PulteGroup, Inc.

Good morning and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to the Pulte Group Inc P1 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Jim Zuma. Please go ahead.

Great, Kelvin. Thank you. Good morning and welcome to today's call. We look forward to discussing our first quarter operating and financial results. With me today are Ryan Marshall, president and CEO, and Jim Losavsky, executive vice president and CFO. As always, a copy of our earnings release. And this morning's presentation has been posted to our corporate website at PulteGroup.com. We'll 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 colleagues today. The most significant risk factors that could affect future results are summarized as part of today's earnings release within the accompanying presentation. 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 appreciate the opportunity to speak with everyone today. In addition to discussing PulteGroup's Q1 results this morning, I will also share our views on the current macro environment and how our business model and execution against our strategic initiatives are helping us navigate today's evolving market conditions. Let me start by recognizing the incredible work our teams did in delivering PulteGroup's strong first quarter results. Given the cross currents the housing industry has encountered in 2025, we believe our results show the value of PulteGroup's proven operating model, balanced portfolio, and the expertise of our local operating teams. In what proved to be a dynamic operating environment, we met or exceeded our guidance in delivering over 6,500 homes, gross margins of 27.5%, debt income of $523 million, and most importantly, a trailing 12-month return on equity of 25.4%. As the country moves through economic cycles, the housing industry will inevitably encounter periods when we are experiencing changes in the operating environment. I truly believe that the balanced and highly diversified operating model that we have built over the past decade, in combination with our strategic focus on generating high returns over the housing cycle, offer important and competitive advantages. Our national footprint and strategy of serving all buyer groups with a targeted offering of spec and bill to order homes, along with our broader capacity to use both price and or pace to drive returns, give our operators more flexibility when navigating periods of economic transition. In the back half of 2024, many of our meetings with analysts and investors included questions about housing demand and the state of the housing cycle. In response to these questions, we indicated that the spring selling season of 2025 would provide the best opportunity to assess the condition of today's homebuying consumer. Having reached the midway point of the spring selling season, I wanted to provide a few thoughts on what we've experienced and how we are responding. First and foremost, I strongly believe people still aspire to homeownership, and if you can provide the right value equation, they are excited to get into a new home. We saw this as the first quarter progressed and demonstrated a typical seasonal pattern with traffic, gross orders, and net new orders trending higher as we move through the quarter. Within the quarter, we also saw the level of homebuying activity respond positively to the 30 year mortgage rate dropping below 7%, which allowed roughly 20% of our divisions to increase prices within many of our communities. Consistent with the relative strength we've seen among move up and active adult buyers over the past few quarters, we saw the average spend on options and lot premiums per home climbed to $110,000 in Q1. This is up from the $102,000 and $107,000 in the first and fourth quarters respectively of last year. The financial strength of move up and active adult home buyers is why we have purposely aligned 60% of our portfolio to serve these key buyer groups. However, the quarter also saw consumers continuing to face affordability challenges that exist for would-be home buyers in metro regions across the country. From the high absolute selling prices of today's homes to the resulting high monthly mortgage payments, consumers are struggling with the affordability challenges when it comes to purchasing a home. These headwinds have only been exacerbated recently by growing concerns about the potential for a slowing economy. As one of the nation's largest homebuilders, we have developed and deployed a variety of tools to help consumers overcome their personal home ownership hurdles. This includes offering new product designs and more efficient floor plans, as well as offering meaningful incentives, including programs that can offer consumers a below market rate on a full 30-year fixed rate mortgage. We leaned into incentives a little more heavily in the first quarter as we executed on our plan to reduce excess spec inventory by actively selling our in-process and finished spec inventory. While also adjusting our start pace to better match current demand. As a result, our incentive rate increased 8% for the period, but we lowered specs to 47% of production down from 53% in the fourth quarter, while still reporting strong operating strong gross margins of 27.5%. In sum, higher interest and activity in the first quarter were directionally in line with our planning expectations heading into the period. As we've moved from March to April, however, we have seen consumers at all price points impacted by changing macro conditions and any resulting decline in overall consumer confidence. Whether it's the volatility in the stock market, concerns about tariff induced inflation, the fluctuation in interest rates, or the growing talk of recession, demand in April has been more volatile and less predictable day to day. We can certainly empathize with our customers' concerns as our business is happy to adapt and manage through constantly changing and shifting tariff landscape, the potential costs of which could be significant. While our Q1 build costs were effectively flat on a year over year basis, proposed tariffs had the potential to add thousands of dollars to the cost of construction. We are a builder with 75 years of experience and a resilient operating model, and as tariffs have been imposed or proposed, our cycle tested procurement teams have developed and begin implementing response strategies. Let me now turn the call over to Jim Olsowski. You will recall that in February, Jim officially assumed his responsibilities as Pulte Gribb's Chief Financial Officer. I'm excited to have him in his new role, and I know that our organization will benefit greatly from Jim's leadership and experience. After his remarks, I will offer some additional thoughts on how we plan to manage our business given the current operating environment.

