PULTEGROUP INC/MI/ [PHM] Filings

10-Q 1 phm-20240630.htm 10-Q - 2Q 2024 phm-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
			OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
			OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9804

PULTEGROUP, INC.

(Exact name of registrant as specified in its charter)


Michigan			38-2766606
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


3350 Peachtree Road NE, Suite 1500
Atlanta,	Georgia	30326
(Address of principal executive offices) (Zip Code)


Registrant’s telephone number, including area code:			404			978-6400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, par value $0.01

PHM

New York Stock Exchange

Series A Junior Participating Preferred Share Purchase Rights

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

Number of common shares outstanding as of July 16, 2024: 207,524,033

PULTEGROUP, INC.

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements

	Condensed Consolidated Balance Sheets at June 3 0 , 2024 and December 31, 2023	3

	Consolidated Statements of Operations for the three and six months ended June 3 0 , 2024 and 2023	4



	Consolidated Statements of Shareholders' Equity for the three and six months ended June 3 0 , 2024 and 2023	5

	Consolidated Statements of Cash Flows for the six months ended June 3 0 , 2024 and 2023	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4	Controls and Procedures	37

PART II	OTHER INFORMATION	38

Item 1	Legal Proceedings	38

Item 1A	Risk Factors	38

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 5	Other Information	38

Item 6	Exhibits	39

	Signatures	41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PULTEGROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($000’s omitted)


	June 30, 2024		December 31, 2023
	(Unaudited)
ASSETS

Cash and equivalents	$	1,392,902	$	1,806,583
Restricted cash	53,064		42,594
Total cash, cash equivalents, and restricted cash	1,445,966		1,849,177
House and land inventory	12,302,301		11,795,370
Land held for sale	21,559		23,831
Residential mortgage loans available-for-sale	569,387		516,064
Investments in unconsolidated entities	210,246		166,913
Other assets	1,820,092		1,545,667
Goodwill	68,930		68,930
Other intangible assets	51,300		56,338
Deferred tax assets	54,288		64,760
	$	16,544,069	$	16,087,050

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:
Accounts payable	$	651,580	$	619,012
Customer deposits	654,427		675,091
Deferred tax liabilities	381,021		302,155
Accrued and other liabilities	1,459,998		1,645,690
Financial Services debt	524,042		499,627

Notes payable	1,650,178		1,962,218
	5,321,246		5,703,793
Shareholders' equity	11,222,823		10,383,257
	$	16,544,069	$	16,087,050

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(000’s omitted, except per share data)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenues:
Homebuilding
Home sale revenues	$	4,448,168	$	4,058,930	$	8,267,754	$	7,546,567
Land sale and other revenues	39,825		37,604		77,042		67,671
	4,487,993		4,096,534		8,344,796		7,614,238
Financial Services	111,662		92,219		204,019		150,156
Total revenues	4,599,655		4,188,753		8,548,815		7,764,394

Homebuilding Cost of Revenues:
Home sale cost of revenues	(3,117,482)		(2,856,361)		(5,806,569)		(5,328,690)
Land sale and other cost of revenues	(38,873)		(32,494)		(75,917)		(57,461)
	(3,156,355)		(2,888,855)		(5,882,486)		(5,386,151)

Financial Services expenses	(49,334)		(46,778)		(100,712)		(90,813)
Selling, general, and administrative expenses	(361,145)		(314,637)		(718,739)		(651,156)
Equity income from unconsolidated entities, net	2,167		944		40,069		3,456

Other income, net	13,324		13,586		30,008		15,405
Income before income taxes	1,048,312		953,013		1,916,955		1,655,135
Income tax expense	(239,179)		(232,668)		(444,846)		(402,531)
Net income	$	809,133	$	720,345	$	1,472,109	$	1,252,604

Per share:
Basic earnings	$	3.86	$	3.23	$	6.99	$	5.58
Diluted earnings	$	3.83	$	3.21	$	6.93	$	5.55
Cash dividends declared	$	0.20	$	0.16	$	0.40	$	0.32

Number of shares used in calculation:
Basic	209,547		222,160		210,692		223,635
Effect of dilutive securities	1,654		1,232		1,682		1,031
Diluted	211,201		223,392		212,374		224,666

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(000's omitted)

(Unaudited)


				Additional Paid-in Capital		Retained Earnings		Total
	Common Stock
	Shares	$









Shareholder's equity, March 31, 2024	210,658	$	2,107	$	3,392,199	$	7,367,647	$	10,761,953
Share issuances	8	—		—		—		—
Dividends declared	—	—		—		(42,073)		(42,073)
Share repurchases	(2,761)	(28)		—		(314,127)		(314,155)
Excise tax on share repurchases	—	—		—		(3,132)		(3,132)
Cash paid for shares withheld for taxes	—	—		—		(31)		(31)
Share-based compensation	—	—		11,128		—		11,128
Net income	—	—		—		809,133		809,133

Shareholders' equity, June 30, 2024	207,905	$	2,079	$	3,403,327	$	7,817,417	$	11,222,823










Shareholders' equity, December 31, 2023	212,558	$	2,126	$	3,368,407	$	7,012,724	$	10,383,257
Share issuances	412	4		9,288		—		9,292
Dividends declared	—	—		—		(84,682)		(84,682)
Share repurchases	(5,065)	(51)		—		(559,948)		(559,999)
Excise tax on share repurchases	—	—		—		(5,163)		(5,163)
Cash paid for shares withheld for taxes	—	—		—		(17,623)		(17,623)
Share-based compensation	—	—		25,632		—		25,632
Net income	—	—		—		1,472,109		1,472,109

Shareholders' equity, June 30, 2024	207,905	$	2,079	$	3,403,327	$	7,817,417	$	11,222,823


				Additional Paid-in Capital		Retained Earnings		Total
	Common Stock
	Shares	$










Shareholder's equity, March 31, 2023	223,522	$	2,235	$	3,345,005	$	5,916,569	$	9,263,809

Share issuances	30	—		—		—		—
Dividends declared	—	—		—		(35,633)		(35,633)
Share repurchases	(3,660)	(36)		—		(249,964)		(250,000)
Excise tax on share repurchases	—	—		—		(2,480)		(2,480)
Cash paid for shares withheld for taxes	—	—		—		(329)		(329)
Share-based compensation	—	—		9,313		—		9,313
Net income	—	—		—		720,345		720,345

