What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-23 compared with 2023-10-24 · 160 added, 210 removed, 287 unchanged (56% of the section changed)

1 unchanged sentence

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, 2023.

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 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 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 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.

In 2022, the Federal Reserve began raising its benchmark rate in response to persistent inflation that began after the onset of the COVID-19 pandemic.

Despite this rise in interest rates, demand for new homes generally remained strong during 2023, which continued through the first quarter of 2024.

This momentum is evidenced in our net new orders during the first quarter of 2024, which increased 14% over the comparable prior year period.

While affordability remains challenged for housing 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 cancellations that spiked in 2022 in response to inflation and interest rate increases has now normalized to historical levels.

Supply chain constraints that arose in connection with COVID-19 improved during 2023 and have continued to ease during the first quarter of 2024, which has contributed to a shortening of our production cycle times.

The time required to construct a home was approximately six weeks shorter at the end of 2023 compared to the end of 2022, and has continued to improve during the first quarter of 2024.

The strong selling environment, coupled with the decrease in our cycle times, have contributed to an increase in closings of 11% in the first quarter of 2024 over the comparable prior year period.

However, production cycle times remain elevated versus our historical norms as the availability of certain materials and construction labor remain challenged along with ongoing, though lessened, delays in municipal approvals and inspections.

Despite the recent improvements, inflation continues to impact our business.

Lumber, in particular, has experienced heightened volatility in recent years.

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 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 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.

During 2023 and the first quarter of 2024, through a combination of our ongoing cost reduction initiatives, construction pacing and sales strategies which took advantage of periods of strong consumer demand, we were able to achieve strong results in the face of a challenging operating environment.

These tactics, coupled with geographic mix, contributed to gross margins of 29.6% in the first quarter of 2024, which is an increase of 50 bps over the comparable prior year period and 70 bps over the fourth quarter of 2023.

We run our business to generate a consistent cadence of house starts and an appropriate inventory of quick move-in homes as we focus on turning our assets and delivering high returns on investment, which has allowed us to achieve an effective balance of price and pace.

Within an evolving macroeconomic environment, consumers across all buyer segments and price points continue to demonstrate a strong desire for homeownership despite continued interest rate variability during the first quarter of 2024.

We remain focused on taking a measured approach to our capital allocation strategy to effectively respond to any potential future volatility in demand.

Accordingly, we are focused on protecting liquidity and closely managing our cash flows while also continuing to focus on shareholder returns, including the following actions:

– Increasing our lot optionality within our land pipeline for increased flexibility;

– Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;

– Maintaining a focus on shareholder return through share buybacks and dividends, including a 25% increase in our dividends from $0.16 to $0.20 per share effective with our January 2024 dividend payment;

– Taking an opportunistic approach to repurchasing debt;

– Maintaining ample liquidity.

As evidenced by our performance in the first quarter of 2024, demand for new housing remains strong.

While we have seen this momentum continue into April, we have experienced some moderation in traffic to our communities in recent days, particularly with our communities geared toward first-time buyers, as a result of a recent increase in mortgage interest rates.

Although higher mortgage interest rates may persist for some time, the limited supply of both new and existing homes for sale, continuing low levels of unemployment, and demographics supporting housing demand remain favorable.

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

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 Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Three Months Ended

Income before income taxes:

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

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

Three Months Ended

2024 2024 vs.

Home sale revenues (a)

$ 3,886,908 3 % $ 3,791,695 $ 11,433,476 8 % $ 10,587,080

Home sale revenues $ 3,819,586 10 % $ 3,487,637

Land sale and other revenues 37,217 24 % 30,066

Total Homebuilding revenues 3,856,803 10 % 3,517,703

Home sale cost of revenues (a) (b)

Home sale cost of revenues (a)

(2,689,087) 9 % (2,472,329)

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Selling, general, and administrative

expenses ("SG&A") (e)

expenses ("SG&A") (b)

(357,594) 6 % (336,518)

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)

Equity income from unconsolidated entities (c)

37,902 (d) 2,513

Other income, net 16,683 (d) 1,818

Income before income taxes $ 827,664 20 % $ 688,220

Supplemental data:

Gross margin from home sales (a)

29.5 % (100) bps 30.5 % 29.4 % (100) bps 30.4 %

Gross margin from home sales 29.6 % 50 bps 29.1 %

SG&A as a percentage of home

sale revenues (e)

9.1 % (10) bps 9.2 % 8.8 % (90) bps 9.7 %

sale revenues (b)

9.4 % (20) bps 9.6 %

Closings (units) 7,095 11 % 6,394

Average selling price (a)

$ 549 2 % $ 538 $ 545 4 % $ 522

Average selling price $ 538 (1) % $ 545

Net new orders:

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Average active communities 931 6 % 879

Backlog at September 30:

Backlog at March 31:

Units 13,430 2 % 13,129

Dollars $ 8,198,788 3 % $ 7,976,424

(a) All periods reflect the reclassification of closing cost incentives from home sale cost of revenues to home sale revenues (see Note 1 ).

(b) Includes the amortization of capitalized interest.

(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 $66.2 million for the nine months ended September 30, 2023 (see Note 8 ).

(a) Includes the amortization of capitalized interest.

(b) SG&A includes insurance reserve reversals of $26.8 million for the three months ended March 31, 2024 (see Note 8 ).

(c) Equity income from unconsolidated entities includes a gain of $37.7 million for the three months ended March 31, 2024 related to the sale of our minority interest in a joint venture.

(d) Percentage not meaningful.

(e) 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 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 revenues in the three months ended March 31, 2024 were higher than the prior year period by $331.9 million.

In the three months ended March 31, 2024, the 10% increase resulted from an 11% increase in closings partially offset by a 1% decrease in average selling price.

The increase in closings was primarily attributable to strong consumer demand and initiatives to prioritize quick move-in speculative homes to satisfy customer desire to quickly close on homes due to the volatile interest rate environment and supply chain challenges.

The decrease in average selling price was primarily attributable to geographic mix and an increase in the mix of first-time buyer homes, which typically carry a lower sales price.

Home sale gross margins

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.

Home sale gross margins were 29.6% in the three months ended March 31, 2024 compared with 29.1% in the three months ended March 31, 2023.

This increase was primarily attributable to geographic mix, coupled with net sales price increases in a number of communities, an easing of supply chain challenges, and the shortening of cycle times over the comparable prior year period.

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 $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 Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Land sales and other revenues contributed income of $0.2 million for the three months ended March 31, 2024 compared with $5.1 million for the three months ended March 31, 2023.

SG&A as a percentage of home sale revenues was 9.4% in the three months ended March 31, 2024 compared with 9.6% for the three months ended March 31, 2023.

The gross dollar amount of our SG&A increased $21.1 million, or 6%, for the three months ended March 31, 2024 compared with the prior year period.

The increase in gross dollars for the three months ended March 31, 2024 resulted primarily from overhead costs to support increased production volumes, partially offset by insurance reserve reversals of $26.8 million recorded in the three months ended March 31, 2024.

Other income, net

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

Three Months Ended

Write-offs of deposits and pre-acquisition costs $ (3,990) $ (5,683)

Amortization of intangible assets (2,540) (2,670)

Loss on debt retirement (64) —

Interest income 17,379 7,096

1 unchanged sentence

Miscellaneous, net 6,013 3,182

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.

Total other income, net $ 16,683 $ 1,818

Interest income began to increase significantly in 2023 and has continued to do so into 2024 as the result of higher returns on invested cash balances due to the elevated interest rate environment.

Net new orders

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.

Net new orders in units increased 14% while net new orders in dollars increased 24% in the three months ended March 31, 2024, as compared with the prior year period.

The increased net new order volume in 2024 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 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 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.

Net new orders in dollars increased a higher amount than the increase in units as a result of geographic mix, including strength in our West segment which carries a higher average selling price.

