Item 7. Management’s Discussion and Analysis
ITEM 7. 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 in Item 8 in this Annual Report on Form 10-K. It also should be read in conjunction with the disclosure under “Special Notes Concerning Forward-Looking Statements” found in Item 7A of this Annual Report on Form 10-K. The following tables and related discussion set forth key operating and financial data as of and for the fiscal years ended December 31, 2024 and 2023. For similar operating and financial data and discussion of our fiscal 2023 results compared to our fiscal 2022 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on February 5, 2024.
The following is a summary of our operating results by line of business ($000's omitted, except per share data):
Years Ended December 31,
2024 2023
Income before income taxes:
Homebuilding $ 3,795,924 $ 3,316,075
Financial Services 209,955 133,192
Income before income taxes 4,005,879 3,449,267
Income tax expense (922,617) (846,895)
Net income $ 3,083,262 $ 2,602,372
Diluted earnings per share $ 14.69 $ 11.72
Overview
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 significantly higher and negatively impacted home affordability and consumer sentiment. The Federal Reserve cut their benchmark interest rate by 100 bps from September 2024 to December 2024. Despite this reduction, national mortgage interest rates increased nearly 100 bps from September 2024 to December 2024 with a cumulative increase of approximately 400 bps since the beginning of 2022. These higher financing costs, coupled with increases in the cost of land inventory and construction labor, as well as elevated overall inflation in recent years as compared with historical levels, have created affordability challenges for new homebuyers, resulting in decreased demand in the second half of 2024 as mortgage interest rates increased.
Despite these affordability challenges, interest in new homes remained at high levels in 2024, aided by a continuing limited supply of existing home inventory in combination with the market slowly adjusting to a higher interest rate environment, which has resulted in increased volatility in our new order pace over 2023 and 2024. We have responded to these affordability challenges by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns. These strategic decisions contributed to 2% growth in new orders from 2023 to 2024 but also drove a slight decrease in gross margins from 2023 to 2024.
We operate our business to generate a cadence of house starts to align with the sales environment, 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. The supply chain constraints that arose in connection with the COVID-19 pandemic have largely subsided. As a result, our production cycle times improved over the course of 2023 and 2024 and have now returned to near historical norms. This decrease in cycle times, coupled with our strong backlog and focus on spec home production, contributed to a 9% increase in closings in 2024 as compared to 2023.
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 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, including higher income before income taxes than in any previous year.
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Although higher mortgage interest rates may persist for some time, the limited supply of existing homes for sale, continuing low levels of unemployment, and demographics supporting housing demand remain favorable. We expect that homebuyers will continue to face affordability challenges, so our sales paces may remain volatile on a monthly basis and we expect our sales incentives to remain elevated. Additionally, we continued to face pressures in 2024 in the cost of land acquisition and development and the cost and availability of construction labor. Due to the length of our land development and construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results. While we expect to continue to generate healthy gross margins, they may decline somewhat in future periods as a result of these factors.
We remain focused on taking a measured approach to our capital allocation strategy to effectively respond to future volatility in demand. Accordingly, we are focused on protecting liquidity and closely managing our cash flows while also continuing to focus on shareholder returns, including the following actions:
– Increasing our lot optionality within our land pipeline for increased flexibility;
– Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;
– Maintaining a focus on shareholder return through share buybacks and dividends, including a 10% increase in our dividends from $0.20 to $0.22 per share effective with our January 2025 dividend payment and an additional $1.5 billion share repurchase authorization effective January 2025;
– Taking an opportunistic approach to repurchasing debt; and
– Maintaining ample liquidity.
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. And we remain confident in our ability to navigate the future environment and to position the Company to take advantage of opportunities as they arise and support future growth and continued profitability and financial strength.