Shareholders' equity, June 30, 2023	219,892	$	2,199	$	3,354,318	$	6,348,508	$	9,705,025











Shareholders' equity, December 31, 2022	225,840	$	2,258	$	3,330,138	$	5,581,702	$	8,914,098

Share issuances	473	4		4,838		—		4,842
Dividends declared	—	—		—		(71,772)		(71,772)
Share repurchases	(6,421)	(63)		—		(399,937)		(400,000)
Excise tax on share repurchases	—	—		—		(3,701)		(3,701)
Cash paid for shares withheld for taxes	—	—		—		(10,388)		(10,388)
Share-based compensation	—	—		19,342		—		19,342
Net income	—	—		—		1,252,604		1,252,604

Shareholders' equity, June 30, 2023	219,892	$	2,199	$	3,354,318	$	6,348,508	$	9,705,025

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($000’s omitted)

(Unaudited)


	Six Months Ended
	June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	1,472,109	$	1,252,604
Adjustments to reconcile net income to net cash from operating activities:
Deferred income tax expense	89,321		93,389
Land-related charges	7,798		10,110

Depreciation and amortization	42,891		39,204
Equity income from unconsolidated entities	(40,069)		(3,456)
Distributions of income from unconsolidated entities	2,358		4,564
Share-based compensation expense	29,084		27,960
Other, net	120		(161)
Increase (decrease) in cash due to:
Inventories	(473,665)		52,001
Residential mortgage loans available-for-sale	(55,346)		244,516
Other assets	(294,335)		(6,602)
Accounts payable, accrued and other liabilities	(123,002)		(263,546)
Net cash provided by operating activities	657,264		1,450,583
Cash flows from investing activities:
Capital expenditures	(55,317)		(45,076)
Investments in unconsolidated entities	(9,096)		(7,858)
Distributions of capital from unconsolidated entities	3,474		2,216

Other investing activities, net	(5,262)		(3,278)
Net cash used in investing activities	(66,201)		(53,996)
Cash flows from financing activities:

Repayments of notes payable	(318,288)		(17,305)


Financial Services borrowings (repayments), net	24,416		(271,128)

Proceeds from liabilities related to consolidated inventory not owned	32,721		91,354
Payments related to consolidated inventory not owned	(70,608)		(33,577)

Share repurchases	(559,999)		(400,000)
Cash paid for shares withheld for taxes	(17,623)		(10,389)
Dividends paid	(84,893)		(72,315)
Net cash used in financing activities	(994,274)		(713,360)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(403,211)		683,227
Cash, cash equivalents, and restricted cash at beginning of period	1,849,177		1,094,553
Cash, cash equivalents, and restricted cash at end of period	$	1,445,966	$	1,777,780

Supplemental Cash Flow Information:
Interest paid (capitalized), net	$	13,215	$	2,757
Income taxes paid (refunded), net	$	365,061	$	380,527

See accompanying Notes to Condensed Consolidated Financial Statements.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of presentation

PulteGroup, Inc. is one of the largest homebuilders in the United States ("U.S."), and our common shares trade on the New York Stock Exchange under the ticker symbol “PHM”. Unless the context otherwise requires, the terms "PulteGroup," the "Company," "we," "us," and "our" used herein refer to PulteGroup, Inc. and its subsidiaries. While our subsidiaries engage primarily in the homebuilding business, we also engage in mortgage banking operations, conducted through Pulte Mortgage LLC (“Pulte Mortgage”), and title and insurance agency operations.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Subsequent events

We evaluated subsequent events up until the time the financial statements were filed with the Securities and Exchange Commission (the "SEC").

Other income, net

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Write-offs of deposits and pre-acquisition costs	$	(3,685)	$	(1,490)	$	(7,675)	$	(7,173)
Amortization of intangible assets	(2,498)		(2,623)		(5,038)		(5,293)
Loss on debt retirement	(158)		—		(222)		—
Interest income	17,141		15,302		34,520		22,398
Interest expense	(117)		(120)		(232)		(227)

Miscellaneous, net	2,641		2,517		8,655		5,700
Other income, net	$	13,324	$	13,586	$	30,008	$	15,405

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revenue recognition

Home sale revenues - Home sale revenues and related profit are generally recognized when title to and possession of the home are transferred to the buyer, and our performance obligation to deliver the agreed-upon home is generally satisfied at the home closing date. Home sale contract assets consist of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit and classified as cash. Contract liabilities include customer deposits related to sold but undelivered homes, which totaled $654.4 million and $675.1 million at June 30, 2024 and December 31, 2023, respectively. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. See Note 8 for information on warranties and related obligations.

Land sale and other revenues - We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sales are generally outright sales of specified land parcels with cash consideration due on the closing date, which is generally when performance obligations are satisfied. Revenues related to our construction services operations are generally recognized as materials are delivered and installation services are provided.

Financial Services revenues - Loan origination fees, commitment fees, and discount points are recognized upon loan origination. Expected gains and losses from the sale of residential mortgage loans and their related servicing rights are included in the measurement of interest rate lock commitments ("IRLCs") that are accounted for at fair value through Financial Services revenues at the time of commitment. Subsequent changes in the fair value of IRLCs and residential mortgage loans available-for-sale are reflected in Financial Services revenues as they occur. Interest income is accrued from the date a mortgage loan is originated until the loan is sold. Mortgage servicing fees represent fees earned for servicing loans, and are accrued from the date a mortgage loan is originated until the servicing rights are sold.

Revenues associated with our title operations are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed. Insurance agency commissions relate to commissions on homeowner and other insurance policies placed with third-party carriers through various agency channels. Our performance obligations for policy renewal commissions are considered satisfied upon issuance of the initial policy. The related contract assets for estimated future renewal commissions are included in other assets and totaled $82.9 million and $74.0 million at June 30, 2024 and December 31, 2023, respectively.

Residential mortgage loans available-for-sale

Substantially all of the loans originated by us are sold in the secondary mortgage market within a short period of time after origination, generally within 30 days. At June 30, 2024 and December 31, 2023, residential mortgage loans available-for-sale had an aggregate fair value of $569.4 million and $516.1 million, respectively, and an aggregate outstanding principal balance of $570.2 million and $508.5 million, respectively. Net gains from the sale of mortgages were $60.7 million and $48.6 million for the three months ended June 30, 2024 and 2023, respectively, and $111.3 million and $69.2 million for the six months ended June 30, 2024 and 2023, respectively, and have been included in Financial Services revenues.

