PulteGroup, Inc.

Thank you for standing by. My name is Jordan and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Pulte Group Inc. fourth quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to Jim Zumer. Please go ahead.

Thank you, Jordan, and good morning. I want to welcome everyone to today's call to review Pulte Group's fourth quarter operating and financial results. Joining me on today's call are Ryan Marshall, President and CEO, Jim Osowski, Executive Vice President and CFO, and David Carrier, Senior VP, Finance. In advance of this call, a copy of our Q4 earnings release and this morning's webcast presentation have 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 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. 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 hope that many of you have had the chance to review our new investor presentation we posted to our website in early December.

If you haven't seen it, I would encourage you to take a few minutes to review the deck, which is available on our website. The document is designed to provide a comprehensive review of the fundamental goals, strategies, and results of our company. The process of creating a completely revamped investor presentation afforded us the opportunity to revisit many of the core tenants against which we have been operating for more than a decade. I have to admit that it was gratifying to see that we have consistently operated in alignment with the strategies established in 2011. and how well they have helped us navigate through the housing cycle. It is also gratifying to see that the underlying operating model has delivered such outstanding results. I would note that investors have recognized and rewarded us for this performance, as Pulte Group has ranked number one in total shareholder returns among home builders for both the past year and the past decade. This is a sustained record of success for which we are rightfully proud. Pulte Group's 2025 operating and financial results further demonstrate the value of our differentiated operating model that emphasizes diversification and balance across markets, buyer groups, and spec versus bill-to-order production, as well as a highly disciplined approach to project underwriting and overall capital allocation. In a year that saw buyer demand and overall market dynamics be highly variable, I am pleased to report that our operating model helped us to generate annual revenues, margins, and earnings that rank among the highest in the 75-year history of Volte Group. Among the 2025 financial results that I would highlight, we closed over 29,500 homes and generated home sale revenues of $16.7 billion. We reported full-year gross and operating margins of 26.3%, and 16.9% respectively, and we generated cash flow from operations of $1.9 billion. I would also note that we ended the year with $2 billion of cash after investing $5.2 billion into the business and returning $1.4 billion to shareholders through share repurchases and dividends. I have talked about this on other calls. But a critical driver to pull these results in 2025 and prior years is our highly diversified business platform. With home building operations now established in 47 distinct markets, we benefit from having a strong presence in the Midwest, Northeast, and Florida, where on a relative basis, demand in many of these markets has held up better. Relative strength in these areas helped offset pressure coming from the markets where overall home buying demand was softer. such as Texas and in many of our Western markets. Beyond this broad geographic footprint, Holdigroup continues to benefit from having arguably the deepest and most balanced buyer base in the industry. At 38% first-time, 40% move-up, and 22% active adult, our 2025 closings were in line with our long-term targets. More importantly, our 2025 sales demonstrate the powerful impact such buyer diversification can have on our results. In a year in which demand was more challenged among first-time and move-up buyers, full-year sign-ups among active adult buyers increased by 6% over last year and were up 14% in the fourth quarter over the fourth quarter in the prior year. In addition to the obvious benefit to our subsequent closing volumes, our Dell Web communities routinely deliver our highest gross margins. Del Webb has been and will continue to be an important driver of multi-group superior gross margins and, most importantly, high returns. While I think we all view 2025 as a more challenging year than anticipated, multi-groups still reported $2.2 billion of that income, the fifth most profitable year in our history, and generated $1.9 billion in cash flow from operations. Consistent with our disciplined capital allocation process, We used our strong 2025 financial results to invest in the future growth of our company, investing $5.2 billion in land acquisition and development. Inclusive of 2025, Holti Group has invested a total of $24 billion in land acquisition and development over the past five years. We believe our disciplined land investment will enable us to routinely achieve community count growth in the range of three to 5% in 2026 and in the years beyond. As part of our keen focus on advancing a home building platform that can consistently deliver strong financial results, as reported in this morning's earnings release, we have made the strategic decision to divest of our offsite manufacturing operations. ICG has proven to be a strong operator that can consistently deliver high quality house shell components that has delivered many benefits to our extending home building platform. we have determined that our business that our business and in turn our shareholders are best served by us focusing on our core home building operations after the sale we will be able to benefit from any innovation and off-site manufacturing achieved by the building component suppliers many of which are making significant investments in technology and innovation while we focus on our core competencies having recorded another year of strong results Pulte Group enters 2026 in an exceptional financial position with $2 billion of cash and a net debt to capital ratio of negative 3%. We also control a land pipeline of 235,000 lots that will allow us to continue growing community count in 2026. As such, I am optimistic about the year ahead and Pulte Group's ability to capitalize on any opportunities the market may present. Now let me turn the call over to Jim Osowski for review of our fourth quarter.

