KB HOME 10-Q

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): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 Variance 2025 2024 Variance Revenues: Homebuilding $ 1,524,716 $ 1,701,512 (10) % $ 2,911,757 $ 3,163,210 (8) % Financial services 4,869 8,301 (41) 9,605 14,369 (33) Total revenues $ 1,529,585 $ 1,709,813 (11) % $ 2,921,362 $ 3,177,579 (8) % Pretax income: Homebuilding $ 134,222 $ 207,856 (35) % $ 266,053 $ 370,944 (28) % Financial services 8,161 13,263 (38) 15,687 24,840 (37) Total pretax income 142,383 221,119 (36) 281,740 395,784 (29) Income tax expense (34,500) (52,700) 35 (64,300) (88,700) 28 Net income $ 107,883 $ 168,419 (36) % $ 217,440 $ 307,084 (29) % Diluted earnings per share $ 1.50 $ 2.15 (30) % $ 3.00 $ 3.91 (23) % In the 2025 second quarter, market conditions softened, primarily due to housing affordability concerns, compounded by the variability in persistently elevated mortgage interest rates, as well as macroeconomic and geopolitical uncertainties that have precipitated a marked weakening in consumer confidence and caused homebuyers to hesitate on making purchase decisions. Reflecting these market conditions, demand during the Spring selling season was more subdued relative to the past few years, and despite a healthy level of traffic in our communities, our 3,460 net orders for the 2025 second quarter were down 13% year over year, and our monthly net order pace per community was 4.5, compared to 5.5 for the year-earlier period. Also contributing to the year-over-year decline in our net orders were municipal delays in a number of our planned community openings, with some shifting to later in the second quarter or into the third quarter. Even with the delayed openings, our average community count for the 2025 second quarter increased 5% year over year to 254, and our ending community count was 253, up 2%. In navigating the current environment, we have focused on delivering the most compelling value to our buyers through pricing transparency and a simplified sales approach. With this strategy, which we began implementing on a community-by-community basis in mid-February to stimulate demand and continued during the 2025 second quarter, we reduced selling prices relative to applicable market conditions and lowered or eliminated other homebuyer concessions, which is expected to partly offset the average selling price and housing gross profit margin impacts of those price changes in the reporting period when the corresponding homes are delivered. As most of the net orders in the period since we implemented this approach have not yet closed, the associated pricing adjustments did not significantly affect our average selling price or housing gross profit margin on homes delivered for the three months and six months ended May 31, 2025. While this calibrated repositioning of our communities helped us generate solid net orders in March, with an absorption pace that was approaching a seasonally more normalized level, demand slowed in April and May as weakening consumer confidence and rising and variable mortgage interest rates in those months resulted in heightened hesitancy from homebuyers. Reflecting the price reductions we implemented, and expanded on in certain underperforming communities to align with local demand dynamics, the value of our net orders for the 2025 second quarter was down 21% year over year driven by the 13% decline in net orders and an 8% decrease in their average selling price to $465,600. Homebuilding revenues for the three months ended May 31, 2025 and 2024 were generated solely from housing operations. Our 2025 second-quarter housing revenues declined 10% year over year to $1.52 billion due to an 11% decrease in the number of homes delivered to 3,120, partly offset by a slight increase in their average selling price to $488,700. Approximately 50% of our homes delivered in the 2025 second quarter were to first-time homebuyers. Our homes delivered as a percentage of backlog at the beginning of the quarter grew to 70% for the 2025 second quarter, from 61% for the year-earlier quarter, mainly due to our improved build times and an increase in the percentage of homes sold and delivered within the same quarter. 25 Homebuilding operating income for the three months ended May 31, 2025 was $131.5 million, compared to $188.2 million for the year-earlier period. As a percentage of revenues, homebuilding operating income was 8.6% for the 2025 second quarter compared to 11.1% for the corresponding 2024 period, primarily reflecting 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 the 2025 second quarter decreased to 19.3%, compared to 21.1% for the year-earlier quarter, due to price reductions and other homebuyer concessions, higher relative land costs, geographic mix and reduced operating leverage from lower housing revenues, partly offset by lower construction costs. Our selling, general and administrative expenses as a percentage of housing revenues of 10.7% for the 2025 second quarter increased 60 basis points year over year, primarily reflecting higher marketing expenses and decreased operating leverage from lower housing revenues. Total pretax income for the 2025 second quarter was $142.4 million, down from $221.1 million for the year-earlier quarter, which included a $12.5 million gain associated with the sale of a privately held technology company in which we had an ownership interest. Net income and diluted earnings per share for the three months ended May 31, 2025 decreased 36% and 30%, respectively, year over year. Our diluted earnings per share for the 2025 second quarter reflected lower net income, partly offset by the favorable impact of our common stock repurchases over the past several quarters . We take a balanced approach in allocating capital, relative to prevailing market conditions, toward our priorities of investing in land and land development to support future growth and returning capital to our stockholders. In the current environment and given our existing land pipeline, we are scaling back our investments in land and land development while increasing our share repurchases. Reflecting this shift, we reduced our investments for the 2025 second quarter by 23% year over year to $513.9 million, and repurchased $200.0 million of our outstanding common stock. For the 2025 first half, we invested $1.43 billion in land and land development, representing a 14% increase from the corresponding year-earlier period, and repurchased approximately 4.5 million shares of our common stock at a total cost of $250.0 million. We ended the 2025 second quarter with total liquidity of $1.19 billion, including cash and cash equivalents and $881.7 million of available capacity under the Credit Facility. We had $200.0 million of cash borrowings outstanding under the Credit Facility at May 31, 2025. Considering the softer market conditions, we have revised our projections for 2025. Although our ending backlog value at May 31, 2025 decreased 27% year over year to approximately $2.29 billion, we believe we are well positioned to achieve our updated projections for the 2025 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): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 2025 2024 Revenues: Housing $ 1,524,716 $ 1,701,512 $ 2,911,757 $ 3,159,638 Land — — — 3,572 Total 1,524,716 1,701,512 2,911,757 3,163,210 Costs and expenses: Construction and land costs Housing (1,230,055) (1,342,102) (2,337,469) (2,486,529) Land — — — (2,101) Total (1,230,055) (1,342,102) (2,337,469) (2,488,630) Selling, general and administrative expenses (163,198) (171,227) (315,486) (328,721) Total (1,393,253) (1,513,329) (2,652,955) (2,817,351) Operating income 131,463 188,183 258,802 345,859 Interest income 1,679 19,449 3,758 25,306 Equity in income (loss) of unconsolidated joint ventures 1,080 224 3,493 (221) Homebuilding pretax income $ 134,222 $ 207,856 $ 266,053 $ 370,944 26 Three Months Ended May 31, Six Months Ended May 31, 2025 2024 2025 2024 Homes delivered 3,120 3,523 5,890 6,560 Average selling price $ 488,700 $ 483,000 $ 494,400 $ 481,700 Housing gross profit margin as a percentage of housing revenues 19.3 % 21.1 % 19.7 % 21.3 % Adjusted housing gross profit margin as a percentage of housing revenues 19.7 % 21.2 % 20.0 % 21.4 % Selling, general and administrative expenses as a percentage of housing revenues 10.7 % 10.1 % 10.8 % 10.4 % Operating income as a percentage of revenues 8.6 % 11.1 % 8.9 % 10.9 % Revenues . Homebuilding revenues for the three months ended May 31, 2025 and 2024 were generated solely from housing operations. Housing revenues for the 2025 second quarter declined 10% from the year-earlier quarter due to an 11% decrease in the number of homes delivered, partly offset by a slight increase in their overall average selling price. Our 2025 second-quarter housing revenues were down year over year in each of our homebuilding reporting segments, with decreases ranging from 1% in our Southwest segment to 25% in our Central segment. The decline in the number of homes delivered mainly reflected our having 23% fewer homes in backlog at the beginning of the 2025 second quarter, as compared to the year-earlier quarter. For the six months ended May 31, 2025, homebuilding revenues were generated solely from housing operations. In the year-earlier period, homebuilding revenues were generated from housing operations and land sales. Housing revenues for the six months ended May 31, 2025 decreased 8% from the corresponding 2024 period due to a 10% decline in the number of homes delivered, partially offset by a 3% increase in their average selling price. There were no land sales for the three months and six months ended May 31, 2025 and the three months ended May 31, 2024. Land sale revenues for the six months ended May 31, 2024 totaled $3.6 million. 