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Homebuilding Operations
The following is a summary of income before income taxes for our Homebuilding operations ($000’s omitted):
Years Ended December 31,
2024 FY 2024 vs. FY 2023 2023
Home sale revenues $ 17,318,521 11 % $ 15,598,707
Land sale and other revenues 195,435 38 % 142,116
Total Homebuilding revenues 17,513,956 11 % 15,740,823
Home sale cost of revenues (a)
(12,311,766) 12 % (11,030,206)
Land sale and other cost of revenues (189,893) 52 % (124,607)
Selling, general, and administrative expenses ("SG&A") (b)
(1,321,276) 1 % (1,312,642)
Equity income from unconsolidated entities (c)
43,151 (d) 3,506
Other income (expense), net (e)
61,752 58 % 39,201
Income before income taxes $ 3,795,924 14 % $ 3,316,075
Supplemental data:
Gross margin from home sales (a)
28.9 % (40) bps 29.3 %
SG&A % of home sale revenues (b)
7.6 % (80) bps 8.4 %
Closings (units) 31,219 9 % 28,603
Average selling price $ 555 2 % $ 545
Net new orders (f) :
Units 29,226 2 % 28,580
Dollars $ 16,493,524 8 % $ 15,244,353
Cancellation rate 15 % 16 %
Average active communities 945 4 % 906
Backlog at December 31:
Units 10,153 (16) % 12,146
Dollars $ 6,494,718 (11) % $ 7,319,714
(a) Includes the amortization of capitalized interest.
(b) Includes insurance reserve reversals of $333.9 million and $130.8 million in 2024 and 2023, respectively.
(c) Equity income from unconsolidated entities includes a gain of $39.5 million in 2024 related to the sale of our minority interest in a joint venture.
(d) Percentage not meaningful.
(e) See "Other income (expense), net" for a table summarizing significant items ( Note 1 ).
(f) 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.
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Home sale revenues
Home sale revenues for 2024 were higher than 2023 by $1.7 billion, or 11%. The increase was attributable to a 9% increase in closings combined with a 2% increase in average selling price. The increase in closings during 2024 was 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. The increase in average selling price during 2024 reflected the impacts of consumer demand, persistent inflation, and a slight mix shift toward our West segment, which carries a higher average selling price, partially offset by a slight increase in the mix of first-time buyer homes, which typically carry a lower average selling price.
Home sale gross margins
Home sale gross margins were 28.9% in 2024, compared with 29.3% in 2023. Gross margins remained strong in both 2024 and 2023 relative to historical levels. 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, along with higher land and house costs, which may 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 income of $5.5 million and $17.5 million in 2024 and 2023, respectively.
SG&A
SG&A as a percentage of home sale revenues was 7.6% and 8.4% in 2024 and 2023, respectively. The gross dollar amount of our SG&A increased $8.6 million, or 1%, in 2024 compared with 2023. This increase resulted primarily from overhead costs to support increased production volumes coupled with higher compensation costs, partially offset by insurance reserve reversals of $333.9 million in 2024, compared to insurance reserve reversals of $130.8 million in 2023.
Other income (expense), net
Other income (expense), net includes the following ($000’s omitted):
2024 2023
Write-offs of deposits and pre-acquisition costs (Note 2)
$ (18,266) $ (23,512)
Amortization of intangible assets (Note 1)
(10,034) (10,538)
Gain (loss) on debt retirement (222) 663
Interest income 59,486 61,533
Interest expense (479) (469)
Miscellaneous, net (a)
31,267 11,524
Total other income (expense), net $ 61,752 $ 39,201
(a) Includes a gain of $17.5 million in 2024 related to the sale of a non-homebuilding property.
Interest income began to increase significantly in 2023 and has remained elevated in 2024 as the result of higher returns on invested cash balances due to the elevated interest rate environment.
Net new orders
Net new orders in units increased 2% in 2024 compared with 2023, while net new orders in dollars increased by 8% compared with 2023. The increased net new order volume in 2024 was primarily due to a 4% increase in average active communities. The increase in net new orders in dollars was primarily attributable to the higher unit volume along with geographic mix, including
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our West segment, which carries a higher average selling price. The annual cancellation rate (canceled orders for the period divided by gross new orders for the period) decreased to 15% in 2024 compared to 16% in 2023. Cancellation rates began to increase in 2022 and have now returned to historical levels. Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 11% in 2024 compared with 2023, primarily as a result of decreased demand in the second half of 2024 as mortgage interest rates increased and improved construction cycle times.