Jim? Thanks, Ryan. Consistent with Ryan's comments, our fourth quarter performance kept another year of excellent operating and financial results, which I'm excited to review. We recorded net new orders in the fourth quarter of 6,428 homes, which is an increase of 4% over Q4 of last year. The increase in net new orders for the quarter reflects a 6% increase an average community count to 1,014 in combination with a 1% decrease in absorption pace to 2.1 homes per month. Reflective of the challenging demand conditions we experienced over the course of 2025, we realized a full year absorption pace of 2.3 homes per month compared with 2.6 homes per month for all of 2024. For the fourth quarter, our cancellation rate compared with 10% in the prior year. For the fourth quarter, net new orders among first-time and active adult buyers increased 9% and 14% respectively over Q4 of last year. Comparatively, net new orders in our move-up business declined by 5% in the prior year fourth quarter. By buyer group, net new orders in Q4 2025 were 39% first-time, 38% move up, and 23% active adult. This compares with 37% first time, 42% move up, and 21% active adult in the fourth quarter of 2024. As we have discussed on prior calls, new community openings are helping to increase our active adult business as we grow that segment towards our targeted range, 25% of total unit volume. quarter, home sale revenues totaled $4.5 billion, which is down 5% from the fourth quarter of last year. Lower home sale revenues for the period reflect a 3% decrease in closings to 7,821 homes, in combination with a 1% decrease in the average sales price of closings to $573,000. By buyer group, 37% first time, 39% move up, and 24% active adult. In the priority or fourth order, our closing mix was 40% first time, 40% move up, and 20% active adult. In response to the questions we have received, I would note that our Q4 closings included approximately 100 built-for-rent homes. Given our strategic approach to BFR, it has always been a small part of our operations and accounted for less than 2% of full-year 2025 closings. Our year-end backlog totaled 8,495 homes with a value of $5.3 billion, and we ended 2025 with 13,705 homes in production, of which 7,216 were spec homes. Consistent with our stated strategy, our spec inventory is down 18%, from the end of 2024. We have remained disciplined in managing spec starts as we rebalance our product mix and work to increase the percentage of built-to-order homes in our production pipeline. Given the number of homes under construction and their stage of production, we expect to close between 5,700 and 6,100 homes in the first quarter of 2026. We also have provided a guide for full year 2026 closings in the range of 28,500 to 29,000 homes. Based on pricing and our backlog and the anticipated mix of closings, we expect the average sales price of closings to be in the range of $550,000 to $560,000 for both the first quarter and full year of 2026. As Ryan discussed during his comments, Given investment made in prior years and a land pipeline of 235,000 lots under control, we expect our average community count for all four quarters of 2026 to be 3% to 5% higher than the comparable quarter of 2025. For our fourth quarter, we reported gross margin of 24.7%, paired with 27.5% in Q4 of last year. As noted in this Morning Express release, A reported fourth quarter gross margin includes $35 million or 80 basis points of land impairment charges. In addition to these charges, Pulte's fourth quarter gross margin was impacted by higher incentives of 9.9% of gross sales price. This compares with 7.2% in Q4 of last year and 8.9% in the third quarter of 2025. Higher incentives for the quarter were primarily the result of our efforts to sell finished spec inventory as we closed out 2025. We currently expect to realize gross margins of 24.5% to 25.0% for both the first quarter and for the full year of 2026, but recognize that the spring selling season will be a key driver of our financial results this year. Embedded within our margin guide is the expectation that our house costs in 2026 will be flat, slightly down relative to 2025. On a year-over-year basis, we expect our lot costs in 2026 to increase by 7% to 8% from 2025. Our reported gross fourth quarter home building SG&A expense of $389 million, or 8.7% of home sale revenue, $34 million recorded in the period. Prior home building SG&A expense of $196 million, or 4.2% of home sale revenues, includes an insurance benefit of $255 million. We remain thoughtful in managing our overheads as we continue to identify opportunities to adjust spending levels while still meeting our high standards for build quality and buyer experience. For full year 2026, we expect our SG&A expense to be in the range of 9.5% to 9.7% of home sale revenue. Given the typical lower delivery volumes we realized in the first quarter of the year, SG&A expense in Q1 is expected to be approximately 11.5% of home sale revenue. In the fourth quarter, we reported other expenses of $99 million, site manufacturing operations. For the fourth quarter, our financial services operations reported pre-tax income of $35 million, which is down from pre-tax income of $51 million in the fourth quarter of last year. Financial services pre-tax income for the period was impacted by a number of factors, including lower ASPs and closing volume, and our home building operations, and a lower mortgage capture rate. than 86% last year. Fulton Group's reported pre-tax income for the fourth quarter was $655 million. In the period, we reported a tax expense of $154 million or an effective tax rate of 23.4%. Our effective tax rate benefited from renewable energy tax credits recorded in Q4. Looking ahead to 2026, Our expected tax rate does not take into consideration any discrete, period-specific tax events that might occur. For the fourth quarter, we reported net income of $502 million, or $2.56 per share, which compares with a reported net income of $913 million, or $4.43 per share, in the fourth quarter of 2024. For the full year, Pulte Group reported net income of $2.2 million, for $11.12 per share. Our Q4 earnings per share was calculated based on 196 million diluted shares outstanding, which is down 5% from the prior year and reflects the impact of our systematic share repurchase program. In the fourth quarter, Pulte Group repurchased 2.4 million common shares for $300 million. Including our Q4 activity, We repurchased 10.6 million common shares in 2025 for $1.2 billion, or an average price of $112.76 per share. We ended the year with $983 million remaining under our existing share repurchase authorization. In the fourth quarter, we invested $1.4 billion in land acquisitions and development, which was evenly split between the two activities. the full year, we invested a total of $5.2 million in land acquisition and development, of which 52% went for the development of existing land assets. Inclusive of our Q4 investments, we ended the year with 235,000 lots under control. This is comparable with the fourth quarter of last year, but done on a sequential basis by 5,000 lots from Q3 as we continue to carefully review transactions. It is fair to say that the slower housing environment is beginning to have an impact on the land dynamics of markets around the country. Depending on the market, the seller, and the underlying land asset, they're finding opportunities to renegotiate deals to adjust the timing, the price, or sometimes both. Our land teams have and continue to do an excellent job reviewing every transaction current prices and faces. Our local teams are also looking for opportunities to upgrade positions should land deals that were previously under contract go back to parking. As Ryan mentioned earlier, we generated $1.9 billion of cash flow from operations in 2025 as we managed our housing starts, controlled land spend, and closed incremental homes in the fourth quarter. We will maintain the same disciplined approach in 2026 as we align investments in the business with buyer activity. Given current market dynamics and our expected 3% to 5% growth in community count, we are projecting land acquisition and development spend $5.4 billion in 2026. Assuming this level of land spent and the expectation that house inventory will increase Commensurate with an increased level of built-order home sales, we'd expect 2026 cash flow generation to be approximately $1 billion. And finally, we ended the year with exceptional financial strength and flexibility, as we had $2 billion of cash and a debt-to-capital ratio of 11.2%. Adjusting for the cash balance, our net debt-to-capital ratio is quartered to negative 3%. Now, let me turn the call back to Ryan for some final comments. Thanks, Jim.

