PULTEGROUP INC/MI/ 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations are provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. The strength of new home demand declined beginning in mid-2022 as the Federal Reserve increased benchmark interest rates in response to inflation, which, in turn, drove national mortgage and other interest rates higher, impacting home affordability and consumer sentiment. As a result, net signups during the first quarter of 2023 decreased by 8% as compared to the comparable prior year period, as such prior year period benefited from a historically low interest rate environment and the tailwinds of pent-up demand from the COVID-19 pandemic. Demand strengthened in the first quarter of 2023, evidenced by a monthly increase in net signups beginning in December 2022 and increasing sequentially through March 2023. This sequential increase in orders in recent months was partially supported by an increase in sales incentives, including mortgage interest rate buydowns and a decrease in mortgage rates. Reflective of these trends, our order backlog in units decreased 34% at March 31, 2023 compared with March 31, 2022 but increased 8% compared with December 31, 2022. Additionally, our home sale revenues increased 15% for the three months ended March 31, 2023 over the comparable prior year period, while our gross margins remained very strong relative to historical levels at 29.1%. Supply chain constraints that began after the onset of the COVID-19 pandemic have improved, but continue to limit the availability of certain materials and construction labor, which, combined with delays in municipal approvals and inspections, continue to pressure production cycle times of the homes we are constructing. The time required to construct a home was approximately five weeks longer in the first quarter of 2023 compared with the first quarter of 2022, but we have begun to see signs of a normalization in cycle times since the fourth quarter of 2022. The noted supply chain and labor issues have led to significant cost pressures in almost all areas of our business, but especially related to construction labor and materials. Lumber, in particular, has experienced heightened volatility in recent years, including significant cost increases in 2021 followed by significant cost decreases in 2022. Due to the length of our construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results. Sales pricing of our homes has remained elevated in 2023, which has allowed us to offset the majority of such cost increases. However, average selling prices decreased sequentially since the fourth quarter of 2022, primarily as a result of increased sales incentives. As interest rates increased in 2022, we adjusted business practices to support a consistent cadence of house starts and an appropriate inventory of quick move-in homes as we focused on turning our assets and delivering high returns on investment. By achieving an effective balance of price and pace, we realized strong revenues and earnings in the three months ended March 31, 2023. Within an evolving macroeconomic environment, consumers across all buyer segments and price points continued to demonstrate a strong desire for homeownership. We are confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise. 22 Consolidated Operations The following is a summary of our operating results by line of business ($000's omitted, except per share data): Three Months Ended March 31, 2023 2022 Income before income taxes: Homebuilding $ 688,220 $ 559,300 Financial Services 13,902 40,593 Income before income taxes 702,122 599,893 Income tax expense (169,863) (145,170) Net income $ 532,259 $ 454,723 Per share data - assuming dilution: Net income $ 2.35 $ 1.83 • Homebuilding income before income taxes in the three months ended March 31, 2023 increased 23% compared with the same period in 2022. The results are primarily the result of higher closings and average selling prices combined with improved overhead leverage. • Financial Services income before income taxes in the three months ended March 31, 2023 decreased 66% compared to the same period in 2022, primarily as the result of a lower capture rate and revenue per loan due to increased competitiveness in the mortgage industry in 2023, including an industry-wide increase in mortgage incentives. • Our effective tax rate was 24.2% for both the three months ended March 31, 2023 and 2022. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense. 23 Homebuilding Operations The following presents selected financial information for our Homebuilding operations ($000’s omitted): Three Months Ended March 31, 2023 2023 vs. 2022 2022 Home sale revenues (a) $ 3,487,637 15 % $ 3,032,217 Land sale and other revenues 30,066 (9) % 33,159 Total Homebuilding revenues 3,517,703 15 % 3,065,376 Home sale cost of revenues (a) (b) (2,472,329) 15 % (2,142,978) Land sale and other cost of revenues (24,967) (22) % (32,002) Selling, general, and administrative expenses ("SG&A") (336,518) 2 % (329,022) Equity income from unconsolidated entities 2,513 (c) 1,221 Other expense, net 1,818 (c) (3,295) Income before income taxes $ 688,220 23 % $ 559,300 Supplemental data: Gross margin from home sales (a) 29.1 % (20) bps 29.3 % SG&A as a percentage of home sale revenues (a) 9.6 % (130) bps 10.9 % Closings (units) 6,394 6 % 6,039 Average selling price (a) $ 545 9 % $ 502 Net new orders (d) : Units 7,354 (8) % 7,971 Dollars $ 3,789,993 (20) % $ 4,731,272 Cancellation rate 17 % 9 % Average active communities 879 13 % 777 Backlog at March 31: Units 13,129 (34) % 19,935 Dollars $ 7,976,424 (31) % $ 11,519,770 (a) All periods reflect the reclassification of closing cost incentives from home sale cost of revenues to homes sale revenues ( Note 1 ). (b) Includes the amortization of capitalized interest. (c) Percentage not meaningful (d) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders. Home sale revenues Home sale revenues in the three months ended March 31, 2023 were higher than the prior year period by $455.4 million. In the three months ended March 31, 2023, the 15% increase resulted from a 6% increase in closings combined with a 9% increase in average selling price. The increase in closings was attributable an increased number of quick move-in or speculative homes to satisfy consumer demand to quickly close on homes due to the volatile interest rate environment and ongoing supply chain challenges. The increased average selling price reflected the impact of continued consumer demand and persistent inflation, partially offset by an increase in the mix of first-time buyer homes, which typically carry a lower sales price, and higher sales incentives in substantially all of our markets. The year-over-year increases in average selling price occurred in substantially all of our markets. 24 Home sale gross margins Home sale gross margins were 29.1% in the three months ended March 31, 2023, compared to 29.3% in the three months ended March 31, 2022. Generally, we were able to maintain pricing to substantially offset increases in house and land costs. Land sale and other revenues We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sale and other revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions. Land sales and other revenues contributed income of $5.1 million for the three months ended March 31, 2023 compared to $1.2 million for the three months ended March 31, 2022. SG&A SG&A as a percentage of home sale revenues was 9.6% in the three months ended March 31, 2023 compared with 10.9% for the three months ended March 31, 2022. The gross dollar amount of our SG&A increased $7.5 million, or 2%, for the three months ended March 31, 2023 compared to March 31, 2022. Other income (expense), net Other income (expense), net includes the following ($000’s omitted): Three Months Ended March 31, 2023 2022 Write-offs of deposits and pre-acquisition costs $ (5,683) $ (3,510) Amortization of intangible assets (2,670) (2,821) Interest income 7,096 388 Interest expense (107) (86) Miscellaneous, net 3,182 2,734 Total other income (expense), net $ 1,818 $ (3,295) Net new orders Net new orders in units decreased 8% while net new orders in dollars decreased 20% in the three months ended March 31, 2023, as compared to the prior year period. The decreased net new order volume in 2023 was primarily due to higher cancellation rates (canceled orders for the period divided by gross new orders for the period), which was 17% for the three months ended March 31, 2023 and 9% for the comparable prior year period. Cancellation rates began to increase during the second quarter of 2022 as the market responded to increased home affordability challenges resulting from a historic increase in mortgage interest rates, increases in the price of homes, and the impact of inflationary pressures in the broader economy. Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 31% at March 31, 2023 compared with March 31, 2022, as a result of the aforementioned lower net new orders and higher cancellation rates. 25 Homes in production The following is a summary of our homes in production: March 31, 2023 March 31, 2022 Sold 10,487 16,088 Unsold Under construction 5,334 5,117 Completed 1,051 64 6,385 5,181 Models 1,367 1,276 Total 18,239 22,545 The number of homes in production at March 31, 2023 was 19% lower than at March 31, 2022. This decrease was primarily attributable to the lower number of sold homes as a result of decreased new orders and higher cancellations, partially offset by an increased number of unsold homes, which reflected our strategic decision to increase starts of speculative units in response to buyer demand for quick move-in homes. Controlled lots The following is a summary of our lots under control at March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 Owned Optioned Controlled Owned Optioned Controlled Northeast 4,467 7,607 