10-Q 1 phm-20240930.htm 10-Q - 3Q 2024 phm-20240930
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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 September 30, 2024

or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number 1-9804
PulteGroupLogo2022 (2).jpg
PULTEGROUP, INC.
(Exact name of registrant as specified in its charter) 
Michigan38-2766606
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
3350 Peachtree Road NE, Suite 1500
Atlanta,Georgia30326
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:404978-6400
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 companyEmerging 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☐No☒
Number of common shares outstanding as of October 15, 2024: 205,082,181
1

PULTEGROUP, INC.
TABLE OF CONTENTS

Page
No.
PART I 
Item 1
Item 2
 
Item 3
Item 4
PART II
Item 1
Item 1A
Item 2
Item 5
Item 6




2

PART I. FINANCIAL INFORMATION

Item 1.      Financial Statements

PULTEGROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000’s omitted)
 
September 30,
2024		December 31,
2023
(Unaudited)
ASSETS
Cash and equivalents$1,397,664 $1,806,583 
Restricted cash57,472 42,594 
Total cash, cash equivalents, and restricted cash1,455,136 1,849,177 
House and land inventory12,641,932 11,795,370 
Land held for sale24,914 23,831 
Residential mortgage loans available-for-sale556,664 516,064 
Investments in unconsolidated entities213,022 166,913 
Other assets1,897,985 1,545,667 
Goodwill68,930 68,930 
Other intangible assets48,802 56,338 
Deferred tax assets47,708 64,760 
$16,955,093 $16,087,050 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Accounts payable$704,663 $619,012 
Customer deposits597,820 675,091 
Deferred tax liabilities401,142 302,155 
Accrued and other liabilities1,539,476 1,645,690 
Financial Services debt524,093 499,627 
Notes payable1,623,686 1,962,218 
5,390,880 5,703,793 
Shareholders' equity11,564,213 10,383,257 
$16,955,093 $16,087,050 




See accompanying Notes to Condensed Consolidated Financial Statements.

3

PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000’s omitted, except per share data)
(Unaudited)
 
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Revenues:
Homebuilding
Home sale revenues$4,343,227 $3,886,908 $12,610,981 $11,433,476 
Land sale and other revenues19,284 39,905 96,327 107,575 
4,362,511 3,926,813 12,707,308 11,541,051 
Financial Services113,831 76,720 317,848 226,875 
Total revenues4,476,342 4,003,533 13,025,156 11,767,926 
Homebuilding Cost of Revenues:
Home sale cost of revenues(3,091,267)(2,739,596)(8,897,835)(8,068,287)
Land sale and other cost of revenues(25,287)(35,007)(101,204)(92,467)
(3,116,554)(2,774,603)(8,999,039)(8,160,754)
Financial Services expenses(58,905)(46,431)(159,615)(137,244)
Selling, general, and administrative expenses(406,897)(353,167)(1,125,637)(1,004,323)
Equity income from unconsolidated entities, net2,508 891 42,577 4,348 
Other income, net9,702 17,091 39,709 32,496 
Income before income taxes906,196 847,314 2,823,151 2,502,449 
Income tax expense(208,282)(208,539)(653,128)(611,070)
Net income$697,914 $638,775 $2,170,023 $1,891,379 
Per share:
Basic earnings$3.38 $2.92 $10.36 $8.49 
Diluted earnings$3.35 $2.90 $10.28 $8.45 
Cash dividends declared$0.20 $0.16 $0.60 $0.48 
Number of shares used in calculation:
Basic206,774 218,288 209,374 221,832 
Effect of dilutive securities1,686 1,394 1,683 1,152 
Diluted208,460 219,682 211,057 222,984 


See accompanying Notes to Condensed Consolidated Financial Statements.

