Good morning ladies and gentlemen and thank you for standing by. My name is Kelvin [ph] and I will be your conference operator today. At this time, I would like to welcome everyone to the PulteGroup Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Bob -- sorry, Bob Shaughnessy. My apologies. Please go ahead. Robert O’Shaughnessy: All right. Thanks, Kelvin [ph]. Good morning, everyone and welcome to today's call. We look forward to discussing our fourth quarter and full year financial results. With me today are Ryan Marshall, our President and CEO; and Jim Ossowski, our incoming Executive Vice President and CFO. As always, a copy of our earnings release and this morning's presentation slides have been posted to our corporate website at pultegroup.com. We will also post an audio replay of this call later today. I want to highlight that today's presentation includes forward-looking statements about the company's expected future performance. Actual results could differ materially from those suggested by our comments today. Most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation slides. These risk factors and other key information are detailed in our SEC filings including our annual and quarterly reports. With that said, let me turn the call over to Ryan.

Thanks, Bob and good morning. We are pleased to speak with you today about how we are running the business and our outstanding fourth quarter and full year financial results. Before Bob gives you the detailed data relating to the fourth quarter, I thought it would be appropriate to summarize some of the company's many achievements in 2024. PulteGroup delivered 31,219 homes in 2024 which represents an increase of 9% over last year. We generated record home sale revenues of $17.3 billion. We once again reported industry-leading full year gross margins of 28.9% and we were able to do this in the face of increasing affordability challenges through the careful management of product offerings, pricing, incentives and absorption paces as we sought to maintain high profitability while ensuring we continue to turn our assets. We continue to manage our overheads efficiently as our reported SG&A amounted to 7.6% of our home sale revenues, including the insurance benefits we recorded in 2024. And we reported strong operating results from our financial services operations which generated $210 million of pre-tax income compared to $133 million last year. As a result, our reported net operating margin was 21.3% for the year. No matter how you look at it, our performance this year was outstanding as we have continued to navigate the turbulence in the markets over the last few years. Our performance is a product of the disciplined and consistent manner in which we are running the business which has allowed us to quickly adjust key business practices to position PulteGroup for ongoing success. Our strong operating performance also allowed us to continue to manage our capital in a manner which leaves us with considerable financial strength. In the year, we generated $1.7 billion of cash flow from operations after investing $5.3 billion…

Thanks, Bob. At the end of last year, I spoke about our successful navigation of the many challenges we faced in recent years. 2024 was no different as we have dealt with continuing interest rate variability and affordability challenges, significant weather events and ongoing geopolitical issues. I remain extremely proud of how our entire team has responded to these events and the exceptional operating and financial results PulteGroup has delivered over time. I believe that our strategy to focus on disciplined land investment, while maintaining operational and organizational expertise has proven out as we've capitalized our market conditions and have grown earnings per share at a compound annual growth rate of 30% while delivering an average annual return on equity of 27.8% over the last 5 years. Of course, those achievements reflect what we have done as opposed to what we will do and our future share price performance will depend on what we are able to achieve in the future. To that end, I think it's important to share that we will continue to operate the business in a fashion that seeks to realize strong returns through the cycle. For the long term, we have invested in high-quality land positions that we believe will allow the company to grow over time. Importantly, the optionality we have achieved in our controlled lot position give us the flexibility to pivot if the market faces unexpected headwinds. Similarly, in the near term, we have positioned our inventory production to be sufficient to meet projected demand. It is important to remember that we are seeking to keep all of our communities productive and have made sure that we have the inventory and planned start activity in place to meet that end. However, as discussed earlier, we have higher spec inventory than we've traditionally…

[Operator Instructions] The first question comes from the line of John Lovallo with UBS.

Bob, best of luck to you. The first question is maybe just help us with the sequential walk from the fourth quarter into the first quarter and then through the remainder of the year for gross margin. I think you're talking about 27% in the first quarter and then 26.5% to 27% in 2Q to 4Q? I mean, how would you sort of bucket the headwinds in terms of maybe working down some of the spec inventory, higher incentives, product mix and then stick and bricks and land cost inflation.