Cancellation rates (canceled orders for the period divided by gross new orders for the period) were 13% for the three months ended March 31, 2024 and 17% for the comparable prior year period.

Cancellation rates have decreased in 2023 and into 2024 and have now returned to historical levels.

Ending backlog dollars, which represents orders for homes that have not yet closed, increased 3% at March 31, 2024 compared with March 31, 2023, as a result of the aforementioned improved demand and availability of quick move-in homes.

Homes in production

The following is a summary of our homes in production:

September 30,

2023 September 30,

2024 March 31,

Sold 10,260 10,487

3 unchanged sentences

Total 18,712 18,239

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.

This decrease was partially offset by an increased number of completed unsold homes, which reflected our strategic decision to increase starts of speculative units in response to buyer demand for quick move-in homes.

The number of homes in production at March 31, 2024 was 3% higher than at March 31, 2023.

This increase was primarily attributable to a higher number of homes under construction and completed homes, which reflect the strong sales environment in the first quarter of 2024, as well as our strategic decision to increase starts of speculative units in response to buyer demand for quick move-in homes.

This increase was partially offset by a lower number of sold homes in production.

Controlled lots

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

September 30, 2023 December 31, 2022

The following is a summary of our lots under control at March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

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 $6.3 billion at September 30, 2023.

The remaining purchase price under our land option agreements totaled $6.7 billion at March 31, 2024.

Homebuilding Segment Operations

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

As of March 31, 2024, we conducted our operations in 46 markets located throughout 26 states.

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

2 unchanged sentences

Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio

Arizona, California, Colorado, Nevada, New Mexico, Washington

Arizona, California, Colorado, Nevada, New Mexico, Oregon, Utah, Washington

The following tables present selected financial information for our reportable Homebuilding segments:

Operating Data by Segment ($000's omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

Three Months Ended

2024 2024 vs.

Home sale revenues (a) :

Home sale revenues:

Northeast $ 200,404 (9) % $ 220,538

5 unchanged sentences

$ 3,819,586 10 % $ 3,487,637

Income (loss) before income taxes (b) :

Income (loss) before income taxes (a) :

Northeast $ 39,899 (15) % $ 46,797

4 unchanged sentences

West 89,483 (10) % 99,577

Other homebuilding (c)

Other homebuilding (b)

54,755 516 % (13,163)

$ 827,664 20 % $ 688,220

(a) All periods reflect the reclassification of closing cost incentives to home sale revenues from home sale cost of revenues (see 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.

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

(a) Includes land-related charges as summarized in the table below.

(b) 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 $26.8 million for the three months ended March 31, 2024 (see Note 8 ), and a gain of $37.7 million for the three months ended March 31, 2024 related to the sale of our minority interest in a joint venture.

Operating Data by Segment ($000's omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

Three Months Ended

2024 2024 vs.

7 unchanged sentences

7,095 11 % 6,394

Average selling price (a) :

Average selling price:

Northeast $ 703 7 % $ 654

21 unchanged sentences

$ 4,698,659 24 % $ 3,789,993

(a) All periods reflect the reclassification of closing cost incentives to home sale revenues from home sale cost of revenues (see Note 1 ).

Operating Data by Segment ($000's omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

2024 2024 vs.

6 unchanged sentences

West 16 % 25 %

15 % 24 % 15 % 15 %

Unit backlog:

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($000’s omitted)

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

Three Months Ended

Land-related charges (a) :

9 unchanged sentences

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 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.

For the first quarter of 2024, Northeast home sale revenues decreased by 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 all markets while the increase in average selling price occurred across the majority of markets.

Income before income taxes decreased 15%, primarily due to lower revenues within our Mid-Atlantic operations and lower gross margins across the majority of markets.

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 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 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 43%, primarily due to the increased revenues.

Net new orders increased 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.

For the first quarter of 2024, Southeast home sale revenues increased 14% when compared with the prior year period due to a 24% increase in closings partially offset by an 8% decrease in average selling price.

