What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-24 compared with 2023-07-25 · 151 added, 149 removed, 346 unchanged (46% of the section changed)

2 unchanged sentences

Demand for new homes declined beginning in mid-2022 as the Federal Reserve repeatedly increased benchmark interest rates in response to inflation, which, in turn, drove national mortgage and other interest rates higher and negatively impacted home affordability and consumer sentiment.

However, new home sales began to strengthen in early 2023, evidenced by an increase in our net new orders and closings of 24% and 5%, respectively, for the three months ended June 30, 2023 over the comparable prior year period.

However, new home sales began to strengthen in early 2023 at higher levels than the third quarter of 2022, evidenced by an increase in our net new orders of 43% for the three months ended September 30, 2023 over the comparable prior year period.

The demand for new homes has strengthened as the result of limited supplies of existing home inventories in combination with the market adjusting to the higher interest rate environment.

While affordability challenges for housing remain due to the higher interest rates, cost increases, and general inflation in recent years, we have responded by adjusting sales prices where necessary and focusing sales incentives on mortgage interest rate buydowns, which have supported the increase in our net new orders.

Additionally, the rate of customer cancellation of orders that spiked in late 2022 in response to inflation and interest rate increases have now normalized to historical levels.

While affordability challenges for housing remain due to the higher interest rates, cost increases, and general inflation in recent years, we have responded by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns, which have supported the increase in our net new orders.

Additionally, the rate of customer order cancellation that spiked in late 2022 in response to inflation and interest rate increases has now normalized to historical levels.

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 three weeks longer in the second quarter of 2023 compared with the second quarter of 2022.

However, we have begun to see improvement in cycle times since late 2022 and into 2023, with sequential improvement since the first quarter of 2023.

The noted supply chain and labor issues have also led to significant cost pressures in almost all areas of our business, but especially related to construction labor and materials.

Lumber, in particular, experienced heightened volatility in 2020 through 2022 and has recently experienced an increase in price primarily due to wildfires in Canada, which may pressure costs for the remainder of the year.

The time required to construct a home was approximately two weeks shorter in the third quarter of 2023 compared with the third quarter of 2022 as we have experienced sequential improvement throughout 2023.

Despite the recent improvements, 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, experienced heightened volatility in 2020 through 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.

To date in 2023, the strong demand environment has allowed us to largely offset the majority of such cost increases through the sales prices of our homes.

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 and six months ended June 30, 2023.

As the business slowed in the second half of 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 and nine months ended September 30, 2023.

Within an evolving macroeconomic environment, consumers across all buyer segments and price points continued to demonstrate a strong desire for homeownership.

As a result, we have increased our housing starts in recent months and are also increasing our planned investments in future land acquisition and development.

We are confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise.

As a result, we increased our housing starts throughout 2023.

As interest rates continued to increase in the later part of the third quarter, buyer demand has slowed slightly, but we remain confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise.

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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

7 unchanged sentences

Net income $ 2.90 $ 2.69 $ 8.45 $ 7.22

• Homebuilding income before income taxes in the three and six months ended June 30, 2023 increased 10% and 15%, respectively, compared with the same periods in 2022.

The increases are primarily the result of higher closings and average selling prices combined with improved overhead leverage.

Results for the three months ended June 30, 2023 include insurance reserve reversals of $64.9 million.

• Financial Services income before income taxes in the three and six months ended June 30, 2023 increased 16% and decreased 25%, respectively, compared with the same periods in 2022.

The increase during the three months ended June 30, 2023 when compared with the prior year period was primarily due to higher revenues per loan resulting from the higher average selling price within Homebuilding.

The decrease during the six months ended June 30, 2023 when compared with the prior year period is primarily attributable to relative weakness during the first quarter of 2023 as a result of a lower capture rate and revenue per loan due to competitiveness in the mortgage industry.