Yes, John. The fourth quarter, we feel really good about what our order results were in the fourth quarter, despite it being a more difficult selling environment. The walk from October through December matched what we would consider to be a more seasonal pattern as you progress through the fourth quarter. October being the best, November, a little less and December, the lowest total month. As we turned the corner into '25, we saw the continuation of what we would expect to be a normal seasonal selling pattern including as we move toward the really important spring selling season. We're starting to see some green shoots. There's been some positive order activity. We note that it's still early in that kind of spring selling season and we typically look to first part of February, Super Bowl timing to be the official start but we're encouraged and optimistic by what we're seeing. In terms of the margin guide, we're -- we think we've done a really nice job in a tough environment, balancing the pace price mix and continuing to deliver what are industry-leading gross margins. We noted that 27% will be our Q1 margin guide with the range of 26.5% to 27% for the balance of the year. We believe, based on what we know now today, we've factored in not only what's in our backlog but also what we would expect to sell the standing inventory for inclusive of anticipated discounts which the big assumption that we've made, John, is that those incentives are going to remain consistent with what we've experienced in the fourth quarter. If things turn out differently than that, then we'd certainly have to have a different conversation. But we feel pretty confident about where we sit now that we've positioned ourselves well to continue to have success in Q1 and beyond.

And then, you're talking about... Robert O’Shaughnessy: Sorry, if I could just add 1 thing. In terms of the structural kind of 26.5% to 27% it does include a flat incentive from the exit from Q4. Just for your perspective, it's assuming relatively flat pricing, you can hear that in the guide we gave on ASPs but I would note that land costs are up about 10% year-over-year. So that's the primary driver of our cost increases.

And then you guys mentioned sort of normal seasonality and then you talked about some green shoots. I mean when we think about the first quarter absorption, I think historically, it's been like 40% positive sequentially into the first quarter. I mean is that a reasonable guide as we look into the spring selling season here?

Yes, John, we haven't given a guide. So I think we'll leave the comments kind of as we've made them to this point. But we're encouraged by what we're seeing.

Next question comes from the line of Carl Reichardt of BTIG.

Congratulations, Bob and welcome, Jim. Bob sounds like you're going to be busier in retirement than you were even as a CFO based on all the stuff you're going to be doing. You talked about incentives, I think, 120 bps this quarter up a bit. Can you talk about the difference between move-up, active adult versus the first-time buyer? Is the spread between the incentives you're using on both really wide? Or is it relatively narrow? Robert O’Shaughnessy: Yes, Carl, it's interesting. The -- we haven't provided that level of granularity but I'll offer clearly, the first-time buyer who is focused on monthly payment more than, say, to move-up and active adult gets a richer look. And so especially if it's a government type loan, we've got programs that are for conventional [indiscernible]. So those are typically going to be a little bit more expensive. When you get to that move-up buyer, there might be other incentives that get mixed in with it. We're trying to, again, meet their desires as well as their financial needs. And then when you get to the active adult buyer, a lot of them are taking small or no mortgage at all. So the incentive package looks a little different there. And that's not inconsistent with history, right? I mean that's always been the case. So I don't know if that helps but just a little more color.

And then, Bob, in your remarks about leverage, you used the word I hadn't heard in a while which was transaction. And I haven't asked this in a while but Ryan we've talked in the past about the -- your potential interest in M&A or lack thereof. There have been a lot of movement there on the public to private side. I'm curious as to whether or not that it becomes potentially a more interesting opportunity for you given the value of the stock on a relative basis but really also the desire to want to grow the business long term, especially via the new vehicles you'll be using off balance sheet as you go forward. So I love your comments on that.

I would summarize it by saying our view is really unchanged. We've always been open to kind of M&A activity with the strong kind of caveat, we prefer to grow the business organically but we look at a lot of things. I was looking at a tally sheet that we use. I think we evaluated something north of 20 plus potential acquisition opportunities last year, most of them pretty small and you'll note that we didn't do any of them. So we look at a lot of things but we're really selective, we're really judicious. We've got a great operating platform. We've got really good relative market share in most of our markets. So we remain open and we'll evaluate a lot of things but we're going to be super thoughtful because of how disciplined we've been in underwriting our own land which has been the primary driver of our outperformance on ROE and we want to stay disciplined with that.

Your next question comes from the line of Stephen Kim of Evercore ISI.

Just first question, I guess, relates to the gross margin. Actually, before I say that, welcome, Jim and best of luck to you also, Bob and also our best wishes for Jim Zeumer as well. My first question on margins. Taking the gross margin first. If we look at your guidance that you've given, I'm curious whether that trajectory over the year assumes any benefit at all from having more active adult communities by the end of the year? Or is that margin benefit likely to be only seen in fiscal '26. And can you give us a sense for what you think the sort of the long-term sustainable gross or operating margin, you feel comfortable with this?

As it relates to gross margin in active adult specifically, the replacement communities will start to come online toward the middle part of this year, middle to end part of this year from an open -- grand opening and starting sales which means the majority of the margin benefit won't be felt until we get into 2026. And then we haven't given kind of that long-term kind of outlook, long-term view in terms of where margins can go. There's just, I think, too many factors to influence that. We have given a full year guide and for this year which we feel good about given kind of the assumptions that I think we've articulated but we haven't really gone much beyond that in terms of guide.

It does feel that you've sort of -- maybe some contrary to some competitors have sort of said that you're going to not be beholden to a particular volume level you're going to modulate that with demand and so I would think that you would have a little bit more margin stability than your competitors may which is why I asked the question. But second question, actually, I'm going to shift gears and talk a little bit about the labor side of the equation. Obviously, one of I think the additional big wildcards this spring is going to be whether or not we see any particularly active ICE enforcements in the construction industry. And I'm curious if how or if you are preparing your divisions for any potential rates or maybe more likely just potential slowdowns you've made -- you've seen -- we've seen supply shocks before. We saw them during the pandemic. And I think what a lot of investors think is that in a supply shock and inflation environment, spec building offers a lot of advantages because you're not locking in the home price early and then bearing that cost and margin risk that could come later. So I'm curious, you've said that you're going to reduce your spec activity but would you agree, in general, that in a period of supply shocks that actually spec building can afford some advantages and would you be willing to pivot in some way, if you were to see slowdowns brought on by increased ICE activity?

Yes, Steve, it's a good question. Maybe let me first start with -- it's been a long-standing policy of our company trade partners and the labor that are on our job sites, we require verified residency status and/or work permits that allow them to work legally in the U.S. That's been our position for a long time it will continue to be our position. In terms of kind of impacts to the broader labor force, even beyond just construction labor to the extent that there are deportation activities there's no question there'll be less labor available and that will have an impact on all wage rates and we'll certainly have to deal with that as that becomes more clear. To your final question on spec and is spec inventory more beneficial in a supply shock environment. Yes, I think it can be and we certainly saw that in the kind of post-COVID era. What you've seen from our company is that we are capable of running a mostly built-to-order business. We're also capable of running a kind of medium -- kind of low medium to medium spec business as well which is where I think we're operating today. We've set that number of 40% to 45% is what we think is optimal for our consumer and our brand mix but allows us to get the benefits of both the built-to-order margins from the move-up and the active adult buyers that are personalizing their homes but still gives us an spec in the first-time to use the powerful forward commitment incentives and also to protect some of the margin, if there are supply shock -- supply chain shock type situation. So if we're at 53% today, we're going to work it down into the historical range, if we needed to turn up a little bit more, I think we've clearly got the ability to do that.

Your next question comes from the line of Alan Ratner of Zelman.

Congrats to Bob and Jim as well. Ryan, I guess, first question on the closing guide for roughly flat closings and you guys have done such a great job of balancing pace and price over the years. So I understand the interplay there and kind of the perhaps more competitive discounting environment today than maybe we thought we would be in 3 or 6 months ago. But I think you gave kind of a longer-term guide of 5% to 10% growth and I'm just curious as you look at where your margins are today. How much margin do you feel like you would need to give up in order to achieve that 5% to 10% growth that it seems like a lot of the industry is targeting kind of entering 2025.

And we still think the long-term growth guide of 5% to 10% is appropriate. And we've -- we really look at it, first and foremost, from the way that we're investing in land and new communities. You'll note that we grew community count in '24 by 4% and we grew our volume deliveries by 9%. As we move into '25 we're projecting for community count to still be in that 3% to 4% range. But we've seen a bit of a pullback on community absorptions given the discounting environment. So we're projecting for a flat volume growth. Certainly, in '24, we got the benefit of moving some home -- more homes out of the backlog as we reduce cycle time but I think we're definitely positioning the company from a land investment standpoint to deliver that long-term kind of multiyear growth target. We do believe, as I highlighted in some of my prepared remarks that from an overall return on invested capital basis, we're comfortable managing the pace price balance in a way that we think yields the best outcome on return. In this current environment, the amount of incremental discount that we'd have to apply in order to drive more volume, we don't believe that's a favorable return outcome. And so we'll continue to pressure test those assumptions. What we've laid out for 2025 is what we think yields the best outcome for how we've positioned the business.

I appreciate the thought process there. Second question, if we could spend a second talking about Florida. I feel like that's probably a lot of the concerns surrounding your company that we hear from investors, just the exposure there, about 1/4 of your business is in Florida. But not only that, I mean, your margins historically in the state has been incredibly strong. And it feels like with the building resale inventory environment there, concerns over storms and homeowners insurance and just a general softening that if there was a bear point we hear, it's that you're going to have a hard time sustaining those types of margins in Florida. So kind of a big picture question on the state but what are your current thoughts on Florida? And where do you see that business going for you guys going forward?

Florida has been just a tremendous market for the company. We're in 5 -- we've got 5 divisions there in most of the major cities in Florida and our move-up and active adult, lifestyle-oriented communities have been really the driver of the outperformance in Florida. Margin and the margin that we generate out of Florida is certainly important. But once again, like you've heard from us a lot, return is the focus. So whether it's an investment in Florida or an investment in Cleveland, Ohio, we're looking at return on invested capital ultimately. Our -- we've got an insurance agency that has been very effective at continuing to be able to provide coverage to our homeowners in Florida. I'd also note and your point about storms concerns around storms are certainly valid. But I'd note that where our communities are located, the way they're built and designed, they're higher, they're further inland, they're less susceptible to some of the kind of tragic catastrophic things that you see of homes and communities that are right on the water. So Florida, there's a lot of sun there. There's a lot of jobs there. There's very -- there's a 0 state income tax. So there's a tremendous -- there's no snow for the northern folks. So there's still a lot of attractive things about Florida despite maybe having a few recent challenges. So we'll keep our head up and pay attention to what's happening in Florida. For the time being, though, we're still very encouraged by what the business can do there.

Your next question comes from the line of Mike Dahl of RBC.

This is Chris [ph] on for Mike. Just going back to the 26.5%, 27% gross margin range for this year. Is that where you guys are currently underwriting land to on a gross margin basis? Or should we still expect some downward pressure as newer land bids just come through?

Yes, Chris, we don't underwrite the margin. We underwrite the return. So the margin guide that we've given is for the closing business in 2025.

Fair enough. I guess -- so what are you guys seeing this year in terms of -- or what are you expecting this year for lot cost inflation and stick and brick inflation? Robert O’Shaughnessy: On the sticks and bricks, as we exited '24, we were at about $82 a square foot, so really minimal. As we baked our -- or created our guide for 2025, we again expect very low single-digit increases. That's absent any potential impacts from tariffs that are being discussed but again, expect very low single-digit increases on the house side.

And then land, Jim?

And on the land side, as Bob stated earlier, we're expecting a 10% increase in land cost this year.

And that's inclusive of raw land and develop cost -- developed lot cost overall, inclusive of land and development to be close to 10%.

Next question comes from the line of Michael Rehaut of JPMorgan.

Bob, best of luck great working with you and Jim, congrats on the promotion. First, I'd love to just review, if possible, just a little bit more around the regions how you feel trends have been, obviously, there's a lot of concern as talked about earlier with inventory levels in Florida as well as Texas but just love to get around your footprint which markets maybe you would characterize as better than average versus worse than average? And how things have trended so far in this year?

I'd start by giving some well-deserved acknowledgment to our Midwest and Northeast business. They've been incredibly resilient and have performed well. The discounts that we've had in those locations have been less than in other places. And I think it's reflective of the highs and those spots aren't typically as high and the lows aren't typically as low. So Midwest and Northeast has been a nice bright spot for the company. The other places, I would tell you, have been about as expected and kind of flat year-over-year. We did have a slight decline in our Texas orders on a year-over-year comparison basis. And that's really reflective of what we highlighted with our first-time buyer business being down in the quarter, mostly driven by affordability concerns and we've got a lot of our business in Texas oriented against that first-time buyer business. So -- and then Florida, I think, is the other 1 that folks are focused on. There's a lot of questions. Our sign-ups on a year-over-year basis in Florida were flat. So we're -- and we're -- as I talked about when we asked when I think John asked about Q4 to Q1, Texas and Florida included in this we're seeing some green shoots and some positive energy from the sales floor. So we'll continue to look toward the spring selling season.

And second question, I just wanted to circle back to some of Bob's comments earlier on leverage and kind of, I guess, moving off of that prior gross leverage target of 20% to 30%. And it sounds like kind of implying a more persistent even lower level of leverage compared to that. But just to push a little bit on how we should think about share repurchase. I mean, certainly, even with the current trends it looks like your leverage is only going to go further South. And just trying to understand why shouldn't we, as investors or sell-side, buy side expect some level of a solid step-up in share repurchase in 2025 that even with a solid step up, you'd still probably have, by our estimates, even more conservative leverage in '25 versus '24. Is there anything that we're missing? Obviously, I know you like to have some optionality for transactions or other things. But if a lot option is only going up. It looks like your balance sheet even with leverage getting more conservative, could still support a solid step-up in share repurchase in '25. So just trying to understand if we're missing anything or if that's kind of directionally the way we'd be thinking about it. Robert O’Shaughnessy: Mike, it's a fair question. And I think we've demonstrated over the last, gosh, almost 15 years that we're going to be pretty disciplined about this and seek consistency. So we haven't seen us take a lot of big swings on equity, really, the only time we did was back in 2016 and '17, where we bought a lot of stock in a relatively short period of time. But if you go back over the last 5 years and what we've been doing is using the cash that we're…

Next question comes from the line of Trevor Allinson of Wolfe Research.

First question, just back on the finished inventory level. I think if I heard you correctly, your finished spec number implies about 1.9 [ph] finished spec per community. Clearly, above your historical 1% on target but then you've also moved your model to be more towards spec. You're talking about moving spec production lower going forward. But I think I also heard you suggest maybe it also depends on how demand plays out in the spring selling season. So I guess the question is, have you already started to pull back on your specs? Are you waiting to see how demand shakes out in the spring selling season and then maybe just some commentary on how you view completed inventory levels in the markets you play in for industry as a whole.

Yes, Trevor. So yes, we've already pulled back on start rate. We started doing that in the fourth quarter. And we'll continue to monitor that as we move through the first quarter of this year, the rate at which we start homes will appropriately match to the sales environment. In addition to that and part of the reason we're so comfortable with the inventory level that we have, despite being a little higher than we normally run at. We're optimistic about what the spring selling season to provide, we wanted to have some incremental inventory which we put into the ground. Given the softness of Q4, we probably have a little bit more than we thought we would. But were other than making some modest changes. I don't think that we have an emergency type issue. In terms of kind of inventory in the markets where we compete, certainly, inventory has increased in most regions, both on the new home and the resale level. But even though there's been an increase, we still think that the full numbers are below except for a couple of specific markets, most of the inventory is still way below what would be considered normal. We talked a lot about in the prepared script, we still think demand for housing is at high levels and we've got a healthy economy with a good job market. And affordability is probably the 1 headwind that's out there but I continue to think that the economy will figure out ways to solve for that.

I definitely encouraging regarding the spring. And then second question is just on cycle times. How did those trends sequentially -- you previously talked to being under 100 days here early in 2025. Is that the expectation still? And then do you expect to see further improvement beyond that point in 2025?

So in the fourth quarter, we were at 111 working days. I tell you, that most of our divisions are down to their pre-COVID cycle time levels. So as we exit the year, we think we've gotten down to our goal and still would expect to be down to 100 in the first half in '25.

And Trevor, the one thing I would highlight on that is what's driving the 111 days. We've got 4 or 5 divisions that build big multifamily buildings that take well in excess of the year to complete. So -- but as Jim highlighted, our markets that are kind of pure-play single-family and townhome type builds were below 100 days and we think our construction and procurement teams have done an unbelievable job getting back to that pre-COVID cycle-time level.

Your next question comes from the line of Matthew Bouley of Barclays.

I guess just a couple around the margin. You mentioned kind of finding the right price to move that spec inventory if needed. So I guess just how does that balance with the assumption that you're assuming incentives would stay unchanged from Q4. Like to the extent that finished inventory has been rising. Would that signal that we have not found an equilibrium so the incentives would need to move higher to move those homes? Or is your view perhaps based on history that normal rising seasonality of housing demand into the spring, that would be enough that you wouldn't have to alter incentives. So just kind of any color on how you're approaching that.

Matt, it was a fairly -- it was a top sales environment in Q3, back half of Q3 and into Q4 and you can see the heavier incentive load. So I think the short answer is we believe that -- Bob mentioned it but we believe that the incentive load that we had in Q4 as an exit rate is sufficient to deliver the volume and the margin guide that we have in Q1, combined with the healthy economy, combined with spring selling season, when we factor all of those things in. We feel good about the guide that we've given. So I'm not sure that I can probably add any more color. Bob or Jim, I don't know if you guys have anything else you'd add to that to the question.

And then the second margin question is just, I guess, to have flat or nearly flat gross margins going forward, I guess everything else needs to be kind of flat or offsetting each other sequentially. So you mentioned land up 10% on a year-over-year basis in construction costs, I think I heard you say up low single digits. And I guess you're guiding to delivered ASP up around 3% in 2025. I'm not sure how much mix plays into that. But again, just given those moving pieces and you do have higher lot in construction costs, I mean what is it that would allow you to hold the margins flat sequentially beyond that first quarter?

So Matt, it's basically all of those pieces. You just mentioned, we've got about a 3% increase in ASP. That's enough to offset what we're anticipating in lot and house cost increases.

Your next question comes from the line of Rafe Jadrosich of Bank of America.

Just starting first on the incentives. Just can you talk about from a regional perspective were there meaningful differences with the incentive level?

Yes, Rafe, we don't give that level of granularity. I think Bob talked a little bit about it on a question that Carl asked earlier by consumer group. The incentives than the types of incentives vary between entry level, move-up and first-time but we typically don't give a breakdown of incentives by region.

And then, just on the land cost inflation comments of burning up 10% right now. Can you just talk about how you would expect that to trend sort of through '25 or maybe even to '26, like the land that you're contracting today are you seeing any relief on land prices or even like the horizontal development side? And then just within that, can you remind us how much of your own development you're doing right now? And how you expect that to change going forward?

So I'll take the last part first. We do the majority of our own development, probably something north of 85%, we directly manage. So the rest of it we buy is finished lots. That's an expertise that we have and certainly something that we think adds value to the overall equation of our offerings. In terms of land, Rafe, we're literally buying land every day. We're not buying it in big chunks. So I think over the last 12 months, you've probably seen a little more stability in raw land prices but it varies market to market. And then there's been on the horizontal side, you've seen a little bit of wage pressure certainly from the heavy machinery operators and some of those things. And then you've got all the things like asphalt pipe, kind of dirt import. There's a lot of moving parts and pieces in there. But I think the easiest way to look at it is just with the guide we've given that on a year-over-year basis, we expect to have about 10% inflation. Most of that, I think, is coming from the prices -- the raw land prices that were contracted in years prior when we were in a higher inflationary environment. Robert O’Shaughnessy: Sorry. Thanks, Rafe. I think we're going to -- in respect of everybody's time we're going to end the call there. As always, we're available if you have any further questions. Thanks.

Ladies and gentlemen, that concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.