12,074 4,295 7,502 11,797 Southeast 17,651 23,737 41,388 16,692 23,433 40,125 Florida 25,598 29,494 55,092 26,413 29,667 56,080 Midwest 12,514 13,216 25,730 12,923 13,128 26,051 Texas 19,480 15,995 35,475 20,197 14,438 34,635 West 27,818 12,778 40,596 28,328 14,096 42,424 Total 107,528 102,827 210,355 108,848 102,264 211,112 51 % 49 % 100 % 52 % 48 % 100 % Developed (%) 43 % 16 % 30 % 43 % 16 % 30 % While competition for well-positioned land is robust, we continued to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital. We have also continued to seek to maintain a high percentage of our lots that are controlled via land option agreements as such contracts enabled us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which reduces our financial risks associated with long-term land holdings. The remaining purchase price under our land option agreements totaled $5.5 billion at March 31, 2023. 26 Homebuilding Segment Operations As of March 31, 2023, we conducted our operations in 42 markets located throughout 24 states. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments: Northeast: Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia Southeast: Georgia, North Carolina, South Carolina, Tennessee Florida: Florida Midwest: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio Texas: Texas West: Arizona, California, Colorado, Nevada, New Mexico, Washington The following tables present selected financial information for our reportable Homebuilding segments: Operating Data by Segment ($000's omitted) Three Months Ended March 31, 2023 2023 vs. 2022 2022 Home sale revenues (a) : Northeast $ 220,538 36 % $ 162,325 Southeast 628,986 20 % 522,851 Florida 1,053,301 44 % 730,282 Midwest 392,995 (12) % 446,431 Texas 485,225 11 % 436,787 West 706,592 (4) % 733,541 $ 3,487,637 15 % $ 3,032,217 Income (loss) before income taxes (b) : Northeast $ 46,797 71 % $ 27,399 Southeast 145,303 15 % 126,132 Florida 270,737 68 % 160,694 Midwest 58,904 (9) % 64,743 Texas 80,065 (4) % 83,716 West 99,577 (25) % 133,269 Other homebuilding (c) (13,163) 64 % (36,653) $ 688,220 23 % $ 559,300 (a) All periods reflect the reclassification of closing cost incentives to homes sale revenues from home sale cost of revenues ( Note 1 ). (b) Includes land-related charges as summarized in the table below. (c) Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the operating segments. 27 Operating Data by Segment ($000's omitted) Three Months Ended March 31, 2023 2023 vs. 2022 2022 Closings (units): Northeast 337 29 % 262 Southeast 1,168 14 % 1,026 Florida 1,752 22 % 1,433 Midwest 757 (20) % 944 Texas 1,308 8 % 1,210 West 1,072 (8) % 1,164 6,394 6 % 6,039 Average selling price (a) : Northeast $ 654 6 % $ 620 Southeast 539 6 % 510 Florida 601 18 % 510 Midwest 519 10 % 473 Texas 371 3 % 361 West 659 5 % 630 $ 545 9 % $ 502 Net new orders - units: Northeast 385 (9) % 425 Southeast 1,347 1 % 1,331 Florida 1,878 — % 1,873 Midwest 1,083 (7) % 1,163 Texas 1,424 (6) % 1,514 West 1,237 (26) % 1,665 7,354 (8) % 7,971 Net new orders - dollars: Northeast $ 263,139 (11) % $ 295,372 Southeast 661,272 (13) % 763,720 Florida 1,044,646 (14) % 1,215,250 Midwest 564,802 (8) % 611,630 Texas 500,498 (22) % 643,209 West 755,636 (37) % 1,202,091 $ 3,789,993 (20) % $ 4,731,272 (a) All periods reflect the reclassification of closing cost incentives to homes sale revenues from home sale cost of revenues ( Note 1 ). 28 Operating Data by Segment ($000's omitted) Three Months Ended March 31, 2023 2023 vs. 2022 2022 Cancellation rates: Northeast 9 % 5 % Southeast 12 % 5 % Florida 17 % 9 % Midwest 12 % 8 % Texas 21 % 13 % West 25 % 11 % 17 % 9 % Unit backlog: Northeast 522 (45) % 951 Southeast 2,085 (25) % 2,781 Florida 4,767 (19) % 5,870 Midwest 1,676 (42) % 2,907 Texas 1,905 (44) % 3,403 West 2,174 (46) % 4,023 13,129 (34) % 19,935 Backlog dollars: Northeast $ 385,259 (40) % $ 642,274 Southeast 1,164,103 (27) % 1,598,772 Florida 3,122,519 (12) % 3,534,132 Midwest 958,713 (36) % 1,508,582 Texas 869,073 (42) % 1,500,605 West 1,476,757 (46) % 2,735,405 $ 7,976,424 (31) % $ 11,519,770 29 Operating Data by Segment ($000’s omitted) Three Months Ended March 31, 2023 2022 Land-related charges (a) : Northeast $ 25 $ 102 Southeast 2,359 1,902 Florida 2,013 972 Midwest 430 158 Texas 115 239 West 741 137 $ 5,683 $ 3,510 (a) Land-related charges include land inventory impairments, net realizable value adjustments on land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue. Northeast For the first quarter of 2023, Northeast home sale revenues increased by 36% when compared with the prior year period due to a 29% increase in closings combined with a 6% increase in average selling price. The increase in closings and the increase in average selling price occurred across the majority of markets. Income before income taxes increased 71%, primarily due to increased revenues. Net new orders decreased across all markets. Southeast For the first quarter of 2023, Southeast