Homes in production
The following is a summary of our homes in production at December 31, 2024 and 2023:
2024 2023
Sold 7,680 9,508
Unsold
Under construction 6,897 6,118
Completed 1,862 1,263
8,759 7,381
Models 1,593 1,465
Total 18,032 18,354
The number of homes in production at December 31, 2024 was 2% lower compared to December 31, 2023. This decrease was primarily due to a decreased number of sold homes due to lower backlog and improved production cycle times, which reduces the length of time a home sits in inventory. The number of unsold homes under construction increased in 2024, which reflects our strategic decision to increase starts of spec units in response to buyer demand for quick move-in homes. We continue to carefully monitor our production levels heading into the spring 2025 selling season and expect to lower the percentage of our inventory that is unsold by the end of 2025.
Controlled lots
The following is a summary of our lots under control at December 31, 2024 and 2023:
December 31, 2024 December 31, 2023
Owned Optioned Controlled Owned Optioned Controlled
Northeast 3,946 6,693 10,639 4,204 8,718 12,922
Southeast 17,843 32,770 50,613 18,911 27,666 46,577
Florida 27,041 34,499 61,540 26,922 35,543 62,465
Midwest 11,271 20,061 31,332 12,290 14,461 26,751
Texas 15,420 23,663 39,083 16,487 17,378 33,865
West 26,655 14,727 41,382 25,701 14,349 40,050
Total 102,176 132,413 234,589 104,515 118,115 222,630
44 % 56 % 100 % 47 % 53 % 100 %
Developed (%) 48 % 24 % 34 % 45 % 18 % 31 %
While competition for well-positioned land is robust, we have 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 $9.2 billion at December 31, 2024.
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Homebuilding Segment Operations
Our Homebuilding operations represent our core business. Homebuilding offers a broad product line to meet the needs of homebuyers in our targeted markets. As of December 31, 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
We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking, title, and insurance agency operations. The Financial Services segment operates generally in the same markets as the Homebuilding segments.
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The following table presents selected financial information for our reportable Homebuilding segments:
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2024 FY 2024 vs. FY 2023 2023
Revenues:
Northeast $ 1,068,199 10 % $ 969,107
Southeast 2,880,882 8 % 2,669,065
Florida 4,706,048 1 % 4,650,355
Midwest 2,590,309 24 % 2,084,807
Texas 2,140,699 5 % 2,040,164
West 3,933,430 24 % 3,182,947
Other Homebuilding 194,389 35 % 144,378
$ 17,513,956 11 % $ 15,740,823
Income before income taxes (a) :
Northeast $ 229,996 9 % $ 210,508
Southeast 631,527 5 % 603,843
Florida (b)
1,121,311 (6) % 1,193,481
Midwest 490,185 38 % 353,966
Texas 345,594 (7) % 371,902
West (c)
552,839 45 % 379,993
Other homebuilding (d)
424,472 110 % 202,382
$ 3,795,924 14 % $ 3,316,075
Closings (units):
Northeast 1,518 7 % 1,417
Southeast 5,697 10 % 5,201
Florida 7,906 2 % 7,742
Midwest 4,750 20 % 3,955
Texas 5,452 3 % 5,295
West 5,896 18 % 4,993
31,219 9 % $ 28,603
Average selling price:
Northeast $ 704 3 % $ 684
Southeast 506 (1) % 513
Florida 595 (1) % 601
Midwest 545 3 % 527
Texas 393 2 % 385
West 667 5 % 637
$ 555 2 % $ 545
(a) Includes land-related charges as summarized in the following land-related charges table ( Notes 2 and 3 ).
(b) Includes a gain of $17.5 million in 2024 from the sale of a non-homebuilding property.
(c) Includes a gain of $10.7 million in 2024 from the sale of a property.