Jim? Thank you, Ryan, and good morning. I appreciate the opportunity to review Pulte Gribb's quarterly results. In the first quarter, our net new orders totaled 7,765 homes, which is a decrease of 7% from the first quarter of 2024. Lower orders in the period were driven primarily by a 10% decrease in net new orders per store, which is partially offset by the 3% increase in our average community count to 961 for the quarter. Notably, the cancellation rate as the percentage of starting backlog increased only slightly to 11%, compared to 10% in the prior year. Specific to the quarter, we would say that demand conditions followed a pretty typical seasonal pattern, with net new orders increasing as the quarter progressed. On a sequential basis, net new orders increased 26% from the fourth quarter of 2024. This increases, however, below historic averages and reflects a consumer that is carefully assessing the high cost of home ownership and, more recently, concerns about the economy and overall employment conditions. On a -over-year basis, net new orders by first-time buyers were down 11%, move-up buyers were down 4%, and active adult buyers declined 5%. We continue to realize meaningful relative outperformance among our move-up and active adult consumers as they have greater financial flexibility and can more easily adjust to market changes. That being said, the extreme volatility in the financial markets can cause even these consumers to pause from making a large purchase. Moving from orders to closings, home sale revenues in the first quarter totaled $3.7 billion, down 2% from the $3.8 billion of revenues generated last year. Lower home sale revenues for the period were the result of a 7% decrease in closings to 6,583 homes, largely offset by a 6% increase in average sales price to $570,000. By buyer group, the breakdown in closings in the first quarter was 39% first-time, 40% move-up, and 21% active adult. In the first quarter of last year, our closings were comprised of 42% first-time, 35% move-up, and 23% active adult. As we have discussed on prior calls, we have experienced a modest decline in the percentage of closings from active adult buyers driven by the closeout to several DelWeb communities over the past 12 plus months. I'm happy to report that we are extremely pleased with buyer response to recent DelWeb openings in Cleveland, Indianapolis, and Southern California. We are equally excited about the additional Web community openings coming later this year. Closings from these new Web communities will be more heavily weighted towards 2026 and beyond. Getting these communities open for sales is a critical first step. Based on sales and closings activities in this period, we ended the quarter with a backlog of 11,335 homes, which is down 16% from last year. On a dollar basis, our backlog was $7.2 billion, which is down 12% compared with last year's first quarter. As Ryan mentioned earlier, we adjusted our start-space as part of a process of lower-spec inventory in alignment with our target range. In the first quarter, we started approximately 6,700 homes, which is down from approximately 7,500 homes we started in both Q1 and Q4 of last year. Reflective of this action, we ended the first quarter with 16,548 homes in production, of which 7,840 were spec units. In just one quarter, we reduced our spec count by over 900 homes while lowering our spec percentage from 53% to 47% of inventory. This moves us closer to our target range of -45% from overall units in production. Of our spec units, 1,800 were completed at quarter end, and we expect finished specs to continue trending lower in this slowdown in our start-space. The goal in aggressively managing our production pipeline is to more effectively balance the need to have units available to meet immediate buyer demand while still selling from a position of strength within our communities. In the current environment, we believe prioritizing price and margin over volume makes the most strategic sense. Based on recent sales paces and the mix of units under construction, we expect to deliver between 7,400 and 7,800 closings in the second quarter. While buyer demand over the next few months will be a key determinant, given the more than 16,000 units we have under production and cycle times of approximately 110 days, we currently expect to deliver between 29,000 and 30,000 homes for the full year, slightly below our prior guidance set, 31,000. Embedded within our updated delivery guide is our expectation that quarterly community count will be -5% higher in 2025 than in the comparable prior year period. Consistent with our first quarter results and our previous guidance, we currently expect the average sales price of closings to be in the range of $560,000 to $570,000 in each of the remaining three quarters. Continuing down the income statement, our gross margin in the first quarter was 27.5%, which is flat on a sequential basis from the fourth quarter, but down from a very strong Q1 of 2024. While sales incentives increased at 8% in the quarter, gross margins in the period benefited from a favorable mix of homes closed both in terms of geography and buyer growth. As it relates to gross margins going forward, we continue to expect gross margins in the second quarter to be in the range of .5% to 27.0%, and we now expect gross margins in the third and fourth quarters to be in the range of .0% to 26.5%, down slightly from our prior range of .5% to 27.0%. Our guide on gross margin assumes incentives remain elevated at the elevated levels experienced in the first quarter. Further, gross margins in the back half of the year reflect the estimated impact of tariffs that have been imposed, which are expected to increase our house cost by an estimated 1% of average selling price. In the first quarter, we reported SG&A expense of $393 million for .5% of home sale revenues, which compares with prior year reported SG&A expense of $358 million or .4% of home sale revenues. Reported prior year SG&A expense includes a pre-tax insurance benefit of $27 million. Based on anticipated closing volumes, we now expect SG&A expense for the full year 2025 be in the range of .5% to .7% of home sale revenue. Given the uncertainties of the current operating environment, we continue to carefully assess SG&A expenditures as we seek to maintain an appropriate overhead structure. Our financial services operations reported first quarter pre-tax income of $36 million, compared with $41 million in the past. The lower pre-tax income primarily reflects the impact of lower closing volumes within the company's home living operations. Capture rate in the quarter increased to 86% up from 84% last year. For the first quarter, our reported pre-tax income was $681 million and we reported a tax expense of $158 million or an effective tax rate of 23.2%. Our first quarter effective tax rate was benefited by renewable energy tax credits and stock compensation reductions reported in the period. At this time, we continue to expect our tax rate to be approximately 24.5%, excluding the impact of any discrete period specific tax events. For our first quarter, we reported net income of $523 million or $2.57 per share. In the first quarter of 2024, we reported net income of $663 million or $3.10 per share. Prior year results are inclusive of $65 million or $0.23 per share and pre-tax benefits related to the sale of a joint venture and the aforementioned insurance benefits. Earnings per share for the quarter was calculated based on $204 million diluted shares, which is down 5% from the prior year, and continues to systematically repurchase our shares. In the first quarter of 2025, we repurchased 2.8 million shares for $300 million or an average price of $108.03 per share. As noted in this morning's release, we needed the first quarter with $1.9 billion remaining under our existing share repurchase authorization. In addition to repurchasing our shares, in the first quarter we allocated $1.2 billion to land acquisition and development. In Q1, 52% of our spend was associated with the development of our existing land assets. As Ryan noted, given today's macro uncertainties, we are asking our land teams to review project returns and confirm they still meet our hurdle rates, given changing market conditions. We are confident that in this type of operating environment, our disciplined underwriting process will serve as well as it has done during prior periods of uncertainty. Given our current pace of sales and starts, we now expect our land investment in 2025 to be approximately $5 billion. We remain positive on the long-term outlook for housing, but we are prepared to adjust our near-term land spend and response to changes up or down in buyer demand. While we are slowing projected land spend, we are still prepared to use our financial strength to capitalize on land opportunities that could develop during these choppier market conditions. Based on the updated expectations for our home building operations, we continue to expect operating cash flow generation for the full year to be approximately $1.4 billion. We have such flexibility because we already control a strong land pipeline that can support the future growth of our business platform. At the end of the first quarter, Pulte Group had 244,000 lots under control, of which 59% were controlled via option. Just the past year, we have increased our option lot count by almost 30% while reducing our own lot count at the same time. I want to underscore that whether these land options are with the underlying land seller or one-off transactions with a land banker, our ability to mitigate market risk is as important as the rate of return when assessing each transaction. On a -by-deal basis, we continue to strike balance in evaluating the profitability and risk management opportunities that might result from optioning the underlying land parcel. And finally, I am pleased to say that Pulte Group remains in an exceptionally strong financial position as at the end of the quarter, with a -to-capital ratio of .7% and with $1.3 billion of cash. Further validating the strength of our operating and financial positions, Moody's recently upgraded our Senior Unsecured Notes to VAA1. Now, let me turn the call back to Ryan for some final

