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.

Land sale and other revenues

We periodically elect to sell parcels of land to third parties in the event such assets no longer fit into our strategic operating plans or are zoned for commercial or other development. Land sale and other revenues and their related gains or losses vary between periods, depending on the timing of land sales and our strategic operating decisions. Land sales and other revenues contributed income of $1.0 million and $1.1 million for the three and six months ended June 30, 2024, respectively, compared with $5.1 million and $10.2 million for the three and six months ended June 30, 2023, respectively.

SG&A

SG&A as a percentage of home sale revenues was 8.1% and 8.7% in the three and six months ended June 30, 2024, respectively, compared with 7.8% and 8.6% for the three and six months ended June 30, 2023, respectively. The gross dollar amount of our SG&A increased $46.5 million, or 15%, for the three months ended June 30, 2024 compared with the prior year period, and increased $67.6 million, or 10%, for the six months ended June 30, 2024 compared with the prior year period. The increases in gross dollars for the three and six months ended June 30, 2024 resulted primarily from overhead costs to support increased production volumes, partially offset by insurance reserve reversals of $51.9 million and $78.7 million recorded in the three and six months ended June 30, 2024, compared with insurance reserve reversals of $64.9 million recorded in the three months ended June 30, 2023.

Other income, net

Other income, net includes 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
Total other income, net			$	13,324					$	13,586					$	30,008					$	15,405

Interest income began to increase significantly in 2023 and has continued to do so into 2024 as the result of higher returns on invested cash balances due to the elevated interest rate environment.

Net new orders

Net new orders in units decreased 4% while net new orders in dollars increased 2% in the three months ended June 30, 2024, as compared with the prior year period. Net new orders in units increased 5% while net new orders in dollars increased 12% in the six months ended June 30, 2024, as compared with the prior year period. The lower net new order volume in the three months ended June 30, 2024 over the comparable prior year period was primarily due to some moderation in consumer demand during the second quarter in response to higher mortgage interest rates, while the increase in net new order dollars was primarily attributable to geographic mix, including our West segment, which carries a higher average selling price. The increased net new order volume and dollars in the six months ended June 30, 2024 over the comparable prior year period was primarily attributable to the higher volumes in our West segment. Cancellation rates (canceled orders for the period divided by gross new orders for the period) were 14% and 13% for the three and six months ended June 30, 2024, respectively, and 13% for 15% in the three and six months ended June 30, 2023, respectively. Cancellation rates began to decrease in 2023 and have now returned to historical levels. Ending backlog dollars, which represents orders for homes that have not yet closed, decreased 1% at June 30, 2024 compared with June 30, 2023.

Homes in production

The following is a summary of our homes in production:

			June 30, 2024						June 30, 2023
Sold			10,322						10,725
Unsold
Under construction			5,692						5,028
Completed			1,236						987
			6,928						6,015
Models			1,511						1,382
Total			18,761						18,122

The number of homes in production at June 30, 2024 was 4% higher than at June 30, 2023. This increase was primarily attributable to a higher number of homes under construction and completed homes, which reflects our strategic decision to increase starts of spec units in response to buyer demand for quick move-in homes. This increase was partially offset by a lower number of sold homes in production.

Controlled lots

The following is a summary of our lots under control at June 30, 2024 and December 31, 2023:

			June 30, 2024																		December 31, 2023
			Owned						Optioned						Controlled						Owned						Optioned						Controlled
Northeast			4,411						5,870						10,281						4,204						8,718						12,922
Southeast			18,139						32,316						50,455						18,911						27,666						46,577
Florida			25,726						35,616						61,342						26,922						35,543						62,465
Midwest			11,999						17,205						29,204						12,290						14,461						26,751
Texas			16,417						16,604						33,021						16,487						17,378						33,865
West			28,546						12,455						41,001						25,701						14,349						40,050
Total			105,238						120,066						225,304						104,515						118,115						222,630
			47		%				53		%				100		%				47		%				53		%				100		%
Developed (%)			45		%				21		%				32		%				45		%				18		%				31		%

While competition for well-positioned land is robust, we continued to pursue land investments that we believe can achieve appropriate risk-adjusted returns on invested capital. We have also continued to seek to maintain a high percentage of our lots that are controlled via land option agreements as such contracts enable us to defer acquiring portions of properties owned by third parties or unconsolidated entities until we have determined whether and when to exercise our option, which reduces our financial risks associated with long-term land holdings. The remaining purchase price under our land option agreements totaled $7.4 billion at June 30, 2024.