4


PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(000's omitted)
(Unaudited)
 Additional
Paid-in
Capital		Retained
Earnings		Total
Common Stock
Shares$
Shareholders' equity, June 30, 2024207,905 $2,079 $3,403,327 $7,817,417 $11,222,823 
Share issuances9 — — — — 
Dividends declared— — — (41,551)(41,551)
Share repurchases(2,539)(25)— (319,975)(320,000)
Excise tax on share repurchases— — — (3,189)(3,189)
Cash paid for shares withheld for taxes— — — (840)(840)
Share-based compensation— — 9,056 — 9,056 
Net income— — — 697,914 697,914 
Shareholders' equity, September 30, 2024205,375 $2,054 $3,412,383 $8,149,776 $11,564,213 
Shareholders' equity, December 31, 2023212,558 $2,126 $3,368,407 $7,012,724 $10,383,257 
Share issuances421 4 9,288 — 9,292 
Dividends declared— — — (126,233)(126,233)
Share repurchases(7,604)(76)— (879,923)(879,999)
Excise tax on share repurchases— — — (8,352)(8,352)
Cash paid for shares withheld for taxes— — — (18,463)(18,463)
Share-based compensation— — 34,688 — 34,688 
Net income— — — 2,170,023 2,170,023 
Shareholders' equity, September 30, 2024205,375 $2,054 $3,412,383 $8,149,776 $11,564,213 

5

Additional
Paid-in
Capital		Retained
Earnings		Total
Common Stock
Shares$
Shareholders' equity, June 30, 2023219,892 $2,199 $3,354,318 $6,348,508 $9,705,025 
Share issuances1 — — — — 
Dividends declared— — — (35,020)(35,020)
Share repurchases(3,758)(38)— (299,962)(300,000)
Excise tax on share repurchases— — — (3,000)(3,000)
Cash paid for shares withheld for taxes— — — (20)(20)
Share-based compensation— — 6,741 — 6,741 
Net income— — — 638,775 638,775 
Shareholders' equity, September 30, 2023216,135 $2,161 $3,361,059 $6,649,281 $10,012,501 
Shareholders' equity, December 31, 2022225,840 $2,258 $3,330,138 $5,581,702 $8,914,098 
Share issuances474 4 4,838 — 4,842 
Dividends declared— — — (106,792)(106,792)
Share repurchases(10,179)(101)— (699,899)(700,000)
Excise tax on share repurchases— — — (6,701)(6,701)
Cash paid for shares withheld for taxes— — — (10,408)(10,408)
Share-based compensation— — 26,083 — 26,083 
Net income— — — 1,891,379 1,891,379 
Shareholders' equity, September 30, 2023216,135 $2,161 $3,361,059 $6,649,281 $10,012,501 

See accompanying Notes to Condensed Consolidated Financial Statements.
6

PULTEGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000’s omitted)
(Unaudited)
Nine Months Ended
September 30,
20242023
Cash flows from operating activities:
Net income$2,170,023 $1,891,379 
Adjustments to reconcile net income to net cash from operating activities:
Deferred income tax expense116,013 132,389 
Land-related charges19,929 16,978 
Depreciation and amortization64,975 59,765 
Equity income from unconsolidated entities(42,577)(4,348)
Distributions of income from unconsolidated entities2,557 4,564 
Share-based compensation expense39,247 38,401 
Other, net(74)(863)
Increase (decrease) in cash due to:
Inventories(805,331)(173,377)
Residential mortgage loans available-for-sale(45,184)262,637 
Other assets(366,279)(142,131)
Accounts payable, accrued and other liabilities(40,115)(177,050)
Net cash provided by operating activities1,113,184 1,908,344 
Cash flows from investing activities:
Capital expenditures(94,065)(67,561)
Investments in unconsolidated entities(15,105)(18,059)
Distributions of capital from unconsolidated entities9,017 2,316 
Other investing activities, net(8,197)(11,727)
Net cash used in investing activities(108,350)(95,031)
Cash flows from financing activities:
Repayments of notes payable(350,453)(86,794)
Financial Services borrowings (repayments), net24,465 (161,254)
Debt issuance costs— (1,500)
Proceeds from liabilities related to consolidated inventory not owned46,256 108,707 
Payments related to consolidated inventory not owned(94,121)(49,379)
Share repurchases(879,999)(700,000)
Cash paid for shares withheld for taxes(18,463)(10,409)
Dividends paid(126,560)(107,676)
Net cash used in financing activities(1,398,875)(1,008,305)
Net increase (decrease) in cash, cash equivalents, and restricted cash(394,041)805,008 
Cash, cash equivalents, and restricted cash at beginning of period1,849,177 1,094,553 
Cash, cash equivalents, and restricted cash at end of period$1,455,136 $1,899,561 
Supplemental Cash Flow Information:
Interest paid (capitalized), net$20,144 $11,048 
Income taxes paid (refunded), net$546,344 $546,871 