Derivative instruments and hedging activities

We are party to IRLCs with customers resulting from our mortgage origination operations. At June 30, 2024 and December 31, 2023, we had aggregate IRLCs of $671.1 million and $404.7 million, respectively, which were originated at interest rates prevailing at the date of commitment. Since we can terminate a loan commitment if the borrower does not comply with the terms of the contract, and some loan commitments may expire without being drawn upon, these commitments do not necessarily represent future cash requirements.

We hedge our exposure to interest rate market risk relating to residential mortgage loans available-for-sale and IRLCs using forward contracts on mortgage-backed securities, which are commitments to either purchase or sell a specified financial instrument at a specified future date for a specified price, and whole loan investor commitments, which are obligations of an investor to buy loans at a specified price within a specified time period. Forward contracts on mortgage-backed securities are the predominant derivative financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is sold to an investor. At June 30, 2024 and December 31, 2023, we had unexpired forward contracts of $947.0 million and $745.0 million, respectively, and whole loan investor commitments of

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

$408.3 million and $207.9 million, respectively. Changes in the fair value of IRLCs and other derivative financial instruments are recognized in Financial Services revenues, and the fair values are reflected in other assets or other liabilities, as applicable.

There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal. Gains and losses on IRLCs and residential mortgage loans available-for-sale are substantially offset by corresponding gains or losses on forward contracts on mortgage-backed securities and whole loan investor commitments. We are generally not exposed to variability in cash flows of derivative instruments for more than approximately 90 days. The fair values of derivative instruments and their locations in the Condensed Consolidated Balance Sheets are summarized below ($000’s omitted):


	June 30, 2024				December 31, 2023
	Other Assets		Accrued and Other Liabilities		Other Assets		Accrued and Other Liabilities
Interest rate lock commitments	$	2,269	$	14,233	$	3,926	$	1,506
Forward contracts	3,888		8,222		110		26,104
Whole loan commitments	36		114		24		47
	$	6,193	$	22,569	$	4,060	$	27,657

Earnings per share

Basic earnings per share is computed by dividing income available to common shareholders (the “Numerator”) by the weighted-average number of common shares outstanding, adjusted for unvested shares (the “Denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the Denominator is increased to include the dilutive effects of unvested restricted share units and other potentially dilutive instruments.

In accordance with Accounting Standards Codification ("ASC") 260, "Earnings Per Share", the two-class method determines earnings per share for each class of common stock and participating securities according to an earnings allocation formula that adjusts the Numerator for dividends or dividend equivalents and participation rights in undistributed earnings. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. A decreasing number of our outstanding restricted share units are considered participating securities such that there was no impact for the three and six months ended June 30, 2024. The following table presents a reconciliation of the Numerator used in the earnings per share calculation for the three and six months ended June 30, 2023 (000's omitted, except per share data):


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2023		2023
Numerator:
Net income	$	720,345	$	1,252,604
Less: earnings distributed to participating securities	(122)		(248)
Less: undistributed earnings allocated to participating securities	(2,365)		(4,597)
Numerator for basic earnings per share	$	717,858	$	1,247,759
Add back: undistributed earnings allocated to participating securities	2,365		4,597
Less: undistributed earnings reallocated to participating securities	(2,347)		(4,565)
Numerator for diluted earnings per share	$	717,876	$	1,247,791

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Credit losses

We are exposed to credit losses primarily through our vendors and insurance carriers. We assess and monitor each counterparty’s ability to pay amounts owed by considering contractual terms and conditions, the counterparty’s financial condition, macroeconomic factors, and business strategy. Our assets exposed to credit losses consist primarily of insurance receivables, contract assets related to insurance agency commissions, accounts receivable, and vendor rebate receivables. Counterparties associated with these assets are generally highly rated. Allowances on the aforementioned in-scope assets were not material as of June 30, 2024.

New accounting pronouncements

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), which requires expanded disclosure of significant segment expenses and other segment items on an annual and interim basis. ASU 2023-07 is effective for us for annual periods beginning on or after January 1, 2024 and interim periods beginning on or after January 1, 2025. We are currently evaluating the impact ASU 2023-07 will have on our financial statement disclosures.

In December 2023, FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which requires expanded disclosure of our income tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for us for annual periods beginning on or after January 1, 2025. We are currently evaluating the impact ASU 2023-09 will have on our financial statement disclosures.

2. Inventory

Major components of inventory were as follows ($000’s omitted):


	June 30, 2024		December 31, 2023
Homes under construction	$	5,828,344	$	5,262,850
Land under development	5,969,885		5,805,993
Raw land	428,012		606,005
Consolidated inventory not owned (a)	76,060		120,522
	$	12,302,301	$	11,795,370

(a) Consolidated inventory not owned includes land sold to third parties for which the Company retains a repurchase option.

We capitalize interest cost into inventory during the active development and construction of our communities. In all periods presented, we capitalized substantially all Homebuilding interest costs into inventory because the level of our active inventory exceeded our debt levels. Information related to interest capitalized into inventory is as follows ($000’s omitted):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Interest in inventory, beginning of period	$	148,101	$	141,271	$	139,078	$	137,262
Interest capitalized	29,284		31,927		59,903		63,729
Interest expensed	(28,023)		(31,204)		(49,619)		(58,997)
Interest in inventory, end of period	$	149,362	$	141,994	$	149,362	$	141,994

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Land option agreements

We enter into land option agreements in order to procure land for the construction of homes in the future. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. Such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which may serve to reduce our financial risks associated with long-term land holdings. Option deposits and pre-acquisition costs (such as environmental testing, surveys, engineering, and entitlement costs) are capitalized if the costs are directly identifiable with the land under option, the costs would be capitalized if we owned the land, and acquisition of the property is probable. Such costs are reflected in other assets and are reclassified to inventory upon taking title to the land. We write off deposits and pre-acquisition costs when it becomes probable that we will not go forward with the project or recover the capitalized costs. Such decisions take into consideration changes in local market conditions, the timing of required land purchases, the availability and best use of necessary incremental capital, and other factors. We record any such write-offs of deposits and pre-acquisition costs within other income, net. See Note 1.