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 operating income for the three months ended May 31, 2025 decreased 30% year over year due to lower housing gross profits, partly offset by lower selling, general and administrative expenses. Operating income for the 2025 second quarter included inventory-related charges of $5.6 million, compared to $1.2 million in the year-earlier quarter. As a percentage of revenues, our operating income for the three months ended May 31, 2025 was 8.6%, compared to 11.1% for the corresponding 2024 period, mainly due to a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of housing revenues. Excluding inventory-related charges, our operating income as a percentage of revenues was 9.0% for the 2025 second quarter, compared to 11.1% for the year-earlier quarter. For the six months ended May 31, 2025, our operating income declined 25% from the year-earlier period, reflecting a decrease in housing gross profits and the absence of land sale profits, partly offset by lower selling, general and administrative expenses. Operating income for the six months ended May 31, 2025 included inventory-related charges of $7.0 million, compared to $2.5 million of such charges for the corresponding 2024 period. As a percentage of revenues, our operating income for the six months ended May 31, 2025 decreased 200 basis points year over year to 8.9%, mainly reflecting a lower housing gross profit margin and higher selling, general and administrative expenses as a percentage of revenues. Excluding inventory-related charges, our operating income as a percentage of revenues declined 190 basis points to 9.1% for the six months ended May 31, 2025 from 11.0% for the corresponding year-earlier period. • Housing Gross Profits – Housing gross profits of $294.7 million for the three months ended May 31, 2025 were down 18% year over year, reflecting lower housing revenues and a 180 basis-point decrease in our housing gross profit margin to 19.3%. The decline in the housing gross profit margin was due to price reductions and other homebuyer concessions, higher relative land costs, geographic mix and reduced operating leverage from lower housing revenues, partly offset by lower construction costs. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations, which is included in construction and land costs, was 1.7% for both the three months ended May 31, 2025 and 2024. Excluding the above-mentioned inventory-related charges, all of which were associated with housing operations, our adjusted housing gross profit margin of 19.7% for the 2025 second quarter decreased 150 basis points year over year. 27 For the six months ended May 31, 2025, our housing gross profits of $574.3 million decreased from $673.1 million for the year-earlier period due to lower housing revenues and a 160 basis-point decline in our housing gross profit margin. The housing gross profit margin primarily reflected the same factors described above for the three months ended May 31, 2025. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 1.7% for the six months ended May 31, 2025, compared to 1.8% for the corresponding 2024 period. Excluding the above-mentioned inventory-related charges, all of which were associated with housing operations, our adjusted housing gross profit margin of 20.0% for the six months ended May 31, 2025 decreased 140 basis points year over year. The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.” • Land Sale Profits – There was no land sale activity in the three months and six months ended May 31, 2025 and the three months ended May 31, 2024. Land sale profits for the six months ended May 31, 2024 totaled $1.5 million. • Selling, General and Administrative Expenses – The following table presents the components of our selling, general and administrative expenses (dollars in thousands): Three Months Ended May 31, Six Months Ended May 31, 2025 % of Housing Revenues 2024 % of Housing Revenues 2025 % of Housing Revenues 2024 % of Housing Revenues Marketing expenses $ 42,602 2.8 % $ 39,884 2.3 % $ 82,265 2.8 % $ 76,244 2.4 % Commission expenses (a) 52,514 3.4 60,380 3.6 99,680 3.4 112,210 3.6 General and administrative expenses 68,082 4.5 70,963 4.2 133,541 4.6 140,267 4.4 Total $ 163,198 10.7 % $ 171,227 10.1 % $ 315,486 10.8 % $ 328,721 10.4 % (a) Commission expenses include sales commissions on homes delivered paid to internal sales counselors and external real estate brokers. Selling, general and administrative expenses for the three months ended May 31, 2025 decreased 5% from the year-earlier quarter. As a percentage of housing revenues, our selling, general and administrative expenses for the 2025 second quarter increased 60 basis points. For the six months ended May 31, 2025, selling, general and administrative expenses decreased 4% year over year. As a percentage of housing revenues, selling, general and administrative expenses for the six months ended May 31, 2025 increased 40 basis points. The year-over-year increases in selling, general and administrative expenses as a percentage of revenues for the three-month and six-month periods ended May 31, 2025 primarily reflected higher marketing expenses and decreased operating leverage from lower housing revenues. Interest Income/Expense and Other . Interest income and other for the three months and six months ended May 31, 2025 was comprised solely of interest income. For the three months and six months ended May 31, 2024, interest income and other was comprised of interest income and a $12.5 million gain associated with the sale of a privately held technology company in which we had an ownership interest. Interest income, which is generated from short-term investments, was $1.7 million for the three months ended May 31, 2025, compared to $6.9 million for the year-earlier quarter. For the six months ended May 31, 2025, interest income was $3.8 million, compared to $12.8 million for the corresponding 2024 period. The year-over-year decreases for the three-month and six-month periods ended May 31, 2025 reflected our lower average balance of cash equivalents and a lower interest rate in the 2025 periods. Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of short-term investments and fluctuations in interest rates. We incur interest principally from our borrowings to finance land acquisitions, land development, home construction and other operating and capital needs. All interest incurred during the three-month and six-month periods ended May 31, 2025 and 2024 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for each period. Accordingly, we had no interest expense for these periods. Further information regarding our interest incurred and capitalized is provided in Note 6 – Inventories in the Notes to Consolidated Financial Statements in this report. Equity in Income (Loss) of Unconsolidated Joint Ventures . Our equity in income of unconsolidated joint ventures was $1.1 million for the three months ended May 31, 2025 and nominal for the three months ended May 31, 2024. For the six months ended May 31, 2025, our equity in income of unconsolidated joint ventures was $3.5 million, compared to a nominal equity in loss of unconsolidated joint ventures for the corresponding 2024 period. The year-over-year improvement for the 2025 periods 28 mainly reflected an increase in the number of homes delivered by an unconsolidated joint venture in California, which delivered its first homes in the 2024 second quarter. Further information regarding our investments in homebuilding unconsolidated joint ventures is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report. Net Orders, Cancellation Rates, Backlog and Community Count . The following table presents information about our net orders, cancellation rate, ending backlog and community count (dollars in thousands): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 2025 2024 Net orders 3,460 3,997 6,232 7,320 Net order value (a) $ 1,611,014 $ 2,031,903 $ 2,957,081 $ 3,614,094 Cancellation rate (b) 16 % 13 % 16 % 13 % Ending backlog — homes 4,776 6,270 4,776 6,270 Ending backlog — value $ 2,288,231 $ 3,122,135 $ 2,288,231 $ 3,122,135 Ending community count 253 247 253 247 Average community count 254 243 255 242 (a) Net order value represents potential future housing revenues associated with net orders generated during the period, as well as homebuyer selections of lot and product premiums and design choices and options for homes in backlog during the same period. (b) Cancellation rate represents the total number of contracts for new homes cancelled during a period divided by the total (gross) orders for new homes generated during the same period. Net Orders . Net orders for the 2025 second quarter decreased 13%, compared to the year-earlier quarter, and the pace of monthly net orders per community was 4.5 in the 2025 second quarter, compared to 5.5 in the corresponding 2024 quarter, reflecting both lower net orders and a higher average community count. The decreases in our net orders and monthly pace per community reflected market conditions in the 2025 second quarter, with demand in the Spring selling season more subdued relative to the past few years due to housing affordability concerns, compounded by the variability in persistently elevated mortgage interest rates, as well as macroeconomic and geopolitical uncertainties that have precipitated a marked weakening in consumer confidence and caused homebuyers to hesitate on making purchase decisions. Also contributing to the year-over-year decline in our net orders were municipal delays in a number of our planned community openings, with some shifting to later in the second quarter or into the 2025 third quarter. In navigating the current environment, we have focused on delivering the most compelling value to our buyers through pricing transparency and a simplified sales approach. With this strategy, which we began implementing on a community-by-community basis in mid-February to stimulate demand and continued during the 2025 second quarter, we reduced selling prices relative to applicable market conditions and lowered or eliminated other homebuyer concessions, which is expected to partly offset the average selling price and housing gross profit margin impacts of those price changes in the reporting period when the corresponding homes are delivered. As most of the net orders in the period since we implemented this approach have not yet closed, the associated pricing adjustments did not significantly affect our average selling price or housing gross profit margin on homes delivered for the three months and six months ended May 31, 2025. While this calibrated repositioning of our communities helped us generate solid net orders in March, with an absorption pace that was approaching a seasonally more normalized level, demand slowed in April and May as weakening consumer confidence and rising and variable mortgage interest rates in those months resulted in heightened hesitancy from homebuyers. Reflecting the price reductions we implemented, and expanded on in certain underperforming communities to align with local demand dynamics, the value of our net orders for the 2025 second quarter was down 21% year over year driven by the 13% decline in net orders and an 8% decrease in their average selling price to $465,600. Our cancellation rate as a percentage of gross orders for the three months ended May 31, 2025 increased slightly from the year-earlier period. Backlog . The number of homes in our backlog and our backlog value at May 31, 2025 decreased 24% and 27%, respectively, from May 31, 2024. The decline in our overall backlog value reflected decreases in each of our homebuilding reporting segments, ranging from 18% in our Southeast segment to 32% in our Southwest segment. Based on our historical experience, a portion of the homes in backlog will not result in homes delivered due to cancellations. 