PULTEGROUP INC/MI/ 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations are provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023. 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. 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; and – 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. 21 Consolidated Operations The following is a summary of our operating results by line of business ($000's omitted, except per share data): Three Months Ended March 31, 2024 2023 Income before income taxes: Homebuilding $ 827,664 $ 688,220 Financial Services 40,979 13,902 Income before income taxes 868,643 702,122 Income tax expense (205,667) (169,863) Net income $ 662,976 $ 532,259 Per share data - assuming dilution: Net income $ 3.10 $ 2.35 22 Homebuilding Operations The following presents selected financial information for our Homebuilding operations ($000’s omitted): Three Months Ended March 31, 2024 2024 vs. 2023 2023 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) (2,689,087) 9 % (2,472,329) Land sale and other cost of revenues (37,043) 48 % (24,967) Selling, general, and administrative expenses ("SG&A") (b) (357,594) 6 % (336,518) 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 29.6 % 50 bps 29.1 % SG&A as a percentage of home sale revenues (b) 9.4 % (20) bps 9.6 % Closings (units) 7,095 11 % 6,394 Average selling price $ 538 (1) % $ 545 Net new orders: Units 8,379 14 % 7,354 Dollars (e) $ 4,698,659 24 % $ 3,789,993 Cancellation rate 13 % 17 % Average active communities 931 6 % 879 Backlog at March 31: Units 13,430 2 % 13,129 Dollars $ 8,198,788 3 % $ 7,976,424 (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 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. 23 Home sale gross margins 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 We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sale and other revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions. Land sales and other revenues contributed income of $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 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 March 31, 2024 2023 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 Interest expense (115) (107) Miscellaneous, net 6,013 3,182 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 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 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. 24 Homes in production The following is a summary of our homes in production: March 31, 2024 March 31, 2023 Sold 10,260 10,487 Unsold Under construction 5,653 5,334 Completed 1,337 1,051 6,990 6,385 Models 1,462 1,367 Total 18,712 18,239 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 March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 Owned Optioned Controlled Owned Optioned Controlled Northeast 4,033 6,702 10,735 4,204 8,718 12,922 Southeast 18,582 27,933 46,515 18,911 27,666 46,577 Florida 26,764 35,303 62,067 26,922 35,543 62,465 Midwest 12,065 15,541 27,606 12,290 14,461 26,751 Texas 16,406 15,939 32,345 16,487 17,378 33,865 West 29,151 11,123 40,274 25,701 14,349 40,050 Total 107,001 112,541 219,542 104,515 118,115 222,630 49 % 51 % 100 % 47 % 53 % 100 % Developed (%) 43 % 20 % 31 % 45 % 18 % 31 % While competition for well-positioned land is robust, we continued to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital. We have also continued to seek to maintain a high percentage of our lots that are controlled via land option agreements as such contracts 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 $6.7 billion at March 31, 2024. 25 Homebuilding Segment Operations 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: Northeast: Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia Southeast: Georgia, North Carolina, South Carolina, Tennessee Florida: Florida Texas: Texas Midwest: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio West: 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 March 31, 2024 2024 vs. 2023 2023 Home sale revenues: Northeast $ 200,404 (9) % $ 220,538 Southeast 717,222 14 % 628,986 Florida 1,141,675 8 % 1,053,301 Midwest 531,708 35 % 392,995 Texas 524,412 8 % 485,225 West 704,165 — % 706,592 $ 3,819,586 10 % $ 3,487,637 Income (loss) before income taxes (a) : Northeast $ 39,899 (15) % $ 46,797 Southeast 169,116 16 % 145,303 Florida 284,999 5 % 270,737 Midwest 94,762 61 % 58,904 Texas 94,650 18 % 80,065 West 89,483 (10) % 99,577 Other homebuilding (b) 54,755 516 % (13,163) $ 827,664 20 % $ 688,220 (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. 26 Operating Data by Segment ($000's omitted) Three Months Ended March 31, 2024 2024 vs. 2023 2023 Closings (units): Northeast 285 (15) % 337 Southeast 1,445 24 % 1,168 Florida 1,917 9 % 1,752 Midwest 990 31 % 757 Texas 1,328 2 % 1,308 West 1,130 5 % 1,072 7,095 11 % 6,394 Average selling price: Northeast $ 703 7 % $ 654 Southeast 496 (8) % 539 Florida 596 (1) % 601 Midwest 537 3 % 519 Texas 395 6 % 371 West 623 (5) % 659 $ 538 (1) % $ 545 Net new orders - units: Northeast 441 15 % 385 Southeast 1,394 3 % 1,347 Florida 1,972 5 % 1,878 Midwest 1,274 18 % 1,083 Texas 1,454 2 % 1,424 West 1,844 49 % 1,237 8,379 14 % 7,354 Net new orders - dollars: Northeast $ 314,154 19 % $ 263,139 Southeast 701,971 6 % 661,272 Florida 1,181,491 13 % 1,044,646 Midwest 681,676 21 % 564,802 Texas 575,717 15 % 500,498 West 1,243,650 65 % 755,636 $ 4,698,659 24 % $ 3,789,993 27 Operating Data by