Appreciating the more challenging market conditions, I still look back on 2025 and say it was a good year. As you heard repeatedly, demand was highly variable as consumers responded initially to movements in interest rates and later to a slowing economy which pressured jobs and, as important, consumer confidence. All that being said, Monthly absorption rates followed a typical seasonal pattern for the year and through the fourth quarter. The first few weeks of January have also demonstrated the expected seasonal increase in demand as we move from December into the start of the new year. It's too early to glean much in terms of the strength of the entire spring selling season other than to say we remain optimistic. As was the case through much of the year, in the fourth quarter, we continue to realize stronger homebuyer demand in key markets in the Northeast, in many parts of the Midwest, and the Southeast. Fourth quarter demand is seasonally slower, but on a relative basis, we saw positive homebuyer activity in markets that included Boston, the Northern Virginia DC area, as well as Chicago, Indianapolis, and Louisville, and then entering extending down into the Carolinas. Once again, I have to recognize the success of our Florida operations, which generated year over year increase in fourth quarter signups of 13%. Beyond the strength of our land positions and our overall home building operations throughout the Florida markets, data suggests that new and existing home inventories are generally stable to improving modestly. Obviously a strengthening housing market in the state of Florida would be a huge boost to the industry. We closed out the year with our Texas and West markets continuing to experience sluggish demand trends, although we may be seeing some signs of bottoming in Dallas and San Antonio. At this time, I would tell you that improvements in the pace of sales are likely the result of pricing actions as we work hard to find a clearing price and turn assets. This is particularly true with regard to finished spec inventory that we needed to clear. Looking ahead to 2026, The industry enters a new year with improved affordability as mortgage rates are almost a full percentage point lower than a year ago. And whether through price reductions or incentives, new home prices have reset lower while consumers benefited from another year of income growth as wages increased by upwards of 4%. A more financially capable consumer in combination with an improvement affordability picture puts the industry in a much better position heading into the 2026 spring selling season. Given these dynamics, I think consumer confidence will be a critical component to determining just how strong buyer demand will be in the months to come. Before opening the call to questions, I want to recognize and celebrate the entire Pulte team. Beyond the outstanding financial results, you continue to set the industry standard for build quality and customer satisfaction in 2025. You have been relentless in your efforts, and I am so proud of all that you've accomplished in these areas. Now let me turn the call over to Jim Zumer.

Great. Thanks, Ryan. Now I'm prepared to open the call for 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. Jordan, if you would, we're prepared to take question and answer. We're prepared to implement question and answer.

Your first question comes from the line of John Lovallo from UBS. Your line is live.

Thanks, guys. I appreciate you taking my questions. And, Ryan, we share your optimism heading into the year versus heading into the beginning of last year. I think the setup is a lot better. But, you know, maybe starting with just SG&A, you guys did a really good job of managing that in the quarter. despite home sales being down about 5% year over year. Can you just help us with some of the levers that you may have pulled and what else can be done on the SG&A front?

Yeah, you know, John, we didn't make a ton of kind of changes. I think we've always prided ourselves in being balanced and consistent. We put a lot of incremental investment into our people. We're five years in a row now recognized as the top 100 best company to work for. We make incremental investments in quality and customer experience. So aside from that, we've really just tried to run kind of a balanced, thoughtful business, not be wasteful, but make sure that we're invested in the right places. We have made some targeted reductions in force in a handful of markets. We did that in the November timeframe of last year. Pretty small numbers overall, but it was focused in some of the markets that you might expect that were a little slower, Texas and some of the Western markets. Beyond that, John, I wouldn't tell you that there's anything that I'd call out as extraordinary.

Okay, that's helpful. And then I wanted to touch on ICG. I mean, we've been pretty big proponents of offsite construction and the benefits there. I can understand not wanting to vertically integrate it, but I guess the question is, what is your view overall on just technology infusion into home building as a longer-term solution to the chronic undersupply?