feedback. Thanks, Jim. Given our backlog, units under production, and current build cycle, we now expect to deliver between 29,000 and 30,000 homes in 2025. Assuming home buying demand is sufficient and in alliance with our prioritizing price over pace to drive near-term returns. As Jim detailed, we lowered our start pace in the first quarter by approximately 10%. Our strategy has always been about balancing price and pace to drive high returns. Rather than try to chase a volume number, we will continue with our efforts to reduce any excess spec inventory and move closer to our target of 40-45%. We will remain agile and are prepared to make further adjustments up or down to our start pace in response to changes in buyer demand. For Pulte Group, balancing price and pace with a bias towards price has resulted in gross margin being an important driver of our returns. Our Q1 gross margin of .5% is reflective of our approach. In addition to driving top-tier returns, our industry-leading gross margin gives our divisions more room to maneuver and managing their communities on a -to-day basis. In 2024, we invested $5.3 billion in land acquisition and development and entered 2025 with plans to increase our land spend to $5.5 billion. Given greater macroeconomic uncertainty, we are recalibrating our land spend and expect it will be closer to $5 billion. Given the strength of our existing land pipeline, deferring a small percentage of our land acquisition spend will not impact our ability to grow our operating platform in the future. For any changes we will implement over the near term in response to evolving demand conditions, what won't change is our focus on delivering high returns over the housing cycle. As we have demonstrated working through the myriad of macro challenges of the past five years, generating high returns requires decision-making that is consistently in alignment with long-term goals and objectives. We have remained disciplined in our business practices while making prudent adjustments, such as moderating our start pace in response to changing market conditions as we work to successfully navigate the current environment. We continue to believe in the long-term demand dynamics within the housing industry. In a country that has a growing population and has already short several million housing units, it is reasonable to expect that demand will be there in the future. As Jim suggested earlier, disruptions in the marketplace can create exciting opportunities that have the potential to accelerate future performance. We certainly have the balance sheet strength to take advantage of any such opportunities should they emerge. In closing, I want to highlight that we have worked hard over the past decade to build a Brit business platform that is arguably unmatched in terms of its presence across major markets and buyer groups. Our performance over time has demonstrated the competitive advantages of such a portfolio in driving high returns and navigating through market changes. Further, we have shown our commitment to intelligently allocate capital to support the growth of the poultry group, while consistently returning funds to shareholders through dividends and share repurchases. And finally, I want to again thank our entire organization for their efforts in delivering an unmatched home buying experience to our customers. We don't talk about it enough, but I want to recognize their divisions for reaching record build quality and record net promoter scores, all while creating a culture that once again put poultry group on Fortune's Top 100 Best Companies to Work for list for the fifth year in a row. You are truly the best in the business. Now let me turn the call over to Jim Zumer.