Segment ($000's omitted) Three Months Ended March 31, 2024 2024 vs. 2023 2023 Cancellation rates: Northeast 6 % 9 % Southeast 11 % 12 % Florida 14 % 17 % Midwest 9 % 12 % Texas 14 % 21 % West 16 % 25 % 13 % 17 % Unit backlog: Northeast 723 39 % 522 Southeast 2,195 5 % 2,085 Florida 3,847 (19) % 4,767 Midwest 1,976 18 % 1,676 Texas 1,763 (7) % 1,905 West 2,926 35 % 2,174 13,430 2 % 13,129 Backlog dollars: Northeast $ 522,122 36 % $ 385,259 Southeast 1,206,484 4 % 1,164,103 Florida 2,537,644 (19) % 3,122,519 Midwest 1,161,470 21 % 958,713 Texas 781,694 (10) % 869,073 West 1,989,374 35 % 1,476,757 $ 8,198,788 3 % $ 7,976,424 28 Operating Data by Segment ($000’s omitted) Three Months Ended March 31, 2024 2023 Land-related charges (a) : Northeast $ 966 $ 25 Southeast 990 2,359 Florida 341 2,013 Midwest 360 430 Texas 245 115 West 1,088 741 Other homebuilding 28 — $ 4,018 $ 5,683 (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. Northeast 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. Southeast 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. Florida 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. Midwest 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. Texas 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 29 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. West 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. Financial Services Operations We conduct our Financial Services operations, which include mortgage banking, title, and insurance brokerage operations, through Pulte Mortgage LLC ("Pulte Mortgage") and other subsidiaries. In originating mortgage loans, we initially use our own funds, including funds available pursuant to a credit agreement with third parties. Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. We also sell the servicing rights for the loans we originate through fixed price servicing sales contracts to reduce the risks and costs inherent in servicing loans. This strategy results in owning loans and related servicing rights for only a short period of time. Operating as a captive business model primarily targeted to support our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding, as Homebuilding customers continue to account for substantially all of its business. We believe that our mortgage capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in evaluating the effectiveness of our captive mortgage business model. The following tables present selected financial information for our Financial Services operations ($000's omitted): Three Months Ended March 31, 2024 2024 vs. 2023 2023 Mortgage revenues $ 63,025 98 % $ 31,765 Title services revenues 21,819 18 % 18,495 Insurance brokerage commissions 7,513 (2) % 7,678 Total Financial Services revenues 92,357 59 % 57,938 Expenses (51,378) 17 % (44,036) Income before income taxes $ 40,979 195 % $ 13,902 Total originations: Loans 4,332 12 % 3,869 Principal $ 1,755,046 16 % $ 1,516,450 30 Three Months Ended March 31, 2024 2023 Supplemental data: Capture rate 84.2 % 78.3 % Average FICO score 750 747 Funded origination breakdown: Government (FHA, VA, USDA) 24 % 20 % Other agency 73 % 75 % Total agency 97 % 95 % Non-agency 3 % 5 % Total funded originations 100 % 100 % Revenues 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 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. Income Taxes 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. Liquidity and Capital Resources We finance our land acquisition, development, and construction activities and financial services operations using internally-generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing available financing sources, including revolving bank credit and securities offerings. At March 31, 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. In response to recent volatility in the banking system, we have shifted a larger percentage of our cash and equivalents to money market funds to reduce the balances held in bank accounts. For the next twelve months, we expect our principal demand for funds will be for the acquisition and development of land inventory, construction of house inventory, and operating expenses, including our general and administrative expenses. The 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. 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. However, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing 31 needs. Beyond the next twelve months, we will need to repay or refinance our Revolving Credit Facility, which matures in June 2027, and our unsecured senior notes, the next tranche of which becomes due in 2026. We may from time to time repurchase our unsecured senior notes through open market purchases, privately negotiated transactions, or otherwise. 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. To the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt, dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities. Unsecured senior notes We had $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 $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%. Revolving credit facility We maintain a revolving credit facility (the "Revolving Credit Facility") maturing in June 2027 that has a maximum borrowing capacity of $1.3 billion and contains an uncommitted accordion feature that could increase the capacity to $1.8 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, up to the maximum borrowing capacity. The interest rate on borrowings under the Revolving Credit Facility may be based on either the Secured Overnight Financing Rate or a base rate plus an applicable margin, as defined therein. The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). 