(d) Other homebuilding includes income from unconsolidated entities, interest, the amortization of intangible assets, the amortization of capitalized interest, other items not allocated to the operating segments, and the elimination of internal capital charges allocated to the operating segments. Also includes insurance reserve reversals of $333.9 million and $130.8 million in 2024 and 2023, respectively ( Note 11 ), and a gain of $39.5 million in 2024 related to the sale of our minority interest in a joint venture.
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The following table presents additional selected financial information for our reportable Homebuilding segments:
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2024 FY 2024 vs. FY 2023 2023
Net new orders - units:
Northeast 1,566 4% 1,510
Southeast 5,363 (3)% 5,541
Florida 6,909 —% 6,893
Midwest 4,860 13% 4,297
Texas 4,763 (7)% 5,143
West 5,765 11% 5,196
29,226 2% 28,580
Net new orders - dollars:
Northeast $ 1,165,949 13% $ 1,034,819
Southeast 2,786,663 1% 2,758,983
Florida 4,015,536 —% 4,019,271
Midwest 2,642,969 14% 2,309,404
Texas 1,841,487 (4)% 1,916,753
West 4,040,920 26% 3,205,123
$ 16,493,524 8% $ 15,244,353
Cancellation rates:
Northeast 7% 8%
Southeast 12% 10%
Florida 16% 16%
Midwest 10% 11%
Texas 17% 19%
West 19% 22%
15% 16%
Unit backlog:
Northeast 615 8% 567
Southeast 1,912 (15)% 2,246
Florida 2,795 (26)% 3,792
Midwest 1,802 7% 1,692
Texas 948 (42)% 1,637
West 2,081 (6)% 2,212
10,153 (16)% 12,146
Backlog dollars:
Northeast $ 506,121 24% $ 408,371
Southeast 1,127,517 (8)% 1,221,736
Florida 1,808,363 (28)% 2,497,827
Midwest 1,064,162 5% 1,011,503
Texas 431,177 (41)% 730,389
West 1,557,378 7% 1,449,888
$ 6,494,718 (11) % $ 7,319,714
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The following table presents additional selected financial information for our reportable Homebuilding segments:
Operating Data by Segment ($000's omitted)
Years Ended December 31,
2024 2023
Land-related charges*:
Northeast $ 8,142 $ 497
Southeast 4,006 7,853
Florida 2,804 2,683
Midwest 1,598 7,786
Texas 9,643 3,661
West 7,412 19,343
Other homebuilding 967 1,292
$ 34,572 $ 43,115
* Land-related charges include land impairments, net realizable value adjustments for land held for sale, and write-offs of deposits and pre-acquisition costs. Other homebuilding consists primarily of write-offs of capitalized interest resulting from land-related charges. See Notes 2 and 3 to the Consolidated Financial Statements for additional discussion of these charges.
Northeast:
For 2024, Northeast home sale revenues increased 10% compared with 2023 due to a 7% increase in closings combined with a 3% increase in average selling price. The increase in closings was mixed among markets, while the increase in average selling price occurred across the majority of markets. Income before income taxes increased 9%, primarily due to increased revenues, which were mixed among markets, and increased gross margins across the majority of markets. Net new orders increased across the majority of markets.
Southeast:
For 2024, Southeast home sale revenues increased 8% compared with 2023 due to a 10% increase in closings partially offset by 1% decrease in average selling price. The increase in closings occurred across the majority of markets while the decrease in average selling price was mixed among markets. Income before income taxes increased 5%, primarily due to increased revenues across the majority of markets and increased gross margins, which were mixed among markets. Net new orders decreased across the majority of markets.
Florida:
For 2024, Florida home sale revenues increased 1% compared with 2023 due to a 2% 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 decreased 6%, primarily due to lower gross margins across the majority of markets. Net new orders decreased across the majority of markets.
Midwest:
For 2024, Midwest home sale revenues increased 24% compared with 2023 due to a 20% increase in closings combined with a 3% increase in average selling price. The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets. Income before income taxes increased 38%, primarily due to increased revenues and gross margins across all markets. Net new orders increased across the majority of markets.