Homebuilding Segment Operations

As of June 30, 2024, we conducted our operations in 46 markets located throughout 26 states. 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

The following tables present selected financial information for our reportable Homebuilding segments:

			Operating Data by Segment ($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:
Northeast			$	257,153					12		%				$	229,263					$	457,557					2		%				$	449,801
Southeast			770,587						6		%				730,214						1,487,809						9		%				1,359,200
Florida			1,294,776						7		%				1,208,112						2,436,451						8		%				2,261,414
Midwest			651,580						37		%				474,160						1,183,288						36		%				867,154
Texas			583,303						(3)		%				601,303						1,107,715						2		%				1,086,528
West			890,769						9		%				815,878						1,594,934						5		%				1,522,470
			$	4,448,168					10		%				$	4,058,930					$	8,267,754					10		%				$	7,546,567
Income (loss) before income taxes (a)****:
Northeast			$	60,444					18		%				$	51,165					$	100,343					2		%				$	97,962
Southeast			179,772						—		%				179,707						348,887						7		%				325,010
Florida			329,230						4		%				318,066						614,229						4		%				588,803
Midwest			123,366						57		%				78,381						218,128						59		%				137,285
Texas			108,830						(14)		%				126,054						203,480						(1)		%				206,119
West			133,857						33		%				100,423						223,340						12		%				200,000
Other homebuilding (b)			49,435						(6)		%				52,722						104,191						163		%				39,559
			$	984,934					9		%				$	906,518					$	1,812,598					14		%				$	1,594,738

*(a)*Includes land-related charges as summarized in the table below.

(b) Other homebuilding includes the amortization of intangible assets and capitalized interest and other items not allocated to the other segments. Other homebuilding also includes insurance reserve reversals of $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.

			Operating Data by Segment ($000's omitted)
			Three Months Ended																		Six Months Ended
			June 30,																		June 30,
			2024						2024 vs. 2023						2023						2024						2024 vs. 2023						2023
Closings (units):
Northeast			378						20		%				315						663						2		%				652
Southeast			1,499						7		%				1,405						2,944						14		%				2,573
Florida			2,150						4		%				2,067						4,067						6		%				3,819
Midwest			1,196						30		%				918						2,186						31		%				1,675
Texas			1,472						(3)		%				1,511						2,800						(1)		%				2,819
West			1,402						8		%				1,302						2,532						7		%				2,374
			8,097						8		%				7,518						15,192						9		%				13,912
Average selling price:
Northeast			$	680					(7)		%				$	728					$	690					—		%				$	690
Southeast			514						(1)		%				520						505						(4)		%				528
Florida			602						3		%				584						599						1		%				592
Midwest			545						5		%				517						541						5		%				518
Texas			396						(1)		%				398						396						3		%				385
West			635						1		%				627						630						(2)		%				641
			$	549					2		%				$	540					$	544					—		%				$	542
Net new orders - units:
Northeast			400						—		%				400						841						7		%				785
Southeast			1,396						(10)		%				1,556						2,790						(4)		%				2,903
Florida			1,746						(9)		%				1,910						3,718						(2)		%				3,788
Midwest			1,265						1		%				1,253						2,539						9		%				2,336
Texas			1,275						(8)		%				1,388						2,729						(3)		%				2,812
West			1,567						9		%				1,440						3,411						27		%				2,677
			7,649						(4)		%				7,947						16,028						5		%				15,301
Net new orders - dollars:
Northeast			$	285,380					4		%				$	274,595					$	599,534					11		%				$	537,734
Southeast			728,250						(7)		%				783,831						1,430,221						(1)		%				1,445,103
Florida			1,020,211						(10)		%				1,137,901						2,201,703						1		%				2,182,547
Midwest			699,344						6		%				662,571						1,381,019						13		%				1,227,373
Texas			500,093						(5)		%				525,229						1,075,810						5		%				1,025,727
West			1,125,230						27		%				886,881						2,368,880						44		%				1,642,517
			$	4,358,508					2		%				$	4,271,008					$	9,057,167					12		%				$	8,061,001