See accompanying Notes to Condensed Consolidated Financial Statements.
7

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 ($000’s omitted): 
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Write-offs of deposits and pre-acquisition costs$(4,732)$(2,456)$(12,406)$(9,629)
Amortization of intangible assets(2,498)(2,623)(7,536)(7,915)
Gain (loss) on debt retirement— 362 (222)362 
Interest income13,748 19,303 48,268 41,701 
Interest expense(120)(120)(352)(347)
Miscellaneous, net3,304 2,625 11,957 8,324 
Other income, net$9,702 $17,091 $39,709 $32,496 


8

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 $597.8 million and $675.1 million at September 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 date that 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 $87.2 million and $74.0 million at September 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 September 30, 2024 and December 31, 2023, residential mortgage loans available-for-sale had an aggregate fair value of $556.7 million and $516.1 million, respectively, and an aggregate outstanding principal balance of $554.1 million and $508.5 million, respectively. Net gains from the sale of mortgages were $62.0 million and $33.7 million for the three months ended September 30, 2024 and 2023, respectively, and $173.2 million and $102.8 million for the nine months ended September 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 September 30, 2024 and December 31, 2023, we had aggregate IRLCs of $724.1 million and $404.7 million, respectively. 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 September 30, 2024 and December 31, 2023, we had unexpired forward contracts of $1.1 billion and $745.0 million, respectively, and whole loan investor commitments of $298.7 million and $207.9 million, respectively. Changes in the fair value of IRLCs and other derivative
9

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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):

 
 September 30, 2024December 31, 2023
 Other AssetsAccrued and Other LiabilitiesOther AssetsAccrued and Other Liabilities
Interest rate lock commitments$2,695 $11,361 $3,926 $1,506 
Forward contracts2,593 11,845 110 26,104 
Whole loan commitments80 127 24 47 
$5,368 $23,333 $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 nine months ended September 30, 2024. The following table presents a reconciliation of the Numerator used in the earnings per share calculation for the three and nine months ended September 30, 2023 (000's omitted, except per share data):

Three Months EndedNine Months Ended
September 30,September 30,
20232023
Numerator:
Net income$638,775 $1,891,379 
Less: earnings distributed to participating securities(121)(369)
Less: undistributed earnings allocated to participating securities(2,083)(6,685)
Numerator for basic earnings per share$636,571 $1,884,325 
Add back: undistributed earnings allocated to participating securities2,083 6,685 
Less: undistributed earnings reallocated to participating securities(2,066)(6,636)
Numerator for diluted earnings per share$636,588 $1,884,374 




10

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 September 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): 
September 30,
2024		December 31,
2023
Homes under construction$6,056,408 $5,262,850 
Land under development6,016,314 5,805,993 
Raw land502,494 606,005 
Consolidated inventory not owned (a)
66,716 120,522 
$12,641,932 $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 EndedNine Months Ended
 September 30,September 30,
 2024202320242023
Interest in inventory, beginning of period$149,362 $141,994 $139,078 $137,262 
Interest capitalized26,443 31,659 86,346 95,388 
Interest expensed(29,708)(33,643)(79,327)(92,640)
Interest in inventory, end of period$146,097 $140,010 $146,097 $140,010 




11

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 September 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 September 30, 2024 and December 31, 2023 ($000’s omitted):


 
 September 30, 2024December 31, 2023
 Deposits and
Pre-acquisition
Costs		Remaining Purchase
Price		Deposits and
Pre-acquisition
Costs		Remaining Purchase
Price
Land options with VIEs$313,562 $2,603,779 $238,070 $1,916,558 
Other land options632,058 5,498,859 466,139 4,531,566 
$945,620 $8,102,638 $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 from 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: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.
12

