Q1 2024 PulteGroup Inc Earnings Call

Speaker Change: [music].

Thank you for standing by my name is Jamie and I will be your conference operator today at.

Jeanne: Thank you for standing by. My name is Jeanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the PulteGroup Inc. Q1 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Jamie: At this time I would like to welcome everyone to the Pulte Group, Inc. Q1, 'twenty 'twenty four earnings conference call.

Jamie: All lines have been placed on mute to prevent any background noise.

Jeanne: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to James Zeumer. You may begin. Thanks, James. Goodbye.

Jamie: After the Speakers' remarks, there will be a question and answer session.

Jamie: We'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad if.

Jamie: If you would like to withdraw your question Press Star one again.

Jamie: Thank you I would now like to turn the conference over to Jim Zimmer you may begin.

James P. Zeumer: Thanks, Steve Good morning.

James P. Zeumer: Thanks, Jim. Good morning. Let me welcome everyone to today's call. We look forward to discussing PulteGroup's outstanding Q1 operating and financial results for the period ended March 31, 2024.

James P. Zeumer: Everyone to today's call, we look forward to discussing.

James P. Zeumer: Q1, operating and financial results for the period ended March 31, 2024 joined.

James P. Zeumer: I'm joined on the call today by Ryan Marshall, President and CEO; Bob O'Shaughnessy, Executive Vice President and CFO; and Jim Osowski, Senior VP. A copy of our earnings release and this morning's presentation slides have been posted to our corporate website at PulteGroup.com. We'll post an audio replay of this call later today. I want to alert everyone that today's presentation includes forward-looking statements about the company's expected future performance. The actual results could differ materially from those suggested by our committee.

James P. Zeumer: I'm joined on the call today by Ryan Marshall President and CEO.

James P. Zeumer: Pablo Shanxi Executive Vice President and CFO, Jim SaaS Keys Senior VP finance.

James P. Zeumer: A copy of our earnings release, and this morning's presentation slides.

James P. Zeumer: Corporate website.

James P. Zeumer: Well posted an audio replay of this call later today.

James P. Zeumer: Alert everyone that today's presentation includes forward look.

These statements about the company's expected future performance.

James P. Zeumer: Actual results could differ materially from those suggested by our comments today.

James P. Zeumer: The significant risk factors that could affect future results are summarized as part of today's earnings release in the accompanying presentation slide. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports.

James P. Zeumer: The most significant risk factors.

James P. Zeumer: Results are summarized as part of today's earnings release.

James P. Zeumer: And the accompanying presentation slides these risk.

James P. Zeumer: Factors and other key information are detailed in our SEC filings, including our annual and quarterly reports now let me turn the call Brian. Thanks.

Ryan R. Marshall: Thanks, Jim. And good morning.

Brian: Thanks, Jim and good morning, as you read in this morning's press release Pulte group reported record first quarter results across many of our key financial metrics from topline revenues of $3 $8 billion.

Ryan R. Marshall: As you read in this morning's press release, PulteGroup reported record first-quarter results across many of our key financial metrics, from top-line revenues of $3.8 billion to gross margins of 29.6 percent, and bottom-line earnings of $3.10 per share. It was an exceptional quarter. These strong first quarter results helped to drive a return on equity of 27.3% for the trailing 12-month period. These strong first quarter results reflect long-term strategic planning and a disciplined capital allocation process that have underpinned PulteGroup's success for more than a decade.

Brian: Gross margins of 29, 6% to bottom line earnings of $3 10 per share it was an exceptional quarter.

Brian: These strong first quarter results helped to drive a return on equity of 27, 3% for the trailing 12 months period.

Brian: Our strong first quarter results reflect long term strategic planning and a disciplined capital allocation process that have underpinned Pulte group success for more than a decade.

Ryan R. Marshall: I would suggest that another driver of our record Q1 results are decisions we made in the fourth quarter of last year, decisions that I think are emblematic of the balanced approach we take to running our business and to delivering high returns.

Brian: I would suggest that another driver of our record Q1 results are decisions. We made in the fourth quarter of last year decisions that I think are emblematic of the balanced approach, we take to running our business and to delivering high returns.

Ryan R. Marshall: On our last earnings call, we talked about decisions we made in the fourth quarter of last year to not lower our prices in a chase for volume. As you will recall, demand in the fourth quarter of 2023 had started slowly but improved as interest rates began to moderate. Had we made the decision to push incentives aggressively as the quarter progressed, we likely could have delivered higher closing volumes in 2023. However, with demand improving in the fourth quarter, we elected to hold our pricing and have had more inventory available for the 2024 spring selling season.

Brian: On our last earnings call, we talked about decisions, we made in the fourth quarter of last year to not lower our prices and the chase for volume.

Brian: As you will recall demand in the fourth quarter of 2023 had started slowly.

Brian: But an improved as interest rates begin to moderate and.

Brian: And we made the decision to push incentives aggressively as the quarter progressed, we likely could have delivered higher closing volumes in 'twenty three.

Brian: With demand improving in the fourth quarter, we elected to hold our pricing and have had more inventory available for the 2020 for spring selling season.

Ryan R. Marshall: The result of this decision is that we were in a position to sell and close more homes in the first quarter of 2024 and at higher margins. That's what you see in our Q and results, closings and gross margins above our guide as demand dynamics allowed us to sell more homes with better net prices. When buyer demand is rising, we're often asked how many more homes we can sell. Given the value we place on entitlement lots and our focus on driving high returns, more volume is not the only answer as we work to balance pace and price to drive high returns.

Brian: The result of this decision that we were in a position to sell and close more homes in the first quarter of 2024 and at higher margins.

Brian: That's what you see in our Q1 results closings and gross margins above our guide as demand dynamics allowed us to sell more homes with better net pricing.

Brian: When buyer demand is rising we're often asked how many more homes, we can sell given the value we place on entitled lots and our focus on driving high returns more volume is not the only answer as we work to balance pace and price to drive higher returns.

Ryan R. Marshall: Within our operating model, stronger demand provides choices. We can sell more houses, or we can raise prices, or, as was the case in the first quarter, we can do both. What we experienced in the first quarter is that areas of strong demand last year, such as the Southeast, Florida, and Texas, continued to perform well into 2024. Even more positive is that areas that had some struggles in 2023, notably Arizona, California, and Nevada, were much improved in 2024.

Brian: Within our operating model stronger demand provides choices, we can sell more houses or we can raise prices.

Brian: Or as was the case in the first quarter, we can do both.

What we experienced in the first quarter.

Brian: As the areas of strong demand last year, such as the South East, Florida, and Texas continued to perform well into 2020 for even more positive as that areas that had some struggles in 2023, notably, Arizona, California, and Nevada were much improved in 2024.

Ryan R. Marshall: Consistent with the favorable conditions in the first quarter, almost all our markets displayed pricing dynamics that were stable or improving, which allowed us to raise net pricing in more than half our community. As you've heard us say many times, our pricing decisions are made with the goal of delivering high returns and the best overall business outcome. Depending upon the community and the buyers' wants and needs, we may have raised base prices or lowered incentives, the result being that net pricing in the quarter across many of our markets was up between 1% and 5%. The impact of these actions on our business performance is powerful.

Brian: Consistent with the favorable conditions in the first quarter almost all of our markets displayed pricing dynamics that were stable or improving.

Brian: Which allowed us to raise net pricing and more than half of our communities.

Brian: You've heard us say many times our pricing decisions are made with the goal of delivering high returns and the best overall business outcomes.

Brian: Depending upon the community and the buyer's wants and needs. We may have raised base prices or lowered incentives. The result, being that net pricing in the quarter across many of our markets was up between 1% and 5%.

Brian: The impact of these actions on our business performance is powerful.

Robert T. OShaughnessy: As Bob will discuss, we are increasing guidance for both full year closings and gross margins. Against generally favorable demand conditions, the supply of available housing remains tight. We have the long-term structural issue resulting from a decade of under-building that has the country short of approximately 4 million housing units.

Brian: As Bob will discuss we are increasing guidance for both full year closings and gross margins.

Brian: Against generally favorable demand conditions, the supply of available housing remains tight.

The long term structural issue resolving from a decade of under building that has the country short approximately 4 million housing units at the same time the available inventory of existing homes for sale continues to be low as homeowners remained locked into their low mortgage rates.

Ryan R. Marshall: At the same time, the available inventory of existing homes for sale continues to be low as homeowners remain locked into their low mortgage rates. Life happens, so we are seeing some additional existing homes come on the market, but the numbers remain well below historic rates. As a homebuilder, this is a great operating environment as we are supplying a product that a lot of people need and want. I appreciate, however, that our country's housing shortage can create hardships for today's consumers as the lack of supply keeps housing prices high.

Brian: Life happens so we are seeing some additional existing homes come to market, but the numbers remain well below historic rates.

Speaker Change: As a homebuilder. This is a great operating environment as we are supplying a product that a lot of people need and want.

Speaker Change: I appreciate however that our country's housing shortage can create hardships for today's consumers is the lack of supply keeps housing prices high in fact, some of our recent buyers said that they made the decision to buy now because they couldn't wait any longer for rates to roll back.

Ryan R. Marshall: In fact, some of our recent buyers said that they made the decision to buy now because they couldn't wait any longer for rates to roll back. In a market where home prices are high and because of limited inventory, they will likely continue moving higher. Our company's ability to offer targeted incentives, particularly mortgage rate buydowns, is a powerful tool that can help bridge the affordability gap. For example, in the first quarter, approximately 25% of our homebuyers used our national rate program.

Speaker Change: In a market where home prices are high and because of limited inventory they will likely continue moving higher.

Speaker Change: Our company's ability to offer targeted incentives, particularly mortgage rate buy downs is a powerful tool.

That can help bridge the affordability gap.

Speaker Change: For example, in the first quarter approximately 25% of our homebuyers you can start national rig program.

Ryan R. Marshall: In a world where the consensus is that interest rates will be higher for longer, our interest rate incentives likely become an even greater competitive advantage, especially relative to the existing home seller. Higher interest rates create additional challenges for today's homebuyers, but we appreciate that rates are moving higher because of a resilient economy and a strong job market.

Speaker Change: In a world where the consensus is that interest rates will be higher for longer or interest rate incentives likely become an even greater competitive advantage, especially relative to the existing home seller.

Speaker Change: Our interest rates created additional challenges for today's homebuyers.

Speaker Change: We appreciate that rates are moving higher because of a resilient economy and a strong job market.

Robert T. OShaughnessy: Given these conditions, we are optimistic about 2024 and PulteGroup's ability to continue delivering strong financial results. Now, let me turn the call over to Bob for a review of our first quarter results. Bob. Thanks, Ryan. Good morning.

Speaker Change: Given these conditions, we are optimistic about 2024, and pulte group's ability to continue delivering strong financial results now let me turn I'll turn the call over to Bob for a review of our first quarter results Bob.

Bob: Thanks, Ryan and good morning, as Ryan noted the company delivered exceptional operating and financial results in the quarter.

Robert T. OShaughnessy: Thanks, Ryan. Good morning.

Robert T. OShaughnessy: As Ryan noted, the company delivered exceptional operating and financial results in the quarter, which has us well-positioned to realize outstanding financial performance throughout the quarter. In the first quarter, we reported home sale revenues of $3.8 billion, which represents an increase of 10% over the prior year's first quarter. Higher revenues in the period were driven by an 11% increase in closings and the 7095 Home, partially offset by a 1% decrease in average sales prices to $538,000.

Bob: Have us well positioned to realize outstanding financial performance throughout 2024.

Bob: In the first quarter, we reported home sale revenues $3 8 billion, which.

Bob: Which represents an increase of 10% over the prior year's first quarter.

Bob: Higher revenues in the period were driven by an 11% increase in closings to 7095 homes.

Bob: Partially offset by a 1% decrease in average sales prices of $538000.

Bob: The lower closing credits compared with the first quarter of last year reflects reflects a shift in the geographic mix of homes closed as.

