PulteGroup, Inc.

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Pulte Group, Inc. Q3 2022 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 would like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you, Jim Zumer, Vice President of Investor Relations and Corporate Communications. You may begin.

Great. Thank you, Chris, and good morning. I want to welcome everyone to Pulte Group's earnings call for our third quarter ended September 30th, 2022. Joining me to discuss Pulte Group's third quarter results are Ryan Marshall, President and CEO, Bob O'Shaughnessy, Executive Vice President and CFO, and Jim Osowski, Senior Vice President of Finance. A copy of this morning's earnings release and the webcast slides that accompany this call have been posted to our corporate website at PulteGroup.com. We'll also post a replay of today's call later today. As always, 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 the comments we make today. The most significant risk factors that could affect future results are summarized as part of today's earnings release, and within the accompanying webcast 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. I suspect that throughout this morning's call, we will find ourselves delineating between the favorable demand environment that existed earlier this year, which drove Pulte Group's third quarter earnings, versus the more challenging market conditions we're encountering today. Stating the obvious, the primary difference between the two periods is that mortgage rates have more than doubled since the start of the year to upwards of 7%. Our Q3 earnings reflect the benefits of the strong demand and pricing conditions that existed at the end of 2021 and into the first few months of 2022. The favorable demand and pricing dynamics which existed at the time are reflected in the 15% or $71,000 increase in the average sales price of closed homes that we reported for our third quarter. Further, even with tight labor and a difficult supply chain, we were able to leverage this pricing gain into a 360 basis point expansion of gross margin and an almost 50% increase in earnings to $2.69 per share. Bob will provide more details on our third quarter results in a few minutes. But it is important to acknowledge the success and recognize the efforts of the entire Pulte Group organization in delivering these great results. If our income statement demonstrates prior demand strength, third quarter order and cancellation rates show the more challenging market dynamics we are operating under today. As we move throughout the quarter, you could almost see demand ebb and flow with the movement of interest rates. softness in july's home buying demand eased as mortgage rates fell in august the positive trend in demand was short-lived however as interest rates surged higher in september in response to federal reserve actions and hawkish commentary from chairman powell the pullback in demand was widespread across geographies and consumer groups as potential homebuyers moved to the sidelines some because they could no longer afford a home and others because they were unsure if now is truly the best time to buy a home. The impact of consumers dealing with issues of financing or fear also extended to our backlog as cancellation rates increased 24% in the quarter. While there are a number of factors influencing housing demand, the rise in mortgage rates has likely had the most significant impact on today's consumers. Based on their commentary, Expectations are that the Federal Reserve will continue to aggressively raise rates to control inflation for at least the remainder of 2022 and then likely hold rates higher for longer. Given these market dynamics, we continue to meaningfully adjust our operating practices as we adapt to today's more challenging market conditions. On the sales side, we are working closely with our divisions on a market by market and even community by community basis to find pricing, where buyers are able and are willing to transact. When demand first began to slow in response to higher rates, incentives in most of our markets were focused on mortgage rate locks and buy-downs. As mortgage rates have moved even higher, incentives have extended to other areas, including more aggressive discounting of standing inventory and price reductions. As we moved through the third quarter, absorption paces were choppy, but on average slowed as the quarter progressed. This trend continued into October, although ongoing adjustments to incentives and pricing are gaining some traction with consumers. We've told our divisions to be strategic in their decision making, but we need to intelligently find the market and turn our inventory. The reality is that we can't be margin proud, but rather we need to protect our share of sales within the markets. Housing is front and center in the Federal Reserve's battle against inflation. As the Fed clearly desires, new home sales rates and selling prices are in the process of adjusting lower in response to higher interest rates. With home sales slowing, we are adjusting how we approach ongoing land investment. At the end of the second quarter, we controlled 130,000 lots under options. Given the more challenging demand conditions we face today, We are re-underwriting our land deals using price, pace, and cost assumptions based on current market conditions with a view towards assessing whether expected returns still achieve or exceed our required hurdle rates. As a consequence of these reviews, in the third quarter, we canceled agreements accounting for approximately 19,000 lots, or 14% of the lots we held via option at the end of the second quarter. In taking these actions, we walked away from almost $800 million of future land acquisition spend. No one wants to write off $24 million of deposits and pre-acquisition spend, but the flexibility to exit these transactions reaffirms the strategic importance of building more optionality into our land pipeline. Homebuyer demand clearly moved lower as the third quarter progressed. with the dramatic and ongoing rise in interest rates likely being the biggest concern for most consumers. However, there are certainly other factors at play, including inflation, fear of recession, or increasing concerns about job loss. Given all of these considerations, it is easy to understand why consumers have moved to the sidelines. Having said that, people still desire home ownership and are prepared to buy when they find a compelling offer. Operationally, we are appropriately taking a more defensive posture for at least the near term as we work to navigate today's more turbulent conditions. We believe this approach is appropriate today and appreciate that stability, whether talking about mortgage rates, the stock market, or inflation, may be what people will need to move off the sidelines and become homebuyers again. Let me now turn the call over to Bob for a more detailed review of our Q3 operating and financial results.