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Texas:
For 2024, Texas home sale revenues increased 5% compared with 2023 due to a 3% increase in closings combined with a 2% 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 decreased 7%, primarily due to decreased gross margins in Central Texas. The decrease in net new orders was mixed among markets.
West:
For 2024, West home sale revenues increased 24% compared with 2023 primarily due to an 18% increase in closings combined with a 5% increase in average selling price. The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets. Income before income taxes increased 45%, primarily due to increased revenues and gross margins across all markets. Results for 2024 also include a gain of $10.7 million related an individual property sale in Northern California. 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 and other subsidiaries. In originating mortgage loans, we initially use our own funds, including funds available pursuant to credit agreements 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 the loans and related servicing rights for only a short period of time. Operating as a captive business model primarily targeted to supporting our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding. Our Homebuilding customers continue to account for substantially all Financial Services activities. We believe that our 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):
Years Ended December 31,
2024 FY 2024 vs. FY 2023 2023
Mortgage revenues $ 298,128 47 % $ 202,614
Title services revenues 99,103 16 % 85,462
Insurance agency commissions 35,763 9 % 32,679
Total Financial Services revenues 432,994 35 % 320,755
Expenses (224,086) 20 % (187,280)
Equity income from unconsolidated entities 1,050 — % 1,055
Other expense, net (3) (a) (1,338)
Income before income taxes $ 209,955 58 % $ 133,192
Total originations:
Loans 19,770 13 % 17,427
Principal $ 8,340,836 20 % $ 6,924,910
(a) Percentage not meaningful
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Years Ended December 31,
2024 2023
Supplemental Pulte Mortgage data:
Capture rate 85.9 % 81.6 %
Average FICO score 750 748
Funded origination breakdown:
Government (FHA, VA, USDA) 25 % 23 %
Other agency 72 % 74 %
Total agency 97 % 97 %
Non-agency 3 % 3 %
Total funded originations 100 % 100 %
Revenues
Total Financial Services revenues during 2024 increased 35% compared with 2023 primarily due to an increase in origination volumes resulting from increased closings within Homebuilding and improved capture rates. Revenues per loan also increased as the result of a more favorable operating environment for our mortgage operations. The increased use of closing cost incentives in the form of mortgage interest rate buydowns has also contributed favorably to our mortgage operations volumes and revenues per loan.
Income before income taxes
The increase in income before income taxes for 2024 as compared with 2023 was primarily due to the increase in home closings in our Homebuilding operations, as well as higher loan origination volume and revenues per loan in our mortgage operations.
Income Taxes
Our effective income tax rate was 23.0% and 24.6% for 2024 and 2023, respectively. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense. See Note 8 for additional discussion of our effective income tax rate.
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 December 31, 2024, we had unrestricted cash and equivalents of $1.6 billion, restricted cash balances of $40.4 million, and $928.9 million available under our Revolving Credit Facility (as defined below). Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 11.8% at December 31, 2024 as 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 broad portfolio of banks within our group of relationship banks in high quality, highly liquid, short-term deposits and investments, which helps mitigate banking concentration risk. In response to recent volatility in the banking system, we have shifted a larger percentage of our cash and equivalents to money market funds to reduce the balances held in bank accounts.
For the next 12 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. Though we experienced significant improvement in 2023 and 2024, the elongation of our production cycle in recent years 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
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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.
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
At December 31, 2024, we had $1.6 billion of unsecured senior notes outstanding with no repayments due until March 2026, when $251.9 million of notes are scheduled to mature.
During the twelve months ended 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. Our total repurchases during the twelve months ended 2024, including open market repurchases, were $310.2 million.
Other notes payable
Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $35.8 million at December 31, 2024. These notes have maturities ranging up to five 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%.
Joint venture debt
At December 31, 2024, aggregate outstanding debt of unconsolidated joint ventures was $31.1 million.
Revolving credit facility
We maintain a revolving credit facility ("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). As of December 31, 2024, we were in compliance with all covenants and requirements. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.
At December 31, 2024, we had no borrowings outstanding, $321.1 million of letters of credit issued, and $928.9 million of remaining capacity under the Revolving Credit Facility.
Financial Services debt
Pulte Mortgage provides mortgage financing for the majority of our home closings by utilizing its own funds and funds made available pursuant to credit agreements with third parties. Pulte Mortgage uses these resources to finance its lending activities until the loans are sold in the secondary market, which generally occurs within 30 days.
Pulte Mortgage maintains a master repurchase agreement with third-party lenders entered into in August 2023 (the "Repurchase Agreement") that matures on August 13, 2025. The maximum aggregate commitment was $675.0 million at December 31, 2024 and decreased to $650.0 million at 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
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various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At December 31, 2024, Pulte Mortgage had $526.9 million outstanding at a weighted average interest rate of 6.13%, and $148.1 million of remaining capacity under the Repurchase Agreement. Pulte Mortgage was in compliance with all of its covenants and requirements as of such dates.
Dividends and share repurchase program
We declared quarterly cash dividends totaling $171.4 million and $149.8 million in 2024 and 2023, respectively, and repurchased 10.1 million and 13.8 million shares in 2024 and 2023, respectively, for a total of $1.2 billion and $1.0 billion in 2024 and 2023, respectively. On January 29, 2024, the Board of Directors increased our share repurchase authorization by $1.5 billion. At December 31, 2024, we had remaining authorization to repurchase $682.9 million of common shares. On January 29, 2025, the Board of Directors increased our share repurchase authorization by an additional $1.5 billion.
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 December 31, 2024, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase obligations related to expected acquisitions and development of land, operating leases, and obligations under our various compensation and benefit plans.
We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding projects. The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects. If the obligations related to a project are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis. At December 31, 2024, we had outstanding letters of credit of $321.1 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 $2.9 billion at December 31, 2024, are typically outstanding over a period of approximately three to five years. Because significant construction and development work has been performed related to the applicable projects but has 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 December 31, 2024, these agreements had an aggregate remaining purchase price of $9.2 billion. Pursuant to these land option agreements, we 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 December 31, 2024, outstanding deposits totaled $639.8 million, of which $18.4 million is refundable.
We are under contract to purchase federal transferable tax credits that we expect to use to offset future federal income tax
obligations totaling $222 million. The timing of such purchases is intended to approximate the timing of our expected federal income tax obligations.
For further information regarding our primary obligations, refer to Note 5 , "Debt" and Note 11 , "Commitments and Contingencies" to the Consolidated Financial Statements included elsewhere in this Annual Report on 10-K for amounts outstanding as of December 31, 2024, related to debt and commitments and contingencies, respectively.
Cash flows
Operating activities
Net cash provided by operating activities in 2024 was $1.7 billion, compared with net cash provided by operating activities of $2.2 billion in 2023. Generally, the primary drivers of our cash flow from operations are profitability and changes in inventory levels and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations. Our positive cash flow from operations for 2024 was primarily due to our net income of $3.1 billion, which was partially offset by a $787.5 million net increase in inventories primarily attributable to investment in land inventory.
Net cash provided by operating activities in 2023 was primarily due to our net income of $2.6 billion, which was partially offset by a $354.0 million net increase in inventories primarily attributable to investment in land inventory.
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Investing activities
Net cash used in investing activities totaled $94.5 million in 2024, compared with $129.1 million in 2023. The 2024 cash outflows primarily reflect capital expenditures of $118.5 million related to our ongoing investment in new communities, construction operations, and information technology applications.
Net cash used in investing activities in 2023 primarily reflected $23.4 million of investments in unconsolidated entities primarily in support of our land development activities and capital expenditures of $92.2 million related to our ongoing investment in new communities, construction operations, and information technology applications.
Financing activities
Net cash used in financing activities was $1.8 billion in 2024 compared with $1.3 billion during 2023. The net cash used in financing activities for 2024 resulted primarily from the repurchase of 10.1 million common shares for $1.2 billion under our repurchase authorization, cash dividends of $167.7 million, and repayments of debt of $355.8 million.
Net cash used in financing activities for 2023 resulted primarily from the repurchase of 13.8 million common shares for $1.0 billion under our repurchase authorization and cash dividends of $142.5 million.
Seasonality
Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we have historically experienced 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 during the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year. Additionally, given the disruption in economic activity, supply chain challenges, increase in mortgage interest rates, and other macroeconomic factors, our quarterly results in 2024 and 2023 are not necessarily indicative of results that may be achieved in the future.
Supplemental Guarantor Financial Information
As of December 31, 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 amounts outstanding on its Revolving Credit Facility.
All of our unsecured senior notes and the Revolving Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of PulteGroup, Inc. ("Guarantors" or "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by PulteGroup, Inc. Our subsidiaries associated with our Financial Services operations and certain other subsidiaries do not guarantee the unsecured senior notes or the Revolving Credit Facility (collectively, "Non-Guarantor Subsidiaries"). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt.
A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that such Guarantor:
(a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors; or
(b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of any one of the following is also 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;
• 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.
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The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. However, in general, a court would deem a company insolvent if:
• the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;
• the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
• it could not pay its debts as they became due.
The guarantees of the senior notes contain a provision to limit each Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, under recent case law, this provision may not be effective to protect such guarantee from being voided under fraudulent transfer law or otherwise determined to be unenforceable. If a court were to find that the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under that guarantee, could subordinate that guarantee to presently existing and future indebtedness of the Guarantor or could require the holders of the senior notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders may not receive any repayment on the senior notes.
Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code.
On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot provide assurance, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.
The following tables present summarized financial information for PulteGroup, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among PulteGroup, Inc. and the Guarantor Subsidiaries, as well as their investment in and equity in earnings from the Non-Guarantor Subsidiaries ($000’s omitted):
PulteGroup, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet Data December 31,
ASSETS 2024 2023
Cash, cash equivalents, and restricted cash $ 1,218,207 $ 1,471,293
House and land inventory 12,354,274 11,474,861
Amount due from Non-Guarantor Subsidiaries 1,024,762 839,673
Total assets 15,589,227 14,451,614
LIABILITIES
Accounts payable, customer deposits,
accrued and other liabilities $ 2,735,190 $ 2,810,832
Notes payable 1,618,586 1,962,218
Total liabilities 4,801,056 5,078,696
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Years Ended December 31,
Summarized Statement of Operations Data 2024 2023
Revenues $ 17,200,473 $ 15,447,595
Cost of revenues 12,228,331 10,895,197
Selling, general, and administrative expenses 1,314,547 1,312,645
Income before income taxes 3,789,812 3,334,858
Critical Accounting Estimates
The preparation of the Company's financial statements in conformity with U.S. generally accepted accounting principles and the discussion and analysis of its financial condition and operating results requires management to make estimates and assumptions, including estimates about the future resolution of existing uncertainties that affect the amounts reported. As a result, actual results could differ from these estimates. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances. We believe the following critical accounting estimates reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements. For a discussion of all of our significant accounting policies, refer to Note 1 , "Summary of Significant Accounting Policies".
Inventory and cost of revenues
Cost of revenues includes the construction cost, average lot cost, estimated warranty costs, and closing costs applicable to the home. The construction cost of the home includes amounts paid through the closing date of the home, plus an accrual for costs incurred but not yet paid, based on an analysis of budgeted construction costs. This accrual is reviewed for accuracy based on actual payments made after closing compared with the amount accrued, and adjustments are made if needed. Land acquisition and development costs are allocated to individual lots using an average lot cost determined based on the total expected land acquisition and development costs and the total expected home closings for the community. Total community land acquisition and development costs are based on an analysis of budgeted costs compared with actual costs incurred to date and estimates to complete. The development cycles for our communities range from under one year to in excess of 10 years for certain master planned communities. Adjustments to estimated total land acquisition and development costs for the community affect the amounts costed for the community’s remaining lots.