Robert T. OShaughnessy: The lower closing price compared with the first quarter of last year reflects a shift in the geographic mix of homes closed as we realized relatively higher closings in our Southeast and Florida markets, with more modest increases in our higher-priced Western markets.

Bob: As we realized relatively higher closings from our southeast, Florida markets with more modest increases in our higher priced western markets.

Robert T. OShaughnessy: Closings in the quarter came in above our guide as we had available spec inventory to meet the strong buyer demand we experienced in the period. As Ryan highlighted, by choosing not to chase volume in last year's fourth quarter, we had additional inventory in Q1 that we were able to sell and close with better margins due to the improving buyer demand activity in the quarter. Our spec production is predominantly within our first-time buyer communities.

Bob: Closings in the quarter came in above our guide as we had available spec inventory to meet the strong buyer demand we experienced in the period.

Bob: As Ryan highlighted by choosing not to chase volume in last year's fourth quarter.

Bob: Inventory in Q1 that we were able to sell and close with better margins due to the improving buyer demand activity in the quarter.

Bob: Our spec production is predominantly within our first time buyer communities. So on a year over year basis, we realized increased closings from first time buyers.

Robert T. OShaughnessy: So, on a year-over-year basis, we realize increased closings from first-time buyers. In the quarter, our closing mix included 41% first-time, 36% move-up, and 23% active adult. In the first quarter of last year, the mix of closings consisted of 38% first-time, 36% move-up, and 26% active adult.

Bob: In the quarter, our closing mix included 41% first time, 36% move up and 23% active adult.

Bob: In the first quarter of last year, the mix of closings consistent of 38% first time, 36% move up and 26% active adult.

Bob: Reflecting the favorable demand conditions, we experienced in the first quarter net new orders increased 14% over last year to 8379 homes.

Robert T. OShaughnessy: Reflecting the favorable demand conditions we experienced in the first quarter, net new orders increased 14% over last year to $8,379. In the quarter, we realized a year-over-year increase in gross orders and a reduction in cancellations. Cancellations as a percentage of starting backlog fell to 10.1%, down from 12.7 percent in the first quarter of last year.

Bob: In the quarter, we realized a year over year increase in gross orders and the reduction in cancellation rate.

Bob: Cancellations as a percentage of starting backlog fell to 10, 1%.

Down from 12, 7% in the first quarter last year.

Bob: Average community count for our first quarter was 931, which is an increase of 6% over the prior year and in line with our guidance for year over year community count growth of 3% to 5%.

Robert T. OShaughnessy: The average community count for our first floor was 931, which is an increase of 6% over the prior year and in line with our guidance for year-over-year community count growth of 3 to 5%. The resulting absorption pace of approximately three homes per month for the quarter was above our historic average for the period, excluding the pandemic-impacted years of 21 and 22. I'd also like to highlight that orders in the quarter were higher across all buyers, which is another sign of the overall strength of the market.

Bob: The resulting absorption pace of approximately $3 per month for the quarter was above our historic average for the period, excluding the pandemic impacted years 'twenty one 'twenty two.

Bob: I would also like to highlight that orders in the quarter were higher across all buyer groups, which is another sign of the overall strength of the market.

Robert T. OShaughnessy: More specifically, net new orders among first-time buyers increased 8 percent, move-ups increased 22%, and active adults increased 12%. Consistent with earlier comments, the large increase in orders among move-up buyers was influenced by improving market conditions in the West, where our business mix is much more heavily weighted towards move-up buyers, given this strong start to our spring selling. Our quarter-end backlog increased to 13,430 homes with a value of $8.2 billion. We started approximately 7,500 homes in the quarter and ended the period with a total of 17,250 homes under construction.

Bob: More specifically net new.

Bob: Orders among first time buyers increased 8%.

Bob: Move up increased 22% and active adult increased 12%.

Bob: The system was earlier comments the large increase in orders among move up buyers was influenced by improving market conditions in the west where our business mix is much more heavily weighted towards move up.

Bob: Given this strong start to our spring selling season.

Bob: Quarter end backlog increased to 13430 homes with a value of $8 2 billion.

Bob: We started approximately 7500 homes in the quarter and ended the period with a total of 17000.

Bob: Homes under construction.

Robert T. OShaughnessy: Our production pipeline includes approximately 7,000, or 41% of the spec homes, of which 1,337 are completed. We are operating just above our target of one finished spec per month. I believe carrying a few more finished decks is the right strategy, given buyers' preferences and the fact that we are still in the more active spring selling season, given the units we have under construction and their stage of production.

Bob: Our production pipeline includes approximately 7000 or <unk>, 41% spec homes of which 1337 are completed.

Bob: We are operating just above our target of one finished spec per community, but believe carrying a few more finished specs at the right strategy.

Bob: Buyers preferences and the fact that we are still in the more active spring selling season.

Bob: Given the units we have under construction and their stage in production, we expect to close between 7000 808200 homes in the second quarter.

Robert T. OShaughnessy: We expect to close between 7,800 and 8,200 homes in the second quarter. With a strong start to the year in both orders and closings, we are raising our guide for full-year closings to approximately 31,000 homes. This would represent an 8% increase over 2023, which is the higher end of our long-term goal of growing our closing volume between 5% and 10% annually. Closing in the first quarter at an average sales price of $538,000, slightly below our guide for pricing of $540,000 to $550,000.

Bob: With the strong start to the year in both orders and closings.

Bob: Raising our guidance for full year closings to approximately 31000 homes.

Bob: This would represent an 8% increase over 2023, which is the higher end of our long term goal of growing our closing volume between five and 10% annually.

Bob: Closings in the first quarter at an average sales price of $538000, which was slightly below our guidance for pricing of $540 to $550000.

Bob: Relative to our guide pricing in the quarter was influenced by the geographic mix of closings along with a higher volume of spec homes closed in the period.

As we move through the remainder of the year, we expect the mix of homes closed in each quarter will result in asp's consistent with our prior guidance of 540 to $550000.

Robert T. OShaughnessy: Relative to our guide, pricing in the quarter was influenced by the geographic mix of closed properties, along with a higher volume of Speco properties that were closed in the period. As we move through the remainder of the year, we expect the mix of homes closed in each quarter will result in ASPs consistent with our prior guide of $540,000 to $550,000.

Bob: For the first quarter, we reported a gross margin of 29, 6%, which is an increase of 50 basis points over the first quarter of 'twenty three.

Bob: Sequential gain of 70 basis points from the fourth quarter of 'twenty three.

Bob: At 29, 6%, our first quarter gross margin was also notably higher than our guidance.

Robert T. OShaughnessy: For the first quarter, we reported a gross margin of 29.6%, which is an increase of 50 basis points over the first quarter of 23, and a sequential gain of 70 basis points from the fourth quarter of 23. At 29.6%, our first quarter gross margin was also notably higher than our guide. John Ryan's comments that we are achieving high returns by actively managing both pace and price have had an impact on our reported Q1 mark. Fire demand increased in the quarters.

Bob: Beyond Ryan's comments that we are achieving higher returns by actively managing both pace and price.

Bob: Mix had an impact on our reported Q1 margins.

Bob: Higher demand increased in the quarters.

Bob: As the quarter advanced.

Bob: Which allowed us to sell and close more homes in the period that forecast.

Bob: On a relative basis more of these closings occurred in our higher margin markets in the southeast and Florida.

Bob: <unk> and a meaningful increase in reported gross margins for the quarter.

Bob: Based on Q1 sign ups in the composition of our backlog.

Bob: The geographic mix of closings to be more balanced as we move through the remainder of the year.

Bob: That being said, we're raising our gross margin guidance for the remainder of 'twenty four.

Robert T. OShaughnessy: That's the quarter advance, which allowed us to sell and close more homes in the period than forehand. On a relative basis, more of these closings occurred in our higher-margin markets in the southeast of Florida, resulting in a meaningful increase in reported pro-smartness for the court.

Bob: Previously guided to quarterly gross margins of 28 28, 5%.

Bob: We now expect gross margins in the second quarter.

Bob: To be approximately 29, 2%.

Based on current backlog, we would expect gross margins in the third and fourth quarters to be approximately 29%, but we still have Paul is to sell and close so.

Robert T. OShaughnessy: Based on Q1 signups and the composition of our backlogs, we would expect the geographic mix of closings to be more balanced as we move through the remainder of the year. That being said, we're raising our Gross Martin Guide for the remainder of 2020. We had previously guided to quarterly gross margins of 28 to 28.5%, but we now expect gross margins in the second quarter to be approximately 29.2%. Based on current backlogs, we'd expect gross margins in the 3rd and 4th quarters to be approximately 29%. But we still have homes to sell and close, so demand conditions over the coming months will impact the results we can hold. On Buyer Demand and Near-Term Pricing Dynamics

Bob: Demand conditions over the coming months will impact the results we ultimately report.

Bob: Beyond buyer demand in near term pricing dynamics. The gross margin guide for the remainder of 'twenty. Four also reflects expected changes in the geographic mix of homes, we expect to close.

Bob: Given recent sign up trends, we anticipate closing more homes in our West region, which currently have a lower relative margin profile due to the fact that we adjusted pricing in these markets over the course of 'twenty three to achieve appropriate sales paces.

Bob: Looking at our costs reported SG&A in the first quarter was $358 million or nine 4% of home sale revenues.

Bob: Noted in our press release, our reported SG&A for the period includes a $27 million.

Bob: Pretax insurance benefit.

Bob: SG&A in the first quarter of 2003 was $337 million or nine 6% of home sale revenues.

Robert T. OShaughnessy: The Gross Margin Guide for the remainder of 24 also reflects expected changes in the geographic mix of homes we expect to close. Given recent sign-up trends, we anticipate closing more homes in our West region, which currently has a lower relative margin profile due to the fact that we adjusted pricing in these markets over the course of 2023 to achieve an appropriate sales pace. Looking at our costs, reported SG&A in the first quarter was $358 million, for 9.4% of home sale revenue.

Bob: Consistent with our previous guidance, we continue to expect SG&A expense for the full year be in the range of nine 2% to nine 5% of home sale revenues.

Bob: Based on normal seasonality, we expect to realize increased overhead leverage as we move through the remaining quarters of the year.

Bob: Our financial services operations reported pretax income of $41 million for the first quarter, which is an increase of almost 200% from last year's pre tax income of $14 million.

Bob: The increase in Q1 pretax income was driven by better market conditions across our financial services platform.

Robert T. OShaughnessy: As noted in our press release, our reported SG&A for the period includes a $27 million pre-tax insurance benefit. SG&A in the first quarter of 23 was $337 million for 9.6% of home sale revenue. Consistent with our previous guide, we continue to expect SG&A expense for the full year to be in the range of 9.2% to 9.5% of home sale revenue. Based on normal seasonality, we expect to realize increased overhead leverage as we move to the remaining quarter season.

Bob: Financial services also benefited from higher capture rates across all business lines.

Bob: <unk> increased to 84% up from 78% last year and our mortgage operations.

Bob: As noted in this morning's press release in the first quarter, we completed the sale of a joint venture that resulted in a gain of $38 million.

Bob: On our income statement. This gain was recorded in equity income from non consolidated entities.

Bob: Our reported first quarter pretax income for the period record $869 million.

Bob: An increase of 24% over last year.

Bob: Against that we recorded a tax expense of $206 million, which.

Robert T. OShaughnessy: Our financial services operations reported pre-tax income of $41 million for the first quarter, which is an increase of almost 200% from last year's pre-tax income of $14 million. The increase in Q1 pre-tax income was driven by better market conditions across our financial services platform. Financial services also benefited from higher capture rates across all business lines, including an increase to 84%, up from 78% last year in our mortgage output.

Bob: Thats, an effective tax rate of 23, 7%.

Bob: Our reported Q1 tax rate was impacted by energy tax credits and stock compensation deductions recorded in the period.

Bob: For the balance of the year, we continue to expect our tax rate to be in the range of 24% to 24, 5%.

