[Management View]
Management has reduced full-year guidance for housing revenues, gross margins, and operating income due to persistent affordability challenges and subdued demand. They are focusing on optimizing assets by adjusting base prices and improving build times to pre-pandemic levels.

[Outlook]
The company expects housing revenues between $6.3 billion and $6.5 billion for the year, with a focus on reducing land spend and increasing share repurchases. They aim to maintain approximately 250 active communities and improve build times to 120 days company-wide.

[Financial Performance]
KB Home reported $1.53 billion in total revenues, a 10% decrease YoY. Net income was $108 million, or $1.50 per diluted share. The adjusted housing gross profit margin was 19.7%, 150 basis points lower than a year earlier but above guidance.

[Q&A Highlights]
Question 1: Despite a 6% cut in revenue, SG&A is only up by 20 basis points. What steps are being taken to manage fixed overhead costs?
Answer: Management is adjusting headcount to align with new revenue projections and exploring cost-saving measures across various areas to potentially reduce the SG&A ratio below 10%.

Question 2: What are the drivers behind the adjusted gross margin outlook?
Answer: The reduction is primarily due to operating leverage, lower ASP mix, and higher land costs, partially offset by reduced construction costs.

Question 3: How will the company achieve a robust closing outlook in Q4?
Answer: Improved build times and a strategic approach similar to 2024 will help achieve the target. The company needs about 2,500 more sales, less than last year, to meet the goal.

Question 4: What impact did community opening delays have on order pace?
Answer: Delays in community openings resulted in missing approximately 200 sales, affecting order pace. Efforts are being made to improve forecasting and community opening processes.

Question 5: How is the company managing price adjustments in response to market conditions?
Answer: Over half of the communities saw price adjustments, with a focus on optimizing each asset. The strategy is to adjust base prices rather than rely on incentives.

Question 6: What is the outlook for community growth beyond 2025?
Answer: Community growth will depend on market conditions, with a slowdown expected in late 2026. The current lot count provides a platform for future growth.

Question 7: How is the company addressing the competitive landscape with other builders increasing incentives?
Answer: The company focuses on transparent pricing and value, avoiding incentives. While some consumers prefer incentives, the company is satisfied with its current strategy.

Question 8: What are the factors contributing to cost reductions?
Answer: Cost reductions are driven by lower lumber prices and effective cost management by divisions, despite some commodity price increases.

Question 9: How is land spend being managed in the current market?
Answer: Land sellers are offering better terms, and while price reductions are expected, the company is cautious with land investments to ensure quality returns.

Question 10: What metrics are used to decide when to walk away from lot options?
Answer: Decisions are based on market updates, competitive landscape, and expected returns. The company walked away from lots that did not meet return criteria.

[Sentiment Analysis]
Analysts and management maintained a cautious yet optimistic tone, focusing on strategic adjustments to navigate market challenges. The emphasis was on cost management, asset optimization, and shareholder value.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|-------------------------------|---------|---------|
| Total Revenues | $1.53B | $1.70B |
| Net Income | $108M | $120M |
| Homes Delivered | 3,120 | 3,500 |
| Adjusted Housing Gross Margin | 19.7% | 21.2% |
| SG&A Expenses | 10.7% | 10.1% |

[Risks and Concerns]
Key risks include subdued homebuyer demand, affordability challenges, high mortgage rates, and macroeconomic uncertainties. The company is cautious with land investments and is adjusting strategies to mitigate these risks.

[Final Takeaway]
KB Home is strategically navigating a challenging market environment by adjusting pricing strategies, improving build times, and focusing on cost management. While facing headwinds such as affordability challenges and subdued demand, the company is optimizing its assets and maintaining a strong balance sheet. The focus on shareholder value through share repurchases and prudent land investments positions KB Home for future growth, despite current market uncertainties.