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. The following is a summary of our operating results by line of business ($000's omitted, except per share data): Three Months Ended Six Months Ended June 30, June 30, 2024 2023 2024 2023 Income before income taxes: Homebuilding $ 984,934 $ 906,518 $ 1,812,598 $ 1,594,738 Financial Services 63,378 46,495 104,357 60,397 Income before income taxes 1,048,312 953,013 1,916,955 1,655,135 Income tax expense (239,179) (232,668) (444,846) (402,531) Net income $ 809,133 $ 720,345 $ 1,472,109 $ 1,252,604 Diluted earnings per share $ 3.83 $ 3.21 $ 6.93 $ 5.55 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. These actions drove national mortgage and other interest rates higher and negatively impacted home affordability and consumer sentiment. Despite this rise in interest rates, demand for new homes generally remained strong during 2023 and into the first quarter of 2024. However, demand began to weaken during the second quarter of 2024, as evidenced by our net new orders, which decreased 4% compared to the comparable prior year period and decreased 9% compared to the first quarter of 2024. While affordability remains challenged for housing due to the higher interest rates, house price increases, and general inflation in recent years, we have responded by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, and mortgage interest rate buydowns. Additionally, the rate of customer order cancellations that spiked in 2022 in response to higher inflation and interest rate increases has now normalized to historical levels. We operate our business to generate a consistent cadence of house starts and an appropriate inventory of quick move-in speculative ("spec") 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 have continued demonstrating a strong desire for homeownership despite continued interest rate variability. During 2023 and the first half of 2024, through a combination of our ongoing cost reduction initiatives, construction pacing, and sales strategies that capitalized on periods of strong consumer demand, we were able to achieve historically strong financial results, including record first half of the year earnings during the six months ended June 30, 2024. The supply chain constraints that arose in connection with the COVID-19 pandemic improved during 2023 and have continued to ease during the first half of 2024, which has contributed to a shortening of our production cycle times. The time required to construct a home was approximately nine weeks shorter at the end of the second quarter of 2024 compared to the comparable prior year period. This decrease in cycle times, coupled with our strong backlog and focus on spec home production, contributed to an increase in closings of 8% and 9% in the second quarter and first half of 2024, respectively, over the comparable prior year periods. While production cycle times remain elevated versus our historical norms due to the availability of certain materials and construction labor along with extended timelines for municipal approvals and inspections in certain geographies, we continue to make progress. Despite the recent improvements, inflation also continues to impact our business. The price of lumber materials, in particular, has been subject to heightened price volatility in recent years, but prices have trended lower in 2024. 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. While we expect to see some benefit in our reported financial results in the second half of 2024 from lower lumber prices, we expect that such benefits will be largely offset by higher sales incentives or other pricing actions in response to the recent softening in consumer demand. We remain focused on taking a measured approach to our capital allocation strategy in order to position ourselves 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: 22 – 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. Although we have seen some moderation in demand in the second quarter of 2024 that has continued into July, the limited supply of both new and existing homes for sale, continuing low levels of unemployment, and demographics supporting housing demand remain favorable. We believe our strategic approach with respect to sales incentives, advertising, and our production cadence will enable us to meet consumer demand at the selling prices necessary to turn our inventory, maintain market share, and generate healthy returns. We remain confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise to support future growth and continued profitability and financial strength. Homebuilding Operations The following presents selected financial information for our Homebuilding operations ($000’s omitted): Three Months Ended Six Months Ended June 30, June 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Home sale revenues $ 4,448,168 10 % $ 4,058,930 $ 8,267,754 10 % $ 7,546,567 Land sale and other revenues 39,825 6 % 37,604 77,042 14 % 67,671 Total Homebuilding revenues 4,487,993 10 % 4,096,534 8,344,796 10 % 7,614,238 Home sale cost of revenues (3,117,482) 9 % (2,856,361) (5,806,569) 9 % (5,328,690) Land sale and other cost of revenues (38,873) 20 % (32,494) (75,917) 32 % (57,461) Selling, general, and administrative expenses ("SG&A") (a) (361,145) 15 % (314,637) (718,739) 10 % (651,156) Equity income (loss) from unconsolidated entities, net (b) 1,117 (c) (110) 39,019 (c) 2,402 Other income, net 13,324 (2) % 13,586 30,008 (c) 15,405 Income before income taxes $ 984,934 9 % $ 906,518 $ 1,812,598 14 % $ 1,594,738 Supplemental data: Gross margin from home sales 29.9 % 30 bps 29.6 % 29.8 % 40 bps 29.4 % SG&A as a percentage of home sale revenues (a) 8.1 % 30 bps 7.8 % 8.7 % 10 bps 8.6 % Closings (units) 8,097 8 % 7,518 15,192 9 % 13,912 Average selling price $ 549 2 % $ 540 $ 544 — % $ 542 Net new orders: Units 7,649 (4) % 7,947 16,028 5 % 15,301 Dollars (d) $ 4,358,508 2 % $ 4,271,008 $ 9,057,167 12 % $ 8,061,001 Cancellation rate 14 % 13 % 13 % 15 % Average active communities 934 3 % 903 932 5 % 891 Backlog at June 30: Units 12,982 (4) % 13,558 Dollars $ 8,109,128 (1) % $ 8,188,502 (a) SG&A includes insurance reserve reversals of $51.9 million and $78.7 million, respectively, for the three and six months ended June 30, 2024, and $64.9 million for the three months ended June 30, 2023, (see Note 8 ). (b) Equity income from unconsolidated entities includes a gain of $37.7 million for the six months ended June 30, 2024 related to the sale of our minority interest in a joint venture. 23 (c) Percentage not meaningful. (d) Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders. Home sale revenues Home sale revenues in the three and six months ended June 30, 2024 were higher than the prior year period by $389.2 million and $721.2 million, respectively. In the three months ended June 30, 2024, the 10% increase resulted from an 8% increase in closings combined with a 2% increase in average selling price. In the six months ended June 30, 2024, the 10% increase resulted primarily from a 9% increase in closings. The increases in closings were primarily attributable to both a strong backlog and initiatives to prioritize quick move-in spec homes to satisfy customer desire to quickly close on homes due to the volatile interest rate environment and to ensure an efficient production cadence of homes. The increase in average selling price during the three months ended June 30, 2024 reflected the impact of consumer demand and persistent inflation, partially offset by a slight 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 29.9% and 29.8% in the three and six months ended June 30, 2024, respectively, compared with 29.6% and 29.4% in the three and six months ended June 30, 2023, respectively. Due to the low supply of new and existing homes for sale, we were generally able to maintain net sales pricing to substantially offset increases in house and land costs and higher sales incentives over these periods. 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 $1.0 million and $1.1 million for the three and six months ended June 30, 2024, respectively, compared with $5.1 million and $10.2 million for the three and six months ended June 30, 2023, respectively. SG&A SG&A as a percentage of home sale revenues was 8.1% and 8.7% in the three and six months ended June 30, 2024, respectively, compared with 7.8% and 8.6% for the three and six months ended June 30, 2023, respectively. The gross dollar amount of our SG&A increased $46.5 million, or 15%, for the three months ended June 30, 2024 compared with the prior year period, and increased $67.6 million, or 10%, for the six months ended June 30, 2024 compared with the prior year period. The increases in gross dollars for the three and six months ended June 30, 2024 resulted primarily from overhead costs to support increased production volumes, partially offset by insurance reserve reversals of $51.9 million