Yeah, John, I think that's the spot that I would highlight is we are huge proponents of the innovation possibility and the ability to incorporate it into the home building machine. And we've learned a lot over the last six years gotten a ton of benefits in kind of what the overall housing operation has derived from the innovation that's happened there. We've just come to the conclusion that we think we're better off focusing on the core competency, buying land, entitling, developing, building homes, and including ICG and whoever the eventual owner of that will be, combined with many of the other national offsite manufacturers, they're making a truckload of investment in innovation. And we think we'll be able to continue to benefit from those innovations, uh, that innovation spending into the home building operation without necessarily being a direct owner of it.

Yeah. Makes sense. Thank you guys.

Your next question comes from the line of Michael real from JP Morgan chase. Your line is live.

Hi, thanks for taking my questions. Good morning, everybody. Um, first question, um, let's get maybe dive in a little bit to the, uh, full year gross margin outlook, uh, that you laid out on the call and appreciate that. Um, given that it's maybe a step more in the direction of guidance and some of your peers are willing to do, um, wanted to understand the assumptions, particularly as you anticipate your first quarter gross margin, it seems like being, uh, sustained throughout the year and what that means in terms of the progression of the year because you would think land costs maybe continue to go up throughout the year as just kind of a long-term trend so I was just wondering the components of that as you think sequentially throughout the year how are you thinking about promotions if promotions or incentives as stabilized they obviously rose throughout 2025 um you know labor materials and if there's any positive impact from the divestiture of icg yeah hey mike it's ryan uh appreciate the question and and we we take um kind of the process of giving guidance very seriously as i'm sure you can appreciate

We go through and we try to evaluate every element of the P&L that contributes to the margin guide. Our expectations are really to see ASP flat through the year. We've kind of given a guide that's the same for Q1 and the full year. We do expect our house costs to go down slightly. The sticks and bricks, Jim talked about that in his prepared remarks. We're anticipating land costs to increase in the range of 7% to 8%. And we'd expect to see the discounts remain elevated. We'd hope and we'd be optimistic that we can pull back just a tad on those discounts. But broadly, we think they're going to remain elevated. So we've strived to keep our margins best in class. We'll endeavor to do that in 2026 as well. And as you know, ultimately what we're focused on is driving the best return on investment. And we manage kind of pace and price toward an outcome that gives us the optimal return for the shareholder. And look, we think it's worked. And it was the reason in my opening comments I said that strategy and the way we operate has generated the highest TSR, not only for the last year, but also the last decade. I would say those are the big components of how we think about margin.

No, it's great. Thank you for that. And I guess secondly, you mentioned in your prepared remarks, Ryan, around maybe some of the inventory trends that you're seeing starting perhaps to stabilize in Florida. We've seen some of that as well in certain of our statistics. I was wondering if you could kind of go through your major markets if possible and particularly from a supply perspective, from an inventory perspective, as you look at your major markets, how the trends have been over the last three to six months, and if you would describe that stabilization as kind of broad throughout your footprint or if there's some areas that are still rising perhaps or even some that are starting to come in a little bit.

Sure. Florida's an important market for us, Mike, and we've talked, we've tried, because it's such an important market to us and we think all of housing, really, we've tried to talk about it every quarter. It's up 14% over last year, so we had good sales in the quarter. I'd start there. Generally, I would tell you every market is positive, but there are some outperformers. The outperformers, Fort Myers, Naples, The east coast of Florida, so Palm Beach, Vero Beach, kind of Fort Lauderdale. Orlando continues to be exceptional. You know, Tampa's been stable, but, you know, not as good as the others. And I put Jacksonville in that same category.

Okay. When you talk about that, you're referring to the order trends, not the inventory. Just clarifying.

Okay. Correct. I'm speaking to order trends. That's right. That's exactly right, Mike.

Thank you.

Your next question comes from the line of Sam Reed from Wells Fargo. Your line is live.

Thanks so much, guys. Wanted to unpack the step-up in incentive lows from the third to fourth quarter. I believe they were up about 150 sequentially based on the prepared remarks. It sounds like a lot of that was geared towards clearing spec inventory. So we'd just love to hear the levers that you've pulled to clear the spec inventory, maybe delineate between price reductions versus buy-downs, and then talk a little bit about incentive loads into the first quarter and what's embedded in that guide.

Thanks for the question, Sam. Yeah, the increase in the fourth quarter really was, you know, the incentives to move some of the speculative inventory. You know, we closed a couple extra hundred units, you know, over the high end of our guide. We got a little bit more aggressive in some places. So that's really where it's coming from. You know, financing incentives for the quarter were flat. It was really just had to get a little bit lean and a little bit more in some places. And so that's what we did in the fourth quarter.

Sam, you had a question about Q1 that I didn't hear. What was your Q1 question?

Just on the incentive loads into the first quarter, talking through the guide path there, Q4 to Q1.

Yeah, I point you back to the answer that I gave to Mike. We're, you know, we don't specifically guide to incentive loads other than we've given you a margin guide for the quarter. And I made the comment that our expectation is incentives will remain elevated.