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)




Operating Data by Segment
($000’s omitted)
 Three Months EndedNine Months Ended
September 30,September 30,
 2024202320242023
Revenues:
Northeast$265,395 $234,475 $723,096 $684,495 
Southeast666,807 646,927 2,155,684 2,009,556 
Florida1,181,792 1,220,036 3,670,848 3,525,623 
Midwest660,694 543,772 1,847,562 1,412,102 
Texas569,663 487,521 1,694,259 1,587,752 
West1,018,160 794,082 2,615,859 2,321,523 
4,362,511 3,926,813 12,707,308 11,541,051 
Financial Services113,831 76,720 317,848 226,875 
Consolidated revenues$4,476,342 $4,003,533 $13,025,156 $11,767,926 
Income (loss) before income taxes:
Northeast$56,805 $52,265 $157,148 $150,227 
Southeast145,725 144,643 494,613 469,653 
Florida270,428 316,113 884,656 904,916 
Midwest134,391 105,267 352,519 242,552 
Texas95,244 99,433 298,724 305,552 
West152,973 107,537 376,312 307,537 
Other homebuilding (a)
(4,296)(6,893)99,896 32,666 
851,270 818,365 2,663,868 2,413,103 
Financial Services54,926 28,949 159,283 89,346 
Consolidated income before income taxes$906,196 $847,314 $2,823,151 $2,502,449 

(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 $78.7 million for the nine months ended September 30, 2024, and $66.2 million for the nine months ended September 30, 2023, (see Note 8), and a gain of $37.7 million for the nine months ended September 30, 2024 related to the sale of our minority interest in a joint venture.
13

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating Data by Segment
($000’s omitted)
Three Months EndedNine Months Ended
September 30,September 30,
2024202320242023
Land-related charges (a):
Northeast$5,890 $197 $7,494 $266 
Southeast188 2,616 2,744 5,643 
Florida1,085 338 2,002 2,430 
Midwest188 282 835 886 
Texas1,257 59 1,764 388 
West3,352 2,889 4,796 6,689 
Other homebuilding171 487 294 676 
$12,131 $6,868 $19,929 $16,978 

(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)
September 30, 2024
 Homes Under
Construction		Land Under
Development		Raw LandConsolidated Inventory Not OwnedTotal
Inventory		Total
Assets
Northeast$416,146 $307,118 $4,175 $— $727,439 $863,828 
Southeast781,382 1,012,198 43,900 10,830 1,848,310 2,173,809 
Florida (a)
1,372,237 1,444,069 134,885 22,815 2,974,006 3,613,361 
Midwest718,718 667,987 15,435 3,279 1,405,419 1,587,979 
Texas618,259 797,086 107,231 29,792 1,552,368 1,840,163 
West2,117,307 1,408,440 188,767 — 3,714,514 4,263,595 
Other homebuilding (b)
32,359 379,416 8,101 — 419,876 1,682,875 
6,056,408 6,016,314 502,494 66,716 12,641,932 16,025,610 
Financial Services— — — — — 929,483 
$6,056,408 $6,016,314 $502,494 $66,716 $12,641,932 $16,955,093 
14

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 LandConsolidated Inventory Not OwnedTotal
Inventory		Total
Assets
Northeast$312,903 $337,130 $4,091 $— $654,124 $775,316 
Southeast786,698 826,240 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 
Midwest621,144 685,139 14,265 3,472 1,324,020 1,476,166 
Texas634,574 721,032 101,394 40,948 1,497,948 1,686,609 
West1,473,617 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):
 September 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)
(6,597)(8,047)
Total senior notes$1,582,547 $1,891,252 
Other notes payable41,139 70,966 
Notes payable$1,623,686 $1,962,218 
Estimated fair value$1,757,342 $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 nine months ended September 30, 2024, we completed repurchases of $193.4 million and $106.6 million aggregate principal amount of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer. Our total repurchases in the nine months ended September 30, 2024, including open market repurchases, were $310.2 million.
15

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 $41.1 million and $71.0 million at September 30, 2024 and December 31, 2023, respectively. These notes have maturities ranging up to six years, are secured by the applicable land positions to which they relate, and generally have no recourse to other assets. The stated interest rates on these notes range up to 5%. We recorded $10.8 million and $35.3 million of inventory through seller financing in the nine months ended September 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 September 30, 2024. Outstanding balances under the Revolving Credit Facility are guaranteed by certain of our wholly-owned subsidiaries.

At September 30, 2024, we had no borrowings outstanding, $310.9 million of letters of credit issued, and $939.1 million of remaining capacity under the Revolving Credit Facility. At December 31, 2023, we had no borrowings outstanding, $312.7 million of letters of credit issued, and $937.3 million of remaining capacity under the Revolving Credit Facility.

Joint venture debt

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

Financial Services debt

Pulte Mortgage maintains a master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement") that matures on August 13, 2025. The maximum aggregate commitment under the Repurchase Agreement was $675.0 million at September 30, 2024 and will decrease to $650.0 million on January 14, 2025, which continues until maturity. The Repurchase Agreement also contains an accordion feature that could increase the commitment by $50.0 million above its active commitment level. Borrowings under the Repurchase Agreement are secured by residential mortgage loans available-for-sale. The Repurchase Agreement contains various affirmative and negative covenants applicable to Pulte Mortgage, including quantitative thresholds related to net worth, net income, and liquidity. At September 30, 2024, Pulte Mortgage had $524.1 million outstanding at a weighted-average interest rate of 6.65% and $150.9 million of remaining capacity under the Repurchase Agreement. At December 31, 2023, Pulte Mortgage had $499.6 million outstanding at a weighted-average interest rate of 7.15% and $350.4 million of remaining capacity under the prior agreement replaced by the Repurchase Agreement. Pulte Mortgage was in compliance with all covenants and requirements as of September 30, 2024.

5. Shareholders’ equity

In the nine months ended September 30, 2024, we declared cash dividends totaling $126.2 million and repurchased 7.6 million shares under our repurchase authorization for $880.0 million. In the nine months ended September 30, 2023, we declared cash dividends totaling $106.8 million and repurchased 10.2 million shares under our repurchase authorization for $700.0 million. On January 30, 2024, the Board of Directors increased our share repurchase authorization by $1.5 billion. At September 30, 2024, we had remaining authorization to repurchase $1.0 billion of common shares.

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 nine months ended September 30, 2024 and 2023, participants surrendered shares valued at $18.5 million and $10.4 million, respectively, under these plans. Such share transactions are excluded from the above noted share repurchase authorization.


16

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Income taxes

Our effective tax rate was 23.0% and 23.1% for the three and nine months ended September 30, 2024, respectively, compared with 24.6% and 24.4% for the same periods in 2023. Our effective tax rate for each of these periods differs from the federal statutory rate primarily due to state income tax expense. Income tax expense for the three and nine months ended September 30, 2024 also includes a benefit of $14.3 million associated with the purchase of transferable federal renewable energy tax credits. Income tax expense for the nine months ended September 30, 2024 also reflects a reduction in income tax liabilities totaling $13.2 million related to the favorable resolution of uncertain state tax positions.

At September 30, 2024 and December 31, 2023, we had net deferred tax liabilities of $353.4 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 $40.7 million and $58.2 million of gross unrecognized tax benefits at September 30, 2024 and December 31, 2023, respectively. Additionally, we had accrued interest and penalties of $1.8 million and $6.3 million at September 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 1Fair value determined based on quoted prices in active markets for identical assets or liabilities.
Level 2Fair 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 3Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.



17

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 InstrumentFair Value
Hierarchy		Fair Value
September 30,
2024		December 31,
2023
Measured at fair value on a recurring basis:
Residential mortgage loans available-for-saleLevel 2$556,664 $516,064 
IRLCsLevel 2(8,666)2,420 
Forward contractsLevel 2(9,252)(25,994)
Whole loan commitmentsLevel 2(47)(23)
Measured at fair value on a non-recurring basis:
House and land inventoryLevel 3$6,989 $12,906 
Land held for saleLevel 26,000 — 
Disclosed at fair value:
Cash, cash equivalents, and restricted cashLevel 1$1,455,136 $1,849,177 
Financial Services debtLevel 2524,093 499,627 
Senior notes payableLevel 21,716,203 2,009,221 
Other notes payableLevel 241,139 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 September 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 $310.9 million and $2.8 billion, respectively, at September 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.