29 Community Count . We use the term “community count” to refer to the number of communities open for sale with at least five homes left to sell at the end of a reporting period. Our ending community count for the 2025 second quarter grew 2% from the year-earlier quarter. Our average community count for the three months ended May 31, 2025 increased 5% from the year-earlier period. While we increased our investments in land and land development on a year-over-year basis for the six months ended May 31, 2025 to help drive future growth, as discussed below under “Liquidity and Capital Resources,” with the softer market conditions we are scaling back our investments in land and land development, which in the 2025 second quarter decreased 23% compared to the year-earlier quarter. HOMEBUILDING REPORTING SEGMENTS Operational Data. The following tables present information about our homes delivered, net orders, cancellation rates as a percentage of gross orders, net order value, average community count and ending backlog (number of homes and value) by homebuilding reporting segment (dollars in thousands): Three Months Ended May 31, Homes Delivered Net Orders Cancellation Rates Segment 2025 2024 2025 2024 2025 2024 West Coast 968 1,043 1,104 1,226 14 % 11 % Southwest 661 712 557 785 13 9 Central 811 1,028 1,030 1,300 15 12 Southeast 680 740 769 686 20 19 Total 3,120 3,523 3,460 3,997 16 % 13 % Net Order Value Average Community Count Segment 2025 2024 Variance 2025 2024 Variance West Coast $ 728,141 $ 902,483 (19) % 89 77 16 % Southwest 268,921 362,788 (26) 36 44 (18) Central 328,614 485,824 (32) 63 78 (19) Southeast 285,338 280,808 2 66 44 50 Total $ 1,611,014 $ 2,031,903 (21) % 254 243 5 % Six Months Ended May 31, Homes Delivered Net Orders Cancellation Rates Segment 2025 2024 2025 2024 2025 2024 West Coast 1,817 1,871 2,002 2,176 14 % 12 % Southwest 1,339 1,429 1,102 1,483 14 10 Central 1,562 1,898 1,750 2,317 16 13 Southeast 1,172 1,362 1,378 1,344 20 20 Total 5,890 6,560 6,232 7,320 16 % 13 % Net Order Value Average Community Count Segment 2025 2024 Variance 2025 2024 Variance West Coast $ 1,335,320 $ 1,535,883 (13) % 88 75 17 % Southwest 538,143 677,651 (21) 38 44 (14) Central 568,339 849,747 (33) 66 78 (15) Southeast 515,279 550,813 (6) 63 45 40 Total $ 2,957,081 $ 3,614,094 (18) % 255 242 5 % 30 May 31, Backlog – Homes Backlog – Value Segment 2025 2024 Variance 2025 2024 Variance West Coast 1,396 1,850 (25) % $ 947,842 $ 1,304,955 (27) % Southwest 897 1,433 (37) 443,533 652,578 (32) Central 1,321 1,686 (22) 445,853 615,228 (28) Southeast 1,162 1,301 (11) 451,003 549,374 (18) Total 4,776 6,270 (24) % $ 2,288,231 $ 3,122,135 (27) % The composition of our homes delivered, net orders and backlog shifts with the product and geographic mix of our active communities and the corresponding average selling prices of the homes ordered and/or delivered at these communities in any particular period, changing as new communities open and existing communities wind down or sell out in the ordinary course. In addition, with our Built to Order business model, the selling prices of individual homes within a community may vary due to differing lot sizes and locations, home square footage, product premiums and the design choices and options buyers select. These intrinsic variations in our business limit the comparability of our homes delivered, net orders and backlog, as well as their corresponding values, between sequential and year-over-year periods, in addition to the effect of prevailing economic or housing market conditions in or across any particular periods. Financial Results . Below is a discussion of the financial results for each of our homebuilding reporting segments. Further information regarding these segments, including their pretax income (loss), is included in Note 2 – Segment Information in the Notes to Consolidated Financial Statements in this report. The difference between each homebuilding reporting segment’s operating income (loss) and pretax income (loss) is generally due to the equity in income (loss) of unconsolidated joint ventures and/or interest income and expense. In addition to the results of our homebuilding reporting segments presented below, our consolidated homebuilding operating income includes the results of Corporate and other, a non-operating segment. Corporate and other had operating losses of $40.4 million and $38.6 million in the three months ended May 31, 2025 and 2024, respectively. For the six months ended May 31, 2025, Corporate and other had an operating loss of $76.9 million, compared to an operating loss of $73.7 million for the corresponding year-earlier period. The financial results of our homebuilding reporting segments for the three months ended May 31, 2025 and 2024 were impacted to varying degrees by price reductions and other homebuyer concessions we extended to buyers in conjunction with our targeted sales strategies, as well as product and geographic mix shifts of homes delivered. West Coast . The following table presents financial information related to our West Coast segment (dollars in thousands, except average selling price): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 Variance 2025 2024 Variance Revenues $ 660,193 $ 698,417 (5) % $ 1,261,842 $ 1,256,719 — % Construction and land costs (539,124) (564,420) 4 (1,030,292) (1,011,853) (2) Selling, general and administrative expenses (45,475) (47,108) 3 (89,464) (91,846) 3 Operating income $ 75,594 $ 86,889 (13) % $ 142,086 $ 153,020 (7) % Homes delivered 968 1,043 (7) % 1,817 1,871 (3) % Average selling price $ 682,000 $ 669,600 2 % $ 694,500 $ 671,500 3 % Operating income as a percentage of revenues 11.5 % 12.4 % (90) bps 11.3 % 12.2 % (90) bps In the three months and six months ended May 31, 2025 and the three months ended May 31, 2024, this segment’s revenues were generated solely from housing operations. In the six months ended May 31, 2024, this segment’s revenues were comprised of housing revenues and nominal land sale revenues. The year-over-year decline in housing revenues for the three months ended May 31, 2025 reflected a decrease in the number of homes delivered, partly offset by an increase in their average selling price. For the six months ended May 31, 2025, housing revenues of $1.26 billion were essentially even with the 31 corresponding year-earlier period as a decrease in the number of homes delivered was offset by an increase in their average selling price. Operating income for the three months and six months ended May 31, 2025 declined year over year due to lower housing gross profits, partly offset by lower selling, general and administrative expenses. Operating income as a percentage of revenues for the 2025 second quarter was down from the year-earlier quarter due to an 80 basis-point decrease in the housing gross profit margin to 18.3% and a 10 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 6.9%. For the six months ended May 31, 2025, operating income as a percentage of revenues declined from the corresponding 2024 period, mainly reflecting a 110 basis-point decrease in the housing gross profit margin to 18.4%, partly offset by a 20 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.1%. The year-over-year decrease in the housing gross profit margin for the three months and six months ended May 31, 2025 was primarily due to price reductions and other homebuyer concessions and higher relative land costs, partly offset by lower construction costs. For the three months ended May 31, 2025, inventory-related charges associated with housing operations were $1.2 million, compared to $.6 million for the year-earlier period. For the six months ended May 31, 2025, inventory-related charges associated with housing operations were $1.8 million, compared to $1.9 million for the year-earlier period. Southwest . The following table presents financial information related to our Southwest segment (dollars in thousands, except average selling price): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 Variance 2025 2024 Variance Revenues $ 314,102 $ 318,665 (1) % $ 626,981 $ 641,790 (2) % Construction and land costs (236,406) (241,005) 2 (469,124) (485,496) 3 Selling, general and administrative expenses (22,315) (22,851) 2 (43,701) (45,721) 4 Operating income $ 55,381 $ 54,809 1 % $ 114,156 $ 110,573 3 % Homes delivered 661 712 (7) % 1,339 1,429 (6) % Average selling price $ 475,200 $ 447,600 6 % $ 468,200 $ 449,100 4 % Operating income as a percentage of revenues 17.6 % 17.2 % 40 bps 18.2 % 17.2 % 100 bps In the three-month and six-month periods ended May 31, 2025 and 2024, this segment’s revenues were generated solely from housing operations. This segment’s housing revenues for the three-month and six-month periods ended May 31, 2025 declined slightly year over year, reflecting a decrease in the number of homes delivered, largely offset by an increase in their average selling price. Operating income for the three months ended May 31, 2025 increased slightly year over year due to lower selling, general and administrative expenses as housing gross profits were essentially even with the year-earlier period. As a percentage of revenues, this segment’s operating income for the 2025 second quarter grew from the year-earlier quarter, reflecting a 30 basis-point increase in the housing gross profit margin to 24.7% and a 10 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.1%. For the six months ended May 31, 2025, operating income increased from the corresponding year-earlier period due to higher housing gross profits and lower selling, general and administrative expenses. Operating income as a percentage of revenues for the six months ended May 31, 2025 grew from the corresponding 2024 period, reflecting an 80 basis-point increase in the housing gross profit margin to 25.2% and a 20 basis-point improvement in selling, general and administrative expenses as a percentage of housing revenues to 7.0%. The year-over-year expansion in the housing gross profit margin for the three-month and six-month periods ended May 31, 2025 primarily reflected lower relative construction and land costs, partly offset by price reductions and other homebuyer concessions. For the three-month and six-month periods ended May 31, 2025, inventory-related charges associated with housing operations were $.8 million and $1.1 million, respectively. For the three-month and six-month periods ended May 31, 2024, inventory-related charges associated with housing operations were nominal. 