			Operating Data by Segment ($000's omitted)
			Three Months Ended																		Six Months Ended
			June 30,																		June 30,
			2024												2023						2024						2024 vs. 2023						2023
Cancellation rates:
Northeast			7		%										8		%				6		%										9		%
Southeast			11		%										8		%				11		%										10		%
Florida			15		%										15		%				15		%										16		%
Midwest			10		%										9		%				9		%										10		%
Texas			15		%										17		%				15		%										19		%
West			19		%										19		%				17		%										22		%
			14		%										13		%				13		%										15		%
Unit backlog:
Northeast																					745						23		%				607
Southeast																					2,092						(6)		%				2,236
Florida																					3,443						(25)		%				4,610
Midwest																					2,045						2		%				2,011
Texas																					1,566						(12)		%				1,782
West																					3,091						34		%				2,312
																					12,982						(4)		%				13,558
Backlog dollars:
Northeast																					$	550,349					28		%				$	430,592
Southeast																					1,164,148						(4)		%				1,217,721
Florida																					2,263,079						(26)		%				3,052,307
Midwest																					1,209,234						5		%				1,147,124
Texas																					698,484						(12)		%				792,999
West																					2,223,834						44		%				1,547,759
																					$	8,109,128					(1)		%				$	8,188,502

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

Northeast

For the second quarter of 2024, Northeast home sale revenues increased by 12% when compared with the prior year period due to a 20% increase in closings partially offset by a 7% decrease in average selling price. The increase in closings and decrease in average selling price occurred across the majority of markets. Income before income taxes increased 18%, primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets.

For the six months ended June 30, 2024, Northeast home sale revenues increased by 2% when compared with the prior year period primarily due to a 2% increase in closings which occurred across the majority of markets. Income before income taxes increased 2% primarily due to higher revenues and gross margins across the majority of markets. Net new orders increased across all markets.

Southeast

For the second quarter of 2024, Southeast home sale revenues increased 6% when compared with the prior year period due to a 7% increase in closings partially offset by a 1% decrease in average selling price. The increase in closings occurred across the majority of markets while the decrease in average selling price was mixed among markets. Income before income taxes increased less than 1%, primarily due to higher revenues and higher gross margins across the majority of markets, partially offset by increased overhead costs, which were mixed among markets. The decrease in net new orders occurred across the majority of markets.

For the six months ended June 30, 2024, Southeast home sale revenues increased 9% when compared with the prior year period due to a 14% increase in closings partially offset by a 4% decrease in average selling price. The increase in closings and the decrease in average selling price occurred across the majority of markets. Income before income taxes increased 7% primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets.

Florida

For the second quarter of 2024, Florida home sale revenues increased 7% when compared with the prior year period due to a 4% increase in closings combined with a 3% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 4%, primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets.

For the six months ended June 30, 2024, Florida home sale revenues increased 8% when compared with the prior year period due to a 6% increase in closings combined with a 1% increase in the average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 4% primarily due to higher revenues and gross margins across the majority of markets. Net new orders decreased across the majority of markets.

Midwest

For the second quarter of 2024, Midwest home sale revenues increased 37% when compared with the prior year period due to a 30% increase in closings combined with a 5% increase in average selling price. The increase in closings and average selling price occurred across all markets. Income before income taxes increased 57%, primarily due to higher revenues and higher gross margins across all markets. Net new orders increased across the majority of markets.

For the six months ended June 30, 2024, Midwest home sale revenues increased 36% when compared with the prior year period due to a 31% increase in closings combined with a 5% increase in average selling price. The increase in closings occurred across all markets while the increase in average selling price occurred across the majority of markets. Income before income taxes increased 59% primarily due to increased revenues and higher gross margins across all markets. Net new orders increased across the majority of markets.