If an entity holding the land under option is a variable interest entity ("VIE"), our deposit represents a variable interest in that entity. No VIEs required consolidation at either June 30, 2024 or December 31, 2023 because we determined that we were not any VIE's primary beneficiary. Our maximum exposure to loss related to these VIEs is generally limited to our deposits and pre-acquisition costs under the land option agreements. The following provides a summary of our interests in land option agreements as of June 30, 2024 and December 31, 2023 ($000’s omitted):


	June 30, 2024				December 31, 2023
	Deposits and Pre-acquisition Costs		Remaining Purchase Price		Deposits and Pre-acquisition Costs		Remaining Purchase Price
Land options with VIEs	$	307,673	$	2,481,747	$	238,070	$	1,916,558
Other land options	557,214		4,882,752		466,139		4,531,566
	$	864,887	$	7,364,499	$	704,209	$	6,448,124

Land-related charges

Our evaluations for land-related charges are based on our best estimates of the future cash flows for our communities. Due to uncertainties in the estimation process, the significant volatility in demand for new housing, the long life cycles of certain of our communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from such estimates.

3. Segment information

Our Homebuilding operations are engaged in the acquisition and development of land primarily for residential purposes within the U.S. and the construction of housing on such land. For reporting purposes, our Homebuilding operations are aggregated into six reportable segments:


Northeast:						Connecticut, Maryland, Massachusetts, New Jersey, Pennsylvania, Virginia
Southeast:						Georgia, North Carolina, South Carolina, Tennessee
Florida:						Florida
Midwest:						Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio
Texas:						Texas
West:						Arizona, California, Colorado, Nevada, New Mexico, Oregon, Utah, Washington

We also have a reportable segment for our Financial Services operations, which consist principally of mortgage banking, title, and insurance agency operations that operate generally in the same markets as the Homebuilding segments.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Operating Data by Segment ($000’s omitted)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenues:
Northeast	$	257,250	$	229,371	$	457,701	$	450,020
Southeast	771,186		732,328		1,488,877		1,362,629
Florida	1,326,102		1,228,474		2,489,056		2,305,588
Midwest	651,932		474,460		1,186,868		868,329
Texas	589,196		613,838		1,124,596		1,100,231
West	892,327		818,063		1,597,698		1,527,441
	4,487,993		4,096,534		8,344,796		7,614,238
Financial Services	111,662		92,219		204,019		150,156
Consolidated revenues	$	4,599,655	$	4,188,753	$	8,548,815	$	7,764,394


Income (loss) before income taxes:
Northeast	$	60,444	$	51,165	$	100,343	$	97,962
Southeast	179,772		179,707		348,887		325,010
Florida	329,230		318,066		614,229		588,803
Midwest	123,366		78,381		218,128		137,285
Texas	108,830		126,054		203,480		206,119
West	133,857		100,423		223,340		200,000
Other homebuilding (a)	49,435		52,722		104,191		39,559
	984,934		906,518		1,812,598		1,594,738
Financial Services	63,378		46,495		104,357		60,397
Consolidated income before income taxes	$	1,048,312	$	953,013	$	1,916,955	$	1,655,135

(a)Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the other segments. Other homebuilding also includes insurance reserve reversals of $51.9 million and $78.7 million, respectively, for the three and six months ended June 30, 2024, and $64.9 million for the three months ended June 30, 2023, (see Note 8), and a gain of $37.7 million for the six months ended June 30, 2024 related to the sale of our minority interest in a joint venture.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Operating Data by Segment ($000’s omitted)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Land-related charges (a):
Northeast	$	638	$	44	$	1,604	$	69
Southeast	1,566		668		2,556		3,027
Florida	576		79		917		2,092
Midwest	287		174		647		604
Texas	262		214		507		329
West	356		3,059		1,444		3,800
Other homebuilding	95		189		123		189
	$	3,780	$	4,427	$	7,798	$	10,110

(a) Land-related charges include land impairments, net realizable value adjustments on land held for sale, and write-offs of deposits and pre-acquisition costs for land option contracts we elected not to pursue. Other homebuilding consists primarily of write-offs of capitalized interest related to such land-related charges.


	Operating Data by Segment
	($000's omitted)
	June 30, 2024
	Homes Under Construction		Land Under Development		Raw Land		Consolidated Inventory Not Owned		Total Inventory		Total Assets
Northeast	$	357,450	$	324,364	$	4,175	$	—	$	685,989	$	811,191
Southeast	727,836		984,690		37,324		18,655		1,768,505		2,056,427
Florida (a)	1,417,836		1,417,310		80,454		23,907		2,939,507		3,543,688
Midwest	679,727		647,908		11,990		2,785		1,342,410		1,522,618
Texas	647,084		766,997		89,944		30,713		1,534,738		1,815,976
West	1,965,541		1,468,849		196,888		—		3,631,278		4,132,966
Other homebuilding (b)	32,870		359,767		7,237		—		399,874		1,754,715
	5,828,344		5,969,885		428,012		76,060		12,302,301		15,637,581
Financial Services	—		—		—		—		—		906,488
	$	5,828,344	$	5,969,885	$	428,012	$	76,060	$	12,302,301	$	16,544,069

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Operating Data by Segment
	($000's omitted)
	December 31, 2023
	Homes Under Construction		Land Under Development		Raw Land		Consolidated Inventory Not Owned		Total Inventory		Total Assets
Northeast	$	312,903	$	337,130	$	4,091	$	—	$	654,124	$	775,316
Southeast	786,698		826,240		80,451		27,963		1,721,352		1,994,492
Florida (a)	1,405,934		1,211,087		205,843		48,139		2,871,003		3,420,924
Midwest	621,144		685,139		14,265		3,472		1,324,020		1,476,166
Texas	634,574		721,032		101,394		40,948		1,497,948		1,686,609
West	1,473,617		1,688,498		190,082		—		3,352,197		3,752,089
Other homebuilding (b)	27,980		336,867		9,879		—		374,726		2,140,954
	5,262,850		5,805,993		606,005		120,522		11,795,370		15,246,550
Financial Services	—		—		—		—		—		840,500
	$	5,262,850	$	5,805,993	$	606,005	$	120,522	$	11,795,370	$	16,087,050

(a)Florida includes goodwill of $28.6 million, net of cumulative impairment charges of $20.2 million.

(b)Other homebuilding primarily includes cash and equivalents, capitalized interest, intangibles, deferred tax assets, and other corporate items that are not allocated to the operating segments. Other homebuilding also includes goodwill of $40.4 million.