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

Income before income taxes increased 16%, primarily due to increased revenues and higher gross margins across the majority of markets.

The increase in net new orders was mixed among markets.

For the first quarter of 2024, Florida home sale revenues increased 8% when compared with the prior year period due to a 9% increase in closings partially offset by a 1% decrease in average selling price.

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

Income before income taxes increased 5%, primarily due to increased revenues across all markets and higher gross margins across the majority of markets.

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 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 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.

For the first quarter of 2024, Midwest home sale revenues increased 35% when compared with the prior year period due to a 31% increase in closings combined with a 3% 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 61%, primarily due to increased revenues and higher gross margins across all markets.

Net new orders increased 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 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.

For the first quarter of 2024, Texas home sale revenues increased 8% when compared with the prior year period due to a 2% increase in closings combined with a 6% 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 increased 18%, primarily due to increased revenues which were mixed among markets and higher gross margins across the majority of markets.

The increase in net orders was mixed among markets.

For the first quarter of 2024, West home sale revenues were flat when compared with the prior year period due to a 5% increase in closings offset by a 5% decrease in average sales price.

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

Income before income taxes decreased 10%, primarily due to increased overheads across the majority of markets.

Net new orders increased across all markets.

8 unchanged sentences

The following tables present selected financial information for our Financial Services operations ($000's omitted):

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2023 vs.

Three Months Ended

2024 2024 vs.

4 unchanged sentences

Expenses (51,378) 17 % (44,036)

Equity income from unconsolidated entities — (100) % 128 1,055 (17) % 1,277

Other income (expense), net (1,340) (a) — (1,340) (a) (68)

Income before income taxes $ 40,979 195 % $ 13,902

2 unchanged sentences

Principal $ 1,755,046 16 % $ 1,516,450

(a) Percentage not meaningful.

Nine Months Ended

September 30,

Three Months Ended

Supplemental data:

7 unchanged sentences

Total funded originations 100 % 100 %

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.

Total Financial Services revenues for the three months ended March 31, 2024 increased 59% compared with the same period in 2023.

The increase during the three months ended March 31, 2024 when compared with the prior year period was primarily due to an increase in origination volumes resulting from higher closings within Homebuilding and improved capture rates.

Revenues per loan also increased as the result of a more favorable operating environment for Financial Services.

Income before income taxes

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.

Income before income taxes in the three months ended March 31, 2024 increased 195% compared with the same period in 2023.

The increase during the three months ended March 31, 2024 when compared with the prior year period was primarily due to the higher loan origination volume and revenue per transaction.

Our effective income tax rate for the three months ended March 31, 2024 was 23.7% compared with 24.2% for the same period in 2023.

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 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.

At March 31, 2024, we had unrestricted cash and equivalents of $1.7 billion, restricted cash balances of $46.5 million, and $1.0 billion available under our Revolving Credit Facility.

Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 15.4% at March 31, 2024, compared with 15.9% at December 31, 2023.

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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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.

The increase in sales and related increased pace in starts, coupled with the elongation of our production cycle compared to historical levels, 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.

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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.

However, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing needs.

However, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing

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.

During the three months ended March 31, 2024, we repurchased $10.2 million of our unsecured senior notes scheduled to mature 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.

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Unsecured senior notes

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.

We had $1.9 billion of unsecured senior notes outstanding at both March 31, 2024 and December 31, 2023 with no repayments due until March 2026, when $445.3 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 $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.

Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $75.4 million and $71.0 million at March 31, 2024 and December 31, 2023, respectively.

These notes have maturities ranging up to six 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%.

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

We were in compliance with all covenants and requirements as of March 31, 2024.

Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.

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 March 31, 2024, we had no borrowings outstanding, $298.6 million of letters of credit issued, and $951.4 million of remaining capacity under the Revolving Credit Facility.

At December 31, 2023, we had no borrowings outstanding, $312.7 million of letters of credit issued, and $937.3 million of remaining capacity under the Revolving Credit Facility.