Texas

For the second quarter of 2024, Texas home sale revenues decreased 3% when compared with the prior year period due to a 3% decrease in closings combined with a 1% decrease in average selling price. The decrease in closings occurred across all markets while the decrease in average selling price occurred across the majority of markets. Income before income taxes decreased 14%, primarily due to lower revenues and gross margins across the majority of markets. The decrease in net orders was mixed among markets.

For the six months ended June 30, 2024, Texas home sale revenues increased 2% when compared with the prior year period due to a 3% increase in average selling price partially offset by a 1% decrease in closings. The increase in average selling price occurred across the majority of markets while the decrease in closings was mixed among markets. Income before income taxes decreased 1% primarily due to increased overhead costs across the majority of markets. The decrease in net new orders was mixed among markets.

West

For the second quarter of 2024, West home sale revenues increased 9% compared with the prior year period due to an 8% increase in closings combined with a 1% increase in average selling price. The increase in closings and average selling price occurred across the majority of markets. Income before income taxes increased 33%, primarily due to higher revenues and gross margins across the majority of markets. Net new orders increased across the majority of markets.

For the six months ended June 30, 2024, West home sale revenues increased 5% when compared with the prior year period due to a 7% increase in closings partially offset by a 2% decrease in average selling price. The decrease in average selling price was mixed among markets while the increase in closings occurred across the majority of markets. Income before income taxes increased 12% primarily due to higher revenues and increased gross margins across the majority of markets. Net new orders increased across the majority of markets.

Financial Services Operations

We conduct our Financial Services operations, which include mortgage banking, title, and insurance agency operations, through Pulte Mortgage LLC ("Pulte Mortgage") and other subsidiaries. In originating mortgage loans, we initially use our own funds supplemented by funds available pursuant to a credit agreement with third parties. Substantially all of the loans we originate are sold in the secondary market within a short period of time after origination, generally within 30 days. We also sell the servicing rights for the loans we originate through fixed price servicing sales contracts to reduce the risks and costs inherent in servicing loans. This strategy results in owning loans and related servicing rights for only a short period of time. Operating as a captive business model primarily targeted to support our Homebuilding operations, the business levels of our Financial Services operations are highly correlated to Homebuilding, as Homebuilding customers continue to account for substantially all of its business. We believe that our mortgage capture rate, which represents loan originations from our Homebuilding operations as a percentage of total loan opportunities from our Homebuilding operations, excluding cash closings, is an important metric in

evaluating the effectiveness of our captive mortgage business model. The following tables present selected financial information for our Financial Services operations ($000's omitted):

			Three Months Ended																		Six Months Ended
			June 30,																		June 30,
			2024						2024 vs. 2023						2023						2024						2024 vs. 2023						2023
Mortgage revenues			$	76,967					25		%				$	61,616					$	139,992					50		%				$	93,381
Title services revenues			25,405						12		%				22,596						47,224						15		%				41,091
Insurance agency commissions			9,290						16		%				8,007						16,803						7		%				15,684
Total Financial Services revenues			111,662						21		%				92,219						204,019						36		%				150,156
Expenses			(49,334)						5		%				(46,778)						(100,712)						11		%				(90,813)
Equity income from unconsolidated entities			1,050						—		%				1,054						1,050						—		%				1,054
Income before income taxes			$	63,378					36		%				$	46,495					$	104,357					73		%				$	60,397
Total originations:
Loans			5,105						12		%				4,539						9,437						12		%				8,408
Principal			$	2,140,103					19		%				$	1,790,977					$	3,895,150					18		%				$	3,307,427

			Six Months Ended
			June 30,
			2024						2023
Supplemental data:
Capture rate			85.4		%				79.1		%
Average FICO score			750						746
Funded origination breakdown:
Government (FHA, VA, USDA)			25		%				23		%
Other agency			72		%				73		%
Total agency			97		%				96		%
Non-agency			3		%				4		%
Total funded originations			100		%				100		%

Revenues

Total Financial Services revenues for the three and six months ended June 30, 2024 increased 21% and 36%, respectively, compared with the same periods in 2023. The increases during 2024 when compared with the prior year periods were primarily due to an increase in origination volumes resulting from higher closings within Homebuilding and improved capture rates. Revenues per loan also increased as the result of a more favorable operating environment for Financial Services. The increased use of closing cost incentives in the form of mortgage interest rate buydowns has also contributed favorably to the Financial Services volumes and revenues per transaction.