• Our effective tax rate in the three and six months ended June 30, 2023 was 24.4% and 24.3%, respectively, compared with 24.5% and 24.4%, respectively, for the same periods in 2022.

Homebuilding Operations

The following presents selected financial information for our Homebuilding operations ($000’s omitted):

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

11 unchanged sentences

Equity income from unconsolidated entities 891 (c) 319 3,293 (c) 1,112

Gain on debt retirement 362 (c) — 362 (c) —

Other income (expense), net 18,069 (c) (25,641) 33,474 (c) (33,151)

14 unchanged sentences

Average active communities 923 12 % 823 902 13 % 797

Backlog at June 30:

Backlog at September 30:

Units 13,547 (21) % 17,053

4 unchanged sentences

(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.

(e) Includes insurance reserve reversals of $64.9 million for the three months ended June 30, 2023 (see Note 8 ).

(e) Includes insurance reserve reversals of $66.2 million for the nine months ended September 30, 2023 (see Note 8 ).

Home sale revenues

Home sale revenues in the three and six months ended June 30, 2023 were higher than the prior year period by $295.8 million and $751.2 million, respectively.

In the three months ended June 30, 2023, the 8% increase resulted from a 5% increase in closings combined with a 3% increase in average selling price.

In the six months ended June 30, 2023, the 11% increase resulted from a 5% increase in closings combined with a 5% increase in average selling price.

The increases in closings were attributable to an increased number of quick move-in speculative homes to satisfy consumer demand to quickly close on homes due to the volatile interest rate environment and supply chain challenges.

The increases in 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.

Home sale revenues in the three and nine months ended September 30, 2023 were higher than the prior year period by $95.2 million and $846.4 million, respectively.

In the three months ended September 30, 2023, the 3% increase resulted from a slight increase in closings combined with a 2% increase in average selling price.

In the nine months ended September 30, 2023, the 8% increase resulted from a 4% increase in closings combined with a 4% increase in average selling price.

The increases in closings were attributable to continued consumer demand, particularly quick move-in speculative homes to satisfy consumer demand to quickly close on homes due to the volatile interest rate environment and supply chain challenges.

The increases in 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 the majority of our markets.

Home sale gross margins

Home sale gross margins were 29.6% and 29.4% in the three and six months ended June 30, 2023, respectively, compared with 31.3% and 30.4% in the three and six months ended June 30, 2022, respectively.

Generally, we were able to maintain pricing to substantially offset increases in house and land costs.

Home sale gross margins were 29.5% and 29.4% in the three and nine months ended September 30, 2023, respectively, compared with 30.5% and 30.4% in the three and nine months ended September 30, 2022, respectively.

Despite higher sales incentives, we were generally able to maintain net pricing to substantially offset net increases in house and land costs.

Land sale and other revenues

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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 and $10.2 million for the three and six months ended June 30, 2023, respectively, compared with $2.2 million and $3.3 million for the three and six months ended June 30, 2022, respectively.

SG&A as a percentage of home sale revenues was 7.8% and 8.6% in the three and six months ended June 30, 2023, respectively, compared with 9.3% and 10.0% for the three and six months ended June 30, 2022, respectively.

The gross dollar amount of our SG&A decreased $36.6 million, or 10%, for the three months ended June 30, 2023 compared with the prior year period, and decreased $29.1 million, or 4%, for the six months ended June 30, 2023 compared with the prior year period.

The decreases in gross dollars in 2023 resulted primarily from insurance reserve reversals of $64.9 million recorded in the three months ended June 30, 2023, partially offset by other overhead costs to support growth expectations.

Land sales and other revenues contributed income of $4.9 million and $15.1 million for the three and nine months ended September 30, 2023, respectively, compared with $4.3 million and $7.7 million for the three and nine months ended September 30, 2022, respectively.

SG&A as a percentage of home sale revenues was 9.1% and 8.8% in the three and nine months ended September 30, 2023, respectively, compared with 9.2% and 9.7% for the three and nine months ended September 30, 2022, respectively.

The gross dollar amount of our SG&A increased $3.1 million, or 1%, for the three months ended September 30, 2023 compared with the prior year period, and decreased $26.1 million, or 3%, for the nine months ended September 30, 2023 compared with the prior year period.

The decrease in gross dollars for the nine months ended September 30, 2023 resulted primarily from insurance reserve reversals of $66.2 million recorded in the nine months ended September 30, 2023, partially offset by other overhead costs to support growth expectations.

Other income (expense), net

Other income (expense), net includes the following ($000’s omitted):

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

5 unchanged sentences

Total other income (expense), net $ 18,069 $ (25,641) $ 33,474 $ (33,151)

Write-offs of deposits and pre-acquisition costs were lower in the three and nine months ended September 30, 2023, due to the improved demand environment in 2023 as compared with the sharp decrease in demand that began in mid-2022.

Interest income increased significantly in the three and nine months ended September 30, 2023, due to higher returns on invested cash balances as a result of the elevated interest rate environment.

Net new orders

Net new orders in units increased 24% while net new orders in dollars increased 9% in the three months ended June 30, 2023, as compared with the prior year period.

Net new orders in units increased 6% while net new orders in dollars decreased 7% for the six months ended June 30, 2023 as compared with the prior year period.

Net new orders in units increased 43% while net new orders in dollars increased 36% in the three months ended September 30, 2023, as compared with the prior year period.

Net new orders in units increased 16% while net new orders in dollars increased 4% for the nine months ended September 30, 2023 as compared with the prior year period.

The increased net new order volume in 2023 was primarily due to improved demand combined with better availability of quick move-in speculative homes.

Net new orders in dollars increased a smaller amount than the increase in units as the result of both 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.

Cancellation rates (canceled orders for the period divided by gross new orders for the period) were 13% and 15% for the three and six months ended June 30, 2023, respectively, and 15% and 12% for the comparable prior year periods.

Cancellation rates began to increase in mid-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.

Cancellation rates (canceled orders for the period divided by gross new orders for the period) were 15% for both the three and nine months ended September 30, 2023 and 24% and 15% for the comparable prior year periods.

Cancellation rates began to

increase in mid-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.

However, cancellation rates have normalized thus far in 2023 back to historical levels.

Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 29% at June 30, 2023 compared with June 30, 2022, as a result of the aforementioned decline in net new orders beginning in mid-2022 combined with a large number of deliveries of previously ordered homes in the second half of 2022.

Backlog has increased sequentially since December 31, 2022 due to the aforementioned increase in net new orders in 2023.

Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 23% at September 30, 2023 compared with September 30, 2022, as a result of the aforementioned decline in net new orders beginning in mid-2022 combined with a large number of deliveries of previously ordered homes in the second half of 2022.

Homes in production

The following is a summary of our homes in production:

2023 June 30,

September 30,

2023 September 30,

Sold 10,657 14,854

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Total 18,841 24,282

The number of homes in production at June 30, 2023 was 26% lower than at June 30, 2022.

The number of homes in production at September 30, 2023 was 22% lower than at September 30, 2022.

This decrease resulted from the lower order backlog caused by the lower number of sold homes and higher cancellations in the second half of 2022 following the significant increase in mortgage interest rates.

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Controlled lots

The following is a summary of our lots under control at June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

The following is a summary of our lots under control at September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

Owned Optioned Controlled Owned Optioned Controlled

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We have also continued to seek to maintain a high percentage of our lots that are controlled via land option agreements as such contracts enable 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 $6.1 billion at June 30, 2023.

The remaining purchase price under our land option agreements totaled $6.3 billion at September 30, 2023.

Homebuilding Segment Operations

As of June 30, 2023, we conducted our operations in 44 markets located throughout 24 states.

As of September 30, 2023, we conducted our operations in 45 markets located throughout 24 states.

For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:

5 unchanged sentences

Operating Data by Segment ($000's omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

21 unchanged sentences

(c) Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the operating segments.