We test inventory for impairment when events and circumstances indicate that the undiscounted cash flows estimated to be generated by the community may be less than its carrying amount. Such indicators include gross margins or sales paces significantly below expectations, construction costs or land development costs significantly in excess of budgeted amounts, significant delays or changes in the planned development for the community, and other known qualitative factors. Communities that demonstrate potential impairment indicators are tested for impairment by comparing the expected undiscounted cash flows for the community to its carrying value. For those communities whose carrying values exceed the expected undiscounted cash flows, we determine the fair value of the community and impairment charges are recorded if the fair value of the community’s inventory is less than its carrying value.
We generally determine the fair value of each community using a combination of discounted cash flow models and market comparable transactions, where available. These estimated cash flows are significantly impacted by estimates related to expected average selling prices, expected sales paces, expected land development and construction timelines, and anticipated land development, construction, and overhead costs. The assumptions used in the discounted cash flow models are specific to each community. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of many communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.
Generally, a community must have projected gross margin percentages in the single digits or lower to potentially fail the undiscounted cash flow step and proceed to the fair value step. Our overall gross margin realized during 2024 and our average gross margin in backlog at December 31, 2024 both exceeded 27%, and we have only a small minority of communities with gross margins below 10%. However, in the event of an extended economic slowdown that leads to moderate or significant decreases in the price of new homes in certain geographic or buyer submarkets, we could have a larger number of communities that begin to approach these levels such that more detailed impairment analyses would be necessary, and the resulting impairments could be material. Additionally, we have $1.1 billion of deposits and pre-acquisition costs at December 31, 2024 related to option agreements to acquire additional land. In the event of an extended economic slowdown, we could elect to
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cancel a large portion of such land option agreements, which would generally result in the write-off of the related deposits and pre-acquisition costs.
Self-insured risks
At any point in time, we are managing numerous individual claims related to general liability, property, errors and omission, workers compensation, and other business insurance coverages. We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time product revenue is recognized for each home closing and periodically evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate estimates of the ultimate cost of all unpaid losses, including estimates for incurred but not reported losses ("IBNR"). IBNR represents losses related to claims incurred but not yet reported plus development on reported claims.
Our recorded reserves for all such claims totaled $267.5 million and $563.1 million at December 31, 2024 and 2023, respectively, the vast majority of which relate to general liability claims. The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses. Liabilities related to IBNR and related claim expenses represented approximately 68% and 77% of the total general liability reserves at December 31, 2024 and 2023, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of the reserves also consider historical third party recovery rates and claims management expenses. Because of the inherent uncertainty in estimating future losses related to these claims, actual costs could differ significantly from estimated costs. Based on the actuarial analyses performed, we believe the range of reasonably possible losses related to these claims is $200 million to $325 million. While this range represents our best estimate of our ultimate liability related to these claims, due to a variety of factors, including those factors described above, there can be no assurance that the ultimate costs realized by us will fall within this range.
Volatility in both national and local housing market conditions can affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are typically reported and resolved over an extended period often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Additionally, the amount of insurance coverage available for each policy period also impacts our recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.
Adjustments to reserves are recorded in the period in which the change in estimate occurs. During 2024 and 2023, we reduced general liability reserves by $333.9 million and $130.8 million, respectively, as a result of changes in estimates resulting from actual claim experience observed being less than anticipated in previous actuarial projections. The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future claims. These changes in actuarial estimates did not involve any significant changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities. There were no material adjustments to individual claims. Rather, the adjustments reflect an overall lower level of losses related to construction defect claims in recent years as compared with our previous experience. We attribute the favorable experience in more recent years to a variety of factors, including improved construction techniques, rising home values, and increased participation from our subcontractors in resolving claims. The cumulative effect of these factors, as evidenced by the favorable claims experience for an extended period, have resulted in our actuarial estimates placing less weight on older, higher cost policy years and relatively more weight on more recent, lower cost policy years.