PulteGroup, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Pulte Group Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would like to now hand the conference over to your speaker today, Jim Zumer. Please go ahead, sir.

Great. Thank you, Joanne, and good morning. I want to welcome you to Pulte Group's first quarter earnings call, although sadly most of the conversation will be about the impacts of the COVID-19 pandemic. In that regard, I certainly hope that you are all well and staying safe. Today's call is a little different given we have Pulte Group participants located in a number of locations, so I apologize in advance for any technical difficulties we may encounter. Joining me here at an appropriate social distance are Ryan Marshall, President and CEO, and Bob O'Shaughnessy, Executive Vice President and CFO. Joining us remotely are Jim Osowski, Senior Vice President of Finance, and I'm pleased to welcome Deb Still, President and CEO of Pulte Financial Services, who is dialing in from Denver. We thought it would be helpful to have Deb available to answer questions about our mortgage operations and overall mortgage market conditions. A copy of this morning's earnings release and the presentation slides that accompanies today's call have been posted to our corporate website at PulteGroup.com. We'll also post an audio replay of today's call to our website a little later. Before I turn the call over to Ryan, I want to alert everyone 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 slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan Marshall. Ryan?

Thanks, Jim, and good morning. Before we begin, let me offer my thoughts and prayers to everyone on the call today and in the communities in which Pulte Group operates. I sincerely hope that you and your families are well and are managing through the challenges created by COVID-19. I also want to acknowledge and say thank you to our nation's healthcare workers, and first responders who have been remarkable in fighting the onslaught of this disease. Given the devastating effects COVID-19 has had across the country, I'm going to focus my comments on the company specific impacts and our operational responses. Bob will then discuss some of the key numbers within our first quarter results, as well as some factors to consider as you think about our business going forward. To assess the impact of COVID-19, it's probably best to go back to the beginning. While that seems like a lifetime ago, it really has only been six to eight weeks. More specifically, Pulte Group and the broader housing industry entered 2020 with tremendous momentum and strong buyer demand. And this is reflected in the 16 percent growth in orders that we reported for the first quarter compared with the prior year. Our reported Q1 order growth, however, is not reflective of current market conditions. In the first quarter, Net new orders were up more than 30% over the prior year for both January and February. It's now old news when I say that, with the virus spreading rapidly and governments implementing shelter in place restrictions, home buying demand slowed dramatically as March progressed. To appreciate the magnitude of the slowdown, in the first full week of March, our net new orders exceeded 800 homes, In the final full week, this number dropped to just 140. As a result, our March 2020 orders in total were down 11 percent from March of 2019. From orders being up 30 plus percent to being down 11 percent in just a few weeks is unlike anything we have experienced before. It's this level of volatility, along with the dramatic economic slowdown and ongoing job loss, that led us to withdraw our guidance for 2020, as indicated in our press release earlier today, and we will not be providing any new guidance until conditions stabilize. Given how the U.S. economic slowdown intensified as we moved into April, it is no surprise that housing demand has slipped even further. For the first three weeks of the month, we have sold approximately 920 homes on a gross basis, excluding cancellations. The underlying trend is the buyer traffic to our website, and in turn, our communities has decreased materially. This is obviously a very small sample size, but directionally, we are running a little below 50% of the pace in the first quarter with the most recent trends generally stable to up slightly. While the impact of COVID-19 was hard and fast, Pulte Group is fortunate to have an experienced management team throughout our organization. In other words, we have been through slowdowns before such that we can and are responding quickly. A cadence of functional meetings, Skype calls to be exact, at every level of our operations were organized and are ongoing. Based on real-time insights supplied by frontline managers, we are routinely adjusting sales, construction, purchasing, mortgage, and other functional practices to the rapidly changing market conditions. Important information from these division-level meetings is then routinely shared via a daily call with my senior team that reviews everything from customer traffic and sales to land investment and conditions in the mortgage market. Think of my leadership calls as a virtual war room in which we can quickly assess ongoing events and adjust business tactics as required. It's vital that information flows both ways inside our organization. we can quickly disseminate critical data and decisions back into our operations via internal communications channels, including a newly built section within our intranet. This section also acts as a data repository for key policies and materials, as well as a robust and growing warehouse of best practice videos. These videos cover everything