Other homebuilding also includes insurance reserve reversals of $64.9 million in the three months ended June 30, 2023.

Other homebuilding also includes insurance reserve reversals of $66.2 million in the nine months ended September 30, 2023.

Operating Data by Segment ($000's omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

34 unchanged sentences

Operating Data by Segment ($000's omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2023 vs.

25 unchanged sentences

($000’s omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

8 unchanged sentences

$ 6,868 $ 24,462 $ 16,978 $ 32,475

(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.Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.

For the second quarter of 2023, Northeast home sale revenues decreased by 6% when compared with the prior year period due to an 18% decrease in closings partially offset by a 15% 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.

Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.

For the third quarter of 2023, Northeast home sale revenues decreased by 6% when compared with the prior year period due to a 9% decrease in closings partially offset by a 3% increase in average selling price.

The decrease in closings and increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 1%, primarily due to lower revenues and gross margins across the majority of markets.

Net new orders increased across the majority of markets.

For the six months ended June 30, 2023, Northeast home sale revenues increased by 10% when compared with the prior year period due to a 1% increase in closings combined with a 10% increase in average selling price.

The increase in closings occurred across the majority of markets, while the increase in average selling price occurred across all markets.

Income before income taxes increased 12%, primarily due to higher revenues in Mid-Atlantic.

Net new orders decreased across all markets.

For the second quarter of 2023, Southeast home sale revenues increased 25% when compared with the prior year period due to a 29% increase in closings partially offset by a 3% decrease in average selling price.

The increase in closings and the decrease in average selling price occurred across the majority of markets.

Income before income taxes increased 18%, primarily due to increased revenues across the majority of markets.

Net new orders increased across all markets.

For the nine months ended September 30, 2023, Northeast home sale revenues increased by 4% when compared with the prior year period due to a 7% increase in average selling price partially offset by a 3% decrease in closings.

The increase in average selling price occurred across all markets, while the decrease in closings was attributable to the Northeast Corridor.

Income before income taxes increased 7%, primarily due to the higher revenues.

Net new orders increased across all markets.

For the third quarter of 2023, Southeast home sale revenues decreased 9% when compared with the prior year period due to a 9% decrease in average selling price.

The decrease in average selling price occurred across all markets.

Income before income taxes decreased 20%, primarily due to lower revenues and gross margins across the majority of markets.

Net new orders increased across the majority of markets.

For the six months ended June 30, 2023, Southeast home sale revenues increased 23% when compared with the prior year period due to a 22% increase in closings combined with a 1% increase in average selling price.

The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 17%, primarily due to increased revenues across the majority of markets.

For the nine months ended September 30, 2023, Southeast home sale revenues increased 10% when compared with the prior year period due to a 13% increase in closings partially offset by a 3% decrease in average selling price.

The increase in closings occurred across all markets.

Income before income taxes increased 2%, primarily due to the increased revenues.

Net new orders increased across the majority of markets.

For the second quarter of 2023, Florida home sale revenues increased 26% when compared with the prior year period due to a 16% increase in closings combined with an 9% increase in average selling price.

For the third quarter of 2023, Florida home sale revenues increased 30% when compared with the prior year period due to a 22% increase in closings combined with a 7% increase in average selling price.

The increase in closings and average selling price occurred across the majority of markets.

Income before income taxes increased 29%, primarily due to increased revenues across all markets.

The increase in net new orders occurred across the majority of markets.

For the six months ended June 30, 2023, Florida home sale revenues increased 34% when compared with the prior year period due to a 19% increase in closings combined with a 13% increase in the average selling price.

The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes increased 44%, primarily due to increased revenues and gross margins across all markets.

Income before income taxes increased 43%, primarily due to the increased revenues.

Net new orders increased across the majority of markets.

For the second quarter of 2023, Midwest home sale revenues decreased 13% when compared with the prior year period due to a 19% decrease in closings partially offset by a 7% increase in average selling price.