18

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 EndedNine Months Ended
September 30,September 30,
2024202320242023
Warranty liabilities, beginning of period$127,533 $106,136 $120,393 $108,348 
Reserves provided28,009 29,412 85,368 74,598 
Payments(28,319)(24,984)(79,953)(75,313)
Other adjustments2,818 1,747 4,233 4,678 
Warranty liabilities, end of period$130,041 $112,311 $130,041 $112,311 

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.
19

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Our insurance coverage typically 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 $517.7 million and $563.1 million at September 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 76% and 77% of the total general liability reserves at September 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 $78.7 million during the nine months ended September 30, 2024, and $66.2 million during the nine months ended September 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 EndedNine Months Ended
September 30,September 30,
2024202320242023
Balance, beginning of period$506,523 $605,192 $563,103 $635,857 
Reserves provided20,281 20,578 62,656 70,050 
Adjustments to previously recorded reserves— (789)(78,708)(66,209)
Payments, net(9,149)(2,000)(29,396)(16,717)
Balance, end of period$517,655 $622,981 $517,655 $622,981 


20

PULTEGROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 $72.7 million and $85.5 million at September 30, 2024, respectively, and $77.4 million and $91.6 million at December 31, 2023, respectively. In the three and nine months ended September 30, 2024 we recorded an additional $3.6 million and $9.1 million, respectively, of lease liabilities under operating leases, and $1.3 million and $9.6 million in the comparable prior year periods. Payments on lease liabilities in the three and nine months ended September 30, 2024 totaled $5.9 million and $17.6 million, respectively, and $6.1 million and $17.4 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 nine months ended September 30, 2024 our total lease expense was $15.3 million and $45.5 million, respectively, and $13.5 million and $42.0 million in the comparable prior year periods. Our total lease expense is inclusive of variable lease costs of $2.3 million and $8.4 million in the three and nine months ended September 30, 2024, respectively, and $2.7 million and $8.9 million in the comparable prior year periods, as well as short-term lease costs of $6.2 million and $17.0 million in the three and nine months ended September 30, 2024, respectively, and $4.0 million and $12.8 million in the comparable prior year periods. Sublease income was de minimis.

The future minimum lease payments required under our leases as of September 30, 2024 were as follows ($000's omitted):
Years Ending December 31,
2024 (a)
$9,555 
202523,296 
202617,490 
202713,981 
202811,408 
Thereafter18,309 
Total lease payments (b)
94,039 
Less: Interest (c)
(8,568)
Present value of lease liabilities (d)
$85,471 

(a)Remaining payments are for the three months ending December 31, 2024.
(b)Lease payments include options to extend lease terms that are reasonably certain of being exercised and exclude $53.5 million of legally binding minimum lease payments for leases signed but not yet commenced at September 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 4.2%, respectively, at September 30, 2024.
21

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 EndedNine Months Ended
 September 30,September 30,
 2024202320242023
Income before income taxes:
Homebuilding$851,270 $818,365 $2,663,868 $2,413,103 
Financial Services54,926 28,949 159,283 89,346 
Income before income taxes906,196 847,314 2,823,151 2,502,449 
Income tax expense(208,282)(208,539)(653,128)(611,070)
Net income$697,914 $638,775 $2,170,023 $1,891,379 
Diluted earnings per share$3.35 $2.90 $10.28 $8.45 
In 2022, the Federal Reserve began raising its benchmark interest rate in response to persistent inflation that began after the onset of the COVID-19 pandemic. These actions drove national mortgage and other interest rates higher and negatively impacted home affordability and consumer sentiment. Despite this rise in interest rates, demand for new homes generally remained strong during 2023 and into 2024. Despite a recent 50 bps cut in the Federal Reserve benchmark interest rate late in the third quarter of 2024, affordability remains challenged for housing due to the higher interest rates, house price increases, and general inflation in recent years as compared with historical levels. We have responded by adjusting sales prices where necessary and focusing sales incentives on closing cost incentives and mortgage interest rate buydowns. Additionally, the rate of customer order cancellations that spiked in 2022 in response to higher inflation and interest rate increases has now normalized to historical levels.