All helpful. And then moving to stick and brick. So obviously hearing that stick and brick is going to be lower in 2026. Any categories? So I'm thinking of material categories. where you're getting price concessions. We'd just love to hear the wins that you might be achieving here to get the lower stick and bricks. And then perhaps also talk through the labor component and just what you're seeing on the labor side. Thanks.

Sure. So, you know, for your benefit in the fourth quarter, our sticks and bricks were $78 a square foot, so slightly less than what they've been for the past year. And as we said in our preparer remarks, they'll be down, last down slightly next year. You know, some of the things we've seen, a little bit of help on the lumber side, a little bit of help on the labor side. Materials are kind of ups and downs. You know, the one thing I'd say is included in that, you know, the impact of tariffs are in that guide of slightly down for next year. So, again, I think our procurement teams are doing a great job. The labor is available in the market, and so we see it as a good opportunity for next year.

Always appreciate the color, guys. Thanks so much. Thanks, Sam.

Your next question comes from the line of Steven Kim from Evercore ISI. Your line is live.

Yeah, thanks a lot, guys. Appreciate all the colors so far. Your spec levels look like they were pretty well contained by the time you got to the end of the fourth quarter. I'm curious if you think that there's additional reduction there. I think I have you set basically at seven specs per community. was wondering if you could give us some sense or where you'd like to see that as you head into 26. And assuming that your specs will be less of a headwind, I'm curious why you're not assuming that you might see any reduction in your incentives. If I heard you correctly, Ryan, what I'm getting from your guidance is that your guidance does not assume any reduction in incentives. And it feels a little conservative to me. So I'm just curious, am I reading that right? Or is there something... maybe that I'm missing, maybe the spec level you think may actually rise next year for some reason. So just a little color there, combining those.

Sure, Stephen. So let me start with the specs. We're comfortable with where we're at right now, but we have worked very hard through the last three to four months to make sure that our start rate matches our sales rate and that we weren't adding to the specs that we have. Ideally, what we're really endeavoring to do is to move back more into a built-to-order builder where 60 plus percent of our sales are built-to-order, 40 percent are spec. The last couple of years, we've kind of been inverted. We've been 60 percent spec, 40 percent dirt. And it won't happen overnight, but we're moving the company forward. slowly back in the direction of more bill to order. We think that's better for the way that we have our capital allocated to home building business. Our margins are higher on bill to order. So we're kind of threading that needle. Our financial services team has done a wonderful job helping to put some forward commitments in market that actually can be used on bill to order homes. So we're finding a way to kind of get the best of both worlds and making sure that we're tackling the affordability challenge while still moving into or closer into a built-order model that we want to be. So as we go into the spring selling season, Stephen, our goal is going to be to sell dirt in a higher percentage than spec while still having some spec available, especially in the entry-level price points. As it relates to the incentives, the spring selling season, I think, is ultimately going to kind of dictate what we're able to do with incentives. We would certainly be optimistic and hopeful that we can pull those down from where we're at. We've given the full year guide that incorporates assumptions that we've made around the incentives plus the increase in lock costs, which is not insignificant at 7% to 8%, a little bit of a tailwind or a help from lower house costs. So, you know, we think the range is where we sit in kind of early or late January, early February. I think it's pretty good range, but, you know, we're optimistic that, you know, maybe there's more.

Yeah, appreciate that. So if I can just put a little color around what you said, if you were to return back to sort of a BTO mix, I look and see that, you know, pre-pandemic, you all were running kind of like three to four specs per community, which is, you know, pretty significantly lower than where you are now. So if I'm reading what you're saying right, it sounds like there's going to be this transition that's taking place. As that transition does take place, your turnover rate, I would think, would go down. Your backlog turnover rate would go down because you wouldn't be carrying as many specs and be doing more build to order. Your closings guide that you've given would, if I have your backlog turnover ratio going down, in order for you to hit your closings guide, it would assume that your order pace is going to be up year over year, close to double digits. And so I just wanted to make sure that I am doing the math properly here and that I haven't missed something.

Yeah, Steven, not having the luxury of seeing your model, I probably wouldn't want to comment on your math. You know, we'd certainly be happy to follow up with you on that. I would say, you know, we've got pretty complicated models on our side as well. And, you know, we've gone through and made, you know, assumptions on what our new communities are, what the absorptions are, what our sales rate is going to be, and what our monthly start rate is going to be. And it really comes down to kind of that start rate. We do have the benefit of cycle times being back to pre-COVID level cycle times at around 100 days. So, you know, again, we need the spring selling season to continue to cooperate with us and be strong. As long as that happens, we've got the production capability to put the starts in the ground that will allow us to deliver the closing guide that we've given.

Okay, great. Thanks, guys.

The next question comes from the line of Alan Ratner from Zalman and Associates. Your line is live.

Hey, guys. Good morning. Thanks for all the details so far. Ryan, you brought up an interesting point that I was hoping to touch on in terms of the forward commitment on bill to order. I think a lot of Builders have kind of talked about the fact that that's really difficult to do from a financial perspective just because you're paying for a longer lock period. So I would love to hear a little bit more about those programs that you're offering right now on BTO, what kind of rates you're offering the consumer. And I guess just extending that to the margin profile of BTO versus spec right now, if you could talk a little bit about what that differential looks like. Thank you.