Thanks, Ryan. We are now prepared to open the call to 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. Thank you, and I will now ask the operator to open up Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we answer the Q&A session, we ask that you please limit your input to one question and one follow-up. And at this time, I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of John Lavella of UBS. Please go ahead.

Good morning, guys. Thanks for taking my questions. The first one, I just wanted to kind of zone in on the second half margin expectations and maybe a two-parter year. I mean, I guess were the incentives on orders in the first quarter consistent with the 8% that were on deliveries? And then can you also provide any color on the two half or the second half tariff impact that you're expecting, you know, the total dollars for home, which products and sort of the ability to push back on suppliers?

Yeah, John. So the incentive load that we've assumed is consistent with the 8% that we realized in Q1. So that's embedded in the margin guide. And that's throughout all four quarters of this year. Relating to the tariff question, I mentioned it's 1% of average sales price. So, you know, we're in the range of $5,000 on average. And it'll impact every single price point and consumer group that we serve. You know, there might be a few minor nuances, but it's pretty broad across the spectrum. Look, you know, our procurement teams are cycle tested. They're the best in the business. They do a really nice job. You know, Jim highlighted that we've kept our build costs flat on a year over year basis. And so I think that's a tremendous accomplishment. You know, we've got good relationships with our suppliers. We want it to be a win-win. But, you know, we think we offer value in the volume and predictability. And so we do look for, you know, better pricing than I think what you'd find in kind of the broader home building universe. You know, every I think every business is dealing with added costs and we're going to work to minimize it. I think keeping it to the 1% that we've talked about is significantly less than what you're hearing from the broader home building universe. So, you know, I think you're seeing pretty good execution from us in the guide that we've given about 1% of ASP.

Yeah, we would agree 100% with that. And then maybe the second question just on the share repurchases, $300 million in the quarter, which is a really good level. I guess the question would be that that's consistent with what you guys have done over the past couple of quarters. You know, why not lean in a little bit more as the stock, you know, pulled back?

Yeah, John, look, it's a great question. $300 million is significantly more than pocket change. So we feel pretty good about what we did. Our board authorized an incremental $1.5 billion in share authorization in January. So our remaining authorization is $1.9 billion. We've had a practice of reporting the news as opposed to giving the guidance. You know, we do think that, you know, the equity is of value today. And so, you know, we'll check back in with you at the end of the second quarter and let you know where we land on Q2 repurchases.

All right. Thanks,

Ryan. Your next question comes from the line of Stephen Kim of Evercore ISI. Please go ahead.

Yeah, thanks very much, guys. Appreciate it. Strong results. Wanted to sort of follow up on a couple of John's questions there. So one with respect to your cash flow guide, I think you said $1.4 billion. Does this still assume no reduction in homes under construction or homes in progress? Because it looks like that actually would be an additional contributor to cash flow. And then you indicated the tariff increase amount actually been recognized or realized in negotiations thus far versus simply being, you know, proactively cautious.

Well, I'll take the first question. So on the cash flow guide, the $1.4 billion assumes kind of the homes that we need to put into production over the balance of the year to hit our $29,000 to $30,000 guide that we've given. We certainly have the capability to do more than that if the opportunity was there. But that's really what's been factored in. One of the things that I highlighted in my section, Stephen, was that we've adjusted our land spend as we've looked at development opportunities over the balance of the year and acquisition. We factor that into the operating cash flow guide.

Stephen, your second question, you broke up just a little bit. Would you mind repeating that about tariffs?

Yeah, apologies. It was really that you had guided that, you know, to the one percentage point higher cost. And my question was how much of this has actually been recognized or realized in your negotiations with your vendors and providers versus simply you being cautious in your outlook? So I'm wondering how much of this has actually been seen thus far in terms of your negotiations?

Yeah, Stephen, the latter. So, you know, things that are already in production, there's no tariff impact on that. And, you know, things that were already on the water, you know, largely there's no tariff impact there either. So it's more about looking at our supply chain, where things come from, and anticipating what the impact could look like as we hit the fourth quarter. So, you know, we're not expecting much of any impact until probably mid to late fourth quarter closings of this year.

Okay, great. That's helpful. The second question I had relates to the overall environment. I think that, you know, you've did a good job of laying out, like, sort of what you've been seeing in terms of market conditions. But one of the things that seems to be manifesting here and what we've been hearing from during earnings season is that there is a certain level of demand that is fairly persistent and robust. But if you try to exceed the volume above that amount, if I try to entice additional buyers beyond that sort of strong core, you might say, you wind up having to give away significant price and margin in order to achieve that. And so I wanted to know if you kind of think that that's a fair way of characterizing the market conditions today, and if that is different in a meaningful way from what you have seen, you know, going back 20, 30 years.