Income before income taxes

Income before income taxes in the three and six months ended June 30, 2024 increased 36% and 73%, respectively, compared with the same period in 2023. The increases during the three and six months ended June 30, 2024 when compared with the prior year periods were primarily due to the higher loan origination volume, capture rate, and revenue per transaction.

Income Taxes

Our effective income tax rate for the three and six months ended June 30, 2024 was 22.8% and 23.2%, 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 benefit relating to a reduction in income tax liabilities totaling $13.2 million related to the favorable resolution of uncertain state tax positions.

Liquidity and Capital Resources

We finance our land acquisition, development, and construction activities and financial services operations using internally-generated funds, supplemented by credit arrangements with third parties and capital market financing. We routinely monitor current and expected operational requirements and financial market conditions to evaluate accessing available financing sources, including revolving bank credit and securities offerings.

At June 30, 2024, we had unrestricted cash and equivalents of $1.4 billion, restricted cash balances of $53.1 million, and $952.6 million available under our Revolving Credit Facility. Our ratio of debt-to-total capitalization, excluding our Financial Services debt, was 12.8% at June 30, 2024, compared with 15.9% at December 31, 2023. We follow a diversified investment approach for our cash and equivalents by maintaining such funds with a portfolio of banks within our group of relationship banks in high quality, highly liquid, short-term deposits and investments, which helps mitigate banking concentration risk.

For the next twelve months, we expect our principal demand for funds will be for the acquisition and development of land inventory, construction of house inventory, and operating expenses, including our general and administrative expenses. The increase in sales and related increased pace in starts, coupled with the elongation of our production cycle compared to historical levels, has required a greater investment of cash in our homes under production. Additionally, we plan to continue our dividend payments and repurchases of common stock. In August 2024, we need to repay or refinance Pulte Mortgage's master repurchase agreement with third-party lenders (as amended, the "Repurchase Agreement"). While we intend to refinance the Repurchase Agreement, there can be no assurances that the Repurchase Agreement can be renewed or replaced on commercially reasonable terms upon its expiration. However, we believe we have adequate liquidity to meet Pulte Mortgage's anticipated financing needs. Beyond the next twelve months, we will need to repay or refinance our Revolving Credit Facility, which matures in June 2027, and our unsecured senior notes, the next tranche of which becomes due in 2026. We may from time to time repurchase our unsecured senior notes through open market purchases, privately negotiated transactions, or otherwise. In the three months ended June 30, 2024, we completed repurchases of $193.4 million and $106.6 million of our unsecured senior notes scheduled to mature in 2026 and 2027, respectively, through a cash tender offer, bringing our total repurchases in the six months ended June 30, 2024 to $310.2 million.

We believe that our current cash position and other available financing resources, coupled with our ongoing operating activities, will provide sufficient liquidity to fund our business needs over the next twelve months and beyond. To the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt, dispose of certain assets to fund our operating activities, or draw on existing or new debt facilities.

Unsecured senior notes

We had $1.6 billion and $1.9 billion of unsecured senior notes outstanding at June 30, 2024 and December 31, 2023, respectively, with no repayments due until March 2026, when $251.9 million of unsecured senior notes are scheduled to mature.

Other notes payable

Other notes payable include non-recourse and limited recourse secured notes with third parties that totaled $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%.

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 pursuant to 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 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 prior agreement replaced by the Repurchase Agreement. Pulte Mortgage was in compliance with all covenants and requirements as of June 30, 2024.

Dividends and share repurchase program

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.

Contractual Obligations

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of June 30, 2024, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, purchase obligations related to expected acquisitions and development of land, house construction costs, operating leases, and obligations under our various compensation and benefit plans.

We use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the development of our homebuilding projects and insurance programs. The expiration dates of the letter of credit contracts coincide with the expected completion date of the related homebuilding projects and insurance programs. If the obligations related to a project or program are ongoing, annual extensions of the letters of credit are typically granted on a year-to-year basis. At June 30, 2024, we had outstanding letters of credit totaling $297.4 million. Our surety bonds generally do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. These bonds, which approximated $2.7 billion at June 30, 2024, are typically outstanding over a period of approximately three to five years. Because significant construction and development work has been performed related to projects that have not yet received final acceptance by the respective counterparties, the aggregate amount of surety bonds outstanding is in excess of the projected cost of the remaining work to be performed.

In the ordinary course of business, we enter into land option agreements in order to procure land for the construction of houses in the future. At June 30, 2024, these agreements had an aggregate remaining purchase price of $7.4 billion. Pursuant to these land option agreements, we generally provide a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. At June 30, 2024, outstanding deposits totaled $488.6 million, of which $23.6 million is refundable.

For further information regarding our primary obligations, refer to Note 4 and Note 8 to the Consolidated Financial Statements included elsewhere in this Quarterly Report on 10-Q for amounts outstanding as of June 30, 2024 related to debt and commitments and contingencies, respectively.

Cash flows

Operating activities

Net cash provided by operating activities in the six months ended June 30, 2024 was $657.3 million. Generally, the primary drivers of our cash flow from operations are profitability and changes in the levels of inventory and residential mortgage loans available-for-sale, each of which experiences seasonal fluctuations. The cash inflows from operations for the six months ended June 30, 2024 were primarily due to net income of $1.5 billion, partially offset by a net increase in inventories of $473.7 million, which was primarily attributable to the increased number of homes in production coupled with land acquisition and development spend to support future growth, and a $55.3 million increase in residential mortgage loans available due to higher loan origination volumes.

Net cash provided by operating activities in the six months ended June 30, 2023 was $1.5 billion. The cash inflows from operations for the six months ended June 30, 2023 were primarily due to net income of $1.3 billion along with a seasonal $244.5 million decrease in residential mortgage loans available-for-sale.

Investing activities

Net cash used in investing activities in the six months ended June 30, 2024 was $66.2 million. These cash outflows primarily resulted from capital expenditures of $55.3 million related to our ongoing investments in new communities, facilities, and information technology applications.

Net cash used in investing activities in the six months ended June 30, 2023 was $54.0 million. These cash outflows primarily related to capital expenditures of $45.1 million related to our ongoing investments in new communities, facilities, and information technology applications.

Financing activities

Net cash used in financing activities in the six months ended June 30, 2024 totaled $994.3 million. These cash outflows resulted primarily from the repurchase of 5.1 million common shares for $560.0 million under our share repurchase authorization, payments of $84.9 million in cash dividends, payments of $70.6 million related to consolidated inventory not owned, and $318.3 million of repayments of notes payable, partially offset by net Financial Services borrowings of $24.4 million related to an increase in residential mortgage loans available-for-sale.

Net cash used in financing activities in the six months ended June 30, 2023 totaled $713.4 million. These cash outflows resulted primarily from the repurchase of 6.4 million common shares for $400.0 million under our share repurchase authorization, payments of $72.3 million in cash dividends, and net Financial Services repayments of $271.1 million related to a seasonal reduction in residential mortgage loans available-for-sale.

Seasonality

Although significant changes in market conditions have impacted our seasonal patterns in the past and could do so again, we historically experience variability in our quarterly results from operations due to the seasonal nature of the homebuilding industry. We generally experience increases in revenues and cash flow from operations in the fourth quarter based on the timing of home closings. This seasonal activity increases our working capital requirements in our third and fourth quarters to support our home production and loan origination volumes. As a result of the seasonality of our operations, our quarterly results of operations are not necessarily indicative of the results that may be expected for the full year.