from the direct marketing and managing a great virtual house tour to conducting an efficient option selection meeting online and even closing a home purchase remotely. I won't take you through the daily, even hourly evolution of our business practices, but I will share with you how we are operating the business today. To help ensure the health and safety of our customers and employees, we are working remotely and leveraging available technology platforms to enable virtual interactions with our home buyers. From walking computer-generated floor plans and picking a lot on our interactive community maps, to selecting options and applying for and ultimately closing the mortgage, at this point, we are able to effectively do everything remotely. In fact, I fully expect we will be integrating a number of these new practices into our selling processes even as we move back to more normal operating conditions. I think our millennials and active adult buyers in particular will appreciate having more options in terms of how they interact with the home buying process. For potential home buyers who do want to visit a model and meet in person, such meetings, where permitted, are by appointment only. Appointments ensure we can control the number of attendees and enforce social distancing, as well as to provide time for us to implement our enhanced cleaning protocols. Moving from sales to construction, we are working closely with our trades to confirm compliance with national and local guidelines relating to social distancing, and on-site health and personal hygiene practices. Construction has been designated an essential service across all of our markets except for Michigan, Pennsylvania, the state of Washington, and key municipalities in Northern California. We have also notified our homebuyers that we will be providing warranty service for emergency situations only until this crisis has passed. Finally, As an extension of protecting the health and reducing risks for our entire team, for the end of March, we made the decision to guarantee employment for all Pulte Group employees through the end of April. We wanted to make sure we provided a sense of security so our employees could focus on their families and on taking care of our customers. Given the severity of the economic slowdown, we recognize that staffing actions will be needed to better align overhead expenses given the slowdown in housing demand and we are planning for such, but this decision is consistent with Pulte Group's employee-first culture. Beyond our people, given the challenging operating environment and economic uncertainties resulting from COVID-19, our focus is on protecting the company's liquidity and closely managing our cash flows. Bob will review details shortly, but let me provide a few high-level comments on the actions that we have taken to date. On the land side, We are working closely with our existing land sellers to postpone the purchase of land parcels currently under contract. Land sellers understand what's happening in the market, so conversations typically take a very collaborative approach. I am extremely pleased to say that we have been successful in delaying well over 90% of the lots scheduled for purchase in the near term. We would hope to have similar success as and when we need to deal with contracted land positions scheduled to close in the future. In the rare situations where we have been unable to agree on some form of extension with the land seller, we have walked away from the lots and written off any associated option and or pre-acquisition expense. In the first quarter, these charges amounted to only $4 million. In a similar fashion, we are working to intelligently slow land development such that it is more appropriately aligned with the current sales environment. At this point, our approach is focused on delaying development rather than outright mothballing communities. The latter may become a tactic depending on how the slowdown plays out, but for now, we want to continue turning assets even at a reduced rate. We've also implemented strategies to limit the amount of capital we are investing in vertical construction. This includes contacting backlogged customers and reconfirming their status before beginning construction of that sold unit. Having said that, between our existing spec starts and an elevated cancellation rate, we have spec units in production that we are also moving onto a slower track. At quarter end, we had a total of about 3,100 specs in the pipeline, of which almost 40% were early enough in the build cycle that we are able to suspend further construction. Depending upon the exact stage of production, construction on the remaining spec units will be held, slowly advanced, or completed on schedule and then sold. Given the actions that we've taken to adjust land and house spend, we'll be able to postpone several hundred million dollars in cash outflows for a number of months. By effectively idling parts of our business, we can maintain strong liquidity while positioning our operations to meet buyer demand however it develops over the remainder of 2020 and into the next year. It's hard to envision a more difficult operating environment than what we are experiencing today, and I don't even want to try to sugarcoat it. That being said, given the way that we have been running the business over the past decade, I do believe that Pulte Group is very well positioned, both operationally and financially, to navigate the challenging and volatile market conditions we'll face until the impacts of the pandemic recede. Now let me turn the call over to Bob to discuss key elements of our first quarter operating and financial results. Bob?