Yes, Steve, I think you're spot on. And it's part of the reason that we've highlighted the way our model's been built is it's really built for this exact environment. You know, we always strive to strike the right balance between price and pace. But we've always had, you know, probably a slight bias toward gross margins. The reason we continue to deliver industry-leading gross margins in this environment, I think you're spot on. There is a underlying desire for homeownership, and there's a lot of buyers that still want to buy homes, and we're selling them those homes at very good profitability and good value to the consumer as well. The incentives that we're offering are mostly driven toward financing-related incentives. And while, you know, all consumers and price points are getting incentives, there's certainly more or a higher percentage that are going into that first-time buyer group or affordability is certainly more challenged. So, look, in this environment, we're still really confident about the long term. We know that we're going to sell a lot of homes, and, you know, the operating platform that we have with over 60% of our consumer mix being in active adult and move up, we think we're really well positioned to continue to exceed, you know, despite the challenging macro. Great.

Thanks very much,

guys. Your next question comes from the line of Sam Reed of Wells Fargo. Please go ahead.

Awesome. Thanks so much. I wanted to actually disaggregate the margin commentary a bit more here, especially on the tariff impact. It sounds like the impact from tariffs specifically will be more weighted to that fourth quarter period, if I'm hearing correctly. So maybe could you just talk to the change in guidance as it relates to the third quarter and just maybe bucket out incentives versus any other cost buckets we should be thinking of in the context of that fresh Q3 margin guide?

Great question, Sam. So, you know, as we look at Q3 and Q4, you know, as Ryan said, we are expecting our incentives to stay at that elevated level for the balance of the year. One of the things we have done very well in the first quarter, we talked about it as we've been selling some of our speculative inventory that's either in process or finished. So we will start to see some of that come through in our Q3 and our Q4. And then as Ryan alluded to, you know, really we will see the tariff impact primarily in the fourth quarter. So we still feel really good about it. You know, as we sit here at 26.0 to .5% for the back half of the year, we're really happy and pleased with what our operators are doing.

No, that helps. And then you already touched a little bit on this in the prepared remarks, but really wanted to get a better sense for how traffic trended in your DelWeb communities in early April, especially on the back of equity market volatility. You know, I know this buyer tends to be more conservative, more likely to fund a purchase with investment savings than some of your other buyer or cohort. So just curious if you have any additional detail on what you might have seen in some of the DelWeb traffic data and perhaps even some of the early traffic to order conversion data. Thanks.

Yeah, Sam, it's Ryan. Thanks for the question. The DelWeb buyer continues to be a real shining star in our overall portfolio. We have mentioned in prior periods that it's a buyer that is more sensitive to macro and market volatility. But it doesn't mean that they go away. And in fact, you know, you look at the signups that we had in the most recent quarter, it was one of our better performing consumer groups along with the move up. So we feel good about it. As it relates to April, you know, April always takes a little bit of a seasonal shift down in signups. And we certainly saw that this year. The one thing that we would note about April is the day to day volatility was somewhat unusual. And I think that's totally understandable given what the consumer is dealing with. There's a lot of noise in the macro, you know, concerns about recession, stock market volatility, interest rates up and down, you know, the fears about tariff induced inflation, et cetera. So, you know, I think, you know, not specific just to the DelWeb, but really all consumers. There's a lot to deal with there. We we continue to be really confident about the long term. We know that we're going to sell a lot of homes. We've got an unbelievable operating platform. We're short millions and millions of homes in this country. And, you know, given the way that we're balancing, you know, more of the focus on price versus pace, going back to Stephen's comment, you know, I think we're as well positioned as anybody in the space to continue to have success in this environment.

That helps a lot. Thanks so much, guys. I'll pass it on.

Your next question comes from the line of Michael Rehaut of JPMorgan. Please go ahead.

Thanks. Good morning, everyone. Thanks for taking my questions and nice quarter in a tough environment. Um, first question, you know, I wanted to push a little bit and kind of get a little bit better or more granularity on the changes in guidance in terms of the change also in the closing. And obviously, it's kind of speaks to the price over pace preference. You know, at the same time, Ryan, you've also said in the past, you know, you're not going to be margin proud. And so appreciating kind of both of those comments with maybe the tilt towards price more often than not. I'm curious if, you know, the the reduction in closing guidance for the year is also in some ways reflective of some of the volatility in April. As much as, you know, maybe orders coming in a little less than at least we were expecting for the March quarter. And, you know, if, you know, that volatility in April kind of continues, maybe doesn't rebound to something a little more stable. Could there be further adjustments down the road in incentives or price or is the current guidance kind of reflecting the April's volatility, which which I'm sure has impacted perhaps volumes to a decent extent.