Bob: In total our reported Q1 net income was $663 million or $3 10 per share compared with prior year reported net income of $533 million or $2 35 per share.

Bob: Earnings per share and our most recent quarter benefited from a 6% reduction in share count compared with the prior year as we continue to systematically repurchase our stock.

Robert T. OShaughnessy: As noted in this morning's press release, in the first quarter, we completed the sale of a joint venture that resulted in a gain of $38 million. On our income statement, this game was recorded in equity income from a consolidated, Our reported first quarter pre-tax income was a period record of $869 million, an increase of 24% over last year. Against that, we record a tax expense of $206 million, which represents an effective tax rate of 23.7%.

Bob: Moving past the income statement, we invested approximately $1 $1 billion in land acquisition and development in the first quarter.

Consistent with our recent land activity, 60% of our land spend in the quarter was for the development of our existing land.

Bob: Our Q1 land spend keeps us on track with our plan to invest approximately $5 billion.

Bob: Land acquisition and development for the full year of <unk>.

We continue to expect about 60% will be for development with the remainder for the acquisition of new land positions.

Bob: We ended the quarter with approximately 220000 lots under control of which 51% of our LTE option.

Bob: The purchase of several large land positions and combinations with decisions not to move forward with a <unk> option transactions during the quarter.

Robert T. OShaughnessy: The reported Q1 tax rate was impacted by the energy tax credit and Stock Compensation Deductions recorded in the. For the balance of the year, we continue to expect our tax rate to be in the range of 24% to 24.5%.

Bob: Lowered our lot option percentage from the end of 2023.

Bob: I would highlight however that 74% of the lots we have premium approved in this most recent quarter were under option.

Bob: As our first quarter numbers indicate we continue to work toward our multi year goal of controlling 70% of our land pipeline via option.

Robert T. OShaughnessy: In total, our reported Q1 net income was $663 million, or $3.10 per share, compared with prior year reported net income of $533 million, or $2.35 billion. Earnings per share in our most recent quarter benefited from a 6% reduction in share count compared with the prior year as we continue to systematically repurchase our stock. Moving past the income statement, we invested approximately $1.1 billion in land acquisition and development in the first quarter

Bob: Looking at our community Count we continue to expect average community count in 2020 quarter to increased three 5% in each quarter over the comparable prior year period.

Bob: Along with investing in our business, we continue to return capital to shareholders in.

Bob: In the quarter, we repurchased two 3 million common shares at a cost of $246 million for an average.

Bob: Price of $106 73 per share.

Bob: In the quarter, we also opportunistically purchased approximately $10 million of RF standing bonds.

Robert T. OShaughnessy: Consistent with our recent land activity, 60% of our land spent in the quarter was for the development of our existing land. The Q1 land spend keeps us on track with our plan to invest approximately $5 billion in land acquisition and development for the full year, of which we continue to expect about 60% will be for development, with the remainder for the acquisition of new land. We ended the quarter with approximately 220,000 lives under control, of which 51% were held via option.

Bob: After allocating approximately $1 $4 billion to investment and the return of funds to shareholders. We ended the first quarter with $1 $8 billion of cash taking.

Taking all this into account our quarter end gross debt to capital ratio was 15, 4%.

Bob: While our net debt to capital ratio was only one 7%.

Bob: Now, let me turn the call back to Ryan for some final comments.

Thanks, Bob as you would expect given the strength of our first quarter results buyer interest was high in the period as the order paces increase beyond typical seasonality.

Robert T. OShaughnessy: This, combined with decisions not to move forward with a few option transactions during the quarter, lowered our lot option percentage from the end of 2020. I would highlight, however, that 74% of the lots we have pre-approved in this most recent quarter were under-op. As our first quarter numbers indicate, we continue to work toward our multi-year goal of controlling 70% of our land pipeline, the Ops. Looking at our community count, we continue to expect average community counts in 2024 to increase 3-5% in each quarter over the comparable prior year period.

Ryan R. Marshall: Sales momentum continued into April although we are now seeing some moderation of traffic into our communities due to the recent increases in interest rates, particularly within the Centex brand.

Ryan R. Marshall: While the change is relatively modest and based on a limited number of days consumer feedback suggest that higher rates are causing some buyers to evaluate the timing of their activity due to the volatile interest rate environment.

Ryan R. Marshall: We will continue to monitor how buyers respond to changes in the rate environment and are prepared to adjust pricing or incentives to ensure we are appropriately turning assets.

Ryan R. Marshall: During our last earnings call, we talked about the opportunity for Pulte group to grow its business, 5% to 10% annually.

Ryan R. Marshall: Along with investing in our business, we continue to return capital to shareholders. In the quarter, we repurchased 2.3 million common shares at a cost of $246 million for an average price of $106.73 per share. In the quarter, we also opportunistically purchased approximately $10 million of our outstanding bonds after allocating approximately $1.4 billion to investment in the return of funds to shareholders. We ended the first quarter with $1.8 billion of cash. Taking all this into account, our quarter-end gross debt-to-capital ratio was 15.4%, while our net debt-to-capital ratio was only 1.7%. Now, let me turn the call back to Ryan for some final comments. Thanks, Bob.

Ryan R. Marshall: Given the lengthy land investment process organic change in this industry takes time to accomplish but we have been systematically planning and positioning to deliver against this goal for the past few years.

Ryan R. Marshall: I think that the company's efforts are reflected in the allocation of capital into growing our business <unk>.

Ryan R. Marshall: Including our Q1 spend since 2021, our operating teams have invested approximately $14 billion in land acquisition and development.

Ryan R. Marshall: With plans to invest another $5 billion in 2024.

Ryan R. Marshall: With the land, we have been investing in our people and working to ensure that needed trade capacity is available to support our expanding operations.

Ryan R. Marshall: I'm proud to say that we have accomplished this while adhering to the same underwriting hurdles and investment disciplines, which had been the cornerstone of Pulte group for the past decade.

Ryan R. Marshall: Thanks, Bob. As you would expect, given the strength of our first quarter results, buyer interest was high in the period as the order of paces increased beyond typical seasonality. That sales momentum continued into April, although we are now seeing some moderation of traffic into our communities due to the recent increases in interest rates, particularly within the Suntex brand. While the change is relatively modest and based on a limited number of days, consumer feedback suggests that higher rates are causing some buyers to evaluate the timing of their activity due to the volatile interest rate environment.

Ryan R. Marshall: Such discipline has allowed Pulte group to more consistently grow its earnings drive substantial cash flow from operations and deliver high returns.

Ryan R. Marshall: And we've accomplished this while maintaining the superior build quality and customer experience, which Pulte group home buyers have come to expect.

Speaker Change: Before opening the call to questions I want to take a minute to recognize and celebrate our team for once again being named a fortune 100 best company to work for what makes US recognition. So important and gratifying is that it's based on feedback from all of our employees.

Ryan R. Marshall: We'll continue to monitor how buyers respond to changes in the rate environment and are prepared to adjust pricing or incentives to ensure we are appropriately turning assets. On our last earnings call, we talked about the opportunity for PulteGroup to grow its business 5 to 10% annually. Given the lengthy land investment process, organic change in this industry takes time to accomplish, but we have been systematically planning and positioning to deliver against this goal for the past few years.

Speaker Change: This March Pulte group's fourth consecutive year on the list and is a testament to the culture of personal caring and professional development that we work to maintain.

Speaker Change: Rod to lead such an organization that is committed to taking care of our customers and each other let me now turn the call back to Jim Zimmer.

James P. Zeumer: Great. Thanks, Ryan we're now prepared to open the call for questions. So we can get to as many questions as possible. During the remaining time of this call. We ask that you limit yourself to one question and one follow up.

James P. Zeumer: If you would explain the process, we will that will get ready we can start with Q&A.

Speaker Change: Thank you.

Speaker Change: If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad raise your hand and joined the queue.

Ryan R. Marshall: I think that the company's efforts are reflected in the allocation of capital to growing our business. Including our Q1 spend, since 2021, our operating teams have invested approximately $14 billion in land acquisition and development, with plans to invest another $5 billion in 2024.

You would like to withdraw your question simply press Star one again.

Speaker Change: If you are called upon to ask your question and our listening via loud speaker on your device. Please pick up your handset and ensure that your phone is not on mute when asking your question.

Ryan R. Marshall: Along with the land, we have been investing in our people and working to ensure that the needed trade capacity is available to support our expanding operations. I'm proud to say that we've accomplished this while adhering to the same underwriting standards and investment disciplines which have been the cornerstone of PulteGroup for the past decade. Such discipline has allowed PulteGroup to more consistently grow its earnings, drive substantial cash flow from operations, and deliver high returns.

Speaker Change: Again for today's session. We request that you limit to one question and one follow up.

Speaker Change: Your first question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.

Stephen Kim: Yeah. Thanks, very much guys are impressive results and I appreciate all the guidance that you provided.

Stephen Kim: I guess my first question relates to your longer term.

Ryan R. Marshall: And we've accomplished this while maintaining the superior build quality and customer experience which PulteGroup homebuyers have come to expect. Before opening the call to questions, I want to take a minute to recognize and celebrate our team for once again being named a Fortune 100 Best Company to Work For. What makes this recognition so important and gratifying is that it's based on feedback from all of our employees. This marks PulteGroup's fourth consecutive year on the list and is a testament to the culture of personal care and professional development that we work for. I am proud to lead such an organization that is committed to taking care of our customers and each other. Let me now turn the call back to James Zeumer. Great. Thanks, Ryan.

Stephen Kim: Targets with respect to land Ryan I think the last time I ask you. This question I was curious about sort of where your long term target is high and I think I stated it in in terms of years owns.

Stephen Kim: I understand that you want to have about seven years controlled with about 30% optioned.

Stephen Kim: Over the long term that would put you at about a little over two years of owned land youre quite a bit above that now and so my question is am I thinking about that right is your long term target for online you know a little over two years owned and over what time span do you think we should expect you to migrate to that if that is in fact.

Stephen Kim: Your target.

James P. Zeumer: Great, thanks Ryan. We're now prepared to open the call for questions, so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Dean, if you would explain the process, we will get ready to get started with our Q&A.

Speaker Change: Yes, Steven Thanks for the question.

Speaker Change: Overall target of seven years controlled is about right and then we stated our long term target of Optionality at 70%.

Stephen Kim: We do think it'll be a multiyear journey getting there.

Stephen Kim: And that's that's really driven by the fact, Stephen that we wanted to do it in a very.

Operator: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, for today's session, we request that you limit yourself to one question and one follow-up. Your first question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.

Stephen Kim: Ganic natural way that drives.

Stephen Kim: Ideal economics for each individual transaction.

Stephen Kim: We highlighted in the prepared remarks, Bob did.

Stephen Kim: <unk> did in the quarter, 74% of the deals that we approved were under option.

Stephen Kim: We think that type of activity over the next.

Several years will have us arrive at our long term target and a very natural way when we do that.

Stephen Kim: To your point will be right around something just over two.

Stephen Kim: Two two and a half years of owned land at that point.

Stephen Kim: Yeah, thanks very much, guys. Impressive results.

Speaker Change: Yeah, and thanks for that and then you know as you progress in that manner. It will unlock some additional cash flow. In addition to your net earnings and so I wanted to turn to cash flow next I think you gave a guidance a guide for cash flow from operations for the full year previously at about $1 8 billion.

Ryan R. Marshall: And I appreciate all the, you know, the guidance that you provided. I guess my first question relates to your longer term targets with respect to land. Ryan, I think the last time I asked you this question, I was curious about sort of where your long term target is, and I think I stated it in terms of years owned. And so my question is, am I thinking about that right? Is your long term target for own land, you know, a little over two years owned? And over what time span do you think we should expect you to migrate to that if that is in fact your target? Yes.

Speaker Change: You've taken up your you had a great <unk> you've taken up your outlook for both volume and gross margin and and and and are most of the operating margin for the year.

Speaker Change: Can you give us an update on where you're thinking cash flow from operations may come in for the full year in light of those changes and maybe even more importantly.