4. Debt

Notes payable

Our notes payable are summarized as follows ($000’s omitted):


	June 30, 2024		December 31, 2023
5.500% unsecured senior notes due March 2026 (a)	$	251,867	$	455,424
5.000% unsecured senior notes due January 2027 (a)	337,277		443,875
7.875% unsecured senior notes due June 2032 (a)	300,000		300,000
6.375% unsecured senior notes due May 2033 (a)	400,000		400,000
6.000% unsecured senior notes due February 2035 (a)	300,000		300,000
Net premiums, discounts, and issuance costs (b)	(6,870)		(8,047)
Total senior notes	$	1,582,274	$	1,891,252
Other notes payable	67,904		70,966
Notes payable	$	1,650,178	$	1,962,218
Estimated fair value	$	1,734,524	$	2,080,187

(a)Redeemable prior to maturity; guaranteed on a senior basis by certain wholly-owned subsidiaries.

(b)The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes.

In the three months ended June 30, 2024, we completed repurchases of $193.4 million and $106.6 million aggregate principal amount of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer, bringing our total repurchases in the six months ended June 30, 2024 to $310.2 million.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Other notes payable

Other notes payable include non-recourse and limited recourse notes with third parties that totaled $67.9 million and $71.0 million at June 30, 2024 and December 31, 2023, respectively. These notes have maturities ranging up to six years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets. The stated interest rates on these notes range up to 6%. We recorded inventory through seller financing of $5.4 million and $17.7 million in the six months ended June 30, 2024 and 2023, respectively.

Revolving credit facility

We maintain a revolving credit facility (the "Revolving Credit Facility") maturing in June 2027 that has a maximum borrowing capacity of $1.3 billion and contains an uncommitted accordion feature that could increase the capacity to $1.8 billion, subject to certain conditions and availability of additional bank commitments. The Revolving Credit Facility also provides for the issuance of letters of credit that reduce the available borrowing capacity under the Revolving Credit Facility, up to the maximum borrowing capacity. The interest rate on borrowings under the Revolving Credit Facility may be based on either the Secured Overnight Financing Rate or a base rate plus an applicable margin, as defined therein. The Revolving Credit Facility contains financial covenants that require us to maintain a minimum Tangible Net Worth and a maximum Debt-to-Capitalization Ratio (as each term is defined in the Revolving Credit Facility). We were in compliance with all covenants and requirements as of June 30, 2024. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.

At June 30, 2024, we had no borrowings outstanding, $297.4 million of letters of credit issued, and $952.6 million of remaining capacity under the Revolving Credit Facility. At December 31, 2023, we had no borrowings outstanding, $312.7 million of letters of credit issued, and $937.3 million of remaining capacity under the Revolving Credit Facility.

Joint venture debt

At June 30, 2024, aggregate outstanding debt of unconsolidated joint ventures was $39.1 million, of which $3.7 million was related to one joint venture in which we have a 50% interest. In connection with this loan, we and our joint venture partner provided customary limited recourse guaranties in which our maximum financial loss exposure is limited to our pro rata share of the debt outstanding.

Financial Services debt

In August 2023, Pulte Mortgage entered into a master repurchase agreement (the "Repurchase Agreement"), which matures on August 14, 2024. The maximum aggregate commitment under the Repurchase Agreement was $700.0 million at June 30, 2024, which continues until maturity. The Repurchase Agreement also contains an accordion feature that could increase the commitment by $50.0 million above its active commitment level. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At June 30, 2024, Pulte Mortgage had $524.0 million outstanding at a weighted-average interest rate of 7.14% and $176.0 million of remaining capacity under the Repurchase Agreement. At December 31, 2023, Pulte Mortgage had $499.6 million outstanding at a weighted-average interest rate of 7.15% and $350.4 million of remaining capacity under the Repurchase Agreement. Pulte Mortgage was in compliance with all covenants and requirements as of June 30, 2024.

5. Shareholders’ equity

In the six months ended June 30, 2024, we declared cash dividends totaling $84.7 million and repurchased 5.1 million shares under our repurchase authorization for $560.0 million. In the six months ended June 30, 2023, we declared cash dividends totaling $71.8 million and repurchased 6.4 million shares under our repurchase authorization for $400.0 million. On January 30, 2024, the Board of Directors increased our share repurchase authorization by $1.5 billion. At June 30, 2024, we had remaining authorization to repurchase $1.3 billion of common shares.

Under our share-based compensation plans, we accept shares as payment under certain conditions related to the vesting of shares, generally related to the payment of minimum tax obligations. In the six months ended June 30, 2024 and 2023,

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

participants surrendered shares valued at $17.6 million and $10.4 million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.

6. Income taxes

Our effective tax rate was 22.8% and 23.2% for the three and six months ended June 30, 2024, respectively, compared with 24.4% and 24.3% for the same periods in 2023. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense. Our income tax expense for the three months ended June 30, 2024 also reflects a reduction in income tax liabilities totaling $13.2 million related to the favorable resolution of uncertain state tax positions.

At June 30, 2024 and December 31, 2023, we had net deferred tax liabilities of $326.7 million and $237.4 million, respectively. The accounting for deferred taxes is based upon estimates of future results. Differences between estimated and actual results could result in changes in the valuation of deferred tax assets that could have a material impact on our consolidated results of operations or financial position. Changes in existing tax laws could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized tax benefits represent the difference between tax positions taken or expected to be taken in a tax return and the benefits recognized for financial statement purposes. We had $41.4 million and $58.2 million of gross unrecognized tax benefits at June 30, 2024 and December 31, 2023, respectively. Additionally, we had accrued interest and penalties of $1.8 million and $6.3 million at June 30, 2024 and December 31, 2023, respectively.

7. Fair value disclosures

ASC 820, “Fair Value Measurements and Disclosures”, provides a framework for measuring fair value in generally accepted accounting principles and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:


Level 1						Fair value determined based on quoted prices in active markets for identical assets or liabilities.

Level 2						Fair value determined using significant observable inputs, generally either quoted prices in active markets for similar assets or liabilities or quoted prices in markets that are not active.