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

The supply chain constraints that arose in connection with the COVID-19 pandemic improved during 2023 and have continued to ease during the first nine months of 2024, which has contributed to a shortening of our production cycle times. The time required to construct a home was approximately seven weeks shorter at the end of the third quarter of 2024 compared to the comparable prior year period, and nearly two weeks shorter than at the end of the second quarter of 2024. This decrease in cycle times, coupled with our strong backlog and focus on spec home production, contributed to an increase in closings of 12% and 10% in the three and nine months ended September 30, 2024, respectively, over the comparable prior year periods. While production cycle times remain elevated versus our historical norms due to the availability of certain materials and construction labor, along with extended timelines for municipal approvals and inspections in certain geographies, we continue to make progress. Inflation also continues to impact our business, especially the cost of land and related development expenditures. Due to the length of our construction cycle times, there is a lag between when such cost changes occur and when they impact our operating results.

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

–Increasing our lot optionality within our land pipeline for increased flexibility;
–Producing sufficient levels of spec inventory (houses without customer orders) to service buyers seeking to close within 30 to 90 days;
22

–Maintaining a focus on shareholder return through share buybacks and dividends, including a 25% increase in our dividends from $0.16 to $0.20 per share effective with our January 2024 dividend payment;
–Taking an opportunistic approach to repurchasing debt; and
–Maintaining ample liquidity.

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

Homebuilding Operations

The following presents selected financial information for our Homebuilding operations ($000’s omitted):
Three Months EndedNine Months Ended
 September 30,September 30,
 20242024 vs. 2023202320242024 vs. 20232023
Home sale revenues$4,343,227 12 %$3,886,908 $12,610,981 10 %$11,433,476 
Land sale and other revenues19,284 (52)%39,905 96,327 (10)%107,575 
Total Homebuilding revenues 4,362,511 11 %3,926,813 12,707,308 10 %11,541,051 
Home sale cost of revenues(3,091,267)13 %(2,739,596)(8,897,835)10 %(8,068,287)
Land sale and other cost of revenues(25,287)(28)%(35,007)(101,204)9 %(92,467)
Selling, general, and administrative
expenses ("SG&A") (a)
(406,897)15 %(353,167)(1,125,637)12 %(1,004,323)
Equity income from unconsolidated
  entities, net (b)
2,508 (c)891 41,527 (c)3,293 
Other income, net9,702 (47)%18,431 39,709 17 %33,836 
Income before income taxes$851,270 4 %$818,365 $2,663,868 10 %$2,413,103 
Supplemental data:
Gross margin from home sales28.8 %(70) bps29.5 %29.4 %— bps29.4 %
SG&A as a percentage of home
  sale revenues (a)
9.4 %30 bps9.1 %8.9 %10 bps8.8 %
Closings (units)7,924 12 %7,076 23,116 10 %20,988 
Average selling price$548 — %$549 $546 — %$545 
Net new orders:
Units7,031 — %7,065 23,059 3 %22,366 
Dollars (d)
$3,928,860 3 %$3,823,619 $12,986,027 9 %$11,884,620 
Cancellation rate15 %15 %14 %15 %
Average active communities957 4 %923 940 4 %902 
Backlog at September 30:
Units12,089 (11)%13,547 
Dollars$7,694,761 (5)%$8,125,182 

(a)SG&A includes insurance reserve reversals of $78.7 million for the nine months ended September 30, 2024, and $66.2 million for the nine months ended September 30, 2023, (see Note 8).
(b)Equity income from unconsolidated entities includes a gain of $37.7 million for the nine months ended September 30, 2024 related to the sale of our minority interest in a joint venture.
(c)Percentage not meaningful.
(d)Net new order dollars represent a composite of new order dollars combined with other movements of the dollars in backlog related to cancellations a