Speaker Change: What should we expect in terms of deployment into dividends and repurchases I noticed this quarter. For example, like it was pretty much buyback was pretty much equal to cash flow from operations and your leverage is pretty much stabilized in low single digits. So is it right to think that maybe whatever you're generating cash flow from operations.

Ryan R. Marshall: Yeah, Stephen, thanks for the question. I think your overall target of seven years controlled is about right. And then we've stated our long-term target of optionality at 70%. We do think it'll be a multi-year journey to get there. And that's really driven by the fact, Stephen, that we want to do it in a very organic, natural way that drives ideal economics for each individual transaction. We highlighted in the prepared remarks Bob gave that, in the quarter, 74% of the deals that we approved were under option.

Speaker Change: Bit of flex quarter to quarter, but in general that's about what you would deliver in terms of repayment, sorry repurchases and dividends.

Speaker Change: Yes, Stephen it's Bob good morning.

Bob: We didn't update the guide on cash flow.

Bob: Early in the year.

Ryan R. Marshall: We think that type of activity over the next several years will have us arrive at our long-term target in a very natural way. When we do that, to your point, we'll be right around something just over two, two, and two and a half years of owned land at that point.

Bob: We're thinking about.

Bob: What we're investing in the business you can see if you look at the balance sheet just since the end of the year.

Bob: We're up about $300 billion in investment in the balance sheet roughly half land F House.

Robert T. OShaughnessy: Yeah, and thanks for that. And then, you know, as you progress in that manner, it will unlock some additional cash flow in addition to your, you know, net earnings. And so I wanted to turn to cash flow next. I think you gave guidance for cash flow from operations for the full year previously at about $1.8 billion. You've taken up, you had a great 1Q, you've taken up your outlook for both volume and gross margin and, well, I should say operating margin for the year.

Bob: And so yes.

Bob: To your point, we certainly expect with incremental volume.

Bob: Incremental margin that will generate a pretty healthy amount of cash.

Bob: Some of that will be invested to meet that 5% to 10% growth that we've talked about.

Bob: So more to come on that as the year progresses certainly.

Bob: But I think the bias would be for more cash from operations.

Robert T. OShaughnessy: Can you give us an update on where you're thinking cash flow from operations, you know, may come in for the full year in light of those changes? And maybe even more importantly, what should we expect in terms of deployment into dividends and repurchases? I noticed this quarter, for example, that buybacks were pretty much equal to cash flow from operations, and your leverage is pretty much stabilized in low single digits.

Bob: And to your point on capital allocation I think we've been pretty consistent for the last 10 years since we laid out our strategy for capital allocation a invest in the business.

Bob: Pay a dividend that grows with earnings.

Bob: Buy back stock with excess capital against a.

Bob: Modest debt profile, obviously, the leverages lower than we had anticipated.

Bob: We look at liability management as part of our capital allocation. So I don't know that I'd go so far as to say.

Robert T. OShaughnessy: So is it right to think that maybe whatever you generate in cash flow from operations, you know, with a little bit of flexibility quarter to quarter, but in general, that's about what you would deliver in terms of, you know, repayment, sorry, repurchases, and dividends?

Bob: Cash flow from operations will equal repurchase activity.

Bob: I think we've been pretty clear we're going to report the news on what our repurchases are going to be.

Robert T. OShaughnessy: Yes, Stephen, it's Bob. Good morning.

Bob: But we obviously in a world, where we're generating cash at that level.

Robert T. OShaughnessy: We didn't update the guide on cash flow because it's early in the year. We're thinking about what we're investing in the business. You can see if you look at the balance sheet, just since the end of the year, we're up about $300 million in investment on the balance sheet, roughly half land, half house. Um, and so... To your point, we certainly expect that incremental volume and incremental margin will generate a pretty healthy amount of cash. Some of that will be invested to meet that 5-10% growth that we've talked about. So more to come on that as the year progresses, certainly.

Particularly if we have less invested in the balance sheet as we move towards that 70%.

Bob: It will free up capital and we'll work through what to do with that capital as we generated.

Speaker Change: Okay, well, we'll be staying tien thanks, a lot guys and congratulations on the strong results.

Speaker Change: Thanks, David.

Speaker Change: Your next question comes from the line of Matthew Bouley with Barclays. Please go ahead.

Matthew Adrien Bouley: Good morning, everyone. Thank you for taking the questions.

Matthew Adrien Bouley: So in the fourth quarter are you as you mentioned sort of didn't raise incentives to chase volume.

Robert T. OShaughnessy: But I think the bias would be for more cash from operations. And to your point on capital allocation, I think, you know, we've been pretty consistent, right, for the last 10 years since we laid out our strategy for capital allocation. A, invest in the business, pay a dividend that grows with earnings, and um, you know, buy back stock with excess capital against a modest debt profile. Obviously, the leverage is lower than we had anticipated.

Matthew Adrien Bouley: Now speaking to rates being higher for longer eventually will be passed the peak of the spring demand and all of that so I guess going forward.

Matthew Adrien Bouley: How are you thinking about that tradeoff with incentives from here given you know.

Matthew Adrien Bouley: Where your margins are is there an opportunity there, perhaps trade a little bit of that margin to drive better growth. There obviously in the context of the supporting returns. Thank you.

Matthew Adrien Bouley: Matt Good morning, it's Ryan Thanks for the question.

Robert T. OShaughnessy: You know, we look at liability management as part of our capital allocation, so I don't know that I'd go so far as to say that cash flow from operations will equal repurchase activity. You know, I think we've been pretty clear we're going to report the news on what our repurchases are going to be. But we obviously are in a world where we're generating cash at that level, particularly if we have less invested in the balance sheet, as we move towards that 70%. It will free up capital, and we'll work through what to do with that capital as we go.

Ryan R. Marshall: We've said in the past, we're not going to be margin proud.

Ryan R. Marshall: I would tell you that remains true.

Ryan R. Marshall: As we highlighted in some of my prepared prepared remarks today, we believe our operating platform and how we positioned our specific community investments. We're in a great position to command excellent pricing get pace and price, which you saw in this most recent quarter.

Ryan R. Marshall: We.

Ryan R. Marshall: Given the interest rate environment that we are clearly going into higher for longer we've got the ability to use the very powerful tool for forward mortgage.

Ryan R. Marshall: Rate commitments that allow us to offer a pretty attractive.

Stephen Kim: Okay, well, we'll be staying tuned. Thanks a lot, guys, and congratulations on the strong results. Thanks, James.

Ryan R. Marshall: You know a pretty attractive incentive program right now we're at 575% nationally and about 25% of our buyers are taking advantage of it. The other thing I'd highlight is that 60% of our business is move up and active adult.

James P. Zeumer: Thanks, David.

Matthew Adrien Bouley: Your next question comes from the line of Matthew Bouley with Barclays. Please go ahead.

Matthew Adrien Bouley: Morning, everyone. Thank you for taking the questions. So in the fourth quarter, you, as you mentioned, sort of didn't raise incentives to chase volume. Now, speaking to rates being higher for longer, you know, eventually we'll be past the peak of spring demand and all that. So I guess going forward, how are you thinking about that tradeoff with incentives from here, given, you know, where your margins are? Is there an opportunity to perhaps trade a little bit of that margin to drive better growth, obviously, in the context of supporting returns? Thank you.

Ryan R. Marshall: Which tends to not be quite as rate sensitive is the first time buyer with that first time buyer thats, where our predominantly our centex brand predominantly first time buyers.

Ryan R. Marshall: See a higher percentage of those buyers take advantage of.

Ryan R. Marshall: The four rig commitments.

Ryan R. Marshall: The last piece Matthew that I'd, probably point out is that our guide.

Ryan R. Marshall: For the balance of the year assumes that the incentive load that we currently have.

Ryan R. Marshall: Matt, good morning. It's Ryan.

Ryan R. Marshall: Thanks for the question. As we've said in the past, we're not going to be margin proud. And I would tell you that remains true. As we highlighted in some of my prepared remarks today, we believe our operating platform and how we've positioned our specific community investments, we're in a great position to command excellent pricing, get pace, and price, which you saw in this most recent quarter. Given the interest rate environment that we are clearly going into higher for longer, we've got the ability to use the very powerful tool of forward mortgage rate commitments that allow us to offer a pretty attractive incentive program.

Ryan R. Marshall: Which on the most recent quarters closings was running at six 5%, we've assumed that that stays flat going forward.

Gotcha: Gotcha, Okay. Thank you for that Ryan.

Second one I wanted to move to the topic of land costs and land inflation I think last quarter.

Speaker Change: You had spoken to the potential for mid to upper single digit inflation in land.

Speaker Change: But maybe what wasn't totally clear on exactly when that would impact your gross margin I'm curious you know.

Speaker Change: Can you kind of walk us through the timing of sort of land costs flowing into your gross margin.

Ryan R. Marshall: With that first time buyer, that's predominantly our Sentex brand, predominantly first time buyers, and we see a higher percentage of those buyers take advantage of the forward rate commitment. The last piece, Matthew, that I'd probably point out is that our guide... For the balance of the year assumes that the incentive load that we currently have, which on the most recent quarter's closings was running at six and a half percent. We've assumed that that stays flat going forward.

Speaker Change: You know and then kind of what are you seeing in real time are in the land market as the market started to decelerate at all or is there kind of still kind of chugging along at that mid upper single low single digit rate. Thank you.

Bob: Yes, Matt it's Bob.

Bob: That mid to high single digit increase in our lot costs was in our Q1 and is expected to continue through the balance of the year. So when we gave the margin guide we had pretty good visibility into our lot cost because those are lots typically out of the ground.

Matthew Adrien Bouley: Gotcha. Okay. Thank you for that, Ryan.

Robert T. OShaughnessy: The second one is land costs and land inflation. I think last quarter you had spoken to the potential for mid to upper single-digit inflation in land, but maybe it wasn't totally clear on exactly when that would impact your gross margin. I'm curious, can you kind of walk us through the timing of sort of land costs flowing into your gross margin, and then kind of what you are seeing in real time in the land market? Has the market started to decelerate at all, or is it kind of still kind of chugging along at that mid-upper single-digit rate? Thank you. Yeah, Matt, it's Bob.

Speaker Change: Already so it's there.

Speaker Change: In terms of the current market conditions.

Speaker Change: It's still competitive out there you know I've said this before land hasn't gone on sale.

Speaker Change: And slight variations in market typically adult result in prices declining.

Speaker Change: You know the.

Speaker Change: Mark it's super efficient on the way up a little bit sticky on the way down.

Speaker Change: So.

Speaker Change: For quality parcels.

Speaker Change: It's competitive.

Speaker Change: Gotcha, Alright, that's clear thanks, Bob and good luck guys.

Speaker Change: Your next question comes from the line of Carl Reichardt with <unk>. Please go ahead.

Carl Edwin Reichardt: Good morning, guys.

Robert T. OShaughnessy: Yeah, Matt, it's Bob. That mid to high single-digit increase in our lot costs was in our Q1 and is expected to continue through the balance of the year. So when we gave the margin guide, you know, we had pretty good visibility into our lot costs because those are lots that are typically on the ground already, so it's there. You know, it's still competitive out there. You know, I've said this before, you know, land hasn't gone on sale.

Carl Edwin Reichardt: It's the first time since mid 2020 when you.

Construction cycle times, so I thought it at least I'd ask across the markets products and geographic markets. Our cycle times effectively normalized now for you or are we still are we still a little bit longer than than you were pre COVID-19.

Good morning, Carl Thanks for the question, we saw a couple of days of cycle time improvement in the most recent quarter. So we were at 128 days.

Robert T. OShaughnessy: And, you know, slight variations in the market typically don't result in prices declining. You know, the market's super efficient on the way up, and a little bit sticky on the way down. So, you know, for quality parcels, it's competitive.

Carl Edwin Reichardt: Down from the 130 that we ended the fourth quarter of 2023.