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 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 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 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. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At March 31, 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 covenants and requirements as of March 31, 2024. 32 Dividends and share repurchase program 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 We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of March 31, 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 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 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 $2.6 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 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 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. Cash flows Operating activities 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 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. 33 Investing activities 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 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. Seasonality Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry. We generally experience increases in revenues and cash flow from operations in the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year. Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, supply chain challenges, changes in mortgage interest rates, and other macroeconomic factors, our quarterly results for 2024 and 2023 are not necessarily indicative of results that may be achieved in the future. Supplemental Guarantor Financial Information 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. All of our unsecured senior notes and the Revolving Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of PulteGroup, Inc. ("Guarantors" or "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by PulteGroup, Inc. Our subsidiaries associated with our financial services operations and certain other subsidiaries do not guarantee the unsecured senior notes or the Revolving Credit Facility (collectively, "Non-Guarantor Subsidiaries"). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt. A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that such Guarantor: (a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors; or (b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of any one of the following being true at the time thereof: • such Guarantor was insolvent or rendered insolvent by reason of the issuance of the incurrence of the guarantee; 34 • the incurrence of the guarantee left such Guarantor with an unreasonably small amount of capital or assets to carry on its business; • such Guarantor intended to, or believed that it would, incur debts beyond its ability to pay as they mature; or • such Guarantor was a defendant in an action for money damages, or had a judgment for money damages docketed against it, if the judgment is unsatisfied after final judgment. The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. However, in general, a court would deem a company insolvent if: • the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets; • the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or • it could not pay its debts as they became due. The guarantees of the senior notes contain a provision to limit each Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, under recent case law, this provision may not be effective to protect such guarantee from being voided under fraudulent transfer law or otherwise determined to be unenforceable. If a court were to find that the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under that guarantee, could subordinate that guarantee to presently existing and future indebtedness of the Guarantor or could require the holders of the senior notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders may not receive any repayment on the senior notes. Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code. On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot 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. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among PulteGroup, Inc. and the Guarantor Subsidiaries, as well as their investment in and equity in earnings from the Non-Guarantor Subsidiaries ($000’s omitted): PulteGroup, Inc. and Guarantor Subsidiaries Summarized Balance Sheet Data ASSETS March 31, 2024 December 31, 2023 Cash, cash equivalents, and restricted cash $1,545,507 $1,471,293 House and land inventory 11,783,207 11,474,861 Amount due from Non-Guarantor Subsidiaries 718,342 839,673 Total assets 14,979,108 14,451,614 LIABILITIES Accounts payable, customer deposits, accrued and other liabilities $2,838,005 $2,810,832 Notes payable 1,956,854 1,962,218 Total liabilities 5,135,130 5,078,696 35 Three Months Ended March 31, Summarized Statement of Operations Data 2024 2023 Revenues $3,797,943 $3,444,704 Cost of revenues 2,672,700 2,435,992 Selling, general, and administrative expenses 353,472 322,134 Income before income taxes 814,115 678,844 Critical Accounting Estimates 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.