home sale revenues increased 20% when compared with the prior year period due to a 14% increase in closings combined with a 6% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 15%, primarily due to the higher revenues. Net new orders increased across the majority of markets. Florida For the first quarter of 2023, Florida home sale revenues increased 44% when compared with the prior year period due to a 22% increase in closings combined with an 18% increase in average selling price. The increase in closings and average selling price occurred across all markets. Income before income taxes increased 68%, primarily due to increased revenues across all markets. The increase in net new orders was concentrated in Orlando as the result of new community openings. Midwest For the first quarter of 2023, Midwest home sale revenues decreased 12% when compared with the prior year period due to a 20% decrease in closings partially offset by a 10% increase in average selling price. The decrease in closings occurred across the majority of markets while the increase in average selling price occurred across all markets. Income before income taxes decreased 9%, primarily due to the lower revenues. Net new orders decreased as the result of challenged demand conditions. Texas For the first quarter of 2023, Texas home sale revenues increased 11% when compared with the prior year period due to an 8% increase in closings combined with a 3% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes decreased 4%, primarily due to decreased gross margins across all markets. Net new orders decreased across the majority of markets. 30 West For the first quarter of 2023, West home sale revenues decreased 4% when compared with the prior year period due to an 8% decrease in closings partially offset by a 5% increase in average selling price. The decrease in closings occurred across the majority of markets, while the increase in average selling price occurred across the majority of markets. Income before income taxes decreased 25%, primarily due to decreased revenues and gross margins. Net new orders decreased across the majority of markets. Financial Services Operations We conduct our Financial Services operations, which include mortgage banking, title, and insurance brokerage operations, through Pulte Mortgage LLC ("Pulte Mortgage") and other subsidiaries. In originating mortgage loans, we initially use our own funds, including funds available pursuant to a credit agreement with third parties. Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. We also sell the servicing rights for the loans we originate through fixed price servicing sales contracts to reduce the risks and costs inherent in servicing loans. This strategy results in owning loans and related servicing rights for only a short period of time. Operating as a captive business model primarily targeted to support our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding, as Homebuilding customers continue to account for substantially all of its business. We believe that our mortgage capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in evaluating the effectiveness of our captive mortgage business model. The following tables present selected financial information for our Financial Services operations ($000's omitted): Three Months Ended March 31, 2023 2023 vs. 2022 2022 Mortgage revenues $ 31,765 (50) % $ 63,155 Title services revenues 18,495 16 % 15,962 Insurance brokerage commissions 7,678 53 % 5,026 Total Financial Services revenues 57,938 (31) % 84,143 Expenses (44,036) 1 % (43,486) Other income (expense), net — (a) (64) Income before income taxes $ 13,902 (66) % $ 40,593 Total originations: Loans 3,869 (5) % 4,057 Principal $ 1,516,450 (2) % $ 1,539,897 (a) Percentage not meaningful. 31 Three Months Ended March 31, 2023 2022 Supplemental data: Capture rate 78.3 % 81.0 % Average FICO score 747 750 Funded origination breakdown: Government (FHA, VA, USDA) 20 % 20 % Other agency 75 % 72 % Total agency 95 % 92 % Non-agency 5 % 8 % Total funded originations 100 % 100 % Revenues The demand for refinancing within the mortgage industry waned in 2022 and has remained low in 2023 as mortgage interest rates began to sharply rise and remained high, which led to an increase in competition among lenders and lower margins per loan. As a result, total Financial Services revenues for the three months ended March 31, 2023 decreased 31% compared with the same period in 2022. These factors were partially offset by a higher average loan amount as the result of the higher average selling price within Homebuilding. Income before income taxes Income before income taxes in the three months ended March 31, 2023 decreased 66% compared to the same period in 2022, primarily due to a lower capture rate and revenue per loan due to increased competitiveness in the mortgage industry in 2023, including an industry-wide increase in mortgage incentives. Income Taxes Our effective income tax rate was 24.2% for both the three months ended March 31, 2023 and 2022. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense. Liquidity and Capital Resources We finance our land acquisition, development, and construction activities and financial services operations using internally-generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing available financing sources, including revolving bank credit and securities offerings. At March 31, 2023, we had unrestricted cash and equivalents of $1.3 billion, restricted cash balances of $48.8 million, and $961.2 million available under our Revolving Credit Facility. Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 18.1% at March 31, 2023, compared with 18.7% at December 31, 2022. We follow a diversified investment approach for our cash and equivalents by maintaining such funds with a broad portfolio of banks within our group of relationship banks in high quality, highly liquid, short-term deposits and investments, which helps mitigate banking concentration risk. In response to recent volatility in the banking system, we have shifted a larger percentage of our cash and equivalents to money market funds to reduce the balances held in bank accounts. For the next twelve months, we expect our principal demand for funds will be for the acquisition and development of land inventory, construction of house inventory, and operating expenses, including our general and administrative expenses. The elongation of our production cycle has required a greater investment of cash in our homes under production. Additionally, we plan to continue our dividend payments and repurchases of common stock. Within the next twelve months, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (the "Repurchase Agreement"). While we intend to refinance the Repurchase Agreement prior to its maturity, there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration. However, we believe we have adequate 32 liquidity to meet Pulte Mortgage's anticipated financing needs. Beyond the next twelve months, we will need to repay or refinance our Revolving Credit Facility, which matures in June 2027, and our unsecured senior notes, the next tranche of which becomes due in 2026. We believe that our current cash position and other available financing resources, coupled with our ongoing operating activities, will provide sufficient liquidity to fund our business needs over the next twelve months and beyond. To the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt, dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities. Unsecured senior notes We had $2.0 billion of unsecured senior notes outstanding at both March 31, 2023 and December 31, 2022 with no repayments due until March 2026, when $500.0 million of unsecured senior notes are scheduled to mature. Other notes payable Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $51.0 million and $55.2 million at March 31, 2023 and December 31, 2022, respectively. These notes have maturities ranging up to four years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets. The stated interest rates on these notes range up to 6%. Revolving credit facility We maintain a revolving credit facility (the "Revolving Credit Facility") maturing in June 2027 that has a maximum borrowing capacity of $1.3 billion and contains an uncommitted accordion feature that could increase the capacity to $1.8 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, up to the maximum borrowing capacity. The interest rate on borrowings under the Revolving Credit Facility may be based on either the Secured Overnight Financing Rate or a base rate plus an applicable margin, as defined therein. The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). As of March 31, 2023, we were in compliance with all covenants. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries. At March 31, 2023, we had no borrowings outstanding, $288.8 million of letters of credit issued, and $961.2 million of remaining capacity under the Revolving Credit Facility. At December 31, 2022, we had no borrowings outstanding, $303.4 million of letters of credit issued, and $946.6 million of remaining capacity under the Revolving Credit Facility. Joint venture debt At March 31, 2023, aggregate outstanding debt of unconsolidated joint ventures was $80.6 million of which $42.0 million was related to one joint venture in which we have a 50% interest. In connection with this loan, we and our joint venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our pro rata share of the debt outstanding. Financial Services debt Pulte Mortgage maintains the Repurchase Agreement with third-party lenders that matures on July 27, 2023. The maximum aggregate commitment was $360.0 million at March 31, 2023 and will increase to $500.0 million on June 26, 2023 through maturity. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At March 31, 2023, Pulte Mortgage had $324.4 million outstanding at a weighted average interest rate of 6.18% and $35.6 million of remaining capacity under the Repurchase Agreement. At December 31, 2022, Pulte Mortgage had $586.7 million outstanding at a weighted average interest rate of 5.39% and $213.3 million of remaining capacity under the Repurchase Agreement. Pulte Mortgage was in compliance with all of its covenants and requirements as of such dates. While there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration on July 27, 2023, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing needs. 33 Dividends and share repurchase program In the three months ended March 31, 2023, we declared cash dividends totaling $36.1 million and repurchased 2.8 million shares under our repurchase authorization for $150.0 million. In the three months ended March 31, 2022, we declared cash dividends totaling $36.5 million and repurchased 10.3 million shares under our repurchase authorization for $500.0 million. On January 31, 2022, the Board of Directors approved an additional share repurchase authorization of $1.0 billion. At March 31, 2023, we had remaining authorization to repurchase $232.9 million of common shares. This repurchase authorization was increased by $1.0 billion on April 24, 2023. Contractual Obligations We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of March 31, 2023, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase obligations related to expected acquisitions and development of land, operating leases, and obligations under our various compensation and benefit plans. We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding projects. The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects. If the obligations related to a project are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis. At March 31, 2023, we had outstanding letters of credit totaling $288.8 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. These bonds, which approximated $2.1 billion at March 31, 2023, are typically outstanding over a period of approximately three to five years. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed. In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future. At March 31, 2023, these agreements had an aggregate remaining purchase price of $5.5 billion. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. At March 31, 2023, outstanding deposits totaled $485.7 million, of which $14.4 million is refundable. For further information regarding our primary obligations, refer to Note 4 and Note 8 to the Consolidated Financial Statements included elsewhere in this Quarterly Report on 10-Q for amounts outstanding as of March 31, 2023 related to debt and commitments and contingencies, respectively. Cash flows Operating activities Net cash provided by operating activities in the three months ended March 31, 2023 was $711.4 million. Generally, the primary drivers of our cash flow from operations are profitability and changes in the levels of inventory and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations. The cash inflows from operations for the three months ended March 31, 2023 were primarily due to net income of $532.3 million along with a seasonal $256.4 million decrease in residential mortgage loans available for sale, offset by a net increase in inventories of $85.4 million, which was primarily attributable to extended house production cycle times combined with investment in land inventory. Net cash provided by operating activities in the three months ended March 31, 2022 was $207.7 million. The positive cash flow from operations in three months ended March 31, 2022 was primarily due to our net income of $454.7 million along with a seasonal $436.9 million decrease in residential mortgage loans available for sale, partially offset by a net increase in inventories of $814.8 million, which was primarily attributable to higher house inventory in production resulting from the higher order backlog combined with investment in land inventory to support future growth. 34 Investing activities Net cash used in investing activities in the three months ended March 31, 2023 was $24.2 million. These cash outflows primarily related to capital expenditures of $23.7 million related to our ongoing investments in new communities, facilities, and information technology applications. Net cash used in investing activities in the three months ended March 31, 2022 was $48.0 million. These cash outflows in 2022 primarily related to a $10.4 million deferred payment related to the 2020 acquisition of Innovative Construction Group as well as capital expenditures of $30.7 million related to our ongoing investments in new communities and information technology applications. Financing activities Net cash used in financing activities in the three months ended March 31, 2023 totaled $454.9 million. These cash outflows resulted primarily from the repurchase of 2.8 million common shares for $150.0 million under our share repurchase