Yeah, Alan, what was the last part of that question? I missed it.

just the margin differential between BTO and spec right now?

Oh, sure. Yeah. Um, so Alan, in terms of, um, kind of the, the, uh, forward commitments, it's really driven by the faster cycle times. So, um, you know, we're overall for the entire enterprise, we're at a hundred days on single family. We've got some multifamily in there that takes a little longer, but on single family, we're a hundred days and we have some markets that are down into the seventies. So, um, That's the predominant driver. And then the rates that we can offer on those longer-term rate blocks, they're not quite as competitive or as low as what you might see on a spec offer, but they're pretty good. They might be within 50 basis points of what we would offer on a spec. So it depends on the community, but roughly we're somewhere in the low fives, low to mid fives. So you know, roughly a hundred basis points below what you could get kind of in the open market today. Um, and then in terms of kind of margin differential between spec and, and built to order, um, depends, but, you know, suffice it to say, and I think we've been fairly, um, you know, consistent with this. We, we have, you know, uh, in the hundreds of basis points, higher gross margins when it's built to order. And that is simply kind of derived from the fact that when the customer comes in and they're able to pick out everything they want, that really works well within our strategic pricing model that allows them to pick their floor plan, their options, their lot premium. And, you know, we've often, I don't think we quoted it this quarter, but what we can talk about is that the dollars that we make off of lot premiums and options are real. And those margins are great. So, you know, that's the biggest kind of contributor to the margin outperformance is the customer picks what they want.

Great. I appreciate that detail. And then second question on price point trends. I know you gave the data for, I think, signups and closings. Sounded like active adult was up solidly year over year, but I guess just more qualitatively, if you could talk about the demand trends and kind of the pricing trends you're seeing at each of your price points and any notable shifts we've seen over the last, you know, call it a couple of months alongside all the policy noise and interest rates hopping around. Any color you can give would be great. Thank you.

Yeah, Alan, in terms of price, the biggest change in price came in the first time segment. So last year, average price in first time was $467. That's down to $438. So we're down about 6% in price on first time, which is where the majority of the affordability pinch is really being felt. So I think we've leaned in. We've really worked to try and address affordability. Move up in active adult pricing has really been kind of flat. So hopefully that kind of helps give you a little color on what you're after.

Thanks a lot.

Your next question comes from the line of Anthony Petunari from Citigroup. Your line is live.

Good morning. I was wondering if you could talk a little bit more about the 80 bits of impairments in the corridor and maybe the drivers there. And I think some other builders have reported maybe elevated walkaway costs for their lot options. Are you seeing that or just any kind of color you can give us moving into the spring?

Yeah. Thanks for the question, Anthony. So, you know, Ryan touched on that a little bit earlier and in some of our prepared remarks, you know, we, you know, we leaned in a little bit heavier on some incentives where we had a little bit more speculative inventory out there in the market. And so, you know, the thousand communities that we operate in, we had eight of them that, you know, we took a land impairment charge on, which was really just the matter. We had to get a little bit more aggressive on pricing. And so, you know, we moved through the inventory, resulted in a charge. And so, as you said, that's what we quoted in here. The other thing that I would tell you is, and it was in our prepared remarks, we've been more disciplined as we've been looking at it. You know, in the quarter, we, you know, we put another 18,000 lots under contract, but we also walked from about 15,000. So we're always prioritizing our land book. And so within that, there was about $22 million of land charges. which is included in our other expense categories where we classified in the fourth quarter.

Okay, that's very helpful. And then just switching gears, with regards to affordability, do you see the administration's, you know, restrictions on institutional ownership of single-family homes, do you see that as being impactful in any of the major markets where you're operating? And then just more broadly, are there policies? I mean, a lot has obviously been floated, but are there policies that you think would, you know, could help stimulate housing demand in kind of a sustainable way?

Uh, so I'll take the build the rent, uh, question first. Um, Jim shared the numbers, uh, for us and for both the four year and the quarter, and they're really immaterial. Uh, we had a hundred, uh, build the rent closings in the quarter. So pretty insignificant. Going back to the very beginning of when we even entered into the build for rent space, we strategically limited the percentage of volume that we were willing to put toward that. We felt that we wanted to dip our toe in the water, but we didn't want to be overexposed. I think hindsight being 20-20, that was a great decision. In terms of markets where it could be impactful, significant, I just really don't see it being a big deal kind of anywhere. I know that there is the perception that it's moving prices and taking supply out of the market. So I guess time will tell. We're certainly going to adhere to the executive order and some of the things that are being talked about. And if those are the rules of the road, we're going to play by them and it won't really have an impact on our business. And then, Anthony, I'm sorry, what was the other part of your question?

Yeah, I'm just wondering if there were policies that you think could, you know, help with affordability or home construction and help with housing activity that would be, you know, sustainable and positive from your perspective.

Yeah, you know, we've had conversations with the administration. And, you know, the administration has been very active in leaning in and trying to address uh housing affordability um there's a lot being talked about um as i know you can appreciate it's hard um because housing remains very very local and so um you know i think the entire industry else included are going to continue to work with um you know the administration to try and create more supply which ultimately will impact affordability the american dream is uh and home ownership is at the core of the american dream And we want to make sure that we're doing everything that we can to keep that healthy. And I think, you know, the administration is as well.