Level 3						Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Our assets and liabilities measured or disclosed at fair value are summarized below ($000’s omitted):


Financial Instrument	Fair Value Hierarchy	Fair Value
		June 30, 2024		December 31, 2023

Measured at fair value on a recurring basis:
Residential mortgage loans available-for-sale	Level 2	$	569,387	$	516,064
IRLCs	Level 2	(11,964)		2,420
Forward contracts	Level 2	(4,334)		(25,994)
Whole loan commitments	Level 2	(78)		(23)

Measured at fair value on a non-recurring basis:
House and land inventory	Level 3	$	—	$	12,906


Disclosed at fair value:
Cash, cash equivalents, and restricted cash	Level 1	$	1,445,966	$	1,849,177
Financial Services debt	Level 2	524,042		499,627

Senior notes payable	Level 2	1,666,620		2,009,221
Other notes payable	Level 2	67,904		70,966

Fair values for agency residential mortgage loans available-for-sale are determined based on quoted market prices for comparable instruments. Fair values for non-agency residential mortgage loans available-for-sale are determined based on purchase commitments from whole loan investors and other relevant market information available to management. Fair values for IRLCs, including the value of servicing rights, and forward contracts on mortgage-backed securities are valued based on market prices for similar instruments. Fair values for whole loan commitments are based on market prices for similar instruments from the specific whole loan investor.

The carrying amounts of cash and equivalents, Financial Services debt and other notes payable approximate their fair values due to their short-term nature and/or floating interest rate terms. The fair values of senior notes are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of similar issues. The carrying value of senior notes was $1.6 billion and $1.9 billion at June 30, 2024 and December 31, 2023, respectively.

8. Commitments and contingencies

Letters of credit and surety bonds

In the normal course of business, we post letters of credit and surety bonds pursuant to certain performance-related obligations, as security for certain land option agreements, and under various insurance programs. The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies, and utility companies related to the construction of roads, sewers, and other infrastructure. We had outstanding letters of credit and surety bonds totaling $297.4 million and $2.7 billion, respectively, at June 30, 2024 and $312.7 million and $2.4 billion, respectively, at December 31, 2023. In the event any such letter of credit or surety bond is drawn, we would be obligated to reimburse the issuer of the letter of credit or surety bond. Our surety bonds generally do not have stated expiration dates; rather we are released from the surety bonds as the underlying contractual performance is completed. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed. We do not believe that a material amount, if any, of the letters of credit or surety bonds will be drawn.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Litigation and regulatory matters

We are involved in various litigation and legal claims in the normal course of our business operations, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.

We establish liabilities for litigation, legal claims, and regulatory matters when such matters are both probable of occurring and any potential loss is reasonably estimable. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. In view of the inherent difficulty of predicting the outcome of these legal and regulatory matters, we generally cannot predict the ultimate resolution of the pending matters, the related timing, or the eventual loss. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows. However, to the extent the liability arising from the ultimate resolution of any matter exceeds the estimates reflected in the recorded reserves relating to such matter, we could incur additional charges that could be significant.

Warranty liabilities

Home buyers are provided with a limited warranty against certain building defects, including a one-year comprehensive limited warranty and coverage for certain other aspects of the home's construction and operating systems for periods of up to, and, in limited instances, exceeding, 10 years. We estimate the costs to be incurred under these warranties and record liabilities in the amount of such costs at the time product revenue is recognized. Factors that affect our warranty liabilities include the number of homes sold, historical and anticipated rates of warranty claims, and the projected cost per claim. We periodically assess the adequacy of the warranty liabilities for each geographic market in which we operate and adjust the amounts as necessary. Actual warranty costs in the future could differ from the current estimates. Changes to warranty liabilities were as follows ($000’s omitted):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Warranty liabilities, beginning of period	$	122,742	$	105,980	$	120,393	$	108,348
Reserves provided	30,618		24,815		57,359		45,186
Payments	(26,799)		(26,195)		(51,633)		(50,329)
Other adjustments	974		1,536		1,416		2,931
Warranty liabilities, end of period	$	127,535	$	106,136	$	127,535	$	106,136

Self-insured risks

We maintain, and require our subcontractors to maintain, general liability insurance coverage. We also maintain builders' risk, property, errors and omissions, workers' compensation, and other business insurance coverage. These insurance policies protect us against a portion of the risk of loss from claims. However, we retain a significant portion of the overall risk for such claims either through policies issued by our captive insurance subsidiaries or through our own self-insured per occurrence and aggregate retentions, deductibles, and claims in excess of available insurance policy limits.

Our general liability insurance includes coverage for certain construction defects. While construction defect claims can relate to a variety of circumstances, the majority of our claims relate to alleged problems with siding, plumbing, foundations and other concrete work, windows, roofing, and heating, ventilation, and air conditioning systems. The availability of general liability insurance for the homebuilding industry and its subcontractors has become increasingly limited, and the insurance policies available require us to maintain significant per occurrence and aggregate retention levels. In certain instances, we may offer our subcontractors the opportunity to purchase insurance through one of our captive insurance subsidiaries or participate in a project-specific insurance program provided by us. Policies issued by our captive insurance subsidiaries represent self-insurance of these risks by us. A portion of this self-insured exposure is limited by reinsurance policies that we purchase. General liability coverage for the homebuilding industry is complex, and our coverage varies from policy year to policy year.

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Our insurance coverage requires a per occurrence retention up to an overall aggregate retention level. Beginning with the first dollar, amounts paid to satisfy insured claims generally apply to our per occurrence and aggregate retention obligations. Any amounts incurred in excess of the occurrence or aggregate retention levels are covered by insurance up to our purchased coverage levels. Our insurance policies, including the captive insurance subsidiaries' reinsurance policies, are maintained with highly rated underwriters for whom we believe counterparty default risk is not significant.

At any point in time, we are managing numerous individual claims related to general liability, property, errors and omissions, workers' compensation, and other business insurance coverage. We reserve for costs associated with such claims (including expected claims management expenses) on an undiscounted basis at the time revenue is recognized for each home closing and periodically evaluate the recorded liabilities based on actuarial analyses of our historical claims. The actuarial analyses calculate estimates of the ultimate net cost of all unpaid losses, including estimates for incurred but not reported losses ("IBNR"). IBNR represents losses related to claims incurred but not yet reported plus development on reported claims.