and $78.7 million recorded in the three and six months ended June 30, 2024, compared with insurance reserve reversals of $64.9 million recorded in the three months ended June 30, 2023. Other income, net Other income, net includes the following ($000’s omitted): Three Months Ended Six Months Ended June 30, June 30, 2024 2023 2024 2023 Write-offs of deposits and pre-acquisition costs $ (3,685) $ (1,490) $ (7,675) $ (7,173) Amortization of intangible assets (2,498) (2,623) (5,038) (5,293) Loss on debt retirement (158) — (222) — Interest income 17,141 15,302 34,520 22,398 Interest expense (117) (120) (232) (227) Miscellaneous, net 2,641 2,517 8,655 5,700 Total other income, net $ 13,324 $ 13,586 $ 30,008 $ 15,405 24 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 decreased 4% while net new orders in dollars increased 2% in the three months ended June 30, 2024, as compared with the prior year period. Net new orders in units increased 5% while net new orders in dollars increased 12% in the six months ended June 30, 2024, as compared with the prior year period. The lower net new order volume in the three months ended June 30, 2024 over the comparable prior year period was primarily due to some moderation in consumer demand during the second quarter in response to higher mortgage interest rates, while the increase in net new order dollars was primarily attributable to geographic mix, including our West segment, which carries a higher average selling price. The increased net new order volume and dollars in the six months ended June 30, 2024 over the comparable prior year period was primarily attributable to the higher volumes in our West segment. Cancellation rates (canceled orders for the period divided by gross new orders for the period) were 14% and 13% for the three and six months ended June 30, 2024, respectively, and 13% for 15% in the three and six months ended June 30, 2023, respectively. Cancellation rates began to decrease in 2023 and have now returned to historical levels. Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 1% at June 30, 2024 compared with June 30, 2023. Homes in production The following is a summary of our homes in production: June 30, 2024 June 30, 2023 Sold 10,322 10,725 Unsold Under construction 5,692 5,028 Completed 1,236 987 6,928 6,015 Models 1,511 1,382 Total 18,761 18,122 The number of homes in production at June 30, 2024 was 4% higher than at June 30, 2023. This increase was primarily attributable to a higher number of homes under construction and completed homes, which reflects our strategic decision to increase starts of spec 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 June 30, 2024 and December 31, 2023: June 30, 2024 December 31, 2023 Owned Optioned Controlled Owned Optioned Controlled Northeast 4,411 5,870 10,281 4,204 8,718 12,922 Southeast 18,139 32,316 50,455 18,911 27,666 46,577 Florida 25,726 35,616 61,342 26,922 35,543 62,465 Midwest 11,999 17,205 29,204 12,290 14,461 26,751 Texas 16,417 16,604 33,021 16,487 17,378 33,865 West 28,546 12,455 41,001 25,701 14,349 40,050 Total 105,238 120,066 225,304 104,515 118,115 222,630 47 % 53 % 100 % 47 % 53 % 100 % Developed (%) 45 % 21 % 32 % 45 % 18 % 31 % 25 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 $7.4 billion at June 30, 2024. Homebuilding Segment Operations As of June 30, 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 Midwest: Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio Texas: Texas 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 Six Months Ended June 30, June 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Home sale revenues: Northeast $ 257,153 12 % $ 229,263 $ 457,557 2 % $ 449,801 Southeast 770,587 6 % 730,214 1,487,809 9 % 1,359,200 Florida 1,294,776 7 % 1,208,112 2,436,451 8 % 2,261,414 Midwest 651,580 37 % 474,160 1,183,288 36 % 867,154 Texas 583,303 (3) % 601,303 1,107,715 2 % 1,086,528 West 890,769 9 % 815,878 1,594,934 5 % 1,522,470 $ 4,448,168 10 % $ 4,058,930 $ 8,267,754 10 % $ 7,546,567 Income (loss) before income taxes (a) : Northeast $ 60,444 18 % $ 51,165 $ 100,343 2 % $ 97,962 Southeast 179,772 — % 179,707 348,887 7 % 325,010 Florida 329,230 4 % 318,066 614,229 4 % 588,803 Midwest 123,366 57 % 78,381 218,128 59 % 137,285 Texas 108,830 (14) % 126,054 203,480 (1) % 206,119 West 133,857 33 % 100,423 223,340 12 % 200,000 Other homebuilding (b) 49,435 (6) % 52,722 104,191 163 % 39,559 $ 984,934 9 % $ 906,518 $ 1,812,598 14 % $ 1,594,738 (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 other segments. Other homebuilding also includes insurance reserve reversals of $51.9 million and $78.7 million, respectively, for the three and six months ended June 30, 2024, and $64.9 million for the three months ended June 30, 2023, (see Note 8 ), and a gain of $37.7 million for the six months ended June 30, 2024 related to the sale of our minority interest in a joint venture. 