Okay. That's very helpful. I'll turn it over.

Your next question comes from the line of Matthew Bully from Barclays. Your line is live.

Morning, everyone. Thanks for taking the questions. I wanted to ask another one on the build to rent side. I think Ryan, you just alluded to that. I think I heard you say you were, I guess, if I paraphrase, glad you didn't lean as much into it as you could have. But I think the way that executive order was written the other day suggested, you know, purpose built, built for rent would still be potentially OK if that does all go through. So I'm curious if there's actually an opportunity to do more built for rent. Or is it, given what you just said, the business is still too either cyclical or rate sensitive, what have you, that it's ultimately not where you want to be focusing your investment? Thank you.

Yeah, I would tell you, maybe taking the last piece, Matt, it's probably not where you're going to see us lean in, no matter what the executive order says. I just think there's better places for our capital that'll drive better returns for our shareholders. you know, we'll see ultimately kind of what the rules end up being when the executive order is kind of fully clarified what purpose built means. You know, does that mean the entire community is built for rent? Does that mean it never goes on the MLS? There's some, I think, open questions, but no matter how those get resolved, I just, I don't see it being a huge part of our business.

Got it. Okay, perfect. Thanks for clarifying that. And then Secondly, on the incentive front, you guys in the past have commented on your mix of, I guess, call it financing incentives versus other incentives, whether upgrades and options and so forth. Just curious if you can kind of comment on the trends in both of those and maybe how quickly can the different types of incentives sort of respond to this move lower in interest rates that we've had. Thank you.

Yeah, I would tell you the financing incentives have stayed very consistent for the past three, four quarters. Really, we've seen it more on the other incentives, so primarily discounting on some of the speculative homes we had. So as Ryan touched on, you know, as we get to the spring selling season and we've gotten our spec levels down, you know, there's hope that there's opportunities that maybe you can pull back on that other lever. But otherwise, financing incentives have stayed flat for us. No one's expected.

Okay. Thanks, Jim. Thanks, Ryan. Good luck, guys.

Your next question comes from the line of Trevor Allenson from Wolf Research. Your line is live.

Hi, good morning. Thank you for taking my question. A question on your volume performance in the quarter. From an orders perspective, the outformed historical seasonal trends for the second straight quarter. With that in mind, should we think of the roughly 2.3 absorption rate that you did in 2025 as representing a floor for you guys here? And even if we don't get better demand conditions in 26. Would you expect to work to drive absorptions at 2.3 level or higher moving forward?

Trevor, I think we would certainly endeavor to do more. We'd always like to sell more. In terms of saying, are we at a floor? That's hard to tell. The market will ultimately dictate that. We have been pretty clear, though, in saying kind of the way we run our business, we need a minimum amount of volume that's got to go through every store. And we tend to target that around two. So, you know, we're above that. And, you know, we'd endeavor to do more, you know, in such a way that we can deliver the guide that we've given for the full year. So hopefully that helps.

Yeah, that is helpful. I think what I was trying to get at was, Kind of the minimum volume level that you guys would target. That two number is very helpful. And then second, a just follow-up question on specs. I think last quarter you had mentioned your finished specs per community were about twice your target level. It sounds like you guys made some real effort to move some products in 4Q. So I may have missed it earlier, but where do your finished specs per community fit today? And with that in mind, what is your expectation for starts moving forward relative to sales? Thanks.

Yeah, Trevor, so as I mentioned, for the last four or five months, we've been matching our starts to our sales. So, you know, we haven't really added to kind of the specs in any kind of way. Our total specs are down versus prior year by about 1,500. So we've made a pretty significant dent in it. Spec finals sit at 2,000. You know, that's the number that's probably a little higher than what I'd ideally like it to be, just because you got a lot of capital tied up in those homes. So, you know, the number in and of itself isn't anything that we're overly freaked out about, other than to say, I think we can do better. And we'd like to have less finished homes, you know, sitting out there. I go back to the very first question that I addressed. Ideally, we'd like to see our business revert over time back to a predominantly built-to-order model. We think it's a major contributor of our return outperformance. It's hard to do. It's hard to run a built-to-order business, but we think we know how to do it. We've got a good model that we'll endeavor to put back in place.

Thank you for all the color, and good luck moving forward.

The next question comes from the line of Kenneth Zenner from Seaport Research. Your line is live.

Good morning, everybody.

Good morning, Ken.

Ryan, Tim, I wonder, you know, if we think about your business, which you report consolidated and we look at it, if you could give some comments by your regional disclosure, I'm just using like third quarter as kind of the trend line for you to comment on. Florida looks like it's basing. Texas is obviously like still facing headwinds, the Midwest, North doing excellent. But can you talk about the West? It's a broad area for you, but the gross margins, which, you know, historically would have been higher to compensate for, you know, lower asset terms. It's, It's lower. Is it, what's happening in the West? Is it where affordability is most pronounced? So are incentives greater in the West than your other regions? Is it what we've seen last, you know, X call it quarters? Is there immigration issues or headwinds that are distinct in the West versus, you know, Florida or Texas? Can you just talk about why that region has, appears to have a structurally greater, you know, challenge on the gross margin side? Thank you.