Our recorded reserves for all such claims totaled $506.5 million and $563.1 million at June 30, 2024 and December 31, 2023, respectively. The recorded reserves include loss estimates related to both (i) existing claims and related claim expenses and (ii) IBNR and related claim expenses. Liabilities related to IBNR and related claim expenses represented approximately 78% and 77% of the total general liability reserves at June 30, 2024 and December 31, 2023, respectively. The actuarial analyses that determine the IBNR portion of reserves consider a variety of factors, including the frequency and severity of losses, which are based on our historical claims experience supplemented by industry data. The actuarial analyses of the reserves also consider historical third-party recovery rates and claims management expenses.

Volatility in both national and local housing market conditions may affect the frequency and cost of construction defect claims. Additionally, IBNR estimates comprise the majority of our liability and are subject to a high degree of uncertainty due to a variety of factors, including changes in claims reporting and resolution patterns, third party recoveries, insurance industry practices, the regulatory environment, and legal precedent. State regulations vary, but construction defect claims are typically reported and resolved over an extended time period often exceeding ten years. Changes in the frequency and timing of reported claims and estimates of specific claim values can impact the underlying inputs and trends utilized in the actuarial analyses, which could have a material impact on the recorded reserves. Because of the inherent uncertainty in estimating future losses and the timing of such losses related to these claims, actual costs could differ significantly from estimated costs.

Adjustments to reserves are recorded in the period in which the change in estimate occurs. We reduced general liability reserves by $51.9 million and $78.7 million during the three and six months ended June 30, 2024, respectively, and $64.9 million during the three months ended June 30, 2023, as a result of changes in estimates resulting from actual claim experience being less than anticipated in previous actuarial projections. The changes in actuarial estimates were driven by changes in actual claims experience that, in turn, impacted actuarial estimates for potential future claims. These changes in actuarial estimates did not involve any changes in actuarial methodology but did impact the development of estimates for future periods, which resulted in adjustments to the IBNR portion of our recorded liabilities. There were no material adjustments to individual claims. Costs associated with our insurance programs are classified within selling, general, and administrative expenses. Changes in these liabilities were as follows ($000's omitted):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Balance, beginning of period	$	547,621	$	652,745	$	563,103	$	635,857
Reserves provided	22,409		25,351		42,375		49,472
Adjustments to previously recorded reserves	(51,863)		(64,856)		(78,708)		(65,421)
Payments, net	(11,644)		(8,048)		(20,247)		(14,716)
Balance, end of period	$	506,523	$	605,192	$	506,523	$	605,192

Leases

We lease certain office space and equipment for use in our operations. We recognize lease expense for these leases on a straight-line basis over the lease term and combine lease and non-lease components for all leases. Right-of-use ("ROU") assets and lease liabilities are recorded on the balance sheet for all leases with an expected term of at least one year. Some leases

PULTEGROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

include one or more options to renew. The exercise of lease renewal options is generally at our discretion. The depreciable lives of ROU assets and leasehold improvements are limited to the expected lease term. Certain of our lease agreements include rental payments based on a pro rata share of the lessor’s operating costs which are variable in nature. Our lease agreements do not contain any residual value guarantees or material restrictive covenants.

ROU assets are classified within other assets on the balance sheet, while lease liabilities are classified within accrued and other liabilities. Leases with an initial term of 12 months or less are not recorded on the balance sheet. ROU assets and lease liabilities were $73.8 million and $87.0 million at June 30, 2024, respectively, and $77.4 million and $91.6 million at December 31, 2023, respectively. In the three and six months ended June 30, 2024 we recorded an additional $1.9 million and $5.5 million, respectively, of lease liabilities under operating leases, and $4.4 million and $8.3 million in the comparable prior year periods. Payments on lease liabilities in the three and six months ended June 30, 2024 totaled $5.8 million and $11.7 million, respectively, and $6.0 million and $11.3 million in the comparable prior year periods.

Lease expense includes costs for leases with terms in excess of one year as well as short-term leases with terms of less than one year. In the three and six months ended June 30, 2024 our total lease expense was $15.2 million and $30.2 million, respectively, and $14.3 million and $28.5 million in the comparable prior year periods. Our total lease expense is inclusive of variable lease costs of $2.5 million and $6.1 million in the three and six months ended June 30, 2024, respectively, and $3.2 million and $6.2 million in the comparable prior year periods, as well as short-term lease costs of $6.0 million and $10.8 million in the three and six months ended June 30, 2024, respectively, and $4.5 million and $8.7 million in the comparable prior year periods. Sublease income was de minimis.

The future minimum lease payments required under our leases as of June 30, 2024 were as follows ($000's omitted):


Years Ending December 31,
2024 (a)	$	15,447
2025	22,796
2026	16,900
2027	13,337
2028	10,760
Thereafter	16,502
Total lease payments (b)	95,742
Less: Interest (c)	(8,725)
Present value of lease liabilities (d)	$	87,017

(a)Remaining payments are for the six months ending December 31, 2024.

(b)Lease payments include options to extend lease terms that are reasonably certain of being exercised and exclude $34.3 million of legally binding minimum lease payments for leases signed but not yet commenced at June 30, 2024.

(c)Our leases do not provide a readily determinable implicit rate. As a result, we must estimate our discount rate for such leases to determine the present value of lease payments at the lease commencement date.

(d)The weighted-average remaining lease term and weighted-average discount rate used in calculating our lease liabilities were 4.8 years and 4.0%, respectively, at June 30, 2024.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations are provided as a supplement to and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q as well as our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Income before income taxes:
Homebuilding	$	984,934	$	906,518	$	1,812,598	$	1,594,738
Financial Services	63,378		46,495		104,357		60,397
Income before income taxes	1,048,312		953,013		1,916,955		1,655,135
Income tax expense	(239,179)		(232,668)		(444,846)		(402,531)
Net income	$	809,133	$	720,345	$	1,472,109	$	1,252,604

Diluted earnings per share	$	3.83	$	3.21	$	6.93	$	5.55

In 2022, the Federal Reserve began raising its benchmark rate in response to persistent inflation that began after the onset of the COVID-19 pandemic. These actions drove national mortgage and other interest rates higher and negatively impacted home affordability and consumer sentiment. Despite this rise in interest rates, demand for new homes generally remained strong during 2023 and into the first quarter of 2024. However, demand began to weaken during the second quarter of 2024, as evidenced by our net new orders, which decreased 4% compared to the comparable prior year period and decreased 9% compared to the first quarter of 2024. While affordability remains challenged for housing due to the higher interest rates, house price increases, and general inflation in recent years, we have responded by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives, and mortgage interest rate buydowns. Additionally, the rate of customer order cancellations that spiked in 2022 in response to higher inflation and interest rate increases has now normalized to historical levels.