authorization, payments of $36.4 million in cash dividends, and net repayments of $262.3 million under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale. Net cash used in financing activities in the three months ended March 31, 2022 totaled $781.4 million. These cash outflows resulted primarily from the repurchase of 10.3 million common shares for $500.0 million under our share repurchase authorization, payments of $37.8 million in cash dividends, and net repayments of of $230.0 million under the Repurchase Agreement related to a seasonal reduction in residential mortgage loans available-for-sale. Seasonality Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry. We generally experience increases in revenues and cash flow from operations in the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year. Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, supply chain challenges, changes in mortgage interest rates, and other macroeconomic factors, our quarterly results for 2023 and 2022 are not necessarily indicative of results that may be achieved in the future. Supplemental Guarantor Financial Information As of March 31, 2023, PulteGroup, Inc. had outstanding $2.0 billion principal amount of unsecured senior notes due at dates from March 2026 through February 2035 and no amounts outstanding on its Revolving Credit Facility. All of our unsecured senior notes and the Revolving Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of PulteGroup, Inc. ("Guarantors" or "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by PulteGroup, Inc. Our subsidiaries associated with our financial services operations and certain other subsidiaries do not guarantee the unsecured senior notes or the Revolving Credit Facility (collectively, "Non-Guarantor Subsidiaries"). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt. A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that such Guarantor: (a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors; or (b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of any one of the following being true at the time thereof: • such Guarantor was insolvent or rendered insolvent by reason of the issuance of the incurrence of the guarantee; 35 • the incurrence of the guarantee left such Guarantor with an unreasonably small amount of capital or assets to carry on its business; • such Guarantor intended to, or believed that it would, incur debts beyond its ability to pay as they mature; • such Guarantor was a defendant in an action for money damages, or had a judgment for money damages docketed against it, if the judgment is unsatisfied after final judgment. The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. However, in general, a court would deem a company insolvent if: • the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets; • the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or • it could not pay its debts as they became due. The guarantees of the senior notes contain a provision to limit each Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, under recent case law, this provision may not be effective to protect such guarantee from being voided under fraudulent transfer law or otherwise determined to be unenforceable. If a court were to find that the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under that guarantee, could subordinate that guarantee to presently existing and future indebtedness of the Guarantor or could require the holders of the senior notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders may not receive any repayment on the senior notes. Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code. On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard. The following tables present summarized financial information for PulteGroup, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among PulteGroup, Inc. and the Guarantor Subsidiaries, as well as their investment in and equity in earnings from the Non-Guarantor Subsidiaries ($000’s omitted): PulteGroup, Inc. and Guarantor Subsidiaries Summarized Balance Sheet Data ASSETS March 31, 2023 December 31, 2022 Cash, cash equivalents, and restricted cash $1,161,828 $786,073 House and land inventory 11,087,989 10,925,830 Amount due from Non-Guarantor Subsidiaries 563,555 674,898 Total assets 13,528,748 13,074,398 LIABILITIES Accounts payable, customer deposits, accrued and other liabilities $2,736,283 $2,785,286 Notes payable 2,041,637 2,045,527 Total liabilities 5,021,345 5,049,079 36 Three Months Ended March 31, Summarized Statement of Operations Data 2023 2022 Revenues $3,444,704 $2,979,947 Cost of revenues 2,435,992 2,109,024 Selling, general, and administrative expenses 322,134 319,439 Income before income taxes 678,844 543,227 Critical Accounting Estimates There have been no significant changes to our critical accounting estimates in the three months ended March 31, 2023 compared with those contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.