The decrease in closings and increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 11%, primarily due to decreased revenues and gross margins across the majority of markets.

For the nine months ended September 30, 2023, Florida home sale revenues increased 33% when compared with the prior year period due to a 20% increase in closings combined with an 11% increase in the average selling price.

The increase in closings occurred across the majority of markets while the increase in average selling price occurred across all markets.

Income before income taxes increased 44%, primarily due to the increased revenues.

Net new orders increased across the majority of markets.

For the third quarter of 2023, Midwest home sale revenues decreased 3% 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 all markets.

Income before income taxes increased 28%, primarily due to higher gross margins across the majority of markets.

Net new orders increased across all markets.

For the six months ended June 30, 2023, Midwest home sale revenues decreased 13% when compared with the prior year period due to a 19% decrease in closings partially offset by an 8% increase in average selling price.

For the nine months ended September 30, 2023, Midwest home sale revenues decreased 9% when compared with the prior year period due to a 15% decrease in closings partially offset by a 7% 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 10%, primarily due to decreased revenues and gross margins across the majority of markets.

Income before income taxes increased 3%, primarily due to improved overhead leverage across the majority of markets.

Net new orders increased across all markets.

For the third quarter of 2023, Texas home sale revenues decreased 16% when compared with the prior year period due to a 15% decrease in closings partially offset by a 1% decrease in average selling price.

The decrease in closings occurred across all markets while the decrease in average selling price was mixed among markets.

Income before income taxes decreased 25%, primarily due to lower revenues and gross margins across the majority of markets.

Net new orders increased across the majority of markets.

For the second quarter of 2023, Texas home sale revenues increased 7% when compared with the prior year period due to a 2% increase in closings combined with a 5% increase in average selling price.

The increase in closings was mixed among markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 6%, primarily due to decreased gross margins across the majority of markets, partially offset by increased revenues across the majority of markets.

For the nine months ended September 30, 2023, Texas home sale revenues were flat when compared with the prior year period due to a 2% decrease in closings partially offset by a 2% increase in average selling price.

The decrease in closings was mixed among markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 13%, primarily due to lower gross margins across all markets.

The increase in net new orders was mixed among markets.

For the third quarter of 2023, West home sale revenues increased 1% when compared with the prior year period due to a 1% increase in closings.

Income before income taxes decreased 26%, primarily due to lower gross margins across the majority of markets as we have had to adjust pricing downward in certain of our western geographies.

Net new orders increased across all markets.

For the six months ended June 30, 2023, Texas home sale revenues increased 9% when compared with the prior year period due to a 5% increase in closings combined with a 4% increase in average selling price.

The increase in closings was mixed among markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 5%, primarily due to decreased gross margins across the majority of markets, partially offset by increased revenues across the majority of markets.

Net new orders increased which was mixed among markets.

For the second quarter of 2023, West home sale revenues decreased 6% when compared with the prior year period due to a 1% decrease in closings combined with a 6% decrease in average selling price.

The decrease in closings occurred across the majority of markets while the decrease in average selling price was mixed among markets markets.

Income before income taxes decreased 46%, primarily due to decreased revenues and gross margins across the majority of markets.

For the nine months ended September 30, 2023, West home sale revenues decreased 3% when compared with the prior year period due to a 2% decrease in closings combined with a 1% decrease in average selling price.

The decrease in closings and average selling price occurred across the majority of markets.

Income before income taxes decreased 34%, primarily due to lower revenues and gross margins across the majority of markets.

Net new orders increased across all markets.

For the six months ended June 30, 2023, West home sale revenues decreased 5% when compared with the prior year period due to a 4% decrease in closings combined with a 1% decrease in average selling price.

The decrease in closings occurred across the majority of markets while the decrease in average selling price was mixed among markets.

Income before income taxes decreased 37%, primarily due to decreased revenues and gross margins across the majority of markets.