32 Central . The following table presents financial information related to our Central segment (dollars in thousands, except average selling price): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 Variance 2025 2024 Variance Revenues $ 282,966 $ 375,790 (25) % $ 558,579 $ 696,274 (20) % Construction and land costs (231,321) (292,621) 21 (451,217) (542,461) 17 Selling, general and administrative expenses (30,966) (36,606) 15 (61,195) (68,679) 11 Operating income $ 20,679 $ 46,563 (56) % $ 46,167 $ 85,134 (46) % Homes delivered 811 1,028 (21) % 1,562 1,898 (18) % Average selling price $ 348,900 $ 365,600 (5) % $ 357,600 $ 365,200 (2) % Operating income as a percentage of revenues 7.3 % 12.4 % (510) bps 8.3 % 12.2 % (390) bps In the three months and six months ended May 31, 2025 and the three months ended May 31, 2024, this segment’s revenues were generated solely from housing operations. In the six months ended May 31, 2024, this segment’s revenues were comprised of housing revenues and land sale revenues. Housing revenues for the three months ended May 31, 2025 were down from the year-earlier period due to decreases in both the number of homes delivered and their average selling price. For the six months ended May 31, 2025, housing revenues decreased 19% year over year, from $693.1 million, for the same reasons. Land sale revenues totaled $3.2 million for the six months ended May 31, 2024. Operating income for the three months and six months ended May 31, 2025 declined from the corresponding year-earlier periods mainly due to lower housing gross profits, partly offset by lower selling, general and administrative expenses. Also contributing to the year-over-year decrease in operating income for the six months ended May 31, 2025 was the absence of land sale profits in the current period, compared to $1.1 million of land sale profits in the corresponding year-earlier period. This segment’s operating income as a percentage of revenues for the 2025 second quarter decreased from the year-earlier period, primarily due to a 380 basis-point decline in the housing gross profit margin to 18.3% and a 130 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 10.9%. For the six months ended May 31, 2025, this segment’s operating income as a percentage of revenues decreased from the year-earlier period, mainly due to a 280 basis-point decline in the housing gross profit margin to 19.2% and a 110 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 11.0%. The housing gross profit margin for the three months and six months ended May 31, 2025 declined year over year due to price reductions and other homebuyer concessions, higher relative land costs, geographic mix and reduced operating leverage from lower housing revenues, partly offset by lower construction costs. Inventory-related charges associated with housing operations for the three months ended May 31, 2025 were $1.8 million, compared to $.3 million for the year-earlier period. For the six months ended May 31, 2025, inventory-related charges associated with housing operations were $2.1 million, compared to $.3 million for the year-earlier period. The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months and six months ended May 31, 2025 was mainly due to higher marketing expenses and decreased operating leverage from lower housing revenues. Southeast . The following table presents financial information related to our Southeast segment (dollars in thousands, except average selling price): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 Variance 2025 2024 Variance Revenues $ 267,455 $ 308,640 (13) % $ 464,355 $ 568,427 (18) % Construction and land costs (221,064) (242,898) 9 (383,120) (446,689) 14 Selling, general and administrative expenses (26,161) (27,205) 4 (47,928) (50,936) 6 Operating income $ 20,230 $ 38,537 (48) % $ 33,307 $ 70,802 (53) % 33 Three Months Ended May 31, Six Months Ended May 31, 2025 2024 Variance 2025 2024 Variance Homes delivered 680 740 (8) % 1,172 1,362 (14) % Average selling price $ 393,300 $ 417,100 (6) % $ 396,200 $ 417,300 (5) % Operating income as a percentage of revenues 7.6 % 12.5 % (490) bps 7.2 % 12.5 % (530) bps This segment’s revenues for the three months and six months ended May 31, 2025 and 2024 were generated solely from housing operations. Housing revenues for the three months and six months ended May 31, 2025 declined from the corresponding year-earlier periods due to decreases in both the number of homes delivered and their average selling price. Operating income for the three months and six months ended May 31, 2025 was down year over year, reflecting lower housing gross profits, partly offset by lower selling, general and administrative expenses. As a percentage of revenues, operating income for the 2025 second quarter declined from the year-earlier quarter due to a 400 basis-point decline in the housing gross profit margin to 17.3% and a 90 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 9.8%. Operating income as a percentage of revenues for the six months ended May 31, 2025 decreased from the corresponding year-earlier period due to a 390 basis-point decline in the housing gross profit margin to 17.5% and a 140 basis-point increase in selling, general and administrative expenses as a percentage of housing revenues to 10.3%. The year-over-year decrease in the housing gross profit margin for the three months and six months ended May 31, 2025 reflected price reductions and other homebuyer concessions, higher relative land costs, geographic mix and reduced operating leverage from lower housing revenues. Inventory-related charges associated with housing operations for the three-month and six-month periods ended May 31, 2025 were $1.7 million and $1.9 million, respectively, compared to a nominal amount for each of the year-earlier periods. The year-over-year increase in selling, general and administrative expenses as a percentage of housing revenues for the three months and six months ended May 31, 2025 was mainly due to decreased operating leverage from lower housing revenues as well as higher costs, including higher marketing and other expenses associated with our expanded community count in this segment. FINANCIAL SERVICES REPORTING SEGMENT The following table presents a summary of selected financial and operational data for our financial services reporting segment (dollars in thousands): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 2025 2024 Revenues $ 4,869 $ 8,301 $ 9,605 $ 14,369 Expenses (1,570) (1,473) (3,109) (3,019) Equity in income of unconsolidated joint venture 4,862 6,435 9,191 13,490 Pretax income $ 8,161 $ 13,263 $ 15,687 $ 24,840 Total originations (a): Loans 2,249 2,482 4,316 4,628 Principal $ 930,825 $ 996,167 $ 1,799,480 $ 1,836,733 Percentage of homebuyers using KBHS 88 % 86 % 89 % 86 % Average FICO score 743 744 744 744 Loans sold (a): Loans sold to GR Alliance 1,814 1,755 3,235 3,994 Principal $ 747,144 $ 702,299 $ 1,322,444 $ 1,588,540 Loans sold to third parties 425 90 988 127 Principal $ 191,697 $ 35,412 $ 441,674 $ 49,565 (a) Loan originations and sales occurred within KBHS. 34 Revenues . Financial services revenues for the three months and six months ended May 31, 2025 declined 41% and 33%, respectively, from the corresponding year-earlier periods due to decreases in both insurance commissions and title services revenues. Insurance commissions were lower in the 2025 periods due to the contract assets for estimated future renewal commissions remaining relatively steady, as an increase in the number of policies in force was offset by a slight decrease in the average commission per policy. In contrast, the corresponding 2024 periods benefited from growth in these contract assets driven by an increase in the number of policies in force and fairly stable average commission rates. Title services revenues decreased year over year mainly due to fewer homes delivered in the 2025 periods. Pretax income. Financial services pretax income for the three months and six months ended May 31, 2025 was down 38% and 37%, respectively, from the corresponding year-earlier periods, largely due to the above-mentioned decrease in insurance commissions revenues and a decline in the equity in income of our unconsolidated joint venture, KBHS. In the 2025 second quarter, the equity in income of our unconsolidated joint venture was $4.9 million, compared to $6.4 million in the year-earlier quarter, reflecting a decrease in KBHS’ income. The year-over-year decrease in KBHS’ income primarily reflected a loss in the fair value of IRLCs of $2.1 million in the current quarter, compared to a gain in the fair value of IRLCs of $1.3 million in the year-earlier quarter. For the six months ended May 31, 2025, the equity in income of our unconsolidated joint venture was $9.2 million, compared to $13.5 million in the year-earlier quarter, reflecting a decrease in KBHS’ income. The year-over-year decrease in KBHS’ income primarily reflected a loss in the fair value of IRLCs of $3.6 million in the current quarter, compared to a gain in the fair value of IRLCs of $4.2 million in the year-earlier quarter. Also contributing to the year-over-year decrease in KBHS’ income for the three months and six months ended May 31, 2025 was a decline in the number of loans originated, which reflected a decrease in the number of homes we delivered, partly offset by an increase in the percentage of homebuyers using KBHS. Further information regarding our investments in unconsolidated joint ventures, including KBHS, is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report. INCOME TAXES Income Tax Expense. Our income tax expense and effective tax rates were as follows (dollars in thousands): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 2025 2024 Income tax expense $ 34,500 $ 52,700 $ 64,300 $ 88,700 Effective tax rate 24.2 % 23.8 % 22.8 % 22.4 % Our effective tax rate for the three months ended May 31, 2025 increased from the year-earlier period, mainly due to a $1.7 million decrease in the Section 45L tax credits we recognized primarily from building energy-efficient homes and a $.4 million decrease in excess tax benefits related to stock-based compensation. For the six months ended May 31, 2025, our effective tax rate increased from