Good morning, Mike. Thanks for the question. It's Ryan. Let me let me maybe first start with the guide and in terms of the full unit guide. It, you know, as we as we move through Q1, Q1 results were largely in line with our planning expectations. You know, it wasn't the most robust spring selling season, but it wasn't the worst that we've ever seen either. So, you know, largely what we expected April definitely had more volatility. You know, the tricky part is we're, you know, 22 some odd days into April. So, you know, I don't think you want to overreact to 22 days of data, but we did use that to come up with a modified guide for the balance of the year. We think we've incorporated everything that we know. There's a lot that we don't know out there, but you know what we're trying to convey is confidence to the investment community that we've got an unbelievable platform. Our balance sheet is world class and rock solid. We got a lot of cash. We've got low debt. We've got the ability to do a lot of things in this environment and you know, and to really put some distance between us and the rest of the competitive set. We still have the capacity like to build 31,000 homes. Our, you know, our procurement teams, our construction teams, the land is there. So, you know, if we took the other side of the coin and say, hey, what if confidence from the consumer were to improve, then what? Well, we're still really well positioned to take advantage of that as well. So I think, you know, we want you to hear we're being very balanced, very pragmatic and you know, we're on this. We're not in panic mode. There's no reason to be in panic mode because we know that we've just got an unbelievable operating platform. In terms of being margin proud, we're also not going to be margin stupid. And we're we're we've said that we're going to we're going to find the right balance between price and pace. And, you know, the Stevens question in this environment. We know there's this embedded level of underlying demand that's there. We're working to drive high returns. You know, if we saw the ability to drive a little more volume without given excessive discounts. I think you'd see us do that. But that's not the environment that we're in now.

OK, no, I appreciate the detailed answer there, Ryan. I mean, it kind of sounds like in effect, you are baking in, you know, again, the change in guidance being, you know, the April volatility and you remain relatively confident on price. If I have to kind of boil that down. I think that's fair, Mike. OK, so secondly, again, just maybe a little bit more clarity on the tariffs. It does appear, you know, that one percent of ASP is sort of an estimate, if I'm hearing that right. Really, maybe you're saying back half or half of the fourth quarter impact. So number one, I would just love to get a sense, you know, where the buckets that that one percent comes from. Is it kind of just kind of spread all across the board or is there a couple of leading categories that you're focusing on in terms of the, you know, input mix. And secondly, it sounds there for them that the change in back half gross margin guidance more driven by the spec reduction. More than anything else. And just wondering if there's any other main drivers there as well. Thanks.

Yeah, so Mike, there's there's a lot there. I'll try and pick through it in terms of tariffs. It is back half a fourth quarter. We've estimated it to be one percent in terms of big categories plumbing, specifically tank water heaters. Porcelain HVAC parts, especially things that HVAC parts that come out of China. Tile flooring, the global 10 percent tariff that affects every country and most of the flooring comes from somewhere else. And then the other category would be electrical components and the related. So circuit breakers, load centers, etc. You know, that's all wrapped up in our one percent estimate in terms of the margin guide in the back half. It's partly because of the incentive load. It's also partly because of, you know, higher land costs, but that was that was embedded in our guide to begin with. And if you compare our current guide to the prior guide, we're down 50 basis points and that's really reflective of the updated tariff information and the incentive load

that we've talked about. Perfect. Thanks so much.

Your next question comes from the line of Matthew Billy of Barclays. Please go ahead.

Morning, everyone. Thanks for taking the questions and welcome, Jim, to the call. Wanted to ask on that land spend guide, bringing that to five billion from five and a half billion. I guess I don't know if that also includes higher development costs following the tariffs on a dollar basis. So just curious on that. But then, you know, more broadly, I guess, what does that signal around your growth intentions, perhaps into 2026? You know, what a portion of that land spend be impacting community growth as soon as next year or just any other color on how that would flow into your growth expectations. Thank you.

Yeah, Matt, thanks for the question and your point. It's a hell of a quarter for Jim to have his first call, but I'm thrilled to have him here with us. And, you know, he's been an integral part of our team for a long time. In terms of land spend guide, you know, I think one of the most important decisions that we make as management team is capital allocation and specifically how much money we're going to spend on land. We do have ambitious growth plans. We've talked about our long term growth guide of being five to 10%. And, you know, we're confident in that based on the land pipeline that we've been investing in for the last several years. We've got 244,000 lots under control. And so being a little more prudent in this environment and trimming the land spend. And it's really about, you know, delaying things a little bit as opposed to canceling. You know, there's a, if it were a market where we were really, really concerned, you might see canceling of land contracts. That's just not where we're at. So, you know, in terms of our ability to deliver 26 and 27, a little bit of a delay or a pause in land spend this year is not going to have an impact on that. You know, we'll also see if there's an opportunity to make the land spend go a little further, meaning five billion may buy almost as much as what five and a half billion did. You know, we haven't seen that emerge yet, but that's certainly something that we're looking

for. Okay, got it. Thanks for that, Ryan. And then Secondly, drilling into the back into the gross margin side, you know, the assumption around assuming Current incentives of 8% hold, you know, obviously the the March quarter incentives came up 80 basis points sequentially during You know, generally a seasonally stronger time for housing demands. I just wanted to double click on kind of why that's the right assumption kind of what What you think kind of typically happens to incentives as you would move into the summer months and all that. Or is the assumption just, you know, you're going to be able to reduce spec enough that you just wouldn't need to tweak incentives any further. So any more color on that. Thank you.

You know, Matthew, that's a great question. And you hit on it right at the very end there. As we look at it as we started to trim our speculative inventory. We've been doing a really nice job chewing through that in the first quarter. As we start to see that get down into our target range of 40 to 45% we see the opportunity to ease off that a little bit now. Environment may require us to do other things in order to keep moving homes. But as we get our spec inventory in balance, we think we have the opportunity to lower incentives.

All right. Thank you, Jim. Good luck, guys.

Your next question comes from the line of Mike doll of RBC capital markets, please go ahead.

Morning. Thanks for taking my questions and Jim Congrats on the new role. I wanted to drill into the order cadence a little bit more. So your sales per community. We're down 10% in the quarter. To talk about April volatility. Can you put a finer point on your year on year comparison and April sales pace right now and then maybe to take it a step further. You know, I understand the seasonal progression of increases through the quarter, but maybe you could give us some help on how the year on year comparisons looked in Jan, Fed and March.

Yeah, Mike, you know, I don't know that we're going to slice it quite that then. You know, I think we've tried to be really responsive to give kind of detail around spring selling and how things progressed. January started, I think the way a lot of January's do. You know, I mentioned in our last call that we were seeing some green shoots and February is a good month and March got even better. So spring selling season, I think played out the way that we would have expected it in total and Jim had it. Some of his prepared remarks. The seasonal increase from Q4 to Q1 was less than what we would normally expect. So, you know, you could argue based on that spring selling season was was maybe a little below average. As we moved into April, you know, I think I've said it, but I'll reiterate it. We've had more volatility from the consumer than we normally expect. And, you know, I think the reasons why are very well understood.

Yeah, I mean, I certainly appreciate that. I just think given the uncertainty out there, you're clearly providing us a lot of helpful detail. If there wasn't a quantification for April in light of a less than normal seasonal increase in one queue, I think it would be helpful. But Ryan, yeah, maybe,

maybe I'll just jump. I'll jump on that real quick. You know, what we've tried to do is to articulate and quantify that into our full year volume guide. So, you know, you'll have to take our word for it that based on April sales, you know, combined with what we did in Q1. But I think the bigger driver is what's happened in April. We've modified the full year volume guide.

Right. Hey, Ryan, the second question I had, you mentioned, you know, you mentioned in your opening remarks potential for exciting opportunities. You mentioned just in response to Matt's question, hey, maybe 5 billion goes further than you would have thought three or six months ago. I think that's kind of alluding to some reset in the land market. But maybe you can give a little more detail. I don't know if anyone's really thinking that this cycle is going to produce the type of distress that we saw the GFC. So are you kind of referencing things that you're currently seeing in the land market? Are you thinking about bigger opportunities? You know, maybe just talk a little bit more about what those comments were given to.

Yeah, not really trying to telegraph any kind of hidden messages there. Matt, you know, probably the and we've not seen and probably wouldn't expect to have a major reset in the land market. You know, other than the, you know, the great financial crisis, land just doesn't seem to go through a reset. It's in short supply. It's part of the reason that we're so short housing is because land is so hard to come by. So I think, you know, land values are going to be pretty durable where, you know, we think that there could be some exciting opportunities or there are builders that are not as well capitalized or as balance sheet strong as what we are. And for, you know, a number of reasons, they may elect to walk away from something. And, you know, that may create some opportunities where, you know, we can step in and grab something that a good value. You know, maybe something that was tied up at a prior value, you know, that we're able to inherit, etc. So time will tell whether or not that plays out. We haven't seen a ton of it yet. But, you know, we're, you know, they say hope's not a strategy, but should some of those opportunities emerge, we're really well positioned and in a great financial position to take advantage.

Okay, thank you.

Your next question comes from the line of Carl Reichardt of DTIG. Please go ahead.

Thanks. Morning, guys. So, Ryan, just to drill down on April one more time. When we're talking about volatility, are you referring to foot traffic, conversion rates or cancellations in terms of the most significant impact on the order volatility?

Yeah, you know, Carl, when we're talking about volatility, we're talking about rate of daily sales. That's the volatility. You know, the other things have been largely stable, including can rate. We have not seen, you know, a run for the doors from consumers that previously made a decision to buy and are in our backlog. That's been, you know, that's been really stable. And, you know, Jim highlighted, we saw a modest, you know, a very small tick up in can rate in the first quarter to 1%. And we haven't seen a change in behavior in April either.

Great. Thank you, Ryan. And then talking about a couple of the bigger picture stuff for you as you look at your current environment, you talked last call about getting cycle times down to, I think, 100 days in the back half of the year. And I'm also interested in the bigger picture of going to 70% option lots or 59 now. So is the current environment impacting either one of those sort of bigger picture goals for you, either on cycle times or on your move to option lots? Do you think? Thanks.

So cycle time, Carl, we talked about it last quarter. We're basically at 100 days on our single family, which is so mission accomplished there. We don't really expect any more kind of changes. We're at where we want to be. Jim, you know, quoted we're at 110 days overall. And what that includes is a lot of our multifamily condo buildings that have, you know, much longer cycle time than a single family. So we're where we want to be on cycle time. In terms of land optionality, we've made tremendous progress toward that kind of target of 70%. And, you know, what Jim talked about in his prepared remarks is that we're going to be really prudent in evaluating when and where and how we drive for optionality. When we think about optionality, we're looking to be capital efficient. We're also looking to mitigate risk associated with owning land. And so our that will be our driving force North Star is mitigating risk associated with owning land. A secondary benefit will be, you know, the improved efficiency that we get on return. But we're not going to let the tail wag the dog on this one, Carl.

