What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-22 compared with 2024-07-23 · 156 added, 150 removed, 337 unchanged (48% of the section changed)

2 unchanged sentences

The following is a summary of our operating results by line of business ($000's omitted, except per share data):

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

6 unchanged sentences

Diluted earnings per share $ 3.35 $ 2.90 $ 10.28 $ 8.45

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.

In 2022, the Federal Reserve began raising its benchmark interest 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.

Despite this rise in interest rates, demand for new homes generally remained strong during 2023 and into 2024.

Despite a recent 50 bps cut in the Federal Reserve benchmark interest rate late in the third quarter of 2024, affordability remains challenged for housing due to the higher interest rates, house price increases, and general inflation in recent years as compared with historical levels.

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.

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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.

During 2023 and the first nine months of 2024, through a combination of our ongoing construction 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.

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

The time required to construct a home was approximately seven weeks shorter at the end of the third quarter of 2024 compared to the comparable prior year period, and nearly two weeks shorter than at the end of the second quarter of 2024.

This decrease in cycle times, coupled with our strong backlog and focus on spec home production, contributed to an increase in closings of 12% and 10% in the three and nine months ended September 30, 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.

Inflation also continues to impact our business, especially the cost of land and related development expenditures.

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.

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– 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.

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.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2024 vs.

8 unchanged sentences

(406,897) 15 % (353,167) (1,125,637) 12 % (1,004,323)

Equity income (loss) from unconsolidated

Equity income from unconsolidated

entities, net (b)

2,508 (c) 891 41,527 (c) 3,293

Other income, net 13,324 (2) % 13,586 30,008 (c) 15,405

Other income, net 9,702 (47) % 18,431 39,709 17 % 33,836

Income before income taxes $ 851,270 4 % $ 818,365 $ 2,663,868 10 % $ 2,413,103

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Average active communities 957 4 % 923 940 4 % 902

Backlog at June 30:

Backlog at September 30:

Units 12,089 (11) % 13,547

Dollars $ 7,694,761 (5) % $ 8,125,182

(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.

(a) SG&A includes insurance reserve reversals of $78.7 million for the nine months ended September 30, 2024, and $66.2 million for the nine months ended September 30, 2023, (see Note 8 ).

(b) Equity income from unconsolidated entities includes a gain of $37.7 million for the nine months ended September 30, 2024 related to the sale of our minority interest in a joint venture.

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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 revenues in the three and nine months ended September 30, 2024 were higher than the prior year period by $456.3 million and $1.2 billion, respectively.

In the three months ended September 30, 2024, the 12% increase resulted primarily from a 12% increase in closings.

In the nine months ended September 30, 2024, the 10% increase resulted primarily from a 10% increase in closings.

The increases in closings were primarily attributable to a strong backlog, improved production cycle times, 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.

Average selling price during the three and nine months ended September 30, 2024 remained flat compared with the respective prior year periods.

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.

Home sale gross margins were 28.8% and 29.4% in the three and nine months ended September 30, 2024, respectively, compared with 29.5% and 29.4% in the three and nine months ended September 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.

However, we expect sales incentives, especially mortgage interest rate buydowns, to remain elevated to address buyer affordability challenges, which will continue to impact our gross margins in the near term.

Land sale and other revenues

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Land sale and other revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions.

Land sales and other revenues contributed income of $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 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.

Land sales and other revenues contributed losses of $6.0 million and $4.9 million for the three and nine months ended September 30, 2024, respectively, compared with gains of $4.9 million and $15.1 million for the three and nine months ended September 30, 2023, respectively.

SG&A as a percentage of home sale revenues was 9.4% and 8.9% in the three and nine months ended September 30, 2024, respectively, compared with 9.1% and 8.8% for the three and nine months ended September 30, 2023, respectively.

The gross dollar amount of our SG&A increased $53.7 million, or 15%, for the three months ended September 30, 2024 compared with the prior year period, and increased $121.3 million, or 12%, for the nine months ended September 30, 2024 compared with the prior year period.

The increases in gross dollars for the three and nine months ended September 30, 2024 resulted primarily from overhead costs to support increased production volumes, partially offset by insurance reserve reversals of $78.7 million recorded in the nine months ended September 30, 2024, compared with insurance reserve reversals of $66.2 million recorded in the nine months ended September 30, 2023.

Other income, net

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

1 unchanged sentence

Amortization of intangible assets (2,498) (2,623) (7,536) (7,915)

Loss on debt retirement (158) — (222) —

Gain (loss) on debt retirement — 362 (222) 362

Interest income 13,748 19,303 48,268 41,701

4 unchanged sentences

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.

Net new orders in units decreased less than 1% while net new orders in dollars increased 3% in the three months ended September 30, 2024, as compared with the prior year period.

Net new orders in units increased 3% while net new orders in dollars increased 9% in the nine months ended September 30, 2024, as compared with the prior year period.

The increase in net new order dollars in the three months ended September 30, 2024 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 nine months ended September 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 15% and 14% for the three and nine months ended September 30, 2024, respectively, and 15% in both the three and nine months ended September 30, 2023.

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.

Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 5% at September 30, 2024 compared with September 30, 2023.

Homes in production

The following is a summary of our homes in production:

2024 June 30,

September 30,

2024 September 30,

Sold 9,684 10,657

3 unchanged sentences

Total 18,633 18,841

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.

The number of homes in production at September 30, 2024 was 1% lower than at September 30, 2023.

This decrease was primarily due to a decreased number of sold homes due to increased closings and lower backlog.

This decrease was partially offset by 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.

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

The following is a summary of our lots under control at September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

Owned Optioned Controlled Owned Optioned Controlled

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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.

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 $8.1 billion at September 30, 2024.

Homebuilding Segment Operations

As of June 30, 2024, we conducted our operations in 46 markets located throughout 26 states.

As of September 30, 2024, we conducted our operations in 46 markets located throughout 25 states.

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

Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia

Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia

Georgia, North Carolina, South Carolina, Tennessee

3 unchanged sentences

Operating Data by Segment ($000's omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2024 vs.

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(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.

Other homebuilding also includes insurance reserve reversals of $78.7 million for the nine months ended September 30, 2024, and $66.2 million for the nine months ended September 30, 2023, (see Note 8 ), and a gain of $37.7 million for the nine months ended September 30, 2024 related to the sale of our minority interest in a joint venture.

Operating Data by Segment ($000's omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2024 vs.

33 unchanged sentences

Operating Data by Segment ($000's omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2024 vs.

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($000’s omitted)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 2024 2023

10 unchanged sentences

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

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.

For the third quarter of 2024, Northeast home sale revenues increased 13% when compared with the prior year period due to a 14% increase in closings partially offset by a slight 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.

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.

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.

Income before income taxes increased 9%, primarily due to higher revenues and gross margins across the majority of markets, partially offset by increased overhead costs across the majority of markets.

Net new orders increased across the majority of markets.

For the nine months ended September 30, 2024, Northeast home sale revenues increased 6% when compared with the prior year period primarily due to a 6% increase in closings partially offset by a slight decrease in average selling price.

The increase in closings occurred across the majority of markets.

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

Net new orders increased across the majority of markets.

For the third quarter of 2024, Southeast home sale revenues increased 3% when compared with the prior year period due to a 4% increase in closings partially offset by a 1% decrease in average selling price.

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

Income before income taxes increased 1%, primarily due to higher revenues and gross margins which were mixed among markets, partially offset by increased overhead costs, which were also mixed among markets.

Net new orders decreased across the majority of markets.

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.

For the nine months ended September 30, 2024, Southeast home sale revenues increased 7% when compared with the prior year period due to an 11% increase in closings partially offset by a 3% 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 5%, primarily due to higher revenues which were mixed among markets and higher gross margins across the majority of markets.

Net new orders decreased across the majority of markets.

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.

For the third quarter of 2024, Florida home sale revenues decreased 2% when compared with the prior year period primarily due to a 3% decrease in average selling price, partially offset by a slight increase in closings.

The decrease in average selling price and increase in closings 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.

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.

For the nine months ended September 30, 2024, Florida home sale revenues increased 4% when compared with the prior year period primarily due to a 4% increase in closings partially offset by a slight decrease in the average selling price.

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

Income before income taxes decreased 2%, primarily due to higher revenues and gross margins across the majority of markets.

Net new orders increased across the majority of markets.

For the third quarter of 2024, Midwest home sale revenues increased 22% when compared with the prior year period due to a 17% increase in closings combined with a 4% 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.

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

Net new orders increased across the majority of markets.

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.

For the nine months ended September 30, 2024, Midwest home sale revenues increased 31% when compared with the prior year period due to a 26% increase in closings combined with a 4% 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 45%, primarily due to higher revenues and gross margins across all markets.

Net new orders increased across the majority of markets.

For the third quarter of 2024, Texas home sale revenues increased 18% when compared with the prior year period due to a 23% increase in closings partially offset by a 4% decrease in average selling price.

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

Income before income taxes decreased 4%, primarily due to increased overhead costs across all markets and decreased gross margins across the majority of markets.

The decrease in net new orders was mixed among markets.

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.

For the nine months ended September 30, 2024, Texas home sale revenues increased 7% when compared with the prior year period due to a 6% increase in closings combined with a 1% increase in average selling price.

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

Income before income taxes decreased 2%, primarily due to increased overhead costs across all markets and decreased gross margins across the majority of markets.

The decrease in net new orders was mixed among markets.

For the third quarter of 2024, West home sale revenues increased 29% compared with the prior year period due to an 24% increase in closings combined with a 4% increase in average selling price.

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

Income before income taxes increased 42%, 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.

Net new orders decreased in certain markets.

For the nine months ended September 30, 2024, West home sale revenues increased 13% when compared with the prior year period due to a 13% increase in closings combined with a slight increase in average selling price.

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

Income before income taxes increased 22%, primarily due to higher revenues and increased gross margins across the majority of markets.

Net new orders increased across the majority of markets.

Net new orders increased across all markets.

Financial Services Operations

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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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2024 vs.

6 unchanged sentences

Equity income from unconsolidated entities — — % — 1,050 — % 1,055

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

Income before income taxes $ 54,926 90 % $ 28,949 $ 159,283 78 % $ 89,346

2 unchanged sentences

Principal $ 2,103,197 20 % $ 1,745,952 $ 5,998,347 19 % $ 5,053,379

Six Months Ended

(a) Percentage not meaningful.

Nine Months Ended

September 30,

Supplemental data:

7 unchanged sentences

Total funded originations 100 % 100 %

Total Financial Services revenues for the three and six months ended June 30, 2024 increased 21% and 36%, respectively, compared with the same periods in 2023.

Total Financial Services revenues for the three and nine months ended September 30, 2024 increased 48% and 40%, 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.

2 unchanged sentences

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.

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.

Income before income taxes in the three and nine months ended September 30, 2024 increased 90% and 78%, respectively, compared with the same period in 2023.

The increases during the three and nine months ended September 30, 2024 when

compared with the prior year periods were primarily due to the higher loan origination volume, capture rate, and revenue per transaction.

Our effective tax rate was 23.0% and 23.1% for the three and nine months ended September 30, 2024, respectively, compared with 24.6% and 24.4% 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.

Income tax expense for the three and nine months ended September 30, 2024 also includes a benefit of $14.3 million associated with the purchase of transferable federal renewable energy tax credits.

Income tax expense for the nine months ended September 30, 2024 also reflects a reduction in income tax liabilities totaling $13.2 million related to the favorable resolution of uncertain state tax positions.

Liquidity and Capital Resources

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We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing available financing sources, including revolving bank credit and securities offerings.

At June 30, 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.

At September 30, 2024, we had unrestricted cash and equivalents of $1.4 billion, restricted cash balances of $57.5 million, and $939.1 million available under our Revolving Credit Facility.

Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 12.3% at September 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.

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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.

In the nine months ended September 30, 2024, we completed repurchases of $193.4 million and $106.6 million aggregate principal amount of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer.

Our total repurchases in the nine months ended September 30, 2024, including open market repurchases, were $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.

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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.

We had $1.6 billion and $1.9 billion of unsecured senior notes outstanding at September 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.

Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $41.1 million and $71.0 million at September 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.

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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 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 June 30, 2024.

We were in compliance with all covenants and requirements as of September 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 September 30, 2024, we had no borrowings outstanding, $310.9 million of letters of credit issued, and $939.1 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.

At September 30, 2024, aggregate outstanding debt of unconsolidated joint ventures was $35.2 million.

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.

Pulte Mortgage maintains a master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement") that matures on August 13, 2025.

The maximum aggregate commitment under the Repurchase Agreement was $675.0 million at September 30, 2024 and will decrease to $650.0 million on January 14, 2025, which continues until maturity.

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

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The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity.

At 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 September 30, 2024, Pulte Mortgage had $524.1 million outstanding at a weighted-average interest rate of 6.65% and $150.9 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.

Pulte Mortgage was in compliance with all covenants and requirements as of September 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.

In the nine months ended September 30, 2024, we declared cash dividends totaling $126.2 million and repurchased 7.6 million shares under our repurchase authorization for $880.0 million.

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

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.

At September 30, 2024, we had remaining authorization to repurchase $1.0 billion of common shares.

Contractual Obligations

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These obligations impact our short-term and long-term liquidity and capital resource needs.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of June 30, 2024, while others are considered future commitments.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of September 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.

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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.

At September 30, 2024, we had outstanding letters of credit totaling $310.9 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.

These bonds, which approximated $2.8 billion at September 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.

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.

At September 30, 2024, these agreements had an aggregate remaining purchase price of $8.1 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.

At September 30, 2024, outstanding deposits totaled $556.0 million, of which $16.2 million is refundable.

For further information regarding our primary obligations, refer to Note 4 and Note 8 to the Consolidated Financial Statements included elsewhere in this Quarterly Report on 10-Q for amounts outstanding as of September 30, 2024 related to debt and commitments and contingencies, respectively.

Operating activities

Net cash provided by operating activities in the six months ended June 30, 2024 was $657.3 million.

Net cash provided by operating activities in the nine months ended September 30, 2024 was $1.1 billion.

Generally, the primary drivers of our cash flow from operations are profitability and changes in the levels of inventory and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations.

The cash inflows from operations for the six months ended June 30, 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.

The cash inflows from our operations for the nine months ended September 30, 2024 were primarily due to net income of $2.2 billion, partially offset by a net increase in inventories of $805.3 million, which was primarily attributable to land acquisition, development, and house spend to support future growth, and a $45.2 million increase in residential mortgage loans available due to higher loan origination volumes.

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

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

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.

Net cash used in investing activities in the nine months ended September 30, 2024 was $108.4 million.

These cash outflows primarily resulted from capital expenditures of $94.1 million related to our ongoing investments in new communities, facilities, and information technology applications along with $15.1 million of investments in unconsolidated entities.

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

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

Financing activities

Net cash used in financing activities in the six months ended June 30, 2024 totaled $994.3 million.

Net cash used in financing activities in the nine months ended September 30, 2024 totaled $1.4 billion.

These cash outflows resulted primarily from the repurchase of 7.6 million common shares for $880.0 million under our share repurchase authorization, payments of $126.6 million in cash dividends, payments of $94.1 million related to consolidated inventory not owned, and $350.5 million of repayments of notes payable, partially offset by net Financial Services borrowings of $24.5 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.

Net cash used in financing activities in the nine months ended September 30, 2023 totaled $1.0 billion.

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

Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry.

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Supplemental Guarantor Financial Information

As of 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.

As of September 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, $310.9 million of letters of credit issued, and $939.1 million of remaining capacity under 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.

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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

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.

We cannot, however, provide assurances as to what standard a court would apply in making these determinations or whether a court would agree with our conclusions in this regard.

The following tables present summarized financial information for PulteGroup, Inc.

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Summarized Balance Sheet Data

ASSETS June 30, 2024 December 31, 2023

ASSETS September 30, 2024 December 31, 2023

Cash, cash equivalents, and restricted cash $1,194,650 $1,471,293

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Total liabilities 4,886,299 5,078,696

Six Months Ended

Nine Months Ended

September 30,

Summarized Statement of Operations Data 2024 2023

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Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates in the 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.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis