PulteGroup, Inc. Q2 2026 Earnings Conference Call

please continue to stand by. Your meeting will begin momentarily. Once again, please continue to stand by, and we thank you for your patience. For standing by, my name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Pulte Group Inc. Q2-2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jim Zoomer. Please go ahead. Thank you, Jordan.

Good morning. I want to welcome everyone to today's call to review Pulton Group's operating and financial results for our second quarter ended June 30th, 2026. Joining me on today's call are Ryan Marshall, president and CEO, Jim Osowski, executive vice president and CFO, and David Carrier, senior VP finance. In advance of this call, a copy of our Q2 earnings release and this morning's webcast presentation have been posted to our corporate website at pultigroup.com. We will also post an audio replay of this call later today. I would 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 made today. The most significant risk factors that could affect future results are summarized as part of today's earnings release and within the accompanying presentation. These risk factors and other key information are detailed on our RCC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan.

Ryan.

Thanks, Jim, and good morning.

Let me start by saying that I'm extremely pleased with the operating and financial results Pulte Group delivered, both for our second quarter and for the first six months of 2026. Specific to our second quarter performance, I want to highlight a few key metrics that I think demonstrate the ongoing success of the company. Net new orders in the quarter increased by 6% over the same period last year as we realized higher orders across all buyer groups active adult orders were up 12 while orders among first-time buyers increased five percent on a sequential basis incentives on closings in q2 dropped 50 basis points from the first quarter we continued to execute a successful transition back to built to order as built to order sales increased to 45 percent of new orders in the quarter and we further reduced our finished spec inventory which dropped to 1.3 homes per community a quarter end before turning the call to jim for a thorough review of the quarter let me offer a few additional comments about our results and general market conditions expanding on my earlier comment on a year-over-year basis, net new orders were higher by 6% in the second quarter and up 5% year-to-date. Through the first six months of 2026, we sold 720 more homes than this same period last year. I'd also highlight that as a percentage of total orders, year-to-date signups for build-to-order homes were up 500 basis points from 39 percent for the same six-month period last year the ongoing increase in build-to-order homes is consistent with the plan we articulated coming into this year namely to increase the percentage of built-to-order homes sold among our move up and active adult home buyers these are individuals who expect choice and our operating model allows them to choose their preferred lot and select the options and upgrades they desire. I know our field teams were excited to execute the strategy as it affirms our build cycles have fully recovered from the global supply chain disruptions that hit the industry after COVID. Our decision to build more spec homes when supply chains collapsed and build cycles effectively doubled was the right one at the time, but we much prefer having a growing backlog of sold homes. Consistent with our operating strategies, we are achieving greater sales while still maintaining strong gross margin. More specifically, we delivered home building gross margins of 25% for the quarter and 24.7% for the first half of the year. In some instances, our home building gross margins are several hundred basis points higher than those of our peers. For Pulte Group, our performance is reflective of a disciplined land underwriting process, an operating model that is well diversified across markets and buyer groups, and a balanced price-pace approach to driving high returns on invested capital. Part of this balanced approach has been to continue to thoughtfully manage our starts pace as we reduce spec inventory and implement the transition back to build to order. reflective of this approach through the first six months of 2026 our net new orders totaled 15 570 homes but we intentionally started only 14 378 homes with build cycles down to 100 days or fewer in some cases we can effectively manage our starts cadence while still meeting our overall production goals. To put this into a slightly broader context, at the end of 2024, we had approximately 8,800 spec homes in production. By the end of 25, we had lowered this number to 7,200 specs, and now we are down to approximately 6,600 specs in production. I would note that we've achieved this dramatic reduction in spec inventory while growing overall community count. I want to recognize and applaud the discipline of our teams as they are maintaining uh as that are maintaining as we continue to work down specs and increasingly sell from a position of strength at 44 of total production i think we've gotten to the right spec level of inventory we still have some work to do in select communities but as we've demonstrated over the past 18 months we are committed to this strategy as a backstrap to our successful efforts to sell homes manage inventories and generate strong financial results the second quarter demonstrated a typical seasonal demand pattern namely sales and absorption paces eased as we moved from month to month during the period within the seasonal pattern i think it's fair to say from day to day and week to week consumer activity was impacted to varying degrees by global tensions macroeconomic uncertainty the material movement and interest rates still we were able to drive higher orders in the period with strong performances across all buyer groups along with increased sales we are also seeing home buyers that are willing to pay for superior locations and the upgrades that they value most in the second quarter options and lot premiums on homes closed approached a hundred and seven thousand dollars which is comparable to prior year and prior quarter beyond any differences in demand among buyer groups we continue to experience different demand dynamics across the markets we serve for example order pace in the midwest was strong in a number of our markets including columbus cleveland and chicago stronger demand conditions also carried into our greenville and coastal carolina markets and our florida operations continue to generate outstanding results. And while it's too early to read too much into the numbers, I would note that on a year-over-year basis, orders in Dallas and Houston were also better in the period. In our West operations, we realized improved orders in California and the Pacific Northwest, but we are having to compete aggressively for sales as core demand remains soft. As was the case in the second quarter, through the first few weeks of July, we continue to experience seasonal demand trends along with the week-to-week variability caused by macro factors ranging from global tensions and inflation and movements and interest rates and consumer confidence. Overall, there are a lot of positives to be taken from Pulte Group's second quarter operating and financial results, but I think the biggest positive remains the fundamental benefits we realize from our strategic business model and our unmatched business platform. With that, Let me turn the call over to Jim for a review of our second quarter results.

Thank you, Ryan, and good morning. I look forward to providing a detailed review of Pulte Group's second quarter operating and financial results. Second quarter net new orders increased 6% over the prior year to 7,536 homes as we realized higher net new orders across all three buyer groups. The value of orders in the period also increased, gaining 5% to $4.1 billion. The year over year increase in second quarter orders reflects an 8% increase in average community count to 1,074, partially offset by a 1% decrease in absorption pace to 2.3 homes per month. Overall, core consumer demand trends follow the typical seasonal pattern as we moved through this year's spring selling season. The strength of demand in our Florida operations continued to stand out as net new orders in Q2 increased by 19% over the same period in 2025. In fact, orders increased over the comparable prior year period in each region, except for the West, where consumer demand has generally been slower to recover. As a percentage of starting backlog, our cancellation rate in the second quarter was 11%, which is comparable to last year. As I mentioned earlier, natural orders were higher within each of our buyer groups in the second quarter. For the period, orders among first time, move up, and active adult buyers increased over the second quarter of 2025 by 5%, 4%, and 12%, respectively. Reflecting the benefits of our ongoing investment in the growth of our business, higher orders in the second quarter were positively impacted by increased community count. As discussed on previous calls, we are working to increase our build-to-order business with a long-term goal for orders to be approximately 60% BTO and 40% spec. In the second quarter, the order mix was 45% BTO and 55% spec. Given our build cycle time is down to 100 working days and even lower in many markets, We are now able to selectively use more straight buy downs to facilitate PTO sales. Breaking down second quarter net new orders by buyer group, orders were comprised of 39% first time, 36% move up, and 25% active adult. I would highlight that active adult orders in the period benefited from the opening of our newest Explore by Delweb communities in Tampa and Columbus. By comparison, in the second quarter of 2025, net new orders were 40% first time, 36% move up, and 24% active adult. For the second quarter, the company generated home sale revenues of $3.8 billion compared with home sale revenues of $4.3 billion last year. The decrease in home sale revenues in the second quarter reflects an 8% decrease in closings to 6,997 homes, along with a 3% decrease in the average sales price to $544,000. MIPS was a meaningful driver of our lower ASP as we realized fewer closings out of our Northeast and West operations, which represent our two highest-priced operating geographies. second quarter closings by buyer group are as follows 41 first time 37 move up and 22 active adult in the comparable prior year period our closing mix was 39 first time 41 move up and 20 active adult at the end of the second quarter our backlog totaled 10 966 homes with a value of 6.8 billion dollars we ended q2 with 14 980 homes in production of which 44 or 6 638 homes for spec relative to this time a year ago we successfully lowered our total spec inventory by approximately a thousand homes or 13 as we remain disciplined in managing the cadence of home starts with the pace of sales with respect to completed inventory i would highlight that we ended q2 with approximately 1 400 finished spec homes or an average of 1.3 finished spec homes per community this is down from 1.9 finished specs per community at the end of the second quarter of 2025 our field teams continue to do an outstanding job managing spec home production as we have rebalanced our inventory which helps our pulse community sell from a position of strength Given the recent pace of sales and the number of homes under construction, in the third quarter we expect to close between 7,000 and 7,400 homes. For full year 2026, we reaffirm closings to be in the range of 28,500 to 29,000 homes, although we still have many homes to sell and close over the balance of the year. Based on the timing of community openings and closings over the remainder of 2026, we expect year-over-year community count growth will be consistent with our previous guidance of up three to five percent in each of the remaining quarters given current demand dynamics in the mix of homes we anticipate closing we expect the average sales price of closings to be in the range of five hundred and fifty thousand dollars five hundred sixty thousand dollars for both the third and fourth quarters for the second quarter we reported gross margin of 25 percent a sequential increase of 60 basis points from Q1 of this year. I would also note that incentives in the quarter were 10.4%, a sequential decrease of 50 basis points from the first quarter of this year. While there were positive implications to be derived from both numbers, the mix of Q2 closings also contributed to the improvement in these metrics. More specifically, we benefited from a greater mix of closings from our higher margin Florida markets in combination with lower-than-anticipated discounts on the homes sold and closed within the quarter. These were the key drivers of the sequential improvement and the outperformance relative to our prior margin guide. Our second quarter gross margin also benefited from lower build costs in the period. At just under $75 per square foot, our Q2 house costs were down 5% from last year down approximately one percent from this year's first quarter going forward we'll lose the tailwind of lower lumber costs as we move through the year but we still expect year-over-year house costs to be down slightly from 2025. given house cost trends and the anticipated closing mix we expect third quarter gross margin to be in the range of 24.5 to 25.0%. At this time, we are reaffirming our 2026 full-year closing margin or gross margin guide to also be in the range of 24.5% to 25.0%. On a dollar basis, home building SG&A expense in the second quarter was down 2% from the prior year to $383 million. dollars. Fewer home closings in this year's second quarter resulted in some lost leverage as SG&A expense totaled 10.1 percent of home sale revenues compared with 9.1 percent in the second quarter of last year. Overall SG&A in the second quarter was in line with our expectations so we were maintaining our guidance for full year SG&A expense being the range of 9.5 percent to 9.7% of home sale revenues. For the second quarter, Hulti's financial services operations generated pre-tax income of $37 million compared with pre-tax income of $43 million in Q2 of last year. Relative to last year, financial services pre-tax income in the second quarter was impacted primarily by lower closing volumes in our home building operations. Q2 mortgage capture rate was 85%, which is comparable to the second quarter of 2025. For its second quarter, Fulte Group reported pre-tax income of $622 million and a tax expense of $150 million or an effective tax rate of 24.2%. Our Q2 tax rate was generally in line with our annual guidance, which remains 24.5% for full year 2026. Our expected tax rate does not take into consideration any discrete, period-specific tax events that might occur. Net income for full group's second quarter was $472 million, or $2.48 per share. In the second quarter of last year, we reported net income of $608 million, or $3.03 per share. Earnings per share for the second quarter of 2026 was calculated based on 191 million diluted shares outstanding, which is down 10 million shares, or 5% from the second quarter of 2025. This year's second quarter, we repurchased 3.1 million common shares for $373 million. With increased community count remaining an important driver of near-term growth, we continue to invest in our future land pipeline. In the second quarter, we invested $1.4 billion dollars in land acquisition and development. This brings our year-to-date spend to 2.7 billion dollars keeping us on track to invest approximately 5.4 billion dollars in land in 2026. We ended the second quarter with 228,000 lots under control which is down approximately 6,000 lots from the end of 2025 with 55 percent of our land pipeline controlled via option. We continue to look for opportunities to expand our controlled lot count, but as with all our land investments, option deals need to underwrite to acceptable risk-adjusted returns while also mitigating risk. As discussed on our last earnings call and as demonstrated by the company's Q2 land spend, our acquisition teams are still finding great land opportunities that meet our required returns. In this type of market environment, if you have the discipline and the capital, you can secure the land assets needed for ongoing business success. We ended the second quarter with $1.4 billion of cash and debt to capital ratio of 12.3%. And finally, given expected volume, margin, and land spent for the year, we continue to expect 2026 operating cash flow generation to be approximately $1 billion. Now, let me turn the call back to Ryan.

Thanks, Jim. Before opening the call to questions, I wanted to briefly touch on the topic of industry consolidation as the recent increase in M&A transactions has prompted a number of questions from investors. When it comes to assessing M&A opportunities, before we even run the numbers, the first question we ask ourselves is, will this transaction make us better, not just bigger? integrating businesses organizations and cultures is hard work so we have to see the value in terms of the transaction truly enhancing our business if the strategic benefit is there we maintain a disciplined valuation process that focuses on the return potential of the underlying land assets given the broad business platform we already maintain M&A for Pulte group is primarily another way for us to buy land, so we underwrite it accordingly. While we certainly had the financial and organizational capabilities to successfully execute a large multi-market acquisition, our preference is for smaller tuck-in types of transactions that help build local market scale. If you look over the past decade, you see us having acquired Dominion in the Midwest, John Whelan here in the Southeast, and American West in Las Vegas. Again, good land pipelines that could help accelerate market share growth and acquired at prices that allowed us to realize acceptable risk adjusted returns based solely on the public comments i've read about the transactions i think they point to a growing recognition that scale particularly local market scale matters i believe the improved access to land and labor that comes with scale is critical to a home builder's long-term success in any given market before opening the call to questions I want to thank the entire Pulte Group organization for another great quarter of operating and financial performance. When we report quarterly earnings, for obvious reasons, everyone focuses on the numbers, but behind every order, every home closing, and every satisfied customer are the people across this company who make these outcomes possible. We can have the right strategy and a strong business model, but these only create value for shareholders when they are prepared with great execution. Now let me turn the call over to Jim Zoomer.

Great, thanks, Ryan. We're now prepared to open the call for questions so we can get to as many questions as possible during the remaining time of this call. We ask that you limit yourself to one question and one follow-up. Jordan, we'll start taking questions now.

Your first question comes from the line of John Lavallo from UBS. Your line is now live.

Good morning, guys. Thanks for taking my questions. In the press release, you noted early signs of stabilization. That's something that we've heard numerous times across our channel, Chuck. So I'm just curious if you could expand on that comment and maybe, you know, talk about specific geographies where you're seeing it.

Yeah, John, we highlighted some of it in the, you know, the prepared remarks. And all of our five regions that we report on, we saw positive year-over-year growth in four of them, the west being the one that i think is probably still the softest um specific to the four where we saw you know some stabilization and i think some positive signs i would i would definitely call out some of the midwest markets we continue to see strength there uh we're also seeing some favorable trends out of the southeast markets uh we particularly like what's going on in uh the coastal Carolinas markets in Greenville. And then I, you know, look, I've got to highlight Florida again. Florida was up 19% year over year. And in a, you know, a continuation of a theme that we've talked about for the last couple of calls, we've got great operating teams there and good assets, and we're seeing nice performance there. I'm also encouraged by what we're starting to see in Texas. I'm not ready to declare victory there, but the fact that we saw positive year-over-year orders I think is a good sign.

Yeah, I think that's really encouraging. And then at the midpoint of the third quarter outlook, deliveries are up about 3% sequentially. The gross margin is down about 25 basis points sequentially. I'm just curious if this is a mix of expected closings or Or, you know, how would you kind of characterize that?

Yeah, I wouldn't, I would say it's probably a fairly accurate assumption, John. We got a little bit of favorable mix in Q2 with just where closings came from that benefited the margin. You know, maybe that goes back a little bit the other way in Q3. But as Jim highlighted, we're reiterating our full year guide. And so the fact that we're growing orders, you know, we think we outperformed relative to order growth expectations in the most recent quarter and did it all the while delivering great gross margin. So we feel pretty good about how our teams are executing.

Perfect. Thanks so much.

The next question comes from the line of Sam Reed from Wells Fargo. Your line is now live.

Thanks so much, guys. It's great to see the improvement on incentive loads this quarter. We'd just love to get your sense as to what's embedded on incentives specifically for the third and fourth quarters. Could we expect kind of flatter sequentials there? Could we see some additional improvement with the bill-to-order mix benefits?

Sam, our expectation is that the market's going to continue to remain competitive and we're going to continue to see elevated incentive loads uh beyond um kind of the guidance that we've given you on gross margins we typically don't um you know comment specifically on numbers for incentives we did highlight that last quarter was going to be our high watermark um and that is indeed proven to be true i'm very pleased to see that our incentives came down 50 basis points in the quarter. They're still high, even though they did come down. And we'd expect, just given everything that the consumer's dealing with and the affordability challenges, that we'll remain in an elevated incentive environment.

That's helpful. And then maybe switching gears to community count. So, community count grows up 8% during the quarter, but the guide for the year implies something closer to 3% to 5%.

So, just maybe walk us through the sequential community count q2 to q3 and then just one other maybe side question on community count is the growth primarily coming from active adult a great question sam you know what i tell you on the community count um we've seen community count growth across all of the segments and really what i tell you is as we've seen a little bit higher than um guided level in the second quarter it's just some of the communities are taking a little bit longer to close out and so you know As we continue to work through the balance of the year, we still feel really good that that 3% to 5% year-over-year is really what we're looking for. That's Q3 of 26 versus Q3 of 25, and then Q4 of 26 versus Q4 of 25.

Your next question comes from the line of Matthew Bully from Barclays. Your line is now live.

Hey, good morning, everyone. Thanks for taking the questions. Apologies if I didn't hear this, but just to double-check on the gross margin, I think you said last quarter that you were looking towards the sort of low end of the 24 to 25, 24.5 to 25 range for the year. So I just wanted to clarify if that's now changed. And, you know, could we actually suggest that you're now pointing towards the higher end of the margin range or just, you know, I'm obviously asking around 50 basis points here, but just kind of any clarity on or update on that.

Yeah, Matt, it's a fair question. we did highlight that last quarter um we we did not emphasize that this point but i would not i'd encourage you not to run to the high end i think there's we still have a lot of homes to sell um as i mentioned on one of the earlier questions we think incentive loads are going to remain relatively elevated and you know we've seen a little bit of turmoil come back into the mind of the consumer with some of the things that are going on globally so i think there's a lot out there but we feel confident about the 50 basis point guide that we've given uh given how our teams are performing right now okay perfect thank you for that clarification um and then secondly i

guess this kind of follows along with that if i'm looking at sort of the implied cadence of closings in the second half it seems like you're going to have a bigger step up in the fourth quarter maybe a little bit higher than we've seen the past few years obviously if we go back historically, we have seen, you know, larger step ups in the fourth quarter. So I guess the question is sort of your visibility to that and kind of, you know, is there an expectation that a lot of that spec gets cleared out in the fourth quarter and that drives the step up or is sort of cadence of community openings regionally, et cetera, just any kind of color you could give to give some confidence on that implied fourth quarter. Thank you.

Yeah, sure. So we have had visibility to this, and this has been part of our plan for the entire year. So as we've talked about new communities coming online, moving from a predominantly or a higher level of specs to more built to order, and then matching our start rate to the sales that we have, we knew that this is the situation that we were going to be in and it was going to come from homes that are sold as dirt sales that get built and closed in the fourth quarter so um you know as we've highlighted we still have some homes to sell uh but with our 100 day cycle times we still have quite a bit of time left to sell and start homes that will still deliver in the year so that that work's got to be done but there's nothing in the guide for q3 or q4 and how that relates to the full year that hasn't been kind of part of our full year visibility from the very beginning your next question comes from the line of steven kim from evercore isi your line is now live yeah thanks a lot guys appreciate all the colors so far um ryan if i could just sort of follow on your comments about consolidation in the industry.

You talked a little bit about your interest in inorganic growth on the home building side, but I wanted to talk a little bit about what you're seeing in terms and envisioning in terms of the consolidation that's happening in distribution and wondering if there's any impacts or changes to the supply chain that you envision near or long term and uh maybe also if you could throw in there consolidation within home building uh if you're not doing it but others are is there some change in the competitive environment that you're observing or anticipate thanks yeah stephen um there's there's definitely a lot going

on in the market um on on both fronts and maybe let me start with the distribution channels um You know, to this point, we've not seen any changes to the way that we interact with either the old companies or, in some cases, the new companies. And in some cases, without naming names, some of the consolidators, we've already derived some nice strategic benefits from the increased scale of those new companies and the way that they're able to serve and meet our needs. You know, I'm personally engaged in some strategic conversations with our procurement teams and some of those partners as we think about how they could do even more for us down the road so um net net steven i mean at this point i think it's generally a positive um you know certainly these companies that are consolidating they want to get a return on their capital as well and um you know we just we hope that that uh we hope that as far as it relates to us that that return can come from increased efficiencies as opposed to just forcing higher prices on us or their customers. And then, you know, with some of the things that are going on inside a home building, we do watch it a lot. You know, the things that are happening, we're not surprised by because for a long time, we've appreciated the value of having local market scale. We definitely believe we have national market scale but where where we in our in our own operations where we see uh the appropriate amount of market share in a specific market we perform better um and i think some of this consolidation that's going on are other companies attempts to achieve some of that as it relates to competitive dynamics um the competitors that are being consolidated The competitors that were there yesterday, they're there today. They're just under a different umbrella. We've not seen a change in competitive behavior to this point. My crystal ball's not clear enough at this point to say what will happen down the road, but to this point, we haven't seen a change.

Okay. Appreciate it. That's very helpful. The second question relates to ICG and that. I believe you indicated that you were looking to maybe divest that. Shortly afterwards, though, we've had the Road to Housing Act now become law, and within there, it seemed like there were some things that might open the door to some more attractiveness in factory-built construction. And so I was curious as to whether or not, in your view, that has really any effect or impact or influence on how you're thinking about the ICG business or things like it. So if you could maybe just comment on factory-based construction techniques.

Yeah, Stephen, our efforts in ICG were really focused on the structural components that could go into site-built homes, and I think most of the stuff in the Road to Housing bill is directed at manufactured housing, which I think can be favorable for overall housing supply, but that's not where we were innovating or attempting to innovate with ICG. So, you know, as it relates to ICG, we're kind of moving through the process of that divestiture. We're making great progress. And, you know, I think we'll have more to share, you know, in the next quarter. And then we absolutely continue to partner with all of the advanced manufacturing companies that we currently work with, including, you know, whoever may potentially be the buyer of icg because we really see the the uh value of the benefits and the value of the production methodologies employed there so we want to continue to be an implementer a user of these innovative technologies and techniques we just would prefer not to be the operator we think others are probably better suited to do that your next question comes from the line of Alan Ratner from Zellman.

Your line is now live.

Hey guys, good morning. Really nice results and thanks for all the details so far. Ryan, a couple things you mentioned that I wanted to dig in on. First, on the cost side, very impressive cost control there. I think you mentioned down, I think it was 5% year over year if I remember correctly. But you did kind of allude to the fact that maybe that tailwind is going to subside over the next few quarters. And without pushing for a 27 commentary at this point, I'm just curious if you look at the cost landscape today, it looks like lumber is at the highest levels we've seen in several quarters, and presumably that'll flow through closing starting maybe early next year. We still have high oil prices. Do you actually expect your overall cost basket to begin inflicting higher here over the next handful of quarters if nothing on the ground changes or do you feel like you can hold on to the relief you've been able to recognize thus far?

Alan, it's a fair question. We're not quite to the point of kind of putting numbers out for next year, but you know I'll address it thematically. I think if you went back to a period of time pre-COVID you know you would generally see modest increases year over year you know one that one and a half maybe two percent cost increases year over year and we were able to more than offset that with price increases nor you know a reasonable price increase that we would see in the home price so you know the environment that we're in right now there's a lot of um kind of focus on affordability in every consumer product or everything that that society consumes, especially housing. So I think we're going to do everything we possibly can to maintain cost control. There are some things like lumber, like oil that are commodities that make it much more difficult to kind of influence because they're, you know, they're much bigger than just housing. You know, lumber aside, which, you know, we can see where that's going. Oil probably continues to be the one that I'm most nervous about just because of how many, how much oil is in some pretty big ticket items like land development. And I talked about this last quarter, but asphalt, underground piping, all of the, you know, there's some real big dollars that go into land development, nevermind the diesel fuel that goes into the tractors that are moving dirt around so you know those are things that we're really paying attention to alan that could have an impact on not just um price per square foot house costs but ultimately maybe develop land costs and of course you know that that ultimately goes into the total you know the total cost basket for the house your next question comes from the line of mike doll from rbc your

line is now live all right thanks for taking my questions i appreciate all the details so far um on the incentive dynamic i know ryan you've referenced several times kind of the week-to-week variability and some of the consumer and order dynamics can you just give it a little more clarity on on from an order standpoint what the cadence on incentives has looked like and and if that's kind of you know if it kind of went down through the quarter then picked back up and and that's why the guide's kind of flattish or or if it's just held steadier than that any any more detail on on kind of incentives uh the cadence of incentives on orders including through july

would be helpful yeah we we don't really provide um that level of granularity on incentives mike i I will tell you as it relates to seasonality, it was a normal quarter as we moved from April into June, kind of normal step downs in seasonality that we've seen for a long time. So really nothing surprising there. You know, we did see week-to-week variability based on some things that were going on in the economy and in the world, rather, maybe better said. So we're paying attention to that. And then as we've gotten into July, you know, I think we've continued to see pretty normal seasonal trends that are influenced by, you know, some of the more recent events that, you know, that are going on globally.

OK, understood. Shifting gears to SG&A, you know, the full year guide maintained, it seems like that is the one part that where the math looks difficult because you've delevered on SG&A as a percentage of sales, call it 90 basis points in the first half of the year. your guiding revenues kind of flat year on year for the back half of the year and a lot of your SG&A, some form of variableized cost. So it seems to imply that you'd need like a pretty big step down in the fixed component or something else that would drive a lot more leverage versus the de-leverage we've seen year-to-date, so I just wanted to drill down a little bit more on how to get down to the, what, 9.5 to 9.7 for the full year when you're at kind of 10.7 for the first half.

Sure, Mike. Thanks. Great question. You know, you're right. We've lost some leverage in the first half of this year. You know, we've seen, you know, our lowest ASP levels of the year in the first half of the year as we've guided we expect them to be 550 to 560 uh over the balance of the year in q3 and and for the full year so you'll see a lift from that we have our volume that's increasing in the back half of the year but what i tell you is there really isn't anything structurally or anything that we need to do um we still feel really good about it we check it every quarter um and you know as i said in my prepared remarks i mean we were right on where we thought we would be as at the end of the second quarter and still feel you know very confident and getting her over the balance of the year within that guy.

Your next question comes from the line of Anthony Pettinari from Citi. Your line is now live.

Good morning. Ryan, just following up on M&A, you reaffirmed your preference for tuck-ins. And I'm just curious, as you look at the pipeline, do you see more competition for those kinds of targets?

Or given a tougher market, maybe you can see picking them up at more reasonable valuations i'm just wondering what that that pipeline kind of looks like versus the last few years and then are there geographies msas where it would make a lot of sense for pulte to be in that you're not in currently yeah i'll take the the last part uh first uh anthony in terms of the geographies that make a lot of sense it's it's really the geographies where we've recently decided to expand to so you know those are places that would be great m a targets and it would allow us to build local market scale a bit faster um if and and we haven't been able to find acceptable m a targets and so we've elected to grow those markets organically which we're fine with as well as it relates to the pipeline the pipeline's pretty steady we see a lot of things um that come across our desk we look at all of them um as i mentioned in my prepared remarks the first question that we really ask is this something that fits with us strategically or is it the right buyer groups is it in the right parts of um the msa that we want that we want to target and if we can say yes to all of those things then we go down the path of um you know can we offer a price that makes sense the the place that where most of these break down is we really underwrite these transactions as if we're acquiring additional land we already have an operating model we already have uh a a branding our house of brands so some of the kind of intangibles and the things that a seller might want to get paid for it doesn't mean there's not value there it just is not as valuable to us because we already have our own um and so a lot Even if we're able to answer the first question, which is the hardest, if you can get past that, sometimes the underwriting, the risk-adjusted underwriting doesn't make sense. So it's pretty rare that you go from looking at a deal to actually getting super interested in making offers. Just the probability, I think, of all those things lining up is on the lower side.

No, that's very helpful. And then just one quick follow-up on incentives. I know you don't break this out with too much granularity, but if we were to think about incentive levels for, you know, active adult versus move-up versus entry level, are you seeing like a real divergence in incentive levels between your buyer types, or is it just really dependent on community and, you know, there's a paramount of noise there?

Where you see the difference in incentive level is based on built-to-order versus spec. And most of our spec is in entry level. And so you see higher incentives in entry level because of that. But it's not the buyer group that's driving it. It's the difference between spec versus built to order.

Your next question comes from the line of Trevor Allinson from Wolf Research. Your line is live.

Hi, good morning. Thank you for taking my questions. And you mentioned built-to-order was 45% of your orders in two queues, so good progress there. How should we think about a built-to-order percentage of your orders in the second half of the year, and then any update on your expected timeline to hit your 60% target?