Yeah, sure, Ken. I think we, along with the entire industry, have been pretty clear for over a year and a half that the West has been a more challenged environment, predominantly driven by affordability. It does have, especially in the coastal markets, some of the highest home prices in the country, and as interest rates have gone up, that's certainly made that challenging. There's also a lot of tech employment on the West Coast, and the tech sector, I think, has gone through some challenges. that have contributed to the employees in the tech sector being a little more hesitant in moving forward with buying these expensive homes. We are seeing it in the West. We have had very good success in Las Vegas. We've had some pretty decent success in Arizona. The Colorado market has been more challenged. It's expensive and it saw a lot of the same post-COVID population surge pricing surge that Texas saw. So I think it's going through some of the similar things Texas. So that's how I'd characterize the West. It's an important part of our business. But as we've highlighted, the fact that we have such a diversified geographic platform, even with some of the challenges in the West, we've been able to perform incredibly well because of what our Florida, Southeast, Midwest, and Northeast businesses have done. So, you know, another advertorial kind of pitch for why the diversity in geography is so important to kind of who we are.

Thank you very much. Thanks, Ken.

Our next question comes from the line of Mike Dahl from RBC Capital Markets. Your line is live.

Morning. Thanks for squeezing me in. Just a couple of follow-ups. Wanted to go back on the incentives, and sorry to harp on this, but if incentives were kind of up 100 bps in the quarter, can you just comment on, you know, if you're 9.9 for the quarter, does that imply the exit rate was in the low double-digit range? And when you talk about remaining elevated, are you talking remaining elevated to that exit rate, which likely would have been kind of the highest level that you saw through? through the quarter and year, or should we be thinking more in line with kind of the average levels that you've seen?

Yeah, Mike, we're probably not going to slice the bologna quite that thin. So, you know, we were 9.9 in the quarter. We were 9 the prior quarter. So, you know, the exit rate probably was a little higher than 9.9 as we moved through some of the spec inventory that Jim talked about, which primarily was in the form of just outright price discounts. Financing, as Jim mentioned, was flat. It has been flat for the last three quarters. As we move into the current year, again, I wouldn't slice the bologna quite so thin on exit rate versus quarter rate. Look, our expectation is that we're going to continue to lean into the forward commitments. It's a real important part of addressing affordability. we're going to make sure that we're priced right in a competitive way, both against resale and other new home competitors. And then all that said, rolls up into the margin guide that we've given them 24 and a half to 25, which, you know, kind of no matter the housing cycle and particularly in this environment, I think is an outstanding margin, absolute margin performance. So I guess I'd leave it there.

Okay. Understood, Ryan. And then second one, Just back on ICG, I guess, you know, your company and its predecessors had previous experience in owning some of these assets exited. Then when you bought ICG, it was supposed to be kind of like the next evolution and something that would be different. And I guess I'm just wondering, you know, what ultimately catalyzed your decision here that just for whatever reason, you know, this you reach the decision that this doesn't make sense. And can we think of this as nothing's ever final, but this is basically now your philosophical view going forward that you don't need to own assets like this in a vertically integrated way?

Yeah, I think it's a couple of things. Number one, we bought it right as COVID was starting. So I think the supply chain challenges and some of the things that happened kind of in a post-COVID environment certainly slowed us down in kind of our ability to get some of the gains out of it that we wanted. We've also seen a lot of the other suppliers, offsite manufacturers make tremendous investments into this space and they've got way more scale than what we have. And so when we think about what's the best kind of allocation of our capital, not only for the current operation, but also to grow, We just think that we're better, we are and our shareholders are better by putting capital to grow in other places. So as much as anything, it's really about kind of a capital allocation question. We really believe in the innovation that we got out of ICG. We believe we'll continue to benefit from that innovation. But it comes down to what's the best allocation of our resources, both time, money, and focus is probably the short answer. So with that, I think we probably have time for maybe one more question, operator.

Your next question comes from the line of Jay McCandless from Citizens. Your line is live.

Hey, good morning. Thanks for taking my questions. The first one, just wanted to square up commentary that jim osowski made about being able to maybe reprice some land deals and and relating that to the the land inflation you talked about seven to eight percent for this year is there any chance y'all could work that number down as as you rework some of these land deals great question jay i would tell you you know the land that we're you know under contract or we're seeking to buy right now the ones that we're renegotiating those are

You know, 2027 and 28 closing. So, you know, really the increase that's in our guide for this coming year is land we bought a couple years ago. So really don't see the opportunity in the short term, but as we look to the long term, that's certainly our goal is to see if we can get some price out of it.

Okay, great. And then my second question, you know, you guys, the last couple quarters have talked about Del Webb communities, more of them coming online. Just wanted to get an update on that and see if that's still going to be the case in 26.

Yeah, Jay, it is, uh, you see it in the signup trends, um, in the quarter and even in the full year, you know, we're up to in the most recent quarter, 24% of our closings were from Del Webb, uh, 23% of the signups in the quarter were Del Webb. Um, so there's new communities have opened, um, in the last kind of one to two quarters. We've got some more that are coming next quarter, which is, you know, what we always said. that, you know, in 2026, you'd see us get back up to that kind of targeted mix of 25%.

With that, we're going to wrap up this morning's call. We'll certainly be available over the course of the day for any follow-up questions. We thank everybody for your time this morning, and we'll look forward to speaking to you on our next earnings call.