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):

During the 2026 third quarter, housing market conditions remained challenging, weakening from the prior quarter as an increase in mortgage loan interest rates further pressured affordability in many of our served markets. Higher interest rates coupled with persistent inflation, attributable in part to rising commodity and oil prices, heightened macroeconomic uncertainties and geopolitical tensions, including the military conflicts in the Middle East and in Ukraine, caused prospective buyers to become more cautious on purchasing a home. In addition, resale home inventory, which is our largest competitor, increased to its highest levels in a decade, and we are seeing pricing trending downward in several areas within our operational footprint. Even with the significant headwinds, demand for our Built to Order® homes contributed to our first year-over-year increase in ending backlog in four years, as these homes are generally sold prior to the start of construction and remain in backlog until delivered.

Reflecting the operating environment, we produced 2,604 net orders in the 2026 third quarter, down 12% from the year-earlier quarter, which contributed, along with a higher average community count, to a decline in the monthly net order pace per community to 3.1, compared to 3.8 for the prior-year period. Our average community count increased 8% year over year to 279, and our ending community count rose 5% to 277, primarily reflecting our continued investments in land and land development to support future growth. The value of net orders for the quarter was $1.21 billion, down 8% from the year-earlier period, primarily due to lower net orders, partly offset by a 4% increase in their average selling price to $463,600.

To support orders, we have remained focused in 2026 on our strategy of offering customers a simple, straightforward and transparent base price with limited, if any, concessions or incentives, intended to provide a compelling value competitive with area resale home prices. In addition, while selling through our existing inventory, we have continued to prioritize orders of our Built to Order homes, which are our core competency and a key industry differentiator for us that typically generate higher gross profit margins than inventory homes, and we generated predominantly Built to Order net orders in each of the first three quarters of 2026.

We believe this reflects, in part, how the value proposition of our Built to Order homes to prospective customers has increased with the meaningful reduction in build times we have achieved over the past few years. In 2026, our average build times improved year over year by 22% in the first quarter, 24% in the second quarter and 19% in the third quarter. With the substantial Built to Order net orders we generated in the first nine months of the year, we reached our goal of a predominantly Built to Order mix of homes delivered in the 2026 third quarter, with these homes comprising 74% of homes delivered and benefiting our housing gross profit margin.

Homebuilding revenues for the three months ended August 31, 2026 were generated solely from housing operations. For the three months ended August 31, 2025, homebuilding revenues were generated from housing operations and nominal land sales. Housing revenues for the 2026 third quarter decreased 20% year over year to $1.29 billion, due to a 19% decrease in the number of homes delivered to 2,732 and a slight decline in their average selling price to $473,000. Approximately 50% of our

29

homes delivered in the 2026 third quarter were to first-time homebuyers. Our homes delivered as a percentage of backlog at the beginning of the quarter were 60% for the 2026 third quarter, compared to 71% 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, corresponding to our strategic shift toward increasing our mix of Built to Order net orders.

Homebuilding operating income for the three months ended August 31, 2026 was $67.1 million, compared to $131.2 million for the year-earlier period. As a percentage of revenues, homebuilding operating income was 5.2% for the 2026 third quarter, compared to 8.1% for the corresponding 2025 period, mainly due to a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of revenues. Excluding inventory-related charges of $3.0 million for the current quarter and $11.3 million for the year-earlier quarter, the homebuilding operating income margin was 5.4%, compared to 8.8%. Our housing gross profit margin was 16.5%, compared to 18.2% for the year-earlier quarter. Excluding the above-mentioned inventory-related charges, the housing gross profit margin was 16.8%, compared to 18.9%, primarily reflecting pricing pressure, higher relative land costs and reduced operating leverage. Selling, general and administrative expenses as a percentage of housing revenues increased 130 basis points year over year to 11.3%, mainly due to a decrease in operating leverage from lower housing revenues.

Total pretax income for the 2026 third quarter was $81.2 million, including a $3.5 million gain associated with the sale of an investment in equity securities of a privately held technology company, compared to $143.2 million for the year-earlier period. Net income and diluted earnings per share for the three months ended August 31, 2026 were $65.3 million and $1.05, respectively, compared to $109.8 million and $1.61, respectively, for the three months ended August 31, 2025. Our diluted earnings per share for the 2026 third quarter reflected lower net income, partly offset by a 9% reduction in our weighted-average diluted share count attributable to 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 third quarter totaled $722.3 million, a 40% increase compared to the year-earlier quarter. During the 2026 third quarter, we repurchased .9 million shares of our common stock at a total cost of $50.0 million, compared to 3.3 million shares at a total cost of $188.5 million in the year-earlier quarter. For the nine months ended August 31, 2026, we invested $1.79 billion in land and land development, representing an 8% decrease from the corresponding year-earlier period, and repurchased 3.1 million shares of our common stock at a total cost of $175.0 million. We ended the 2026 third quarter with total liquidity of $942.4 million, including cash and cash equivalents and $783.4 million of available capacity under the Credit Facility. We had $415.0 million of cash borrowings outstanding under the Credit Facility at August 31, 2026.

With our ending backlog value at August 31, 2026 up 3% year over year to approximately $2.05 billion, we believe we are well positioned to achieve our projections for the 2026 fourth 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):

30

Revenues. Homebuilding revenues for the three months ended August 31, 2026 consisted solely of housing revenues. In the three months ended August 31, 2025, homebuilding revenues were generated from housing operations and nominal land sale revenues. Housing revenues for the 2026 third quarter declined 20% from the year-earlier quarter due to a decrease of 19% in the number of homes delivered and a slight decline in their overall average selling price. Each of our homebuilding reporting segments posted year-over-year decreases in third-quarter housing revenues, ranging from 7% in our West Coast segment to 34% in our Southwest and Central segments. The decline in the overall number of homes delivered primarily resulted from our having 5% fewer homes in backlog at the beginning of the 2026 third quarter compared to the year-earlier period, as well as our strategic

[Excerpt truncated for page length; source filing is linked above.]

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.

30

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.”

31

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

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]