Net new orders decreased across the majority of markets.

Financial Services Operations

5 unchanged sentences

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.

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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

12 unchanged sentences

(a) Percentage not meaningful.

Six Months Ended

Nine Months Ended

September 30,

Supplemental data:

7 unchanged sentences

Total funded originations 100 % 100 %

Total Financial Services revenues for the three and six months ended June 30, 2023 increased 11% and decreased 10%, respectively, compared with the same periods in 2022.

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 have remained high, which led to an increase in competition among lenders and lower margins per loan.

These factors were partially offset by a higher average loan amount as the result of the higher average selling price within Homebuilding.

Total Financial Services revenues for the three and nine months ended September 30, 2023 increased 6% and decreased 5%, respectively, compared with the same periods in 2022.

The increase during the three months ended September 30, 2023 when compared with the prior year period was primarily due to higher revenues per loan due to a higher average selling price within Homebuilding.

The decrease during the nine months ended September 30, 2023 when compared with the prior year period was primarily attributable to relative weakness during the first quarter of 2023 as a result of a lower capture rate and revenue per loan due to competitiveness in the mortgage industry.

Income before income taxes

Income before income taxes in the three and six months ended June 30, 2023 increased 16% and decreased 25%, respectively, compared with the same periods in 2022.

The increase during the three months ended June 30, 2023 when compared with the prior year period was primarily due to higher revenues per loan due to a higher average selling price within Homebuilding.

The decrease during the six months ended June 30, 2023 when compared with the prior year period is primarily attributable to

relative weakness during the first quarter of 2023 as a result of a lower capture rate and revenue per loan due to competitiveness in the mortgage industry.

Our effective income tax rate for the three and six months ended June 30, 2023 was 24.4% and 24.3%, respectively, compared with 24.5% and 24.4%, respectively, for the same periods in 2022.

Income before income taxes in the three and nine months ended September 30, 2023 increased 5% and decreased 17%, respectively, compared with the same periods in 2022.

Our effective income tax rate for the three and nine months ended September 30, 2023 was 24.6% and 24.4%, respectively, compared with 22.6% and 23.8%, respectively, for the same periods in 2022.

Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense.

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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 June 30, 2023, we had unrestricted cash and equivalents of $1.7 billion, restricted cash balances of $49.1 million, and $965.0 million available under our Revolving Credit Facility.

Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 17.3% at June 30, 2023, compared with 18.7% at December 31, 2022.

At September 30, 2023, we had unrestricted cash and equivalents of $1.8 billion, restricted cash balances of $51.1 million, and $945.4 million available under our Revolving Credit Facility.

Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 16.5% at September 30, 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 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.

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Additionally, we plan to continue our dividend payments and repurchases of common stock.

In July 2023, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement").

In August 2024, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement").

While we intend to refinance the Repurchase Agreement, there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration.

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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 may from time to time repurchase our unsecured senior notes through open market purchases, privately negotiated transactions, or otherwise.

During the three months ended September 30, 2023, we repurchased $22.0 million and $43.0 million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively.

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.

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Unsecured senior notes

We had $2.0 billion of unsecured senior notes outstanding at both June 30, 2023 and December 31, 2022 with no repayments due until March 2026, when $500.0 million of unsecured senior notes are scheduled to mature.

We had $1.9 billion of unsecured senior notes outstanding at September 30, 2023 and $2.0 billion of unsecured senior notes outstanding at December 31, 2022 with no repayments due until March 2026, when $478.0 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 $42.2 million and $55.2 million at June 30, 2023 and December 31, 2022, respectively.

Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $54.8 million and $55.2 million at September 30, 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.

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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 June 30, 2023, we were in compliance with all covenants.

As of September 30, 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 June 30, 2023, we had no borrowings outstanding, $285.0 million of letters of credit issued, and $965.0 million of remaining capacity under the Revolving Credit Facility.