26 Operating Data by Segment ($000's omitted) Three Months Ended Six Months Ended June 30, June 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Closings (units): Northeast 378 20 % 315 663 2 % 652 Southeast 1,499 7 % 1,405 2,944 14 % 2,573 Florida 2,150 4 % 2,067 4,067 6 % 3,819 Midwest 1,196 30 % 918 2,186 31 % 1,675 Texas 1,472 (3) % 1,511 2,800 (1) % 2,819 West 1,402 8 % 1,302 2,532 7 % 2,374 8,097 8 % 7,518 15,192 9 % 13,912 Average selling price: Northeast $ 680 (7) % $ 728 $ 690 — % $ 690 Southeast 514 (1) % 520 505 (4) % 528 Florida 602 3 % 584 599 1 % 592 Midwest 545 5 % 517 541 5 % 518 Texas 396 (1) % 398 396 3 % 385 West 635 1 % 627 630 (2) % 641 $ 549 2 % $ 540 $ 544 — % $ 542 Net new orders - units: Northeast 400 — % 400 841 7 % 785 Southeast 1,396 (10) % 1,556 2,790 (4) % 2,903 Florida 1,746 (9) % 1,910 3,718 (2) % 3,788 Midwest 1,265 1 % 1,253 2,539 9 % 2,336 Texas 1,275 (8) % 1,388 2,729 (3) % 2,812 West 1,567 9 % 1,440 3,411 27 % 2,677 7,649 (4) % 7,947 16,028 5 % 15,301 Net new orders - dollars: Northeast $ 285,380 4 % $ 274,595 $ 599,534 11 % $ 537,734 Southeast 728,250 (7) % 783,831 1,430,221 (1) % 1,445,103 Florida 1,020,211 (10) % 1,137,901 2,201,703 1 % 2,182,547 Midwest 699,344 6 % 662,571 1,381,019 13 % 1,227,373 Texas 500,093 (5) % 525,229 1,075,810 5 % 1,025,727 West 1,125,230 27 % 886,881 2,368,880 44 % 1,642,517 $ 4,358,508 2 % $ 4,271,008 $ 9,057,167 12 % $ 8,061,001 27 Operating Data by Segment ($000's omitted) Three Months Ended Six Months Ended June 30, June 30, 2024 2023 2024 2024 vs. 2023 2023 Cancellation rates: Northeast 7 % 8 % 6 % 9 % Southeast 11 % 8 % 11 % 10 % Florida 15 % 15 % 15 % 16 % Midwest 10 % 9 % 9 % 10 % Texas 15 % 17 % 15 % 19 % West 19 % 19 % 17 % 22 % 14 % 13 % 13 % 15 % Unit backlog: Northeast 745 23 % 607 Southeast 2,092 (6) % 2,236 Florida 3,443 (25) % 4,610 Midwest 2,045 2 % 2,011 Texas 1,566 (12) % 1,782 West 3,091 34 % 2,312 12,982 (4) % 13,558 Backlog dollars: Northeast $ 550,349 28 % $ 430,592 Southeast 1,164,148 (4) % 1,217,721 Florida 2,263,079 (26) % 3,052,307 Midwest 1,209,234 5 % 1,147,124 Texas 698,484 (12) % 792,999 West 2,223,834 44 % 1,547,759 $ 8,109,128 (1) % $ 8,188,502 28 Operating Data by Segment ($000’s omitted) Three Months Ended Six Months Ended June 30, June 30, 2024 2023 2024 2023 Land-related charges (a) : Northeast $ 638 $ 44 $ 1,604 $ 69 Southeast 1,566 668 2,556 3,027 Florida 576 79 917 2,092 Midwest 287 174 647 604 Texas 262 214 507 329 West 356 3,059 1,444 3,800 Other homebuilding 95 189 123 189 $ 3,780 $ 4,427 $ 7,798 $ 10,110 (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 second quarter of 2024, Northeast home sale revenues increased by 12% when compared with the prior year period due to a 20% increase in closings partially offset by a 7% 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 18%, primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets. For the six months ended June 30, 2024, Northeast home sale revenues increased by 2% when compared with the prior year period primarily due to a 2% increase in closings which occurred across the majority of markets. Income before income taxes increased 2% primarily due to higher revenues and gross margins across the majority of markets. Net new orders increased across all markets. Southeast For the second quarter of 2024, Southeast home sale revenues increased 6% when compared with the prior year period due to a 7% 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 less than 1%, primarily due to higher revenues and higher gross margins across the majority of markets, partially offset by increased overhead costs, which were mixed among markets. The decrease in net new orders occurred across the majority of markets. For the six months ended June 30, 2024, Southeast home sale revenues increased 9% when compared with the prior year period due to a 14% increase in closings partially offset by a 4% decrease in average selling price. The increase in closings and the decrease in average selling price occurred across the majority of markets. Income before income taxes increased 7% primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets. Florida For the second quarter of 2024, Florida home sale revenues increased 7% when compared with the prior year period due to a 4% increase in closings combined with a 3% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 4%, primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets. 29 For the six months ended June 30, 2024, Florida home sale revenues increased 8% when compared with the prior year period due to a 6% increase in closings combined with a 1% increase in the average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 4% primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets. Midwest For the second quarter of 2024, Midwest home sale revenues increased 37% when compared with the prior year period due to a 30% increase in closings combined with a 5% increase in average selling price. The increase in closings and average selling price occurred across all markets. Income before income taxes increased 57%, primarily due to higher revenues and higher gross margins across all markets. Net new orders increased across the majority of markets. For the six months ended June 30, 2024, Midwest home sale revenues increased 36% when compared with the prior year period due to a 31% increase in closings combined with a 5% 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 59% primarily due to increased revenues and higher gross margins across all markets. Net new orders increased across the majority of markets. Texas For the second quarter of 2024, Texas home sale revenues decreased 3% when compared with the prior year period due to a 3% decrease in closings combined with a 1% decrease in average selling price. The decrease in closings occurred across all markets while the decrease in average selling price occurred across the majority of markets. Income before income taxes decreased 14%, primarily due to lower revenues and gross margins across the majority of markets. The decrease in net orders was mixed among markets. For the six months ended June 30, 2024, Texas home sale revenues increased 2% when compared with the prior year period due to a 3% increase in average selling price partially offset by a 1% decrease in closings. The increase in average selling price occurred across the majority of markets while the decrease in closings was mixed among markets. Income before income taxes decreased 1% primarily due to increased overhead costs across the majority of markets. The decrease in net new orders was mixed among markets. West For the second quarter of 2024, West home sale revenues increased 9% compared with the prior year period due to an 8% increase in closings combined with a 1% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 33%, primarily due to higher revenues and gross margins across the majority of markets. Net new orders increased across the majority of markets. For the six months ended June 30, 2024, West home sale revenues increased 5% when compared with the prior year period due to a 7% increase in closings partially offset by a 2% decrease in average selling price. The decrease in average selling price was mixed among markets while the increase in closings occurred across the majority of markets. Income before income taxes increased 12% primarily due to higher revenues and increased gross margins across the majority of markets. Net new orders increased across the majority of markets. Financial Services Operations We conduct our Financial Services operations, which include mortgage banking, title, and insurance agency operations, through Pulte Mortgage LLC ("Pulte Mortgage") and other subsidiaries. In originating mortgage loans, we initially use our own funds supplemented by 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 30 evaluating the effectiveness of our captive mortgage business model. The following tables present selected financial information for our Financial Services operations ($000's omitted): Three Months Ended Six Months Ended June 30, June 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Mortgage revenues $ 76,967 25 % $ 61,616 $ 139,992 50 % $ 93,381 Title services revenues 25,405 12 % 22,596 47,224 15 % 41,091 Insurance agency commissions 9,290 16 % 8,007 16,803 7 % 15,684 Total Financial Services revenues 111,662 21 % 92,219 204,019 36 % 150,156 Expenses (49,334) 5 % (46,778) (100,712) 11 % (90,813) Equity income from unconsolidated entities 1,050 — % 1,054 1,050 — % 1,054 Income before income taxes $ 63,378 36 % $ 46,495 $ 104,357 73 % $ 60,397 Total originations: Loans 5,105 12 % 4,539 9,437 12 % 8,408 Principal $ 2,140,103 19 % $ 1,790,977 $ 3,895,150 18 % $ 3,307,427 Six Months Ended June 30, 2024 2023 Supplemental data: Capture rate 85.4 % 79.1 % Average FICO score 750 746 Funded origination breakdown: Government (FHA, VA, USDA) 25 % 23 % Other agency 72 % 73 % Total agency 97 % 96 % Non-agency 3 % 4 % Total funded originations 100 % 100 % Revenues Total Financial Services revenues for the three and six months ended June 30, 2024 increased 21% and 36%, respectively, compared with the same periods in 2023. The increases during 2024 when compared with the prior year periods were 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. The increased use of closing cost incentives in the form of mortgage interest rate buydowns has also contributed favorably to the Financial Services volumes and revenues per transaction. Income before income taxes Income before income taxes in the three and six months ended June 30, 2024 increased 36% and 73%, respectively, compared with the same period in 2023. The increases during the three and six months ended June 30, 2024 when compared with the prior year periods were primarily due to the higher loan origination volume, capture rate, and revenue per transaction. 31 Income Taxes Our effective income tax rate for the three and six months ended June 30, 2024 was 22.8% and 23.2%, respectively, compared with 24.4% and 24.3% for the same periods in 2023. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense. Our income tax expense for the three months ended June 30, 2024 also reflects a benefit relating to a reduction in income tax liabilities totaling $13.2 million related to the favorable resolution of uncertain state tax positions. 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 June 30, 2024, we had unrestricted cash and equivalents of $1.4 billion, restricted cash balances of $53.1 million, and $952.6 million available under our Revolving Credit Facility. Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 12.8% at June 30, 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. 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 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. In the three months ended June 30, 2024, we completed repurchases of $193.4 million and $106.6 million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer, bringing our total repurchases in the six months ended June 30, 2024 to $310.2 million. 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 $1.6 billion and $1.9 billion of unsecured senior notes outstanding at June 30, 2024 and December 31, 2023, respectively, with no repayments due until March 2026, when $251.9 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 $67.9 million and $71.0 million at June 30, 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 32 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 June 30, 2024. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries. At June 30, 2024, we had no borrowings outstanding, $297.4 million of letters of credit issued, and $952.6 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 June 30, 2024, aggregate outstanding debt of unconsolidated joint ventures was $39.1 million, of which $3.7 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 pursuant to 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 $700.0 million at June 30, 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 June 30, 2024, Pulte Mortgage had $524.0 million outstanding at a weighted-average interest rate of 7.14% and $176.0 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 June 30, 2024. Dividends and share repurchase program In the six months ended June 30, 2024, we declared cash dividends totaling $84.7 million and repurchased 5.1 million shares under our repurchase authorization for $560.0 million. In the six months ended June 30, 2023, we declared cash dividends totaling $71.8 million and repurchased 6.4 million shares under our repurchase authorization for $400.0 million. On January 30, 2024, the Board of Directors increased our share repurchase authorization by $1.5 billion. At June 30, 2024, we had remaining authorization to repurchase $1.3 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 June 30, 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 June 30, 2024, we had outstanding letters of credit totaling $297.4 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 $2.7 billion at June 30, 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. 33 In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future. At June 30, 2024, these agreements had an aggregate remaining purchase price of $7.4 billion. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. At June 30, 2024, outstanding deposits totaled $488.6 million, of which $23.6 million is refundable. For further information regarding our primary obligations, refer to Note 4 and Note 8 to the Consolidated Financial Statements included elsewhere in this Quarterly Report on 10-Q for amounts outstanding as of June 30, 2024 related to debt and commitments and contingencies, respectively. Cash flows Operating activities Net cash provided by operating activities in the six months ended June 30, 2024 was $657.3 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 six months ended June 30, 2024 were primarily due to net income of $1.5 billion, partially offset by a net increase in inventories of $473.7 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 $55.3 million increase in residential mortgage loans available due to higher loan origination volumes. Net cash provided by operating activities in the six months ended June 30, 2023 was $1.5 billion. The cash inflows from operations for the six months ended June 30, 2023 were primarily due to net income of $1.3 billion along with a seasonal $244.5 million decrease in residential mortgage loans available-for-sale. Investing activities Net cash used in investing activities in the six months ended June 30, 2024 was $66.2 million. These cash outflows primarily resulted from capital expenditures of $55.3 million related to our ongoing investments in new communities, facilities, and information technology applications. Net cash used in investing activities in the six months ended June 30, 2023 was $54.0 million. These cash outflows primarily related to capital expenditures of $45.1 million related to our ongoing investments in new communities, facilities, and information technology applications. Financing activities Net cash used in financing activities in the six months ended June 30, 2024 totaled $994.3 million. These cash outflows resulted primarily from the repurchase of 5.1 million common shares for $560.0 million under our share repurchase authorization, payments of $84.9 million in cash dividends, payments of $70.6 million related to consolidated inventory not owned, and $318.3 million of repayments of notes payable, partially offset by net Financial Services borrowings of $24.4 million related to an increase in residential mortgage loans available-for-sale. Net cash used in financing activities in the six months ended June 30, 2023 totaled $713.4 million. These cash outflows resulted primarily from the repurchase of 6.4 million common shares for $400.0 million under our share repurchase authorization, payments of $72.3 million in cash dividends, and net Financial Services repayments of $271.1 million 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. 34 Supplemental Guarantor Financial Information As of June 30, 2024, PulteGroup, Inc. had outstanding $1.6 billion principal amount of unsecured senior notes due at dates from March 2026 through February 2035 and no borrowings outstanding, $297.4 million of letters of credit issued, and $952.6 million of remaining capacity 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; • 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 35 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 June 30, 2024 December 31, 2023 Cash, cash equivalents, and restricted cash $1,214,338 $1,471,293 House and land inventory 11,967,303 11,474,861 Amount due from Non-Guarantor Subsidiaries 781,914 839,673 Total assets 14,957,637 14,451,614 LIABILITIES Accounts payable, customer deposits, accrued and other liabilities $2,721,406 $2,810,832 Notes payable 1,650,178 1,962,218 Total liabilities 4,756,096 5,078,696 Six Months Ended June 30, Summarized Statement of Operations Data 2024 2023 Revenues $8,223,331 $7,454,291 Cost of revenues 5,778,838 5,246,601 Selling, general, and administrative expenses 704,832 640,039 Income before income taxes 1,774,676 1,555,760 Critical Accounting Estimates There have been no significant changes to our critical accounting estimates in the six months ended June 30, 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.