the year-earlier period primarily due to a $4.1 million decrease in Section 45L tax credits and a $1.1 million decrease in excess tax benefits related to stock-based compensation. The year-over-year decreases in Section 45L tax credits for the three months and six months ended May 31, 2025 reflect the impact of guidance the IRS issued in 2023 that heightened the Section 45L energy-efficiency qualification standard for homes built in California relative to other states and our decision to build homes in many of our markets beginning in 2025 that are highly energy efficient and qualify for ENERGY STAR certification but do not qualify for Section 45L tax credits. We believe the additional costs necessary to satisfy the higher standards for some of our homes outweigh the possible benefits of meeting those standards for both our business and our buyers. H.R.1, the One Big Beautiful Bill Act, was signed into law on July 4, 2025, disallowing Section 45L tax credits for new energy-efficient homes delivered after June 30, 2026. As a result, our income tax expense and effective tax rate would not reflect a benefit from such tax credits as to homes delivered after that date. Further information regarding our income taxes is provided in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements in this report. NON-GAAP FINANCIAL MEASURES This report contains information about our adjusted housing gross profit margin, which is not calculated in accordance with GAAP. We believe this non-GAAP financial measure is relevant and useful to investors in understanding our operations, and may be helpful in comparing us with other companies in the homebuilding industry to the extent they provide similar information. However, because it is not calculated in accordance with GAAP, this non-GAAP financial measure may not be completely comparable to other companies in the homebuilding industry and, thus, should not be considered in isolation or as 35 an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement the most directly comparable GAAP financial measure in order to provide a greater understanding of the factors and trends affecting our operations. Adjusted Housing Gross Profit Margin. The following table reconciles our housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of our adjusted housing gross profit margin (dollars in thousands): Three Months Ended May 31, Six Months Ended May 31, 2025 2024 2025 2024 Housing revenues $ 1,524,716 $ 1,701,512 $ 2,911,757 $ 3,159,638 Housing construction and land costs (1,230,055) (1,342,102) (2,337,469) (2,486,529) Housing gross profits 294,661 359,410 574,288 673,109 Add: Inventory-related charges (a) 5,558 1,210 7,013 2,508 Adjusted housing gross profits $ 300,219 $ 360,620 $ 581,301 $ 675,617 Housing gross profit margin as a percentage of housing revenues 19.3 % 21.1 % 19.7 % 21.3 % Adjusted housing gross profit margin as a percentage of housing revenues 19.7 % 21.2 % 20.0 % 21.4 % (a) Represents inventory impairment and land option contract abandonment charges associated with housing operations. Adjusted housing gross profit margin is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs excluding housing inventory impairment and land option contract abandonment charges (as applicable) recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. We believe adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating our performance as it measures the gross profits we generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that the housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner. We also believe investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of housing inventory impairment and land option contract abandonment charges. This financial measure assists us in making strategic decisions regarding community location and product mix, product pricing and construction pace. Liquidity and Capital Resources Overview. We have funded our homebuilding and financial services activities over the last several years with: • internally generated cash flows; • public issuances of debt securities; • borrowings under the Credit Facility; • the Term Loan; • land option contracts and other similar contracts and seller notes; • public issuances of our common stock; and • letters of credit and performance bonds. We manage our use of cash in the operation of our business to support the execution of our primary strategic goals. Over the past several years, we have primarily used cash for: • land acquisitions and land development; • home construction; • operating expenses; • principal and interest payments on notes payable; • repayments of borrowings under the Credit Facility; • dividends paid to stockholders; and • repurchases of our common stock. We ended the 2025 second quarter with total liquidity of $1.19 billion, including cash and cash equivalents and $881.7 million of available capacity under the Credit Facility, with $200.0 million of cash borrowings outstanding. Cash and cash equivalents 36 totaled $308.9 million at May 31, 2025, compared to $598.0 million at November 30, 2024. Cash equivalents included in the total were $161.2 million at May 31, 2025 and $385.1 million at November 30, 2024, and were mainly invested in interest-bearing bank deposit accounts and money market funds. Based on our financial position as of May 31, 2025, and our business forecast as discussed below under “Outlook,” we have no material concerns related to our liquidity. We believe that our existing cash and cash equivalents, our anticipated cash flows from operations and amounts available under our Credit Facility will be sufficient to fund our anticipated operating and land-related investment needs for at least the next 12 months. Cash Requirements . In the six months ended May 31, 2025, there have been no significant changes in our cash requirements from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2024. Investments in Land and Land Development. In the 2025 first quarter, our investments in land and land development increased 57% year over year to $920.3 million, which included our opportunistic purchase of two sizable land parcels in our Southwest homebuilding reporting segment to replace a large community that is approaching close out. As a result of the heightened first-quarter investment level, our existing land pipeline and softer market conditions, however, we are scaling back our investments in land and land development. Reflecting this shift, our investments for the 2025 second quarter decreased 23% year over year to $513.9 million. For the six months ended May 31, 2025, our investments in land and land development grew 14% year over year to $1.43 billion. Land acquisition expenditures, which are included in our investments in land and land development, increased to $661.9 million, or 46% of our total investments, for the six months ended May 31, 2025, from $491.9 million, or approximately 39% of our total investments, for the corresponding period of 2024. While we made investments in land and land development in each of our homebuilding reporting segments during the six months ended May 31, 2025 and 2024, approximately 49% and 53%, respectively, of these investments for each period were made in our West Coast homebuilding reporting segment. For the 2025 second half, although we expect a year-over-year decrease in our land-related investments, we intend to continue to invest in and develop land positions within attractive submarkets and selectively acquire or control additional land that meets our investment standards, depending significantly on market conditions and available opportunities that meet our investment return standards. The following table presents the number of lots we owned or controlled under land option contracts and other similar contracts and the carrying value of inventory by homebuilding reporting segment (dollars in thousands): May 31, 2025 November 30, 2024 Variance Segment Lots Carrying Value Lots Carrying Value Lots Carrying Value West Coast 24,185 $ 3,050,078 23,956 $ 2,915,543 229 $ 134,535 Southwest 12,199 1,006,016 13,117 845,910 (918) 160,106 Central 23,610 851,966 21,056 839,920 2,554 12,046 Southeast 14,843 1,005,288 18,574 926,647 (3,731) 78,641 Total 74,837 $ 5,913,348 76,703 $ 5,528,020 (1,866) $ 385,328 The carrying value of lots we owned or controlled under land option contracts and other similar contracts at May 31, 2025 increased 7% from November 30, 2024, reflecting land investments during the six months ended May 31, 2025, partly offset by homes delivered and our abandonment of 14,271 previously controlled lots. The number of lots we owned or controlled as of May 31, 2025 decreased 2% from November 30, 2024. The number of lots in inventory as of May 31, 2025 included 13,808 lots under contract where the associated deposits were refundable at our discretion, compared to 18,923 of such lots at November 30, 2024. Our lots controlled under land option contracts and other similar contracts as a percentage of total lots was 47% at May 31, 2025, compared to 49% at November 30, 2024. Generally, this percentage fluctuates with our decisions to control (or abandon) lots under land option contracts and other similar contracts or to purchase (or sell owned) lots based on available opportunities and our investment return standards. Land Option Contracts and Other Similar Contracts. As discussed in Note 8 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance. Our decision to exercise a particular land option contract or other similar contract depends on the results of our due diligence reviews and ongoing market and project feasibility analysis that we conduct after entering into such a contract. In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date. We typically have the ability not to 37 exercise our rights to the underlying land for any reason and, if applicable, forfeit our deposits without further penalty or obligation to the sellers. If we were to acquire all the land we had under land option contracts and other similar contracts at May 31, 2025, we estimate the remaining purchase price to be paid would be as follows: 2025 – $750.1 million; 2026 – $1.03 billion; 2027 – $350.0 million; 2028 – $132.6 million; 2029 – $63.0 million; and thereafter – $9.2 million. Liquidity. The table below summarizes our cash and cash equivalents, and total liquidity (in thousands): May 31, 2025 November 30, 2024 Cash and cash equivalents $ 308,861 $ 597,973 Credit Facility commitment 1,090,000 1,090,000 Borrowings outstanding under the Credit Facility (200,000) — Letters of credit outstanding under the Credit Facility (8,260) (8,260) Credit Facility availability 881,740 1,081,740 Total liquidity $ 1,190,601 $ 1,679,713 Capital Resources. Our notes payable consisted of the following (in thousands): May 31, 2025 November 30, 2024 Variance Credit Facility $ 200,000 $ — $ 200,000 Term Loan 359,162 358,826 336 Senior notes 1,330,630 1,329,704 926 Mortgages and land contracts due to land sellers and other loans 3,149 3,149 — Total $ 1,892,941 $ 1,691,679 $ 201,262 Our financial leverage, as measured by the ratio of debt to capital, increased 280 basis points to 32.2% at May 31, 2025, compared to 29.4% at November 30, 2024 due to cash borrowings outstanding under the Credit Facility. The ratio of debt to capital is calculated by dividing notes payable by capital (notes payable plus stockholders’ equity). LOC Facility . We maintain the LOC Facility to obtain letters of credit from time to time in the ordinary course of operating our business. Under the LOC Facility, which expires on February 13, 2028, we may issue up to $100.0 million of letters of credit. As of May 31, 2025 and November 30, 2024, we had letters of credit outstanding under the LOC Facility of $74.4 million and $73.3 million, respectively. Performance Bonds . As discussed in Note 16 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we had $1.44 billion and $1.33 billion of performance bonds outstanding at May 31, 2025 and November 30, 2024, respectively. Unsecured Revolving Credit Facility . We have a $1.09 billion Credit Facility that will mature on February 18, 2027. The Credit Facility contains an uncommitted accordion feature under which its aggregate principal amount of available loans can be increased to a maximum of $1.29 billion under certain conditions, including obtaining additional bank commitments. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of May 31, 2025, we had $200.0 million of cash borrowings and $8.3 million of letters of credit outstanding under the Credit Facility. The Credit Facility is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report. Under the terms of the Credit Facility and the Term Loan, we are required, among other things, to maintain compliance with various covenants, including financial covenants regarding our consolidated tangible net worth, Leverage Ratio, and either an Interest Coverage Ratio or minimum liquidity level, each as defined therein. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described by the terms of the Credit Facility and the Term Loan and can differ in certain respects from comparable GAAP or other commonly used terms. The financial covenant requirements under the Credit Facility and the Term Loan are set forth below: 38 • Consolidated tangible net worth – We must maintain a consolidated tangible net worth at the end of any fiscal quarter greater than or equal to the sum of (a) $2.09 billion, plus (b) an amount equal to 50% of the aggregate of the cumulative consolidated net income for each fiscal quarter commencing after November 30, 2021 and ending as of the last day of such fiscal quarter (though there is no reduction if there is a consolidated net loss in any fiscal quarter), plus (c) an amount equal to 50% of the cumulative net proceeds we receive from the issuance of our capital stock after November 30, 2021. • Leverage Ratio – We must also maintain a Leverage Ratio of less than or equal to .60 at the end of each fiscal quarter. The Leverage Ratio is calculated as the ratio of our consolidated total indebtedness to the sum of consolidated total indebtedness and consolidated tangible net worth, all as defined under the Credit Facility and the Term Loan. • Interest Coverage Ratio or liquidity – We are also required to maintain either (a) an Interest Coverage Ratio of greater than or equal to 1.50 at the end of each fiscal quarter; or (b) a minimum level of liquidity, but not both. The Interest Coverage Ratio is the ratio of our consolidated adjusted EBITDA to consolidated interest incurred, each as defined under the Credit Facility and the Term Loan, in each case for the previous 12 months. Our minimum liquidity is required to be greater than or equal to consolidated interest incurred, as defined under the Credit Facility and the Term Loan, for the four most recently ended fiscal quarters in the aggregate. In addition, under the Credit Facility and the Term Loan, our equity investments in joint ventures and non-guarantor subsidiaries and other unconsolidated entities as of the end of each fiscal quarter cannot exceed the sum of (a) $104.8 million and (b) 20% of consolidated tangible net worth. Further, for so long as we do not hold an investment grade rating, as defined under the Credit Facility and the Term Loan, the Credit Facility and the Term Loan do not permit our borrowing base indebtedness, which, subject to certain exceptions, is the aggregate principal amount of our and certain of our subsidiaries’ outstanding indebtedness for borrowed money and non-collateralized financial letters of credit, to be greater than our borrowing base (a measure relating to our inventory and unrestricted cash assets). The covenants and other requirements under the Credit Facility and the Term Loan represent the most restrictive covenants that we are subject to with respect to our notes payable. The following table summarizes the financial covenants and other requirements under the Credit Facility and the Term Loan, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of May 31, 2025: Financial Covenants and Other Requirements Covenant Requirement Actual Consolidated tangible net worth > $3.24 billion $3.95 billion Leverage Ratio < .600 .325 Interest Coverage Ratio (a) > 1.500 9.039 Minimum liquidity (a) > $97.0 million $108.9 million Investments in joint ventures and non-guarantor subsidiaries < $894.5 million $422.5 million Borrowing base in excess of borrowing base indebtedness (as defined) n/a $2.65 billion (a) Under the terms of the Credit Facility and the Term Loan, we are required to maintain either a minimum Interest Coverage Ratio or a minimum level of liquidity. The indenture governing our senior notes does not contain any financial covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale-leaseback transactions involving property above a certain specified value. In addition, the indenture contains certain limitations related to mergers, consolidations, and sales of assets. As of May 31, 2025, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, the LOC Facility and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. Our ability to access the Credit Facility’s full borrowing capacity, as well as the LOC Facility’s full issuance capacity, also depends on the ability and willingness of the applicable lenders and financial institutions, including any substitute or additional lenders and financial institutions, to meet their commitments to fund loans, extend credit or provide payment guarantees to or for us under those instruments. There are no agreements that restrict our payment of dividends other than the Credit Facility and the Term Loan, which would restrict our payment of certain dividends, such as cash dividends on our common stock, if a default under the Credit Facility or 39 the Term Loan exists at the time of any such payment, or if any such payment would result in such a default (other than dividends paid within 60 days after declaration, if there was no default at the time of declaration). Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties. At May 31, 2025, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $3.1 million, secured primarily by the underlying property, which had an aggregate carrying value of $15.0 million. Senior Unsecured Term Loan . We have a $360.0 million Term Loan with the lenders party thereto that will mature on August 25, 2026, or earlier if we secure borrowings under the Credit Facility without similarly securing the Term Loan (subject to certain exceptions). The Term Loan is further described in Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report. Unconsolidated Joint Ventures. As discussed in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report, we have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. As of May 31, 2025, one of our unconsolidated joint ventures had borrowings outstanding under a term loan with a third-party lender and secured by the underlying property and related project assets. None of our other homebuilding unconsolidated joint ventures had outstanding debt at May 31, 2025. Consolidated Cash Flows . The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands): Six Months Ended May 31, 2025 2024 Net cash provided by (used in): Operating activities $ (165,883) $ 89,994 Investing activities (20,416) (28,982) Financing activities (101,952) (144,102) Net decrease in cash and cash equivalents $ (288,251) $ (83,090) Operating Activities . Generally, our net operating cash flows fluctuate mainly based on changes in our inventories and our profitability. Our net cash used in operating activities for the six months ended May 31, 2025 mainly reflected a net increase in inventories of $390.6 million and a net decrease in accounts payable, accrued expenses and other liabilities of $68.3 million, partly offset by net income of $217.4 million and a net decrease in receivables of $20.7 million. In the six months ended May 31, 2024, our net cash provided by operating activities primarily reflected net income of $307.1 million, partly offset by a net increase in inventories of $195.3 million and a net decrease in accounts payable, accrued expenses and other liabilities of $40.6 million. Investing Activities . In the six months ended May 31, 2025, our net cash used in investing activities reflected $22.7 million used for net purchases of property and equipment, partially offset by a $2.3 million return of investments in unconsolidated joint ventures. In the six months ended May 31, 2024, the net cash used for investing activities included $19.8 million for net purchases of property and equipment and $10.9 million for contributions to unconsolidated joint ventures, partly offset by $1.7 million of proceeds from the sale of a privately held technology company in which we had an ownership interest. Financing Activities . In the six months ended May 31, 2025, cash was provided by $200.0 million of net borrowings under the Credit Facility and $.4 million of issuances of common stock under employee stock plans. The cash provided was partly offset by stock repurchases of $250.0 million, dividend payments on our common stock of $36.5 million, and tax payments associated with stock-based compensation awards