Speaker Change: We are still on track and still are targeting being at a.

Speaker Change: 100 days by the end of the year when we.

Speaker Change: Look deeper at our Q1 numbers, we had some long cycle to closings that had been in production for a long time in many cases were multifamily and condo buildings.

Matthew Adrien Bouley: Gotcha. All right, that's clear. Thanks, Bob. Good luck, guys.

Carl Edwin Reichardt: Your next question comes from the line of Carl Reichardt with BTIG. Please go ahead.

Speaker Change: But we think kept the overall number that I just shared with you of 128 days or higher a little bit higher than that what we think.

Ryan R. Marshall: Saying this is the first time since mid 2020 when you haven't addressed construction cycle times, so I thought at least I'd ask across the markets, products, and geographic markets, are cycle times effectively normalized now for you? Or are we still are we still a little bit?

Speaker Change: As our actual run rate at this point.

Speaker Change: When we look at a lot of our markets were already back to kind of pre Covid cycle times of our you know even sub 100 days. So we've made a lot of progress and a lot of places we have a few markets that are a little stickier.

Ryan R. Marshall: Morning, Carl. Thanks for the question. We saw a couple of days of cycle time improvement in the most recent quarter, so we were at 128 days, down from the 130 that we ended the fourth quarter of 2023 at. We are still on track and still targeting being at, you know, 100 days by the end of the year. When we look deeper at our Q1 numbers, we had some long-cycled closings that had been in production for a long time, in many cases, were multifamily and condo buildings that we think kept the overall number that I just shared with you of 128 days a little bit higher than what we think is our actual run rate at this point.

Speaker Change: We're working hard to get cycle times back to where we'd like them to but are buying.

Speaker Change: By and large we still feel that the target we've set up a 100 days is very much in reach.

Speaker Change: Great. Thank you, Brian and then you talked a little bit about existing home inventory creep that I think we're seeing in some of the data.

Speaker Change: If we dig into that Ryan if you can dig into that.

Speaker Change: Is this inventory that you would expect would be effectively a net neutral impacted the demand supply in other words.

Ryan R. Marshall: It has to move elsewhere.

Ryan R. Marshall: Versus naked capacity meeting investors your second homeowners, who are putting their homes on the market effectively bacon because I think there's an important difference between the two so to the extent that you know what are you seeing thanks.

Ryan R. Marshall: When we look at a lot of our markets, we're already back to kind of pre-COVID cycle times of, you know, even sub-100 days. So we've made a lot of progress in a lot of places. We have a few markets that are a little stickier where, you know, we're working hard to get cycle times back to where we'd like them to be, but by and large, we still feel that the target we've set of 100 days is very much in reach.

Speaker Change: Yes outside.

Speaker Change: There might be I'm sure there are some markets Carl Ware.

Speaker Change: The there is vacant investor driven inventory that you could characterize this new supply the majority of the markets, where we operate we think any existing resale inventory that does come to market. Those are buyers that are going to go buy another home somewhere else. So we think it's largely neutral.

Speaker Change: On the overalls supply side.

Carl Edwin Reichardt: Great. Thank you, Brian.

Speaker Change: Thank you Ron Thanks Al.

Speaker Change: Thanks Sarah.

Carl Edwin Reichardt: And then you talked a little bit about existing home inventory creep that I think we're seeing in some of the data. If we dig into that, Ryan, if you can dig into that, is this inventory that you'd expect would be effectively a net neutral impact on the demand supply? In other words, these are houses to move elsewhere versus vacant capacity, meaning investors or second homeowners who are putting their homes on the market effectively vacant, because I think there's an important difference between the two. So to the extent that you know, what are you seeing? Thanks.

Speaker Change: Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.

Anthony James Pettinari: Good morning.

Anthony James Pettinari: I'm wondering if you could talk a I was wondering if you could talk about maybe the potential impact of the <unk> settlement on your business or maybe the broader industry.

Anthony James Pettinari: And any kind of potential secondary impacts of the policy.

Yeah, Anthony we're watching it closely as I think a lot of the real estate girl is.

Ryan R. Marshall: Yeah, outside, you know, there might be some markets, Carl, where there is vacant investor-driven inventory that you could characterize as new supply. But the majority of the markets where we operate, we think any existing resale inventory that does come to market, those are buyers that are going to go buy another home somewhere else. So we think it's largely neutral on the overall supply side.

Anthony James Pettinari: We think it ultimately goes as it will create better transparency around the fee structure.

Anthony James Pettinari:

Anthony James Pettinari: And will will likely change over time, the way that the providers of those services charge.

Anthony James Pettinari: The users are the consumers of those services ultimately pay so.

Anthony James Pettinari: Your next question comes from the line of Anthony Pettinari, with C. Your line is open.

Anthony James Pettinari: We realtors are important part of our business and over.

Ryan R. Marshall: Good morning. I was wondering if you could talk about the potential impact of the NAR settlement on your business or maybe the broader industry and any kind of potential secondary impacts on Pulte.

Anthony James Pettinari: Probably 60% of the sales that we have include.

Anthony James Pettinari: A buy side reorder involved so.

Anthony James Pettinari: We certainly support the realtor community the veteran important part of our company for a long time, but we are watching the way that the landscape there will certainly change.

Anthony James Pettinari: Yeah, Anthony, we're watching it closely, as I think a lot of the real estate world is. Where we think it ultimately goes is it'll create better transparency around the fee structure, and will likely change over time the way that the providers of those services charge, and the users or the consumers of those services ultimately pay. So realtors are an important part of our business, and probably 60% of the sales that we have involve a buy-side realtor involved. So, you know, we certainly support the realtor community. They've been an important part of our company for a long time, but, you know, we are watching the way that the landscape there will certainly change.

Anthony James Pettinari: Yeah.

Anthony James Pettinari: Okay.

Anthony James Pettinari: And then.

Anthony James Pettinari: You talked about stronger trends regionally I think in Nevada, Arizona, California, If I got that right is there anything, particularly driving that in your view.

Anthony James Pettinari: Maybe you can just talk about kind of long term attractiveness of the.

Anthony James Pettinari: Of that region as you kind of build out the community count.

Anthony James Pettinari: Yes, a couple of things happened there.

Anthony James Pettinari: It was a market that saw a lot of price appreciation on the Covid years affordability, we thank god.

Ryan R. Marshall: Okay. And then, you know, you talked about stronger trends regionally, I think in Nevada, Arizona, California. If I got that right, is there anything particularly driving that in your view? And maybe you can just talk about the kind of long-term attractiveness of that region as you kind of build out the community count. Yeah.

Anthony James Pettinari: Strange for certain last year, we did a fair amount of price discovery as we work to right size, what our go to market price was in those markets.

Anthony James Pettinari: That combined with I think a general improvement in buyer sentiment contributed to.

Ryan R. Marshall: Yeah, a couple things happened there. It was a market that saw a lot of price appreciation during the COVID years. Affordability, we think, got strained for certain. Last year, we did a fair amount of price discovery as we worked to right-size what our go-to market price was in those markets. That, combined with, I think, a general improvement in buyer sentiment, contributed to the lights coming back on in the Western markets. Some of the markets that we'd highlighted pretty consistently last year, Seattle, Northern California, Southern California, Las Vegas, Phoenix, those were strong contributors to our overall results in this most recent quarter.

Anthony James Pettinari: The lights coming back on in the western market. So.

Anthony James Pettinari: Some of the markets that we'd highlighted pretty consistently last year.

Anthony James Pettinari: Seattle, Northern California, Southern California, Las Vegas Phoenix.

Anthony James Pettinari: Those were strong contributors to our overall results in this most recent quarter.

Anthony James Pettinari: We'd expect that to continue Bob highlighted.

Anthony James Pettinari: That.

Anthony James Pettinari: Relative margin contribution out of those markets will be lower than some of the other parts of our business. We have incorporated that incremental volume that we're getting.

Ryan R. Marshall: We'd expect that to continue. Bob highlighted that the relative margin contribution out of those markets would be lower than some of the other parts of our business. We've incorporated that incremental volume that we're getting at a slightly lower margin contribution profile into our guide.

Anthony James Pettinari: A slightly lower margin contribution profile into our guide. So we're look we're pleased that those markets are contributing we got a lot of capital invested there they're big housing markets.

Anthony James Pettinari: Look, we're pleased that those markets are contributing. We got a lot of capital invested there. They're big housing markets. People want to live there for a number of reasons, climate, jobs, etc. We're pleased that they're doing well.

Anthony James Pettinari: People want to live there for a number of reasons climate jobs et cetera. So we're.

Anthony James Pettinari: We're pleased that they are doing well.

Anthony James Pettinari: Okay.

Okay. That's helpful I'll turn it over.

Michael Jason Rehaut: Okay, that's helpful. I'll turn it over.

Anthony James Pettinari: Your next question comes from the line of Michael Rehaut with J P. Morgan. Please go ahead.

Andrew Ozzie: Your next question comes from the line of Michael Rehaut with JPMorgan. Please go ahead.

Anthony James Pettinari: Hey, guys. Good morning, this is Andrew Aussie on for Mike.

Ryan R. Marshall: Hey guys, good morning. This is Andrew Ozzie on for Mike. Quick one, I just wanted to drill down, if I could, on the demand trends you've been seeing over the last few months, just given the change in rates and some concerns in the market. I'd love any kind of progression you saw in the quarter and here into April.

Andrew Aussie: Quick one I just wanted to drill down if I could on the demand trends you've been seeing over the last few months just given the change of rates in some.

Andrew Aussie: Concerns of the market I'd love any kind of progression you saw in the quarter and here into April.

Andrew Aussie: Yes.

Andrew Ozzie: Yeah, it was a strong quarter, a strong first quarter. You know, we highlighted that we saw some trends that were even stronger than normal seasonality. You know, we, the first few weeks of April have continued to show signs of strength. We did highlight that, you know, as we look at traffic, new traffic that's coming into the stores. Well, for a limited number of days in that data set, you know, we are seeing a small downturn that we think is reflective of the change in the rate environment.

Andrew Aussie: It was a strong quarter strong first quarter.

Andrew Aussie: We highlighted that we saw some trends that were even stronger than normal seasonality.

Andrew Aussie: The first few weeks of April.

<unk> has continued.

Andrew Aussie: Signs of strength, we did highlight that as we look at traffic new traffic that's coming into the stores.

Andrew Aussie: Well, a limited number of days and that dataset.

Andrew Aussie: We are seeing.

Andrew Aussie: Small downturn that we think is reflective of the change in the rate environment. So we're going to keep an eye on it.

Andrew Ozzie: So, you know, we're going to keep an eye on it. You know, we don't, at this point, think it's anything to be too alarmed about, but we're watching. Great, thank you. And then, I guess, secondly, on the material costs, how have these kind of trended, and any kind of detail, and how that's reflected in your 2Q growth?

Andrew Aussie: We don't we don't at this point think it's anything to be too alarmed about but we're watching it.

Speaker Change: Great. Thank you and then I guess secondly on material costs, how have these kind of trended in any kind of detail.

Speaker Change: That's.

Speaker Change: <unk> and your <unk> gross margin kind of your assumptions for stick and brick costs.

Speaker Change: Sure Bill costs, they were stable in the first quarter about $80 a square foot for base House.

Robert T. OShaughnessy: Great, thank you. And then, I guess, secondly, on the material costs, how have these kind of trended and any kind of detail and how that's reflected in your 2Q gross margin, your assumptions for the stick and brick cost? Sure.

Speaker Change: That's flat with Q4 of 'twenty, three and it's actually down from $84 per square foot in the first quarter of last year.

Speaker Change: If you look at 24, we expect cost inflation on labor and materials to be pretty manageable low single digit increases.

Robert T. OShaughnessy: Build costs, they were stable in the first quarter, about $80 a square foot for a base house. That's flat with Q4 of 23, and it's actually down from $84 per square foot, order of last. As we look at 24, we expect cost inflation on labor and materials to be pretty manageable with low single-digit increases, and we factor that in.

