PulteGroup, Inc.

Good morning and welcome to the fourth quarter 2020 Pulte Group, Inc. earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. Participants will be limited to one question and one follow-up. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to James Zumer, Vice President of Investor Relations and Corporate Communications. Please go ahead.

James Zumer, Vice President of Investor Relations and Corporate Communications, Thank you, Andrew, and good morning. I'm pleased to welcome you to Folky Group's fourth quarter earnings call. The period ended December 31, 2020. We appreciate your time this morning and offer belated best wishes for the new year. I'm joined on today's call by Ryan Marshall, President and CEO, Bob O'Shaughnessy, Executive Vice President and CFO, and Jim Osowski, Senior VP of Finance. A copy of this morning's earnings release and the presentation slides that accompany today's call have been posted to our corporate website at faultygroup.com. We'll also post an audio replay of this call later today. I want to highlight that we will be discussing our reported fourth quarter numbers, as well as our results adjusted to exclude the impact of certain reserve adjustments and tax benefits recorded in the period. A reconciliation of our adjusted results to our reported financial results is included in this morning's release and within today's webcast slides. We encourage you to review these tables to assist in your analysis of our business performance. 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 RICC filings, including our annual and quarterly reports. Now, let me turn the call over to Ryan Marshall.

Ryan? Thanks, Jim, and good morning. I appreciate everyone joining today's call. I hope that your new year has started well and that you remain healthy and safe. It goes without saying that COVID-19 and the resulting challenges made 2020 a year unlike any that we've experienced before. Let me just say right up front that I'm extremely proud of how our entire team responded and how our organization remained engaged and focused during some very difficult times. Thanks to the sustained efforts of our dedicated team, We successfully navigated through a year that started strong, slammed to a halt, and then accelerated into the strongest demand environment this industry has experienced in more than a decade. As you read in this morning's press release, Pulte Group completed an exceptional year by delivering outstanding fourth quarter results that included a 24% increase in orders, a 220-point increase in gross margin, and a 31% increase in adjusted earnings per share. We also ended the quarter with $2.6 billion of cash and a net debt to capital ratio below 2%. Reflecting a lot of hard work by an amazing team, Pulte Group realized a 6% increase in full-year closings to 24,624 homes and a corresponding 7% increase in full-year home sale revenues to $10.6 billion. Benefiting from our ability to expand home building growth and operating margins, along with dramatic gains in our financial services business, we converted the 7% top line growth into a 29% increase in pre-tax income of $1.7 billion. Our outstanding results extend beyond our income statement. as we generated $1.8 billion in operating cash flow in 2020 after investing $2.9 billion in land and development during the year. Beyond investing in land, we increased our dividend by 17%, effective with the payment we made this month and repurchased $171 million of our common shares in 2020, despite having suspended the program for six months because of the pandemic. I am also extraordinarily proud to note that consistent with our focus on generating high returns over the housing cycle, we realized a 23.7% return on equity for the year. With 2020 complete, we enter 2021 in a strong financial position and with numerous opportunities to drive further business gains. Obviously, we can't control how the pandemic plays out, but we are optimistic that the multiple vaccines getting distributed mean that we can see a light at the end of this long tunnel. Bob will provide specific guidance as part of his comments, but let me offer a view of how we are looking at the business and how we plan to operate in the year ahead. We expect a strong demand environment, which the housing industry experienced for much of 2020, and in reality for many quarters prior to COVID, can continue well into 2021. We said for years that we thought housing starts needed to be around 1.5 million to meet the natural demand created by growth in population and household formations. We finally reached 1.5 million starts in 2020, but we have underbuilt relative to this number for years. Given this unmet need and the potential mix shift in demand toward more single family and away from apartment living, we believe demand can remain strong going forward for our business. Beyond the demographic tailwind, we also believe that the pandemic has caused a permanent increase in the number of people who will be working from home full or at least part-time. Such a shift has profound implications in terms of what people need from their homes, as well as where their homes can be located. For example, we believe a remote working dynamic expands the buyer pool and because it can allow people to purchase more affordable homes and further out locations. At the same time, working from home has the potential to increase the intent to buy new homes, which offer floor plans and technology features that better meet the needs of today's homebuyers. With such a strong demand environment, it works to our advantage to be among the nation's largest builders with access to land, labor, and material resources. We entered 2021 with more than 15,000 houses in backlog, 180,000 lots under control, of which half are controlled via option, and longstanding relationships with suppliers and trade partners. The combination of these factors should allow us to increase 2021 deliveries by more than 20% over the last year. As we've demonstrated over the years, I am confident in our organization's ability to operate the business successfully and to get homes built. But I do think it's fair to acknowledge that there are points of friction in the system. Labor remains tight, although the change in administration may allow for some relief, assuming immigration policies are eased. At the same time, product manufacturers are battling supply chain issues and the occasional COVID-related disruption within their plants. Although I must say our suppliers have been tremendous partners, going above and beyond in many instances to provide the materials we need. Given high expectations for the company's operating performance and our balance sheet strain at year end, I believe we are exceptionally well positioned to execute on all of our capital allocation priorities. More specifically, we are targeting land acquisition and development spend of $3.7 billion in 2021. This is an increase of roughly $800 million over our 2020 investment that we think appropriate given the growth in our operations. Beyond our expected land investment, we have made great progress in planning for and selecting the location of our next offsite manufacturing plant. We still have a few details to work out with the owners of the sites under consideration, but we hope to finalize a plant agreement within the next couple of months and then begin installing the requisite production equipment later this year. Our ICG operation in Jacksonville has exceeded our expectations. so we are excited to get this new plant up and running sometime during the first quarter of next year. Along with investing in the business and continuing to fund our dividend, as you read in this morning's press release, we will be using available cash to pay down $726 million of our outstanding debt in the first quarter. And finally, we will continue to return excess funds to shareholders through our share repurchase program. In response to the uncertainties caused by the pandemic, We had suspended share repurchase activities during the second and third quarters of last year. As detailed in our press release, we resumed the program and repurchased $75 million of stock in the fourth quarter, bringing our full year total to $171 million. We have repurchased more than one-third of the company's shares since initiating the program, and we expect to remain an active buyer of our shares going forward. Housing demand was outstanding in the back half of 2020, with strength across all geographies and buyer segments. And I'm certainly pleased to report that this strength has continued unabated through the first few weeks of January. The housing industry has been extremely fortunate in being an economic engine, but we do not take this for granted, nor will we forget how devastating COVID-19 has been for thousands of businesses and millions of people. It is certainly our hope that we are rapidly approaching the end of this pandemic. Let me now turn the call over to Bob.