of $15.9 million. In the six months ended May 31, 2024, our uses of cash included stock repurchases of $100.0 million, dividend payments on our common stock of $35.1 million, tax payments associated with stock-based compensation awards of $16.5 million, and payments on mortgages and land contracts due to land sellers and other loans of $1.7 million. The cash used was partially offset by $9.3 million of issuances of common stock under employee stock plans. Dividends. In the 2025 and 2024 second quarters, our board of directors declared, and we paid, a quarterly cash dividend of $.25 per share. Quarterly dividends declared and paid during the six months ended May 31, 2025 and 2024 totaled $.50 and $.45 per share, respectively. The declaration and payment of future cash dividends on our common stock, whether at current levels or at all, are at the discretion of our board of directors, and depend upon, among other things, our expected future earnings, cash flows, capital requirements, access to external financing, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions. 40 Share Repurchase Program. On April 18, 2024, our board of directors authorized us to repurchase up to $1.00 billion of our outstanding common stock. As of November 30, 2024, there was $700.0 million of remaining availability under this share repurchase authorization. In the 2025 first half, we repurchased 4.5 million shares of our common stock at a total cost of $250.0 million. Repurchases under the authorization may occur periodically through open market purchases, privately negotiated transactions or otherwise, with the timing and amount at management’s discretion and dependent on market, business and other conditions. This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by our board of directors, and does not obligate us to purchase any shares. As of May 31, 2025, there was $450.0 million of remaining availability under this share repurchase authorization. As of the date of this report, and as stated above, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and reasonably anticipated requirements for funds to conduct our operations and meet other needs in the ordinary course of our business. For the remainder of 2025, we expect to use or redeploy our cash resources or cash borrowings under the Credit Facility to support our business within the context of prevailing market conditions. During this time, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or equity securities or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities or loans to mature or expire. Our ability to engage in such transactions may be constrained by volatile or tight economic, capital, credit and/or financial market conditions or other factors, including those described below under “Outlook,” and/or our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions. Supplemental Guarantor Financial Information As of May 31, 2025, we had $1.34 billion in aggregate principal amount of outstanding senior notes, $200.0 million of borrowings outstanding under the Credit Facility and $360.0 million in aggregate principal amount of borrowings outstanding under the Term Loan. Our obligations to pay principal and interest on the senior notes and borrowings, if any, under the Credit Facility and the Term Loan are guaranteed on a joint and several basis by our Guarantor Subsidiaries. Our other subsidiaries, including all of our subsidiaries associated with our financial services operations, do not guarantee any such indebtedness (collectively, “Non-Guarantor Subsidiaries”), although we may cause a Non-Guarantor Subsidiary to become a Guarantor Subsidiary if we believe it to be in our or the relevant subsidiary’s best interest. See Note 14 – Notes Payable in the Notes to Consolidated Financial Statements in this report for additional information regarding the terms of our senior notes, the Credit Facility and the Term Loan. The guarantees are full and unconditional, and the Guarantor Subsidiaries are 100% owned by us. The guarantees are senior unsecured obligations of each of the Guarantor Subsidiaries and rank equally in right of payment with all unsecured and unsubordinated indebtedness and guarantees of such Guarantor Subsidiaries. The guarantees are effectively subordinated to any secured indebtedness of such Guarantor Subsidiaries to the extent of the value of the assets securing such indebtedness, and structurally subordinated to indebtedness and other liabilities of Non-Guarantor Subsidiaries. Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility and the Term Loan, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X using a 5% rather than a 10% threshold (provided that the assets of our Non-Guarantor Subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes, the Credit Facility and the Term Loan so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release. The following tables present summarized financial information for KB Home and the Guarantor Subsidiaries on a combined basis, excluding unconsolidated joint ventures and after the elimination of (a) intercompany transactions and balances between KB Home and the Guarantor Subsidiaries and (b) equity in earnings from and investments in the Non-Guarantor Subsidiaries. See Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report for additional information regarding our unconsolidated joint ventures. 41 May 31, 2025 November 30, 2024 Summarized Balance Sheet Data (in thousands) Assets Cash $ 256,826 $ 543,233 Inventories 5,309,185 4,981,097 Amounts due from Non-Guarantor Subsidiaries 523,171 500,321 Total assets 6,719,196 6,657,479 Liabilities and Stockholders’ Equity Notes payable $ 1,892,941 $ 1,691,679 Amounts due to Non-Guarantor Subsidiaries 407,713 382,356 Total liabilities 3,078,289 2,928,169 Stockholders’ equity 3,640,907 3,729,310 Six Months Ended May 31, 2025 Summarized Statement of Operations Data (in thousands) Revenues $ 2,661,338 Construction and land costs (2,118,317) Selling, general and administrative expenses (294,024) Interest income from Non-Guarantor Subsidiaries 17,251 Pretax income 269,306 Net income 207,606 Critical Accounting Policies and Estimates The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters. There have been no significant changes to our critical accounting policies and estimates during the six months ended May 31, 2025 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended November 30, 2024. Recent Accounting Pronouncements There are no recent accounting pronouncements that are expected to have a material impact on our consolidated financial statements. Outlook Although we continue to view the long-term outlook for the housing market favorably, we expect the softer market conditions that we experienced in the 2025 first half, driven primarily by housing affordability concerns, compounded by ongoing elevated mortgage interest rates and macroeconomic and geopolitical uncertainties, to persist for the remainder of the year. These conditions have precipitated a marked weakening in consumer confidence and caused homebuyers to hesitate on making purchase decisions, resulting in subdued demand during the Spring selling season relative to the past few years. Reflecting this environment, despite a healthy level of traffic in our communities, we experienced year-over-year decreases in our 2025 second quarter net orders of 13%, ending backlog of 24% and ending backlog value of 27%. The value of our net orders for the 2025 second quarter was down 21% year over year driven by the 13% decline in net orders and an 8% decrease in their average selling price to $465,600, largely due to price reductions we implemented beginning in mid-February 2025 in conjunction with our strategic focus on delivering the most compelling value to our buyers through pricing transparency and a simplified sales approach. As most of the net orders in the period since we implemented this approach have not yet closed, the associated pricing adjustments did not significantly affect our average selling price or housing gross profit margin on homes delivered for the three months and six months ended May 31, 2025. However, we expect it to moderate our average selling prices and housing gross profit margins for the remainder of the year. In navigating the current environment, we intend to remain nimble, balancing pace and price at the community level to optimize our assets for the highest possible returns. For the remainder of 2025, we intend to continue to invest in and develop land 42 positions within attractive submarkets and acquire or control additional land that meets our investment standards, depending significantly on market conditions and available opportunities. However, given our existing land pipeline, we are scaling back our investments in land and land development to align with current conditions. As a result, we anticipate a year-over-year decrease in our land-related investments in the 2025 second half. Additionally, we intend to continue to prioritize capital efficiency, developing lots where possible in smaller phases and balancing development with our starts pace to manage our inventory of finished lots. At the same time, and consistent with our balanced approach to capital allocation, we plan to continue returning capital to our stockholders, primarily through additional share repurchases. As of May 31, 2025, we had $450.0 million of remaining availability under our current board of directors share repurchase authorization. This provides us the opportunity to repurchase our common stock in the remainder of 2025, with the pace, volume and timing based on considerations of our operating cash flow, liquidity outlook, land investment opportunities and needs, the market price of our common stock, and the housing market and general economic conditions. Subject to these factors, we expect to repurchase between $100.0 million and $200.0 million of our common stock in the 2025 third quarter. Considering the foregoing, we have revised our projections for 2025 that were made in our Quarterly Report on Form 10-Q for the quarterly period ended February 28, 2025, and our present outlook for the 2025 third quarter and the 2025 full year as to certain metrics is as follows: 2025 Third Quarter • We expect to generate housing revenues in the range of $1.50 billion to $1.70 billion, compared to $1.75 billion for the corresponding 2024 period, and anticipate our average selling price to be between $470,000 and $480,000, compared to $480,900 in the year-earlier period. • We expect our homebuilding operating income margin as a percentage of revenues to be in the range of 7.6% to 8.2%, assuming no inventory-related charges, compared to 10.9% for the year-earlier quarter. • We expect our housing gross profit margin will be in the range of 18.1% to 18.7%, assuming no inventory-related charges, compared to 20.7% for the corresponding 2024 quarter. • We expect our selling, general and administrative expenses as a percentage of housing revenues will be in the range of 10.3% to 10.7%, compared to 9.8% for the 2024 third quarter. • We expect our effective tax rate will be approximately 24.0%, compared to 24.2% for the year-earlier quarter. • We expect our ending community count to be roughly 250, compared to 254 for the corresponding 2024 quarter. 