Supplemental Guarantor Financial Information

As of June 30, 2024, PulteGroup, Inc. had outstanding $1.6 billion principal amount of unsecured senior notes due at dates from March 2026 through February 2035 and no borrowings outstanding, $297.4 million of letters of credit issued, and $952.6 million of remaining capacity on its Revolving Credit Facility.

All of our unsecured senior notes and the Revolving Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by certain subsidiaries of PulteGroup, Inc. ("Guarantors" or "Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is 100% owned, directly or indirectly, by PulteGroup, Inc. Our subsidiaries associated with our financial services operations and certain other subsidiaries do not guarantee the unsecured senior notes or the Revolving Credit Facility (collectively, "Non-Guarantor Subsidiaries"). The guarantees are senior unsecured obligations of each Guarantor and rank equal with all existing and future senior debt of such Guarantor and senior to all subordinated debt of such Guarantor. The guarantees are effectively subordinated to any secured debt of such Guarantor to the extent of the value of the assets securing such debt.

A court could void or subordinate any Guarantor’s guarantee under the fraudulent conveyance laws if existing or future creditors of any such Guarantor were successful in establishing that such Guarantor:

(a) incurred the guarantee with the intent of hindering, delaying or defrauding creditors; or

(b) received less than reasonably equivalent value or fair consideration in return for incurring the guarantee and, in the case of any one of the following being true at the time thereof:

• such Guarantor was insolvent or rendered insolvent by reason of the issuance of the incurrence of the guarantee;

• the incurrence of the guarantee left such Guarantor with an unreasonably small amount of capital or assets to carry on its business;

• such Guarantor intended to, or believed that it would, incur debts beyond its ability to pay as they mature; or

• such Guarantor was a defendant in an action for money damages, or had a judgment for money damages docketed against it, if the judgment is unsatisfied after final judgment.

The measures of insolvency for purposes of determining whether a fraudulent conveyance occurred would vary depending upon the laws of the relevant jurisdiction and upon the valuation assumptions and methodology applied by the court. However, in general, a court would deem a company insolvent if:

• the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;

• the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

• it could not pay its debts as they became due.

The guarantees of the senior notes contain a provision to limit each Guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. However, under recent case law, this provision may not be effective to protect such guarantee from being voided under fraudulent transfer law or otherwise determined to be unenforceable. If a court were to find that the incurrence of a guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under that guarantee, could subordinate that guarantee to presently existing and future indebtedness of the Guarantor or could require the holders of the senior notes to repay any amounts received with respect to that guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders may not receive any repayment on the senior notes.

Finally, as a court of equity, a bankruptcy court may subordinate the claims in respect of the guarantees to other claims against us under the principle of equitable subordination if the court determines that (1) the holder of senior notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of senior notes and (3) equitable subordination is not inconsistent with the provisions of the bankruptcy code.

On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of the guarantees when such guarantees were issued, was not insolvent, did not have unreasonably small capital for the business in which it engaged and did not and has not incurred debts beyond its ability to pay such debts as

they mature. We cannot provide assurance, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.

The following tables present summarized financial information for PulteGroup, Inc. and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among PulteGroup, Inc. and the Guarantor Subsidiaries, as well as their investment in and equity in earnings from the Non-Guarantor Subsidiaries ($000’s omitted):

PulteGroup, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet Data
ASSETS			June 30, 2024						December 31, 2023
Cash, cash equivalents, and restricted cash			$1,214,338						$1,471,293
House and land inventory			11,967,303						11,474,861
Amount due from Non-Guarantor Subsidiaries			781,914						839,673
Total assets			14,957,637						14,451,614
LIABILITIES
Accounts payable, customer deposits, accrued and other liabilities			$2,721,406						$2,810,832
Notes payable			1,650,178						1,962,218
Total liabilities			4,756,096						5,078,696

			Six Months Ended
			June 30,
Summarized Statement of Operations Data			2024						2023
Revenues			$8,223,331						$7,454,291
Cost of revenues			5,778,838						5,246,601
Selling, general, and administrative expenses			704,832						640,039
Income before income taxes			1,774,676						1,555,760

Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates in the six months ended June 30, 2024 compared with those contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023.