recognized on an accelerated basis for certain equity awards granted in

October 2025 that included new provisions for accelerated vesting of restricted stock and continued vesting of PSUs for long-

tenured employees upon retirement.  Total pretax income for 2025 decreased to $554.2 million from $850.9 million for 2024,

which included a $12.5 million gain associated with the sale of our ownership interest in a privately held technology company.

Net income and diluted earnings per share for 2025 were $428.8 million and $6.15, respectively, compared to $655.0 million

and $8.45, respectively for 2024.  Our diluted earnings per share for 2025 reflected lower net income, partly offset by the

favorable impact of our common stock repurchases over the past several quarters.

We believe our strong balance sheet and liquidity position helped provide us with flexibility to operate effectively while

navigating the evolving market conditions throughout the year.  We continue to take a disciplined and balanced approach in

allocating capital, guided by market conditions and our priorities of investing in land and land development to support future

growth and returning capital to our stockholders.  Given the prevailing environment and our land pipeline, we began

moderating our investments in land and land development in the 2025 second quarter while increasing our share repurchases.

Even with this shift, we maintained our land investments at a level that we believe will support our current growth projections.

For 2025, our investments in land and land development totaled $2.61 billion, an 8% decrease year over year.  During this same

period, we repurchased approximately 9.4 million shares of our common stock at a total cost of $538.5 million, compared to 4.7

million shares at a total cost of $350.0 million in 2024.

On November 12, 2025, we obtained an upsized $1.20 billion five-year Credit Facility, refinancing and replacing our prior

$1.09 billion unsecured revolving credit facility, which we voluntarily terminated on the same date.  We also extended the

maturity of our $360.0 million Term Loan to 2029.  Our next senior note maturity is on June 15, 2027.  We ended 2025 with

total liquidity of $1.43 billion, comprised of $228.6 million of cash and cash equivalents and nearly $1.20 billion of available

capacity under our Credit Facility.  We had no cash borrowings outstanding under the Credit Facility at November 30, 2025.

Reflecting our investments in land and land development, we ended 2025 with 271 active communities, up 5% year over

year.  The number of homes in our ending backlog at November 30, 2025 was down 29% year over year to 3,128, partly due to

an 18% improvement in our 2025 average build time.  At the same time, with our planned new community openings in 2026,

we believe we are well-positioned to achieve our projections for the 2026 first quarter and full year, as described below under

“Outlook.”

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HOMEBUILDING

Financial Results.  The following table presents a summary of certain financial and operational data for our homebuilding

operations (dollars in thousands, except average selling price):

Revenues.  Homebuilding revenues for 2025 and 2024 were comprised of housing revenues and land sale revenues.  In

2025, homebuilding revenues totaled $6.21 billion, representing a 10% decrease from the prior year mostly due to lower

housing revenues.

In 2025, housing revenues declined 10% from the previous year, reflecting a 9% decrease in the number of homes

delivered and a slight decrease in their overall average selling price.  Our 2025 housing revenues were down year over year in

each of our homebuilding reporting segments, ranging from 5% in our Southwest segment to 19% in our Central segment.  The

slightly lower average selling price primarily reflected a combination of product and geographic mix factors, as well as the

strategic price reductions we implemented in response to softer market conditions in 2025.

We generated $1.3 million of land sale revenues in 2025, compared to $3.6 million of such revenues in 2024.  Generally,

land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based

upon the volume of our holdings, our business strategy, the strength and number of developers and other land buyers in

particular markets at given points in time, the availability of opportunities to sell land at acceptable prices and prevailing market

conditions.

Operating Income.  Our homebuilding oper

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