At September 30, 2023, we had no borrowings outstanding, $304.6 million of letters of credit issued, and $945.4 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 June 30, 2023, aggregate outstanding debt of unconsolidated joint ventures was $81.0 million of which $39.4 million was related to one joint venture in which we have a 50% interest.

At September 30, 2023, aggregate outstanding debt of unconsolidated joint ventures was $79.5 million of which $40.3 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 a master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement") that matures on July 27, 2023.

The maximum aggregate commitment was $500.0 million at June 30, 2023, which continues through maturity.

Pulte Mortgage entered into a master repurchase agreement (the "Repurchase Agreement") in August 2023 that matures on August 14, 2024.

The Repurchase Agreement replaced a substantially similar agreement that previously existed with different lenders.

The maximum aggregate commitment under the Repurchase Agreement was $560.0 million at September 30, 2023, and will increase to $850.0 million during the seasonally high borrowing period from December 27, 2023 to January 15, 2024.

Thereafter, the maximum aggregate commitment ranges from $600.0 million to $700.0 million.

The Repurchase Agreement also contains an accordion feature that could increase the commitment by $50.0 million above its active commitment level.

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 June 30, 2023, Pulte Mortgage had $315.6 million outstanding at a weighted average interest rate of 6.68% and $184.4 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.

At September 30, 2023, Pulte Mortgage had $425.5 million outstanding at a weighted average interest rate of 7.01% and $134.5 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 prior agreement replaced by 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.

Dividends and share repurchase program

In the six months ended June 30, 2023, we declared cash dividends totaling $71.8 million and repurchased 6.4 million shares under our repurchase authorization for $400.0 million.

In the six months ended June 30, 2022, we declared cash dividends totaling $72.0 million and repurchased 17.4 million shares under our repurchase authorization for $794.2 million.

In the nine months ended September 30, 2023, we declared cash dividends totaling $106.8 million and repurchased 10.2 million shares under our repurchase authorization for $700.0 million.

In the nine months ended September 30, 2022, we declared cash dividends totaling $106.7 million and repurchased 21.8 million shares under our repurchase authorization for $974.7 million.

On April 24, 2023, the Board of Directors increased our share repurchase authorization by $1.0 billion.

At June 30, 2023, we had remaining authorization to repurchase $982.9 million of common shares.

At September 30, 2023, we had remaining authorization to repurchase $682.9 million of common shares.

Contractual Obligations

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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 June 30, 2023, while others are considered future commitments.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of September 30, 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, house construction costs, operating leases, and obligations under our various compensation and benefit plans.

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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 June 30, 2023, we had outstanding letters of credit totaling $285.0 million.

At September 30, 2023, we had outstanding letters of credit totaling $304.6 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 $2.2 billion at June 30, 2023, are typically outstanding over a period of approximately three to five years.

These bonds, which approximated $2.3 billion at September 30, 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 June 30, 2023, these agreements had an aggregate remaining purchase price of $6.1 billion.

At September 30, 2023, these agreements had an aggregate remaining purchase price of $6.3 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 June 30, 2023, outstanding deposits totaled $283.7 million, of which $18.2 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 June 30, 2023 related to debt and commitments and contingencies, respectively.

At September 30, 2023, outstanding deposits totaled $611.5 million, of which $26.5 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 September 30, 2023 related to debt and commitments and contingencies, respectively.

Operating activities

Net cash provided by operating activities in the six months ended June 30, 2023 was $1.5 billion.

Net cash provided by operating activities in the nine months ended September 30, 2023 was $1.9 billion.

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 six months ended June 30, 2023 were primarily due to net income of $1.3 billion along with a seasonal $244.5 million decrease in residential mortgage loans available for sale.

Net cash provided by operating activities in the six months ended June 30, 2022 was $102.3 million.

The positive cash flow from operations in six months ended June 30, 2022 was primarily due to our net income of $1.1 billion along with a seasonal $393.4 million decrease in residential mortgage loans available for sale, offset by a net increase in inventories of $1.7 billion, 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.

The cash inflows from operations for the nine months ended September 30, 2023 were primarily due to net income of $1.9 billion along with a seasonal $262.6 million decrease in residential mortgage loans available for sale, partially offset by a net increase in inventories of $173.4 million.

Net cash used in operating activities in the nine months ended September 30, 2022 was $303.9 million.

The cash outflows from operations in nine months ended September 30, 2022 were primarily due to our net income of $1.7 billion along with a seasonal $507.9 million decrease in residential mortgage loans available for sale, offset by a net increase in inventories of $2.7 billion, which was primarily attributable to higher house inventory in production resulting from a large order backlog, more unsold units, and extended production cycle times combined with investment in land inventory.

Investing activities

Net cash used in investing activities in the six months ended June 30, 2023 was $54.0 million.

These cash outflows primarily resulted from capital expenditures of $45.1 million related to our ongoing investments in new communities, facilities, and information technology applications.

Net cash used in investing activities in the six months ended June 30, 2022 was $123.1 million.

Net cash used in investing activities in the nine months ended September 30, 2023 was $95.0 million.

These cash outflows primarily resulted from capital expenditures of $67.6 million related to our ongoing investments in new communities, facilities, and information technology applications along with $18.1 million of investments in unconsolidated entities.

Net cash used in investing activities in the nine months ended September 30, 2022 was $154.7 million.

These cash outflows in 2022 primarily resulted from a $10.4 million deferred payment related to the 2020 acquisition of Innovative Construction Group ("ICG"), $58.2 million of investments in unconsolidated entities as well as capital expenditures of $88.6 million related to our ongoing investments in new communities and information technology applications.

Financing activities

Net cash used in financing activities in the six months ended June 30, 2023 totaled $713.4 million.

These cash outflows resulted primarily from the repurchase of 6.4 million common shares for $400.0 million under our share repurchase authorization, payments of $72.3 million in cash dividends, and net repayments of $271.1 million under the Repurchase Agreement related to a seasonal decrease in residential mortgage loans available-for-sale.

Net cash used in financing activities in the six months ended June 30, 2022 totaled $1.1 billion.

These cash outflows resulted primarily from the repurchase of 17.4 million common shares for $794.2 million under our share repurchase authorization, payments of $74.2 million in cash dividends, and net repayments of of $183.3 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 nine months ended September 30, 2023 totaled $1.0 billion.

These cash outflows resulted primarily from the repurchase of 10.2 million common shares for $700.0 million under our share repurchase authorization, payments of $107.7 million in cash dividends, $86.8 million of repayments of notes payable, and net repayments of $161.3 million under the Repurchase Agreement related to a seasonal decrease in residential mortgage loans available-for-sale.

Net cash used in financing activities in the nine months ended September 30, 2022 totaled $1.1 billion.

These cash outflows resulted primarily from the repurchase of 21.8 million common shares for $974.7 million under our share repurchase authorization, payments of $109.6 million in cash dividends, and net repayments of of $287.9 million under the Repurchase

Agreement related to a seasonal reduction in residential mortgage loans available-for-sale.These cash outflows were partially offset by net borrowings of $319.0 million under the Revolving Credit Facility.

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.

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Supplemental Guarantor Financial Information

As of June 30, 2023, PulteGroup, Inc.

As of September 30, 2023, PulteGroup, Inc.

had outstanding $1.9 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.

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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.

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.

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Summarized Balance Sheet Data

ASSETS June 30, 2023 December 31, 2022

ASSETS September 30, 2023 December 31, 2022

Cash, cash equivalents, and restricted cash $1,668,197 $786,073

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Total liabilities 5,096,522 5,049,079

Six Months Ended

Nine Months Ended

September 30,

Summarized Statement of Operations Data 2023 2022

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Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates in the six months ended June 30, 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.

There have been no significant changes to our critical accounting estimates in the nine months ended September 30, 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis