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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Income before income taxes: Homebuilding $ 851,270 $ 818,365 $ 2,663,868 $ 2,413,103 Financial Services 54,926 28,949 159,283 89,346 Income before income taxes 906,196 847,314 2,823,151 2,502,449 Income tax expense (208,282) (208,539) (653,128) (611,070) Net income $ 697,914 $ 638,775 $ 2,170,023 $ 1,891,379 Diluted earnings per share $ 3.35 $ 2.90 $ 10.28 $ 8.45 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 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. 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 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. 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. 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: – 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; 22 – 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. 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 Nine Months Ended September 30, September 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Home sale revenues $ 4,343,227 12 % $ 3,886,908 $ 12,610,981 10 % $ 11,433,476 Land sale and other revenues 19,284 (52) % 39,905 96,327 (10) % 107,575 Total Homebuilding revenues 4,362,511 11 % 3,926,813 12,707,308 10 % 11,541,051 Home sale cost of revenues (3,091,267) 13 % (2,739,596) (8,897,835) 10 % (8,068,287) Land sale and other cost of revenues (25,287) (28) % (35,007) (101,204) 9 % (92,467) Selling, general, and administrative expenses ("SG&A") (a) (406,897) 15 % (353,167) (1,125,637) 12 % (1,004,323) Equity income from unconsolidated entities, net (b) 2,508 (c) 891 41,527 (c) 3,293 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 Supplemental data: Gross margin from home sales 28.8 % (70) bps 29.5 % 29.4 % — bps 29.4 % SG&A as a percentage of home sale revenues (a) 9.4 % 30 bps 9.1 % 8.9 % 10 bps 8.8 % Closings (units) 7,924 12 % 7,076 23,116 10 % 20,988 Average selling price $ 548 — % $ 549 $ 546 — % $ 545 Net new orders: Units 7,031 — % 7,065 23,059 3 % 22,366 Dollars (d) $ 3,928,860 3 % $ 3,823,619 $ 12,986,027 9 % $ 11,884,620 Cancellation rate 15 % 15 % 14 % 15 % Average active communities 957 4 % 923 940 4 % 902 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 $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. (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. 23 Home sale revenues 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 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 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 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 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Write-offs of deposits and pre-acquisition costs $ (4,732) $ (2,456) $ (12,406) $ (9,629) Amortization of intangible assets (2,498) (2,623) (7,536) (7,915) Gain (loss) on debt retirement — 362 (222) 362 Interest income 13,748 19,303 48,268 41,701 Interest expense (120) (120) (352) (347) Miscellaneous, net 3,304 3,965 11,957 9,664 Total other income, net $ 9,702 $ 18,431 $ 39,709 $ 33,836 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. 24 Net new orders 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 5% at September 30, 2024 compared with September 30, 2023. Homes in production The following is a summary of our homes in production: September 30, 2024 September 30, 2023 Sold 9,684 10,657 Unsold Under construction 6,055 5,752 Completed 1,357 967 7,412 6,719 Models 1,537 1,465 Total 18,633 18,841 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 September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 Owned Optioned Controlled Owned Optioned Controlled Northeast 3,881 6,533 10,414 4,204 8,718 12,922 Southeast 18,040 33,061 51,101 18,911 27,666 46,577 Florida 25,655 33,388 59,043 26,922 35,543 62,465 Midwest 11,948 20,359 32,307 12,290 14,461 26,751 Texas 16,207 23,615 39,822 16,487 17,378 33,865 West 27,742 14,113 41,855 25,701 14,349 40,050 Total 103,473 131,069 234,542 104,515 118,115 222,630 44 % 56 % 100 % 47 % 53 % 100 % Developed (%) 46 % 21 % 32 % 45 % 18 % 31 % While competition for well-positioned land is robust, we continued to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital. We have also continued to seek to maintain a high percentage of our lots that are controlled via land option agreements as such contracts enable us to defer acquiring portions of properties owned by 25 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 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: Northeast: 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 Nine Months Ended September 30, September 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Home sale revenues: Northeast $ 265,395 13 % $ 234,284 $ 722,952 6 % $ 684,085 Southeast 666,019 3 % 646,182 2,153,828 7 % 2,005,382 Florida 1,166,869 (2) % 1,196,780 3,603,320 4 % 3,458,194 Midwest 660,096 22 % 540,678 1,843,384 31 % 1,407,833 Texas 567,871 18 % 481,046 1,675,586 7 % 1,567,574 West 1,016,977 29 % 787,938 2,611,911 13 % 2,310,408 $ 4,343,227 12 % $ 3,886,908 $ 12,610,981 10 % $ 11,433,476 Income (loss) before income taxes (a) : Northeast $ 56,805 9 % $ 52,265 $ 157,148 5 % $ 150,227 Southeast 145,725 1 % 144,643 494,613 5 % 469,653 Florida 270,428 (14) % 316,113 884,656 (2) % 904,916 Midwest 134,391 28 % 105,267 352,519 45 % 242,552 Texas 95,244 (4) % 99,433 298,724 (2) % 305,552 West 152,973 42 % 107,537 376,312 22 % 307,537 Other homebuilding (b) (4,296) (38) % (6,893) 99,896 206 % 32,666 $ 851,270 4 % $ 818,365 $ 2,663,868 10 % $ 2,413,103 (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 $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. 26 Operating Data by Segment ($000's omitted) Three Months Ended Nine Months Ended September 30, September 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Closings (units): Northeast 391 14 % 344 1,054 6 % 996 Southeast 1,340 4 % 1,291 4,284 11 % 3,864 Florida 1,984 — % 1,983 6,051 4 % 5,802 Midwest 1,194 17 % 1,018 3,380 26 % 2,693 Texas 1,485 23 % 1,211 4,285 6 % 4,030 West 1,530 24 % 1,229 4,062 13 % 3,603 7,924 12 % 7,076 23,116 10 % 20,988 Average selling price: Northeast $ 679 — % $ 681 $ 686 — % $ 687 Southeast 497 (1) % 501 503 (3) % 519 Florida 588 (3) % 604 595 — % 596 Midwest 553 4 % 531 545 4 % 523 Texas 382 (4) % 397 391 1 % 389 West 665 4 % 641 643 — % 641 $ 548 — % $ 549 $ 546 — % $ 545 Net new orders - units: Northeast 385 2 % 376 1,226 6 % 1,161 Southeast 1,340 (2) % 1,374 4,130 (3) % 4,277 Florida 1,681 5 % 1,598 5,399 — % 5,386 Midwest 1,233 13 % 1,090 3,772 10 % 3,426 Texas 1,134 (10) % 1,258 3,863 (5) % 4,070 West 1,258 (8) % 1,369 4,669 15 % 4,046 7,031 — % 7,065 23,059 3 % 22,366 Net new orders - dollars: Northeast $ 283,978 12 % $ 254,346 $ 883,513 12 % $ 792,080 Southeast 708,071 1 % 698,219 2,138,291 — % 2,143,322 Florida 947,233 1 % 939,975 3,148,935 1 % 3,122,522 Midwest 669,242 11 % 602,356 2,050,261 12 % 1,829,729 Texas 419,286 (15) % 493,094 1,495,097 (2) % 1,518,821 West 901,050 8 % 835,629 3,269,930 32 % 2,478,146 $ 3,928,860 3 % $ 3,823,619 $ 12,986,027 9 % $ 11,884,620 27 Operating Data by Segment ($000's omitted) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2024 vs. 2023 2023 Cancellation rates: Northeast 7 % 7 % 7 % 8 % Southeast 11 % 9 % 11 % 9 % Florida 16 % 17 % 15 % 16 % Midwest 10 % 11 % 9 % 10 % Texas 18 % 18 % 16 % 19 % West 21 % 20 % 18 % 21 % 15 % 15 % 14 % 15 % Unit backlog: Northeast 739 16 % 639 Southeast 2,092 (10) % 2,319 Florida 3,140 (26) % 4,225 Midwest 2,084 — % 2,083 Texas 1,215 (34) % 1,829 West 2,819 15 % 2,452 12,089 (11) % 13,547 Backlog dollars: Northeast $ 568,932 26 % $ 450,623 Southeast 1,206,199 (5) % 1,269,758 Florida 2,043,444 (27) % 2,795,502 Midwest 1,218,380 1 % 1,208,801 Texas 549,900 (32) % 805,047 West 2,107,906 32 % 1,595,451 $ 7,694,761 (5) % $ 8,125,182 28 Operating Data by Segment ($000’s omitted) Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Land-related charges (a) : Northeast $ 5,890 $ 197 $ 7,494 $ 266 Southeast 188 2,616 2,744 5,643 Florida 1,085 338 2,002 2,430 Midwest 188 282 835 886 Texas 1,257 59 1,764 388 West 3,352 2,889 4,796 6,689 Other homebuilding 171 487 294 676 $ 12,131 $ 6,868 $ 19,929 $ 16,978 (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 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 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. Southeast 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 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. Florida 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. 29 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. Midwest 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 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 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. Texas 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 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. West 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 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 all 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 30 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 Nine Months Ended September 30, September 30, 2024 2024 vs. 2023 2023 2024 2024 vs. 2023 2023 Mortgage revenues $ 79,647 71 % $ 46,664 $ 219,637 57 % $ 140,044 Title services revenues 25,396 17 % 21,714 72,620 16 % 62,804 Insurance agency commissions 8,788 5 % 8,342 25,591 7 % 24,027 Total Financial Services revenues 113,831 48 % 76,720 317,848 40 % 226,875 Expenses (58,905) 27 % (46,431) (159,615) 16 % (137,244) 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 Total originations: Loans 5,005 15 % 4,362 14,442 13 % 12,770 Principal $ 2,103,197 20 % $ 1,745,952 $ 5,998,347 19 % $ 5,053,379 (a) Percentage not meaningful. Nine Months Ended September 30, 2024 2023 Supplemental data: Capture rate 85.9 % 80.5 % Average FICO score 749 747 Funded origination breakdown: Government (FHA, VA, USDA) 26 % 22 % Other agency 71 % 75 % Total agency 97 % 97 % Non-agency 3 % 3 % Total funded originations 100 % 100 % Revenues 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. 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 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 31 compared with the prior year periods were primarily due to the higher loan origination volume, capture rate, and revenue per transaction. Income Taxes 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. 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 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 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. 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 2025, 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 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. 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 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 $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. The stated interest rates on these notes range up to 5%. 32 Revolving credit facility We maintain a revolving credit facility (the "Revolving Credit Facility") maturing in June 2027 that has a maximum borrowing capacity of $1.3 billion and contains an uncommitted accordion feature that could increase the capacity to $1.8 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, up to the maximum borrowing capacity. The interest rate on borrowings under the Revolving Credit Facility may be based on either the Secured Overnight Financing Rate or a base rate plus an applicable margin, as defined therein. The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). We were in compliance with all covenants and requirements as of September 30, 2024. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries. 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 September 30, 2024, aggregate outstanding debt of unconsolidated joint ventures was $35.2 million. Financial Services debt 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. 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 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 September 30, 2024. Dividends and share repurchase program 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 September 30, 2024, we had remaining authorization to repurchase $1.0 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 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. 33 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 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 $2.8 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 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 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. Cash flows Operating activities 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 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 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 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 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. 34 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. Supplemental Guarantor Financial Information 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. ("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. 35 Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code. On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot, 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. 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 September 30, 2024 December 31, 2023 Cash, cash equivalents, and restricted cash $1,194,650 $1,471,293 House and land inventory 12,296,679 11,474,861 Amount due from Non-Guarantor Subsidiaries 823,569 839,673 Total assets 15,361,280 14,451,614 LIABILITIES Accounts payable, customer deposits, accrued and other liabilities $2,857,979 $2,810,832 Notes payable 1,623,687 1,962,218 Total liabilities 4,886,299 5,078,696 Nine Months Ended September 30, Summarized Statement of Operations Data 2024 2023 Revenues $12,515,055 $11,317,362 Cost of revenues 8,832,123 7,961,586 Selling, general, and administrative expenses 1,097,533 979,196 Income before income taxes 2,612,554 2,366,792 Critical Accounting Estimates 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.