Speaker Change: And we factor that into our guidance.

Speaker Change: Thank you so much I appreciate it congrats on the quarter.

Speaker Change: Thank you. Thank you.

Speaker Change: Your next.

Speaker Change: Question comes from the line of John Lovallo with UBS financial. Please go ahead.

Morning, guys. Thank you for taking my questions as well.

John Lovallo: So the revised full year gross margin excuse me full year gross margin outlook is about flat year over year and I think previously you had talked about pricing being kind of flat year over year that was a little bit better in the first quarter for sure.

Andrew Ozzie: Thank you so much. I appreciate it. Congratulations on the quarter.

John Lovallo: Your next question comes from the line of John Lovallo with UBS Financial. Please go ahead. Good morning, guys. Thank you.

John Lovallo: Mid to high single digit land costs depreciation kind of low single digit construction cost depreciation just curious how you guys are managing that to actually achieve a flat.

John Lovallo: Good morning, guys. Thank you for taking my questions as well.

John Lovallo: So the revised full-year gross margin outlook is about flat year-over-year. And I think previously you had talked about pricing being kind of flat year-over-year. That was a little bit better in the first quarter for sure.

John Lovallo: The year over year gross margin in that kind of cost environment with what had previously been expected to be sort of flattish pricing.

Speaker Change: Yes, I think it's the strength of the market John.

Speaker Change: Highlighted that were raising prices in a number of our communities that 1% to 5%.

Robert T. OShaughnessy: Mid to high single-digit land cost depreciation and kind of low single-digit construction cost appreciation. Just curious how you guys are managing that to actually achieve a flat year-over-year gross margin in that kind of cost environment with what had previously been expected to be sort of flattish prices.

Speaker Change: That's really the driver combined certainly in this first quarter with the mixed differential that we had highlighted.

Speaker Change: So is it pricing just pricing it makes it a little bit better than previously expected.

Speaker Change: Yes.

Speaker Change: And then <unk>.

Speaker Change: Just to be clear John the mix was really a Q1 issue, we think that smooths out based on the relative strength.

Robert T. OShaughnessy: Yeah, I think, you know, it's the strength of the market, John. We highlighted that we're raising prices in a number of our communities by 1 to 5%. That's really the driver combined, certainly in this first quarter, with the mixed differential that we had highlighted.

Speaker Change: Of volume that Ryan highlighted out west So we'll get more of that relatively lower margin profile in the back half of the year.

John Lovallo: Okay, and I was sort of my follow up is if we think about it as a positive mix impact in the first quarter I mean, how much of the.

John Lovallo: So is it pricing, just pricing and mix a little bit better than previously expected?

Robert T. OShaughnessy: And the mix, just to be clear, John, the mix was really a Q1 issue. We think that smooths out based on the relative strength of volume that Ryan highlighted out west. So we'll get more of that relatively lower margin profile in the backup.

John Lovallo: A slight step down from 29, 6% to 29 two in the gross margin outlook for the second quarter is the reversal of that mix impact or was that really more of a back half.

John Lovallo: Phenomena.

Robert T. OShaughnessy: Okay, and that was sort of my follow-up question is, you know, if we think about the positive mixed impact in the first quarter, how much of the, you know, slight step down from 29.6 to 29.2 in the gross margin outlook for the second quarter is the reversal of that mixed impact or is that really more of a back-half phenomenon? It's, it's both, right?

It's both right, but it's you'll see some of it in Q2 based on the sales that we did in the first quarter and then Youll see more of it later in the year as part of the reason for the step down margin.

John Lovallo: The other thing then we highlighted on the call.

John Lovallo: We still have a lot of homes to sell for the back half of the year and so the point we were making is.

Yes, it depends on how the demand environment holds up if it does.

Speaker Change: That's good Mark.

Robert T. OShaughnessy: It's both, right? But you'll see some of it in Q2, based on the sales that we did in the first quarter. And then you'll see more of it later in the year. That's part of the reason for the step down margin. The other thing that we highlighted on the call is that we still have a lot of homes to sell for the back half of the year. And so the point we were making is, you know, it depends on how the demand environment holds up. If it does, you know... That's good. If the market changes, you could see a plus or minus depending on whether it's a positive change or a negative.

Speaker Change: What changed.

Speaker Change: Could see plus or minus depending on whether it's in the positive change or negative change.

Speaker Change: Understood. Thank you guys.

Speaker Change: Yeah.

Speaker Change: Your next question comes from the line of Sam Reed.

Sam Reed: Reed with Wells Fargo. Please go ahead.

Sam Reed: Awesome. Thanks, so much guys for taking my questions and thanks for the incremental color on April, especially the traffic detail I mean, it definitely makes sense that the centex buyers a bit more.

Sam Reed: Right clash payment since it adds but I wanted to drill down on this a bit more and maybe if you had any perspective on traffic or across other parts of your business that that 60% that kind of active adult and move up.

Sam Reid: Your next question comes from the line of Sam Reid with Wells Fargo. Please go ahead.

Sam Reid: Awesome. Thanks so much, guys, for taking my questions.

Sam Reed: And what youre seeing from that buyer cohort if anything as rates move.

Ryan R. Marshall: And thanks for the incremental color on April, especially the traffic detail. I mean, it definitely makes sense that the Syntex buyer is a bit more rate-slash-payment sensitive. But I wanted to drill down on this a bit more and maybe see if you had any perspective on traffic across other parts of your business, that 60% that's kind of active adults and moving up. And what you're seeing from that buyer cohort, if anything, is rates moving.

Sam Reed: Sam.

Speaker Change: We don't we're not <unk>.

Speaker Change: Parsing the traffic data quite that finally for the purpose of this call.

Speaker Change: One other data point that I will tell you, while we've seen while we've seen traffic into the stores moderate over the last.

Speaker Change: Several days traffic to the website has been incredibly strong so.

Sam Reid: Sam, you know, we're not parsing the traffic data quite that finely for the purpose of this call. You know, one other data point that I will tell you, while we've seen traffic into the stores moderate over the last, you know, several days, traffic to the website's been incredibly strong. So, you know, we still think that there's high buyer demand and desire for home ownership. You know, certainly anytime there's rate fluctuations, it can cause, you know, some disruption in buyer behavior.

Speaker Change: We still think that there's high buyer demand and desire for home ownership.

Speaker Change: Certainly anytime there's rate fluctuations that can cause.

Speaker Change: Some disruption and buyer behavior, but we think the fundamental.

Speaker Change:

Speaker Change: Or are the overall demand for housing remains incredibly strong and we're still in a very supply constrained environment.

Speaker Change: So the overall thesis about this has been a strong operating environment for the industry and this company and what's been a pretty high interest rate environment.

Ryan R. Marshall: But we think the fundamentals... You know, overall demand for housing remains incredibly strong, and we're still in a very supply-constrained environment. So the overall thesis about this has been a strong operating environment for the industry and this company in what's been a pretty high interest rate environment. You know, we think the environment that we would expect for the balance of the year continues to show, you know, success in that type of situation as well. Affordability is, there's no question, the headwind that we'll continue to navigate for, you know, the balance of the year, and we think we've got the tools to do that.

Speaker Change: We think the environment that we would expect for the balance of the year, we can continue to show.

Speaker Change: Success in that type of situation as well affordability is there is no question. It is a headwind.

Speaker Change: We'll continue to navigate.

Speaker Change: For the balance of the year and we think we've got the tools to do that.

Speaker Change: No. That's helpful. And then maybe switching gears here, it's been a little while since this topic has come up but can you talk to your relationship with invitation on the single family rental side and give us an update on where things stand. How many homes you are looking to sell to them. This year any color there would be great. Thanks.

Sam Reid: No, that's helpful. And then, maybe, switching gears here.

Ryan R. Marshall: It's been a little while since this topic has come up, but can you talk to us about your relationship with Invitation on the single family rental side and give us an update on where things stand? Perhaps how many homes you're looking to sell to them this year? Any color there would be great. Thanks.

Speaker Change: Yeah, we targeted when we kicked off the <unk>.

Speaker Change: Philosophy or the strategy that we had on the single family rental with invitation homes and we also partner with some some other local.

Speaker Change: Single family rental operators as well, we've targeted to be somewhere around 5% of our total volume.

Sam Reid: Yeah, we targeted when we kind of kicked off the, you know, the philosophy or the strategy that we had on single family rental with invitation homes and, you know, we also partner with some, some other local single family rental operators as well. We've targeted to be somewhere around 5% of our total volume would go into the single family rental kind of channels. You know, the current year, the closings that we have that will go into that pipeline are right kind of in that 5% range.

Speaker Change: Would go into the single family rental kind of channels.

Speaker Change: You know the current year the closings that we have that will go into that pipeline or right.

Speaker Change: Kind of in that 5% range.

Speaker Change: Certainly the interest rate environment currently.

Speaker Change: Currently I think makes it harder for the single family rental operators to underwrite their deals.

Sam Reid: You know, certainly, the interest rate environment currently makes it harder for single-family rental operators to underwrite their deals. We wouldn't expect that to necessarily be the case forever, but, you know, in the kind of right here and now, a little harder to make those deals pencil for those SFR operators. It's part of the reason that we've said we want it to be part of our business, but not such an outsized component that it creates disruptions to how we operate. Hello.

Speaker Change: We wouldn't expect that necessarily.

<unk> be the case forever.

Speaker Change: But in.

And the kind of a break here and now a little harder to make those deals pencil for those vessel if our operators as part of the reason that we've said we wanted to be part of our business, but not such an outsized component that.

Speaker Change: It creates disruptions on how we operate.

Speaker Change: Yes.

Speaker Change: No that's helpful I'll pass it along guys.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Ralph <unk> with Bank of America. Please go ahead.

Rafe Jason Jadrosich: So that's helpful. I'll pass it along, guys.

Rafe Jason Jadrosich: Your next question comes from the line of Rafe Jadrosich with Bank of America. Please go ahead.

Rafe Jason Jadrosich: Hi, good morning. Thanks for taking my questions. I was wondering if you could talk a little bit about on the cost side, what are you seeing today in terms of the cash costs for land and materials relative to what's flowing through your P&L? And what's the outlook on the cost side?

Ralph: Hi, good morning, Thanks for taking my questions.

Ralph: I was wondering if you could talk a little bit about on the cost side.

Ralph: What are you seeing.

Today in terms of the cash costs.

Ralph: <unk> landed materials relative to what's flowing through your P&L.

Ralph: And what's kind of the outlook on the oil side.

Robert T. OShaughnessy: Well, I certainly on the material side, it is pretty consistent, as Jim highlighted, our build cost per foot flat. You know, the only thing where we're really feeling any pressure there is on OSB, which is run up a little bit.

Ralph: Okay.

Ralph: Well.

Ralph: Certainly on the material side, it is pretty consistent and as Jim highlighted our build cost per foot flat.

Ralph: The only.

Ralph: The only thing we're really feeling any pressure there is on OSB, which has run up a little bit.

Robert T. OShaughnessy: You know, in terms of land, we've highlighted that, you know, high single-digit increase in lot costs. That is... candidly, continuing a theme that has been going on for a number of years, and it's likely to persist. You know, we, you know, I've often described it as a conveyor belt of land, you know, and, you know, we have three years of lots that we buy at any or control at any one point in time.

Ralph: In terms of the land.

Ralph: We've highlighted that.

Ralph: High single digit increase in lot costs.

Ralph: <unk>.

That is.

Ralph: Candidly continuing a theme that has been going on for a number of years and is likely to persist.

Ralph: Yes.

Ralph: I've often described it as a conveyor belt of land.

Ralph: We have three years of lots that we buy at any or control at any one point in time and they kind of roll on.

Robert T. OShaughnessy: And they kind of roll on, you know, the most recent year falls off. Every new year coming on is a little bit more expensive, and that's a combination of increased land costs and increased development costs. But we haven't seen a step change in that, if that's really what you're focused on. So, again, I think you can and should expect to see our lock costs going up. Yeah, for the foreseeable future.