Joint venture debt

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.

At March 31, 2024, aggregate outstanding debt of unconsolidated joint ventures was $58.2 million of which $19.4 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 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.

In August 2023, Pulte Mortgage entered into the Repurchase Agreement, which matures on August 14, 2024.

The maximum aggregate commitment under the Repurchase Agreement was $600.0 million at March 31, 2024, and will increase to $700.0 million on June 26, 2024, which continues until maturity.

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

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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 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 March 31, 2024, Pulte Mortgage had $534.3 million outstanding at a weighted-average interest rate of 7.13% and $65.7 million of remaining capacity under the Repurchase Agreement.

At December 31, 2023, Pulte Mortgage had $499.6 million outstanding at a weighted-average interest rate of 7.15% and $350.4 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.

Pulte Mortgage was in compliance with all covenants and requirements as of March 31, 2024.

Dividends and share repurchase program

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

In the three months ended March 31, 2024, we declared cash dividends totaling $42.6 million and repurchased 2.3 million shares under our repurchase authorization for $245.8 million.

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.

On January 30, 2024, the Board of Directors increased our share repurchase authorization by $1.5 billion.

At March 31, 2024, we had remaining authorization to repurchase $1.6 billion 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 September 30, 2023, while others are considered future commitments.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of March 31, 2024, 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.

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.

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 and insurance programs.

The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects and insurance programs.

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 September 30, 2023, we had outstanding letters of credit totaling $304.6 million.

If the obligations related to a project or program are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis.

At March 31, 2024, we had outstanding letters of credit totaling $298.6 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 $2.3 billion at September 30, 2023, are typically outstanding over a period of approximately three to five years.

These bonds, which approximated $2.6 billion at March 31, 2024, 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 September 30, 2023, these agreements had an aggregate remaining purchase price of $6.3 billion.

At March 31, 2024, these agreements had an aggregate remaining purchase price of $6.7 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 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.

At March 31, 2024, outstanding deposits totaled $464.1 million, of which $14.1 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, 2024 related to debt and commitments and contingencies, respectively.

Operating activities

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

Net cash provided by operating activities in the three months ended March 31, 2024 was $239.8 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 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.

The cash inflows from operations for the three months ended March 31, 2024 were primarily due to net income of $663.0 million, partially offset by a net increase in inventories of $289.2 million, which was primarily attributable to the increased number of homes in production coupled with land acquisition and development spend to support future growth, and a $54.8 million increase in residential mortgage loans available due to higher loan origination volumes.

Net cash provided by operating activities in the three months ended March 31, 2023 was $711.4 million.

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.

Investing activities

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.

Net cash used in investing activities in the three months ended March 31, 2024 was $26.9 million.

These cash outflows primarily resulted from capital expenditures of $24.1 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, 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.

Financing activities

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.

Net cash used in financing activities in the three months ended March 31, 2024 totaled $296.0 million.

These cash outflows resulted primarily from the repurchase of 2.3 million common shares for $245.8 million under our share repurchase authorization, payments of $42.7 million in cash dividends, payments of $32.5 million related to consolidated inventory not owned, and $11.1 million of repayments of notes payable, partially offset by net borrowings of $34.7 million under the Repurchase Agreement related to an increase in residential mortgage loans available-for-sale.

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.

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 September 30, 2023, PulteGroup, Inc.

As of March 31, 2024, 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.

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.

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.

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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.

We cannot provide assurance, 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.

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Summarized Balance Sheet Data

ASSETS September 30, 2023 December 31, 2022

ASSETS March 31, 2024 December 31, 2023

Cash, cash equivalents, and restricted cash $1,545,507 $1,471,293

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Total liabilities 5,135,130 5,078,696

Nine Months Ended

September 30,

Three Months Ended

Summarized Statement of Operations Data 2024 2023

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Critical Accounting Estimates

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.

There have been no significant changes to our critical accounting estimates in the three months ended March 31, 2024 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, 2023.

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