2025 Full Year • We expect our housing revenues to be in the range of $6.30 billion to $6.50 billion, compared to $6.90 billion for 2024. • We expect our average selling price to be in the range of $480,000 to $490,000, compared to $486,900 for 2024. • We expect our homebuilding operating income margin as a percentage of revenues to be in the range of 8.6% to 9.0%, assuming no inventory-related charges, compared to 11.1% for 2024. • We expect our housing gross profit margin to be in the range of 19.0% to 19.4%, assuming no inventory-related charges, compared to 21.1% for 2024. • We expect our selling, general and administrative expenses as a percentage of housing revenues to be in the range of 10.2% to 10.6%, compared to 10.0% for 2024. • We expect our effective tax rate to be approximately 24.0%, compared to 23.0% for 2024. • We expect our ending community count to be approximately 250, compared to 258 for 2024. In addition to factors discussed elsewhere in this report, our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic, employment, homebuilding industry and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly in regard to housing and mortgage loan financing policies). This includes U.S. trade policy and recently implemented and proposed tariffs, and other countries’ countervailing measures, on raw building materials, such as steel, lumber, drywall and concrete, and/or finished products. Though certain tariffs and countervailing measures instituted in 2025 43 have influenced pricing in adjacent sectors, we have not experienced significant cost increases or raw material/finished product availability constraints as of the date of this filing. However, if the U.S. or foreign governments take actions that cause tariff-related cost or availability pressures to escalate or expand, we could experience significant construction cost increases and/or supply chain disruptions that, in turn, would impact our business and our consolidated financial statements in future reporting periods. Additionally, while the Federal Reserve reduced interest rates three times in 2024, and may lower rates further in 2025 or later periods, it has since December 2024 kept rates unchanged and we cannot provide any assurance it will or that any interest rate reduction(s), or other monetary policy changes, will positively affect demand or our business, results of operations or consolidated financial statements. The potential extent and effect of these and other factors on our business is highly uncertain, unpredictable and outside our control, and our past performance, including in the 2025 second quarter, should not be considered indicative of our future results on any metric or set of metrics, including, but not limited to, our net orders, backlog, revenues, margins and returns. Forward-Looking Statements Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others during presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-looking statements. In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit margins, earnings or earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act. Forward-looking statements are based on our current 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, and we have no specific policy or intention to update these statements. If we update or revise any such statement(s), no assumption should be made that we will further update or revise that statement(s) or update or revise any other such statement(s). In addition, forward-looking and other statements in this report and in other public or oral disclosures that express or contain opinions, views or assumptions about market or economic conditions; the success, performance, effectiveness and/or relative positioning of our strategies, initiatives or operational activities; and other matters, may be based in whole or in part on general observations of our management, limited or anecdotal evidence and/or business or industry experience without in-depth or any particular empirical investigation, inquiry or analysis. 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; • 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 securities repurchases pursuant to our board of directors’ authorization; • material and trade costs and availability, including the greater costs associated with achieving current and expected higher standards for ENERGY STAR certified homes, and delays related to state and municipal construction, permitting, inspection and utility processes, which have been disrupted by key equipment shortages; • consumer and producer price inflation; • changes in interest rates, including those set by the Federal Reserve, and those available in the capital markets or from financial institutions and other lenders, and applicable to mortgage loans; • our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule; 44 • our compliance with the terms of the Credit Facility and the Term Loan; • the ability and willingness of the applicable lenders and financial institutions, or any substitute or additional lenders and financial institutions, to meet their commitments or fund borrowings, extend credit or provide payment guarantees to or for us under the Credit Facility or LOC Facility; • volatility in the market price of our common stock; • our obtaining adequate levels of affordable insurance for our business and our ability to cover any incurred costs, liabilities or losses that are not covered by the insurance we have procured or that are due to our deciding not to procure certain types or amounts of insurance coverage; • home selling prices, including our homes’ selling prices, being unaffordable relative to consumer incomes; • 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, such as a lack of adequate water supply to permit new home communities in certain areas; • any failure of lawmakers to agree on a budget or appropriation legislation to fund the federal government’s operations (also known as a government shutdown), and financial markets’ and businesses’ reactions to any such failure; • regulatory instability associated with the current U.S. presidential administration, and the impact on the economy or financial markets therefrom; • government actions, policies, programs and regulations directed at or affecting the housing market (including the 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, and the potential significant scaling back or ending of the federal conservatorship of the government-sponsored enterprises), 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, such as IRS guidance regarding heightened qualification requirements for federal tax credits for building energy-efficient homes, and the potential accelerated phaseout of such tax credits in 2026; • 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, and financial markets’ and businesses’ reactions to any such policies; • disruptions in world and regional trade flows, economic activity and supply chains due to the military conflict and other attacks in the Middle East region and military conflict in Ukraine, including those stemming from wide-ranging sanctions the U.S. and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials, the impact of which may, among other things, increase our operational costs, exacerbate building materials and appliance shortages and/or reduce our revenues and earnings; • 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 and efficiently develop acquired land parcels and open new home communities; • impairment, land option contract abandonment or other inventory-related charges, including any stemming from decreases in the value of our land assets; • our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred; • costs and/or charges arising from regulatory compliance requirements, including implementing state climate-related disclosure rules, 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; 45 • 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, through, among other things, our making substantial investments in land and land development, which, in some cases, involves putting significant capital over several years into large projects in one location, 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, and the costs and margin impact we incur from the incentives or concessions we may provide to buyers to do so; • our ability to successfully implement our business strategies and achieve any associated financial and operational targets and objectives, including those discussed in this report or in any of our other public filings, presentations or disclosures; • income tax expense volatility associated with stock-based compensation; • the ability of our homebuyers to obtain or afford homeowners and flood insurance policies, and/or typical or lender-required policies for other hazards or events, for their homes, which may depend on the ability and willingness of insurers or government-funded or -sponsored programs to offer coverage at an affordable price or at all; • the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, which may depend on the ability and willingness of lenders and financial institutions to offer such loans and services to our homebuyers; • the performance of mortgage lenders to our homebuyers; • the performance of KBHS; • the ability and willingness of lenders and financial institutions to extend credit facilities to KBHS to fund its originated mortgage loans; • information technology failures and data security breaches; • an epidemic, pandemic or significant seasonal or other disease outbreak, 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 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; • widespread protests and/or civil unrest, whether due to political events, social movements or other reasons; and • other events outside of our control. Please see our Annual Report on Form 10-K for the year ended November 30, 2024 and other filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our business.