I appreciate it, Ryan. Thanks a lot,

guys. Your next question comes from the line of Alan Ratner of Salmon and Associates. Please go ahead.

Hey, guys. Good morning. Thanks for all the great detail. I know this is not an easy environment to give guidance and give commentary, so we appreciate it. First, Ryan, you know, we've talked about this in the past. I'm surprised it hasn't come up yet on this call. But I'm curious just to get an update on what you're seeing in Florida. I think given your exposure there, given how strong your margins have been in the state, that's usually one of the main concerns I hear from investors related to Pulte and Florida certainly seems to be getting a fair amount of negative headlines in terms of the conditions across the state. So I was hoping you could give just kind of more granular commentary on what you saw through the quarter and into April in Florida across your markets and price points.

Yeah, Alan, Florida is a really important market for us. You know, the thing that I would highlight about our Florida market is the majority of our business there is in the move up in the active field space. And, you know, we've talked about, you know, we've talked about that being one of the stronger segments. So I feel from a strategic standpoint, I feel really good about how we're positioned in Florida. In the near term, resale inventory in Florida across states probably higher than what anybody would like it to be. You know, the last number that I saw, I think it's around seven months of total inventory, which is, you know, slightly over the ideal of six or lower. So, you know, maybe not perfect, but also not in full-blown panic mode either. Our Florida business is only down 5% on a -over-year basis. So, you know, down a little bit, but certainly not catastrophic. You know, the, so I'd probably leave it there as it relates to Florida, Alan.

Okay, I appreciate that. Second, you know, in terms of the cycle time improvements that you've seen and everybody else has seen, I'm hearing a lot of quantification on tariffs in terms of the cost impact, but I haven't really heard many builders talk about, and maybe they don't expect it, any potential disruptions to the supply chain, to cycle times that might affect the supply chain. I'm curious what might come about from all this tariff noise. You know, is it possible suppliers, as they're trying to shift production domestically, that that creates some pressure here on some U.S. suppliers? I'm just trying to figure out what are the potential landmines that maybe we're not talking about in the supply chain that might come about from tariffs? And maybe your answer is there are none because you've done the work. But curious your thoughts there?

Yeah, Alan, I, there are some, and exactly where they're going to be, I can't predict that. I'm not anticipating COVID level disruption in the supply chain, but to assume there's going to be none, I think would be burying your head in the sand. There are things going on in the global supply chain that will inevitably create hot spots and issues. We'll be really transparent with you when we see those and what we're doing to mitigate it. The confidence that I'd give you is I'd go back to our world class procurement team. They know how to deal with this. They know how to be agile. We're fresh off of, you know, three years of dealing with COVID related supply chain. I'm not suggesting this is going to be a lay down, but I think it'll be potentially an easier obstacle course to navigate than the COVID supply chain disruptions. But I do think the industry needs to be prepared and not just the industry. The world needs to be prepared for some disruptions as a result of things that are going on, tariff induced.

Appreciate the thoughts. Thanks guys.

Your next question comes from the line of Ken Messinger of Seaport Research Partners. Please go ahead.

Good morning everybody. Welcome, Jen. A few quick questions here. What do you think your 4Q year end inventory units are going to be relative to last year's 4Q? And how are your incentives different by segment? You know, so I think Suntex Florida versus, excuse me, Suntex Texas versus your Florida, Dale Webb.

Yeah, Ken. So I'll take the first part and I'll let Jim take the part on margins and incentives. As it relates to inventory, our target range is 40 to 45%. And I think what you've seen from us is we've adjusted our inventory levels in reaction to things that have been going on in the broader market. Right now, you know, we're probably in a little bit of a risk off mode of inventory. And so you've seen us trimming from where we were to getting back inside of our range. In terms of the year over year comparison, I think it'll depend. But I'd expect us to be within, you know, our stated range, which I believe would be lower. That it ended up being lower than where we were at the end of Q4-24. Jim, you want to take the other piece? Yeah. On the

incentives, you know, we don't really slice them that thin. What I would tell you is, you know, incentives can come in different shapes and forms. If it's a speculative inventory unit, maybe there's a discount associated with that. You touched on our active adult buyers. Many of those are cash buyers. But maybe the incentive they get is, you know, a discount on options that are design centers. You know, it varies across all of them, particularly on the first time buyer. You know, they probably need a little bit more help on the financing side. So again, incentives come in different shapes and forms, and we think we just find the right balance for each individual consumer.

Thank you. There are no further questions at this time. With that, I will now turn the call back over to Jim Zimmer for final closing remarks. Please go ahead.

Appreciate everybody's time on the call this morning. Actually, we're a few people left in the queue, but we simply run out of time on this call. We're available over the remainder of the day. If you've got any questions, otherwise we will look forward to speaking with you on the second quarter call.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.