PulteGroup, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q2 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 the session, you'll need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to Mr. Jim Zoomer. Please go ahead.

Great. Thank you, Sharon, and good morning. I want to welcome you to Pulte Group's second quarter earnings call. We hope that you have been able to remain healthy and safe throughout these challenging times. As with our Q1 call, we will provide an update on the pandemic's impact on our operations, along with a detailed review of our second quarter financial results. Participating along with me on today's call are Ryan Marshall, President and CEO, Bob O'Shaughnessy, Executive Vice President and CFO, Jim Osowski, Senior Vice President of Finance, Jim and Bob are dialing in from outside. 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 the call later today. I want to highlight that we will be discussing our reported results as well as our results adjusted to exclude the impact of insurance and severance adjustments recorded in the period. A reconciliation of our adjusted results to our reported results is included in this morning's release and within our webcast slides. We encourage you to review these tables to assist in your analysis of our results. Also, 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. Ryan?

Thanks, Jim, and good morning. I am very pleased to report that the recovery in new home demand that we experienced over the course of the second quarter was nothing short of outstanding. Our second quarter results show a remarkable rebound in demand as April net new orders fell 53% from last year, only to see year-over-year orders increase 50% for the month of June. Led by strong demand among first-time buyers, we saw meaningful improvement across all buyer groups and geographies as the quarter advanced. This improvement culminated in June orders increasing 77% for first-time, 48% for move-up, and 21% for active adult over June of last year. The rebound in demand during the quarter resulted in our aggregate second quarter orders declining only 4% from last year. We are very encouraged by the fact that the momentum of this dramatic recovery continues as demand has remained strong through the first few weeks of July. Improving industry dynamics in combination with disciplined business practices allowed us to drive meaningful gains in our operating results and financial position. These gains include revenue growth, margin expansion, and improved overhead leverage, which when coupled with our prudent financial planning and strong cash generation, leave us in the position of strength as we work through the balance of the year. For all the positive dynamics we are experiencing in our business, it's clear that COVID-19 continues to exact a severe toll on the economy and more importantly, the people of our country. It goes beyond any business implications, but simply as human beings, one cannot look at the ongoing health impacts and loss of life and see it as anything but a tragic situation. With this as a backdrop, it is our heartfelt hope that everyone on this call, your families, as well as our employees, trade partners, and the communities we serve remain healthy and safe. From our health officials to our frontline workers to pharmaceutical companies, the efforts to battle this virus have been heroic. Before we get into discussing our second quarter financial results, Let me provide a brief update on the impacts of the pandemic and insights on how we are running the business currently. At the outset of the pandemic, we closed our sales centers and model homes and quickly pivoted to working remotely and selling virtually. I am pleased to say that we began reopening our sales centers and models in early May, and we are now fully open and staffed to work with our walk-in and by appointment customers. As you would expect, our salespeople are using appropriate PPE, are adhering to social distancing practices, and are following enhanced cleaning and disinfecting processes to help protect the health of our employees and customers. While our sales centers are open, we are interacting with customers on their preferred terms. Because not everyone is comfortable with in-person meetings, we continue to take full advantage of available technology and tools that have successfully supported our efforts to sell homes virtually. Except for a handful of markets, home building was deemed an essential service from the start of COVID-19, so disruptions to our construction operations were minor, even during the early stages of the pandemic. At present, our operations are fully functional in all markets across the country. Again, in partnership with our trades, we are using appropriate PPE and are adhering to social distancing practices to protect workers on the job site and in the homes. And finally, our financial services group truly did an outstanding job adjusting their business model to work remotely and handle every aspect of the mortgage and closing processes virtually. At present, personnel are still working off-site, but as demonstrated by the strong second quarter financial results and high capture rate, the team continues to perform at a very high level. Thanks to the tremendous effort of our purchasing team, working in conjunction with our suppliers, our supply chain has held up well with minimal disruptions to our home building operations. Working closely with sales and construction, our purchasing group has been able to navigate around potential shortages and ensure ongoing availability of key building products. Given the rebound in housing, we have been increasing our land acquisition and development spend. This primarily relates to land deals where we negotiated purchase delays of anywhere from 30 to 90 days. We are now completing most of these transactions when the new closing date arrives. Unfortunately, it's clear that COVID-19 is not going away anytime soon. So we remain disciplined and thoughtful in our land investments. This includes increasing our use of options, which now account for 46% of the lots that we control. On the people side, I am very pleased to say that improved market dynamics have allowed us to bring back the majority of the employees that we furloughed during the quarter. We have also had the opportunity to rehire a small number of the people we released in May, which is a good feeling. I would note that most of the individuals returning to our organization are in the field construction roles. Obviously, the demand for new homes has experienced a dramatic rebound over the past eight to 10 weeks, following the initial shock from COVID-19. While housing demand certainly continues to benefit from historically low interest rates, analyzing the drivers of demand suggests there are likely additional factors at work as well. First, looking at the number of internet searches related to home buying, the data indicate that there has been an increase in consumer interest in homes. particularly new homes. Utilizing available Google Trends data, we can view patterns for specific search terms commonly associated with buying a new home. Despite the overlay of COVID-19, searches for new home-related terms has been growing since mid-March. In fact, we have routinely seen multi-year highs in the number of searches related to shopping for a new home. I would note that we have seen a similar pattern in terms of Google searches for Dell Web, which are up dramatically in May and June. In fact, unique visitors to our Dell website are now approaching 70,000 per week and are trending higher than they were at this time last year. Second, while we can debate the magnitude, zip code level analysis on buying patterns points to a movement of renters and homeowners from urban centers into the surrounding suburbs. Based on an internal survey, roughly half of our division presidents report that their business has experienced a modest increase in demand from urban buyers, while several of our divisions referenced a material increase in such demand. And finally, we see the third and possibly largest driver of demand for new homes being the very limited supply of existing housing stock available today. At the end of May, the total housing inventory was 1.55 million units, which was down 19% from the prior year. I'm sure we can all appreciate that it's hard to be comfortable opening your home to strangers during a global pandemic. The strong demand has also helped to absorb some of the spec inventory which had built up in the system in March and April. Data show that in markets where we operate, the number of quick move-in homes available for sale fell by 16% from the end of March through the end of June. A lot has been made about the advantage of having spec units available, but the drawdown in supply and a build cycle of less than 80 days for our first time buyer product allows our build to order model to compete very effectively and with less risk. The combination of strong demand and limited inventory has also allowed us to raise prices across many of our communities. In fact, more than half of our divisions report raising prices in 50% or more of their communities. The typical price increase is in the range of 1% to 3% and includes changes in base price and or reductions in incentives. The positive change in market dynamics from April to the end of June has been dramatic and gives us greater confidence about the business moving forward. As such, we are reestablishing guidance for the remainder of 2020, which Bob will provide as part of his review of our second quarter results. In this regard, I want to say that the volatility caused by the pandemic is unlike anything this industry has experienced, even during the worst of the Great Recession. The swings in demand during the second quarter alone were fast and severe. Fire demand has clearly experienced a dramatic recovery in the quarter and has remained strong through the first three weeks of July. That being said, COVID hotspots continue to grow in size and number. which in turn is slowing down the reopening of state and local economies. It is impossible to forecast how these dynamics will unfold in the coming weeks and months. For Pulte Group, we will be optimistic about future market conditions, but remain very disciplined and measured in how we manage our business. Now let me turn the call to Bob for a review of our second quarter results. Bob?