We operate our business to generate a consistent cadence of house starts and an appropriate inventory of quick move-in speculative ("spec") homes as we focus on turning our assets and delivering high returns on investment, which has allowed us to achieve an effective balance of price and pace. Within an evolving macroeconomic environment, consumers across all buyer segments and price points have continued demonstrating a strong desire for homeownership despite continued interest rate variability. During 2023 and the first half of 2024, through a combination of our ongoing cost reduction initiatives, construction pacing, and sales strategies that capitalized on periods of strong consumer demand, we were able to achieve historically strong financial results, including record first half of the year earnings during the six months ended June 30, 2024.

The supply chain constraints that arose in connection with the COVID-19 pandemic improved during 2023 and have continued to ease during the first half of 2024, which has contributed to a shortening of our production cycle times. The time required to construct a home was approximately nine weeks shorter at the end of the second quarter of 2024 compared to the comparable prior year period. This decrease in cycle times, coupled with our strong backlog and focus on spec home production, contributed to an increase in closings of 8% and 9% in the second quarter and first half of 2024, respectively, over the comparable prior year periods. While production cycle times remain elevated versus our historical norms due to the availability of certain materials and construction labor along with extended timelines for municipal approvals and inspections in certain geographies, we continue to make progress. Despite the recent improvements, inflation also continues to impact our business. The price of lumber materials, in particular, has been subject to heightened price volatility in recent years, but prices have trended lower in 2024. Due to the length of our construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results. While we expect to see some benefit in our reported financial results in the second half of 2024 from lower lumber prices, we expect that such benefits will be largely offset by higher sales incentives or other pricing actions in response to the recent softening in consumer demand.

We remain focused on taking a measured approach to our capital allocation strategy in order to position ourselves to effectively respond to any potential future volatility in demand. Accordingly, we are focused on protecting liquidity and closely managing our cash flows while also continuing to focus on shareholder returns, including the following actions:

–Increasing our lot optionality within our land pipeline for increased flexibility;

–Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;

–Maintaining a focus on shareholder return through share buybacks and dividends, including a 25% increase in our dividends from $0.16 to $0.20 per share effective with our January 2024 dividend payment;

–Taking an opportunistic approach to repurchasing debt; and

–Maintaining ample liquidity.

Although we have seen some moderation in demand in the second quarter of 2024 that has continued into July, the limited supply of both new and existing homes for sale, continuing low levels of unemployment, and demographics supporting housing demand remain favorable. We believe our strategic approach with respect to sales incentives, advertising, and our production cadence will enable us to meet consumer demand at the selling prices necessary to turn our inventory, maintain market share, and generate healthy returns. We remain confident in our ability to navigate this environment and to position the Company to take advantage of opportunities as they arise to support future growth and continued profitability and financial strength.

Homebuilding Operations

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


	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2024			2024 vs. 2023		2023			2024			2024 vs. 2023		2023
Home sale revenues	$	4,448,168		10	%	$	4,058,930		$	8,267,754		10	%	$	7,546,567
Land sale and other revenues	39,825			6	%	37,604			77,042			14	%	67,671
Total Homebuilding revenues	4,487,993			10	%	4,096,534			8,344,796			10	%	7,614,238
Home sale cost of revenues	(3,117,482)			9	%	(2,856,361)			(5,806,569)			9	%	(5,328,690)
Land sale and other cost of revenues	(38,873)			20	%	(32,494)			(75,917)			32	%	(57,461)
Selling, general, and administrative expenses ("SG&A") (a)	(361,145)			15	%	(314,637)			(718,739)			10	%	(651,156)
Equity income (loss) from unconsolidated entities, net (b)	1,117			(c)		(110)			39,019			(c)		2,402

Other income, net	13,324			(2)	%	13,586			30,008			(c)		15,405
Income before income taxes	$	984,934		9	%	$	906,518		$	1,812,598		14	%	$	1,594,738

Supplemental data:
Gross margin from home sales	29.9		%	30 bps		29.6		%	29.8		%	40 bps		29.4		%
SG&A as a percentage of home sale revenues (a)	8.1		%	30 bps		7.8		%	8.7		%	10 bps		8.6		%
Closings (units)	8,097			8	%	7,518			15,192			9	%	13,912
Average selling price	$	549		2	%	$	540		$	544		—	%	$	542
Net new orders:
Units	7,649			(4)	%	7,947			16,028			5	%	15,301
Dollars (d)	$	4,358,508		2	%	$	4,271,008		$	9,057,167		12	%	$	8,061,001
Cancellation rate	14		%			13		%	13		%			15		%
Average active communities	934			3	%	903			932			5	%	891
Backlog at June 30:
Units									12,982			(4)	%	13,558
Dollars									$	8,109,128		(1)	%	$	8,188,502

(a)SG&A includes insurance reserve reversals of $51.9 million and $78.7 million, respectively, for the three and six months ended June 30, 2024, and $64.9 million for the three months ended June 30, 2023, (see Note 8).

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

(c)Percentage not meaningful.

(d)Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations and change orders.

Home sale revenues

Home sale revenues in the three and six months ended June 30, 2024 were higher than the prior year period by $389.2 million and $721.2 million, respectively. In the three months ended June 30, 2024, the 10% increase resulted from an 8% increase in closings combined with a 2% increase in average selling price. In the six months ended June 30, 2024, the 10% increase resulted primarily from a 9% increase in closings. The increases in closings were primarily attributable to both a strong backlog and initiatives to prioritize quick move-in spec homes to satisfy customer desire to quickly close on homes due to the volatile interest rate environment and to ensure an efficient production cadence of homes. The increase in average selling price during the three months ended June 30, 2024 reflected the impact of consumer demand and persistent inflation, partially offset by a slight increase in the mix of first-time buyer homes, which typically carry a lower sales price.

Home sale gross margins

Home sale gross margins were 29.9% and 29.8% in the three and six months ended June 30, 2024, respectively, compared with 29.6% and 29.4% in the three and six months ended June 30, 2023, respectively. Due to the low supply of new and existing homes for sale, we were generally able to maintain net sales pricing to substantially offset increases in house and land costs and higher sales incentives over these periods.