Yeah, really no change on the timeline, Trevor. It'll likely be sometime next year that we get to that 60%. So we haven't set a target out there for the back half. you know I'd like to see us continue to chip away at it and make kind of measured and steady progress so between now and sometime next year you know I'd like to chip away at those incremental 15 percentage points that we need that we want to go after yeah makes sense thanks Ryan and second question is following up on the on the cost side focusing maybe specifically on your trades here and your ability to continue to recognize release there do you think there's room for incremental concessions from your trades here to help you lower your your overall vertical cost or you think you've kind of gotten everything you can out of uh concessions from your from your trades here in the current environment thanks yeah you know our procurement teams are are really good and and they really operate on data and facts so they do a really nice job kind of looking at our overall cost structure and identifying places where we were arguably paying more than the market warrants and we go that's where we go after um we want our trade partners to be successful we want them to have healthy profit and so um you know we're cognizant of that as well i think our

procurement teams have done a wonderful job and the fact that you know we're down five percent um and sitting at 75 bucks a foot in this environment i think it's it's a job well done your next question comes from the line of jonathan bettenhausen from truest securities your line is now live yeah uh hey guys a quick model question related to the cash flow guide so you've maintained the operating cash guide for 26 so there's a little work to do in the back half of the year i'm assuming the expectation here is that inventory will be a cash tail end in the back half is that the way you're looking at it or is there anything else meaningful to call out no nothing else meaningful to call out you know we have a higher volume of closings coming in the back half of the year spring selling season is when you're starting to put inventory in motion you're doing land development you're doing home construction so yeah inventory reduction with extra closings is the tailwind in the back half yeah okay got it and then in terms of the land pipeline any big pipeline moves during the quarter outside of trend uh relative to kind of the geographic footprint and then kind of piggybacking off of that with florida continuing to be a top growth region for orders uh but lot cats lot count there uh you know call it flat with where it was in you know 2023 is that more of like a right sizing of the land position in florida or should

we expect to see that lot count start to take up a bit so i would tell you you know from a from a lot count standpoint or what we saw going on in the quarter, not a whole lot of change. It was a pretty typical quarter for us. I think the numbers, we put about 13,000 lots under control. We walked from 6,000. We closed 7,000. So it was kind of a push. It was a fairly normal quarter for us. As it relates to lot count across the geographies, what I tell you, what we really focus on more is just the lots that we control. We talk about it often. Let's put some deposits, responsible deposits down. Let's get that land pipeline in front of us. And that way, we need to lean into it because the market's strong and healthy. We'll do it. If it's a little bit softer market, we can always pull back in that. So I wouldn't read anything more into kind of the variability of the lot count over the past couple of years.

Your next question comes from the line of Rafi Jadrosik from Bank of America. Your line is live.

Hi, good morning. It's Rafe.

Thanks for taking my questions um how do we think about the starts first closings uh cadence in the the second half of the year um and then that finished spec number of 1.3 per community is that the right level going forward yeah right uh good morning the the uh the spec level that we're at we think is about perfect um so you know you might see that go up a little down a little depending on kind of what's going on but we think we're kind of mission accomplished on reducing spec inventory and then as it relates to starts in the back half of the year uh really what we've been doing is we've been we've been working to match starts with kind of prior quarter sales as kind of the best linkage um and with with the caveat that we intentionally under started the sales that we had in the first half because we had more spec inventory than we wanted so a lot of the sales that we had in the first half were were specs that we wanted to get out of the system and now you know as we continue to make this transition back to built order i think you'll see a more stronger linkage between what we're selling and what we're starting great that's helpful and then uh the debt to cap at 12 percent it's pretty pretty low uh what would you have to see to to bring that higher and how do we think about the right level kind of going forward or longer term yeah you know race um we we've talked about this um the last several quarters and and really when we think about capital allocation the needs of the business we talk about um what do we want to accomplish where do we want to grow the business? Where do we want to make strategic investments in land, in-house, et cetera, new markets? And then we go through the capital planning exercise to determine how much money that's going to take. And we figure out whether or not that can be financed and supported or cash flowed through operations, or do we need debt to do it? And then that drives whether or not we're going to go to the capital markets and ask for money. I know that it's a normal thing to look at debt leverage ratios. And I understand that more debt can make some efficiency. There's an efficiency argument that if you have the right amount of debt or more debt, it's a beneficial lever to return. But in this environment, I think we're positioned with lower leverage and doing all the things that we've said we're going to do. We're growing the company. We're growing our land pipeline. We're growing community count. We're growing markets. We're paying our dividend and increasing it. And we've been really consistent with our share buybacks. There's not an argument, at least not one that I've been unable to convince myself with to suggest that we need more data.

Your next question comes from the line of Susan McLaury from Goldman Sachs. Your line is live.

Thank you. Good morning, everyone.

Good morning.

My first question is on the active adult segment. You mentioned that the Dell Web Explorer product is contributing to the growth that you're seeing there. Can you give us a bit more color on where those communities are in terms of their ramp, and as we look out, what that could mean for future growth in that segment?

Yeah, Susan, I'm really excited about Explore by Del Webb, and the idea is we're taking these highly amenitized lifestyle communities that have historically been targeted to the age-restricted, over 55 buyer, and now you're opening it up to a broader range of buyers, particularly the gen xers that are approaching retirement that maybe you know aren't as interested in and being in the age-restricted community so i i think it'll be um you know just tremendous opportunity jim mentioned our our first uh we've got our first two communities actually first three communities that are now open one in southern california and in the desert the palm desert area one in uh columbus that just opened in the most recent quarter and one in tampa florida that just opened and then uh our next opening will be in utah um uh just kind of east of park city uh east of the new deer valley expansion so you know these are communities that have got a a heavy heavy amount of lifestyle um and you know really kind of speak to buyers that maybe they're retired, maybe they're getting closer to retirement. And we think it can be just a really nice augmentation and growth opportunity within our already very successful Dell web business.

Okay, that's great color. And then I guess as you think about the mix of the business evolving around these newer products, as well as the shift to BTO versus spec, Can you talk a bit about the optimal sales pace for the business and how getting this mix helps you in terms of hitting that longer-term growth target of 5% to 10% that you've put out there?

Yeah, so the way that we've thought about growing the business is we've made the investments into land and into new communities that will grow. you've seen us pretty consistently over the last three to five years where we've grown our community count somewhere in the three to five percent range and you're seeing that we've been very consistent predictable on that and i expect that to kind of continue if we can see you know some normalization of absorption paces then i think you've got a very good opportunity to be total volume growth in the five to ten percent range some of that coming from community count growth some of that coming from a slight expansion and absorption rates um in terms of the right number of sales per community for us um you know we're we're of the view that um we want to strike the right balance between pace and price to drive ultimate return and every community is a little different that said we are a production home builder and the general rule of thumb is every community's got to sell at least two homes per month if it's not doing that i think it's hard to get the economies of scale that you need in order to be a successful production home builder so that would be the de minimis kind of minimum level and then you know hopefully we're operating at something higher than that um you know that that makes sense for the return objectives that we have.

Your next question comes from the line of Kenneth Zenner from Seaport Research Partners. Your line is live.

Good morning, everybody. Appreciate the time and the answers. Could you, Ryan, expand? You talked about strength in Texas, which I think is really more the entry-level centex area, and then obviously Florida, which is doing quite well. What percent of buyers in Florida from out of state? I combine my questions. Thank you.

Texas, Ken, we, the two that we highlighted, we saw positive improvement in Dallas and Houston. Dallas, we have a very diversified business, so we do everything from entry level to move up to active adult. Houston tends to be more affordable, so, you know, the fact that we're seeing some, you know, I said it's a little early to declare victory but we are seeing some positive trends there and then as it relates to florida um i don't have those numbers off the top of my head can it really varies by by city and then also by the type of community um you know we the tampa as an example we have a fair number of kind of first time buyer entry level communities in tampa those are going to be predominantly local buyers um and And then, you know, you go to Fort Myers, Naples area, we do a lot of second home seasonal kind of retirement communities. And, you know, you got a much, much higher percentage of folks that are probably coming from out of state. So Florida, I think Florida continues to do really well, despite some of the things that have been talked about with Florida related challenges. The fact that this is now our probably third or fourth quarter in a row where we've had positive year over year order growth so it's not as if we're comparing on soft comps um we're seeing kind of real momentum and growth in florida and i think it's reflective of the land positions and the operators that we have there thank you your final question will come from the line of ryan gilbert from btig your line is live hi thanks good morning guys um on um on cycle times i'm just

wondering if you could remind us the difference between um order to close uh cycle times between spec homes and built order um order to close well well the build time we really measure it from start to final.

So that's how all of our cycle times are calculated and both spec and built order are in those 100 day numbers that we're giving you. So there is no difference. In terms of order to close, it depends. I mean, it really depends on does a spec home sell during the production process, in which case there is no difference. If the house finishes and it sits first 60 days well you know you're adding 60 days to the end of the kind of finish timeline so um you know that's why to get consistent measurement on that ryan it's always from the time that you put a shovel in the ground and dig the foundation to when you get your uh you know final inspection okay got it thanks uh and then second question just on i guess bigger picture and you know demand stabilizing orders are up gross margins up you're able to pull incentives off um why not target target a higher delivery level and get some sgna leverage in 26 yeah i mean look we're focused on running the best holistic business that we can that's going to drive the best return on this environment i think we've been pretty pretty crystal clear and if we have and i'll do it now to say we are kind of prioritizing the pace price balance and right now um you know i think there's plenty of examples out there of where just driving volume for volume sake isn't necessarily kind of yielding the best results. So not to say that our way is perfect, but it's the way that we've decided to run the business, which is, you know, I think we're optimized, we're getting volume, but, you know, we're doing it in a pretty responsible way. So if that means that our overhead leverage is a little less than optimal uh you know i can live with that and all that said the total you know the total uh sgna leverage is going to be pretty consistent with where we've been the last number of years at 95 to 97 and i think the ultimate benchmark and report card is operating margin which i think we continue to perform uh pretty well in that in that category that concludes our question and answer session i'd like to turn the call back over to jim zimmer for closing remarks.

We appreciate everybody's time today. We'll certainly be available for any additional questions as we go forward. Otherwise, we will look forward to speaking with you on our next earnings call. Thank you.

That concludes today's meeting. You may now disconnect.