Ralph: Recent year falls off every new year coming on is a little bit more expensive and that's a combination of increased land cost and increased development cost.

Ralph: But we haven't seen a step change in that if that's really what you're focused on.

Ralph: So again I think you can and should expect to see our lot costs going up.

Ralph: For the foreseeable future.

Ralph: Yeah.

Got it.

Rafe Jason Jadrosich: Got it, that's helpful. And then just looking at the first quarter gross margin, can you just talk about the drivers of the quarter, the 70 basis points, quarter over quarter, step up, and then, you know, what were the upsides to your initial guidance?

Speaker Change: That's helpful. And then just looking at the first quarter of gross margin can you just talk about the drivers of the quarter quarter, the 70 basis points quarter over quarter step up and then what was the upside to your initial guidance.

Rafe Jason Jadrosich: Sorry, was that, are you asking sequentially or year over year? sequentially.

Speaker Change: Sorry was that are you asking sequentially or year over year.

Speaker Change: Sequentially.

Robert T. OShaughnessy: Yeah, so you've got 70 basis points, you know, certainly a part of that is going to be the strength of the market relative to our guide, where for the spec homes that we sold, we got better prices, which was a relative margin benefit over the fourth quarter. And the other thing is the mixed shift, not just in terms of geography, which we had highlighted. But, on a sequential basis, we also had a mixed shift towards moving up, which has this higher margin profile relative to the first time, which is where the margin came from.

Speaker Change: Yeah, So you've got 70 basis points.

Speaker Change: Certainly a part of that is going to be the strength of.

Speaker Change: The relative to our guide of the.

Speaker Change: The strength of the market, where the spec homes that we sold we got better pricing.

Speaker Change: Which was a relative margin benefit over the fourth quarter.

Speaker Change: The other thing is the mix shift not just in terms of geography, which we had highlighted.

Speaker Change: But on a sequential basis.

Speaker Change: We also had a mixed shift towards move up.

Speaker Change: Which has a higher margin profile relative to first time, which is where the margin came from they haven't and I hate to use this but there is mix and there is a couple of different mixes going on.

Robert T. OShaughnessy: They have, and I hate to use this, but there's a mix, and there's a couple of different mixes going on. But when you're looking at the sequential margin performance, certainly it's the strength of the market relative to what we thought coming into it. And also, it's a little bit more of a move up, which has a higher margin.

Speaker Change: But when Youre looking at the sequential margin performance certainly it's the strength of the market relative to what we thought coming into it and also it is a little bit more move up which has a higher margin profile for us.

Michael Glaser Dahl: Your next question comes from the line of Mike Dahl with RBC Capital Markets. Please go ahead.

Speaker Change: Okay, great. Thanks, Thank you.

Speaker Change: Kevin.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Mike Dahl with RBC capital markets. Please go ahead.

Michael Glaser Dahl: Thanks for taking my questions. I'm going to stick with margins. You know, Bob, you kind of alluded to this, it's a tricky time when you've just had this rate move, you're maybe just on the front end of seeing some traffic impacts, but you're having to give guidance for a few quarters. And so, I appreciate that there's still some uncertainty when you've got a third of your full year closings yet to be sold.

Michael Glaser Dahl: Hi, Thanks for taking my questions.

Michael Glaser Dahl: I'm going to stick with margins.

Michael Glaser Dahl: Rob you kind of alluded to this it's a tricky time when you just had this.

Michael Glaser Dahl: Great move your maybe just on the front end of seeing some traffic impacts that you are having to give guide out a few quarters.

Speaker Change: So I appreciate that.

Speaker Change: Yes, there was some uncertainty when you've got a third of your full year closings yet to be sold.

Michael Glaser Dahl: So, maybe just talk through, you know, the assumption for flat incentives against this move in rates. Just talk about kind of why that is the kind of baseline assumption, or if it just felt like kind of the right placeholders and matches kind of what your backlog margins look like today. Maybe just a little more detail on how you went through this process at kind of an odd time when the rate move just happened.

Speaker Change: So maybe just talk through the assumption for flat incentives again, let's move in rates.

Speaker Change: Talk about kind of why that was why that is kind of the baseline assumption or if it just felt like kind of a right place holders and match its kind of what your backlog margins look like today, maybe just a little more detail on how you went through this process that kind of an odd time.

Speaker Change: When the rate move just happened.

Robert T. OShaughnessy: Yeah, it's interesting. I'd refer back to something Ryan offered, which is that affordability is still a challenge, and so against that backdrop, our expectation is that we will need to continue to incentivize folks. And the predominant way we're doing that today is through our national commitments and some sort of rate finance support. So our expectation is that that continues. That was our expectation coming into the year in the first quarter. You'll have heard us say it was 6.5% again, just like the fourth quarter.

Yeah, it's interesting I prefer back to something Ryan offered which is that affordability is still a challenge.

Speaker Change: And so against that backdrop, our expectation is that we will need to continue to incentivize folks.

Speaker Change: And the predominant way, we're doing that today is through our national commitments and some sort of rate pants support.

Speaker Change: So our expectation is that that continues that was our expectation coming into the year in the first quarter. You all have heard US say it was six 5% again, just like the fourth quarter, that's roughly 35 to $40000 a house.

Robert T. OShaughnessy: That's roughly $35,000-$40,000 a house, you know, in a world where rates are actually trending back up, I think that we're going to need to continue to support that. So it's, You know, it's a little bit challenging to your point, but I think, on balance, our expectation is that's where we're going to need to be to meet some of the affordability needs. It's one of the reasons we think. You know, you'll continue to see this strong market performance on a relative basis of new versus resale because we can offer those incentives.

Speaker Change: In a world where rates are actually trending back up I think that we're going to need to continue to support that so it's.

Speaker Change: It's a little bit challenging to your point, but I think on balance our expectation is that's where we're going to need to be just to meet some of the affordability needs. It's one of the reasons we think.

Speaker Change: You'll continue to see this strong market performance on a relative basis, new versus resale because we can offer those incentives.

Speaker Change: And I guess as my follow up more specifically that kind of implies that youll get your advertised rates float up over time to match what the market.

Michael Glaser Dahl: And I guess as my follow-up, more specifically, that kind of implies that you'll let your advertised rate float up over time to match what the market move is and maintain your relative incentive. And so if you're allowing your rate to kind of float up, call it 40, 50 basis points from where it may have been a month or two ago. What have you done or seen in terms of kind of thinking about sensitizing some of the recent demand trends, particularly in your Centex brand?

The repairs and maintain your ear.

Speaker Change: Relative incentive.

Speaker Change: And so if youre, allowing.

Speaker Change: Youre right to kind of float up call. It 40 to 50 basis points from where it may have been.

Speaker Change: A month or two ago.

Speaker Change: What have you done or seen in terms of kind of thinking about sensitizing.

Speaker Change: The recent demand trends, particularly in your Centex brand I understand that it's not can be a major.

Michael Glaser Dahl: I understand that it's not going to be a major, potentially not as major a dynamic for your move up or Active Adult, but in your Syntex brand, you know, what's the sensitivity to a 40, 50 basis point move and embrace that you've kind of seen or thought about?

Speaker Change: Essentially not as major dynamic for your move up or.

Speaker Change: We're active adult but in your Centex brand.

Speaker Change: Sensitivity to a 40 50 basis point move in.

Speaker Change: That you're that you've kind of seen or thought about.

Robert T. OShaughnessy: It certainly is for that true entry-level buyer. It's the game, right? And so, you know, we've got programs that offer them lower cost incentives. So we're giving them higher rates relative to others who have choices. And, you know, it's worth it to remember we offer a national program, but there's a lot of detail in terms of what we can and actually do offer to people and what they want to kind of access in terms of our support.

It will certainly for that for that true entry level buyer.

Speaker Change: That game right and so we've got programs that offer them lower cost incentive so we're giving them more rates support relative to others who have choices.

Speaker Change: And it's worth it to remember we offer a national program, but theres a lot of.

Speaker Change: Detailed in terms of what we can actually do offer to people and what they what they want to kind of access in terms of our support.

Robert T. OShaughnessy: Um, you know, there will be some people with rates moving up that will literally fall off the ability to buy a home. You know, that's not the case for our active adult and move-up buyers, and candidly, for a lot of our Centex buyers, you know, you look at our average sales price, at $419,000 in this most recent quarter, that's not, typically, you're a true entry-level buyer; we're at a little bit higher price point. Our first time communities are typically a little bit closer in.

Speaker Change: Yes, there will be some people with rates moving up that will literally falloff the ability to buy a home.

Speaker Change: That's not the case for our active adult and move up buyers that candidly for a lot of our centex buyers.

Speaker Change: You look at our average sales price at $419000 in this most recent quarter.

Speaker Change: That's not.

Speaker Change: Typically your true entry level buyer, we're at a little bit higher price point.

Speaker Change: Our first time periods are typically a little bit closer in.

Michael Glaser Dahl: And so I think, you know, it depends on who your buyer is. But to answer your question about whether we will vary our offering, the answer is yes, we have. Yeah, we are actively managing these national programs.

Speaker Change: And so I think it depends on who your buyer is but to answer your question about will we vary our offering the answer is yes, we have been.

Speaker Change: We are we are actively managing these national programs.

Robert T. OShaughnessy: We're buying commitments in relatively small amounts so that we don't get caught by market changes, and what it allows us to do is change our offering based on what the market is doing. So as market rates floated down, we moved our offer rate down somewhat to try and be responsive to deliver a real savings versus the street rate that they could get on their mortgage. As rates tick back up, we're moving those rates up a little bit. It's an art, not a science, but I think what you can expect us to do is listen to the consumers in terms of what they need and seek to offer them programs that meet those needs.

Speaker Change: We're buying commitments in relatively small amounts so that we don't get caught by market changes and what it allows us to do is change our offering based on what the market is doing.

Speaker Change: So as the market as rates floated down we moved our offer rate down somewhat to try and be responsive to deliver a real savings versus the street rate that they can get on their mortgage.

Speaker Change: As rates ticked back up we're moving those rates up a little bit.

Speaker Change: It's a.

Speaker Change: It's an art not science.

Speaker Change: But I think what you could expect us to do is listen to the consumers in terms of what they need and seek to offer them programs that give them what they.

Michael Glaser Dahl: Thanks, Bob; I appreciate that.

Speaker Change: Thanks, Bob I appreciate that.

Alan S. Ratner: Your next question comes from the line of Alan Ratner with Zeumer and Associates. Please go ahead.

Speaker Change: Your next question comes from the line of Alan Ratner with Zelman and Associates. Please go ahead.

Alan S. Ratner: Hey guys, good morning. Thanks for sleeping me in here. Nice quarter.

Alan S. Ratner: Hey, guys. Good morning, Thanks for squeezing me in here.

Alan S. Ratner: Nice quarter so.

Ryan R. Marshall: So, you know, we'd love to get your updated thoughts on specs versus build to order. I know you and others kind of ramped up the spec production, you know, as cycle times re-elongated and there was, you know, a premium, or at least kind of that margin differential between spec versus BTO was kind of smaller than it historically has been. I'm just curious if you're thinking about that any differently today with cycle times continuing to normalize and rates seemingly, you know, being higher for longer. Sounds like maybe the Centex offering, which is predominantly spec, is maybe seeing more of that impact from the movement rate. So, are you at the point now where you are kind of dialing back the spec starts a bit or do you still want to maintain the current mix of your business? You know, we're pretty happy.

Alan S. Ratner: We'd love to get your updated thoughts on specs versus build to order I know you and others kind of ramp the stack production cycle times re long aided in there with a premium or at least kind of that margin differential versus bto was kind of.

Alan S. Ratner: Smaller than it historically has been I'm, just curious if youre thinking about that any differently today with cycle times, continuing to normalize and rates seemingly being higher for longer sounds like maybe the centex offering which is predominantly spec I would think is may be seeing more of that impact from the move in rates.

Alan S. Ratner: Are you at the point now where you are kind of dialing back the spec.

Alan S. Ratner: To date or do you still want to maintain the current mix of your business.

Speaker Change: Yes, we're pretty happy with where were operating.

Ryan R. Marshall: You know, we're pretty happy with where we're operating, and we look at a couple things. I mean, the first thing we look at is what's the percentage of built-to-order versus spec sales. Right now, it's running around 50-50, and then, you know, we highlighted in Bob's Prepared Remarks that 40% of our WIP is spec, and we've got, you know, a little bit higher than one final per active community.

Speaker Change: We look at a couple of I mean, the first thing we look at is whats the percentage of build to order versus spec sales.

Speaker Change: Right now its running around 50 50.

Speaker Change: And then we highlighted in Bob's prepared remarks, 40%, 40% of our width is spec and we've got.

Speaker Change: A little bit higher than one one final per active community. So.

Ryan R. Marshall: So, you know, we pay attention to it closely. It's something that we spend a lot of time managing and being responsive to what we're seeing in the market. To your point, most of our spec, or our Syntex business, is spec. We certainly have a little bit of spec in the other two brands, but Pulte and Dell Web tend to be more of a built-to-order kind of model, and we're certainly responsive to that as well.

Speaker Change: We pay attention to are closely it's something we spend a lot of time, managing and being responsive to what we're seeing in the market to your point most of our spec.

Speaker Change: Our <unk> business is back.

Speaker Change: We certainly have a little bit of spec in the other two brands, but pulte and del Webb tend to be more of a build to order.

Speaker Change: Kind of model and we're certainly responsive to that as well so.

Ryan R. Marshall: So, we're going to watch it, but in a higher interest rate environment, having available spec homes that you can more efficiently and effectively apply the most powerful incentive in the form of the forward mortgage rate commitments, you can do that better on spec inventory, which makes it more attractive. So, you'll probably see us stay pretty close to where we are.

Speaker Change: We're going to watch it.

Speaker Change: But it in a in a higher interest rate environment.

Speaker Change: Having available specs that you can more efficiently and effective apply the most powerful incentive to in the form of the forward mortgage rate commitments.

Speaker Change: You can do that better on spec inventory, which makes it more attractive so.

Speaker Change: She is stay pretty close to where we're at.

Alan S. Ratner: Great, appreciate your thoughts there, Ryan. And then, pivoting to kind of the incentive environment, and I think, obviously, you guys certainly made the right call by not chasing the market lower in the fourth quarter based on your performance this quarter. You know, it sounds like from your guide for flattish incentives that you're not expecting to have to, you know, ramp up discounts as the selling season kind of moves into its later stages. But what is the sensitivity you're looking at there?

Speaker Change: Great I appreciate your thoughts there Brian.

Speaker Change: And then Tim.

Speaker Change: Getting to kind of the incentive environment and I think obviously you guys certainly made the right call by not chasing the market lower in the fourth quarter based on your performance this quarter.

Speaker Change: It sounds like from your guide for flattish incentives youre not expecting to have to ramp discounts as the selling season kind of moved into its later stages, but what is the sensitivity or looking out there how much longer will that then the more recent I guess softer traffic trends or maybe sales activity, how long would that.

Alan S. Ratner: How much longer will the, you know, the more recent, I guess, softer traffic trends or maybe sales activity persist before you would sit there and say, you know what? We need to maybe increase those incentives a little bit to bring up the sales pace. Is it a few months? Is it kind of getting past the peak of the selling season, and you're sitting on more inventory than you'd like? What's the decision process there look like?

Speaker Change: <unk> persist before you you would sit there and say you know what we need to maybe increase those incentives a little bit to bring up the sales pace. They did a few months as it kind of getting past the peak of the selling season. Then you are sitting on.

Speaker Change: Inventory than you'd like what's the decision process there look like.

Ryan R. Marshall: Yeah, Alan, we look at sales rates every single day. It's one of the first emails that I look at is, you know, what did sales for the prior day come in at, and we look at, you know, qualitative and quantitative feedback that we get from our field operations when going through that decision-making process.

Speaker Change: Alan we look at we look at sales rates every single day. That's one of the first emails that I look at is what I'd sales for the prior day come in and we look at.

Speaker Change: <unk>.

Speaker Change: <unk> quantitative feedback that we get from our field operations and going through that decision making process.

Ryan R. Marshall: You know, what I can tell you is, the rate, the change in rate, never mind what it was and never mind what it's going to be, just the mere fact something changed. We've seen that cause pauses in buyer behavior over the last 24 months. Anytime there's been a step change in rate and the media cycle that goes with it, that certainly has a pretty profound impact on buyer behavior. Time does seem to cure it,

Speaker Change: What I can tell you is.

Speaker Change: The the rate.

Speaker Change: Change in rate never mind, what it was in never mind, what its going to just the mere fact, something changed we've seen that cause pauses in buyer behavior over the last tourists last 24 months anytime there has been a step change in rate and the media.

Speaker Change: Cycle that goes with it but it certainly.

Speaker Change: It has a.

Speaker Change: A pretty profound impact on buyer behavior time does seem to cure it.

Ryan R. Marshall: The only thing that I would continue to kind of caveat and put out there is that affordability continues to be a real issue. And so we've got to balance the change there. We think, You know, one of the things that we're going to continue to do is pay attention to what the headline rate is. And Bob talked about that a few questions ago.

Speaker Change: The only thing that I would continue to kind of caveat out there is that affordability continues to be a.

Speaker Change: A real issue and so we've got a we've got a balanced the you know the.

Speaker Change: Change there.

Speaker Change: We think.

Speaker Change:

Speaker Change: One of the things that we're going to continue to do is pay attention to what the headline rate as Bob talked about that a few questions ago.

Ryan R. Marshall: Our national mortgage rate incentives have got the flexibility to move based on what the market's doing. So, you know, we still think we can have a compelling offer out there relative to the street rate that doesn't necessarily cost us a whole bunch more relative to what we're currently paying. The last piece, Alan, is we are going to keep our production machine moving. We are a production builder, and we're going to do that in a way that we think optimizes the kind of return.

Speaker Change: Our national mortgage rate incentives have got their flexibility flexibility to move based on what the market's doing.

Speaker Change: So.

Speaker Change: We still think we can have a compelling offer out there relative to the street rate, but it doesn't necessarily cost us a whole bunch more rare.

Speaker Change: Relative to what we're currently paying the last piece. The last piece is we're going to keep our production machine moving where our production builder.

Speaker Change: We're going to do that in a way that we picked optimized was kind of a return so.

Ryan R. Marshall: So, you know, if there are price changes or discount changes that ultimately have an impact on affordability that allow us to continue to turn the asset and keep the market share that we have, we'll definitely do that.

Speaker Change: Our price changes or discount changes that ultimately have an impact on affordability that'll.

Speaker Change: Allow us to continue to turn the asset and keep.

Speaker Change: The market share that we have will definitely do that.

Alan S. Ratner: Thanks a lot for the podcasts. I appreciate it.

Speaker Change: Okay.

Speaker Change: Thanks, a lot for the parts guys appreciate it.

Kenneth Robinson Zener: We have reached the end of the call, and we'll take our final question from Ken Zener with Seaport Research Partners. Please go ahead.

Speaker Change: No.

Speaker Change: We have reached the end of the call and we will take our final question from Ken Zinger with Seaport Research partners. Please go ahead.

Kenneth Robinson Zener: I wonder if you could just give some context on the regional comments you made, and I want to narrow it down to Florida because it's a segment that obviously generates quite a bit of your eBit. Can you, within Florida, talk about how the existing market supply is rising and has affected, let's say, the Suntec versus your move-up brands, realizing, you know, Orlando's different than coastal markets, but it's such a big market for you guys profitability-wise? You can maybe give a little color related to the margin swings you're kind of seeing with those trade-up buyers entering within markets that are seeing them pick up inventory specific to Florida. Thank you.

Kenneth Robinson Zener: Good morning, everybody.

Kenneth Robinson Zener: Hey, Ken.

Kenneth Robinson Zener: Wonder if you could just give some context.

Kenneth Robinson Zener: On the regional comments, you made and I want to narrow it down to Florida, because it's at the segment that obviously generates quite a bit of your EBIT.

Kenneth Robinson Zener: Within Florida talk about.

Kenneth Robinson Zener: Now that existing market supply rising.

Kenneth Robinson Zener: Effective, let's say the centex Mercier move up brands.

Kenneth Robinson Zener: Realizing orlando's different thing coastal markets, it's such a big market for you guys profitability wise, you could maybe give a little color relate.

Kenneth Robinson Zener: Related to.

Kenneth Robinson Zener: The margin swings you kind of seeing within the trade up buyers entry with end markets that are seeing pick up in inventory specific to Florida. Thank you.

Kenneth Robinson Zener: Okay.

Ryan R. Marshall: Yeah, Ken, I want to make sure that I understood kind of the full question. Maybe I'll give you a little bit of Florida commentary. And then if there's more follow-up, I'll let you ask that.

Speaker Change: Yes, Ken.

Speaker Change: I want to make sure that I understood kind of the full question.

Kenneth Robinson Zener: Maybe I'll give you a little bit of Florida commentary and then Theres more follow up I'll, let Josh.

Ryan R. Marshall: Florida is a tremendous part of our business. We're in every, nearly every major housing market there, save Miami. And a big part of our business there tends to be focused on move-up and age-targeted. You know, we have some entry-level business in our Tampa and Orlando businesses, but the other big markets are predominantly move-up and age-targeted. We get a little bit of move-up in Jacksonville as well, or a little bit of entry-level jobs in Jacksonville as well.

Speaker Change: Florida is a tremendous part of our business. We are in every nearly every major housing market there.

Speaker Change: Save Miami.

Speaker Change:

Speaker Change: And a big part of our business there tends to be focused on move up and age targeted we have some entry level business and our Tampa and Orlando businesses, but the other the other big markets are predominantly move up in age targeted.

Speaker Change: We get a little bit of a move up in Jacksonville, as well are a little bit of entry level and Jacksonville as well so.

Ryan R. Marshall: Really strong business, you know, a lot of job relocation there, a lot of, you know, folks that want to be there because they've got flexible work arrangements that allow them to work from home or work from elsewhere. You know, the headwinds in Florida are definitely affordability. We've seen strong price appreciation in most Florida markets. And then the other kind of head one that you've got there's around property taxes and insurance. So certainly those things kind of play into that, but Florida continues to be a big part of our business and a real bright spot for our business as well. That was sufficient for me. Thank you

Speaker Change: Really strong business.

Speaker Change: You know a lot of job relocation there a lot of.

Speaker Change: Folks that want to be there because they've got flexible work arrangements that allow them to work from home or work from elsewhere.

Speaker Change: The headwinds in Florida are.

Speaker Change: Definitely affordability we've seen.

Speaker Change: Strong price appreciation in most Florida markets.

Speaker Change: And then the other kind of headwind that you've got there is around.

Speaker Change: Property taxes and insurance.

Speaker Change: So certainly those things kind of play into that but Florida continues to be a.

Speaker Change: A big part of our business and a real bright spot for our business as well.

Speaker Change: That was sufficient thank you very much.

Kenneth Robinson Zener: That was sufficient. Thank you very much.

James P. Zeumer: I will now turn the conference back over to Jim Zeumer for closing remarks. Great. I appreciate it.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: I will now turn the conference back over to Jim Zimmer for closing remarks, great. I. Appreciate everybody's time today, we're around the remainder of the day for any follow up questions and we look forward to speaking with U S upcoming conferences.

James P. Zeumer: Great, I appreciate everybody's time today. We're around for the remainder of the day for any follow-up questions, and we look forward to speaking with you at various upcoming conferences or on our next quarter's earnings call. Thanks for your time.

James P. Zeumer: Next quarter's earnings call. Thank you for your time.

Operator: This concludes today's call. You may now disconnect.

Speaker Change: This concludes today's call you may now disconnect.

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