PulteGroup Aktie

Good morning, ladies and gentlemen, 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 PulteGroup Inc. Q1 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to James Zeumer, Vice President of Investor Relations. Please go ahead.

Thank you, Kelvin, and good morning. I want to welcome everyone to today's call to review PulteGroup's operating and financial results for our first quarter ended March 31, 2026. Joining me on today's call are Ryan Marshall, President and CEO; Jim Ossowski, Executive Vice President and CFO; and David Carrier, Senior Vice President, Finance.

In advance of this call, a copy of our Q1 earnings release and this morning's webcast presentation have been posted to our corporate website at pultegroup.com. We will also post an audio replay of this call later today. I would highlight in 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 I'm going to turn the call over to Ryan. Ryan?

Thanks, Jim, and good morning. At last week's quarterly operations review meeting, I made the following statement to the senior leaders of PulteGroup's homebuilding and financial services operations. In a quarter that grew increasingly more complicated, you delivered exceptional results, both operationally and financially. I offer the same thoughts to open this call in a period that saw every aspect of our consumers' lives impacted by domestic and global events our disciplined focus and proven business platform allowed us to deliver another quarter of strong business performance.

Financially, our $3.3 billion in home sale revenues, 24.4% gross margins and lower share count all contributed to driving earnings of $1.79 per share. Supported by the ongoing strength of our operations, we positioned the company for future growth by investing $1.3 billion in land acquisition and development, while returning $360 million to shareholders through share repurchases and dividends. After having allocated $1.7 billion to these activities, we ended the quarter with $1.8 billion of cash and a net debt-to-capital ratio of effectively 0.

Operationally, we were successful in growing our community count, which was an important driver of our 3% increase in net new orders. And as shown in this morning's release, our results benefited from 18% order growth in Florida as our diversified business platform and exceptional land positions continue to deliver strong results. As pleased as I am with the growth in orders, I'm even more encouraged with the fact that many of these homes are build-to-order homes.

In the first quarter, build-to-order homes accounted for 43% of net new orders up from 40% in Q1 of last year. On our last earnings call, we outlined our plans to shift our business back towards our historic mix of 60% build-to-order and 40% spec. This quarter was just the first step in a process that will take several quarters to complete, but I am encouraged by such early success.

And finally, I would highlight the progress we continue to make on lowering our spec inventory, particularly our finished inventory, reflecting actions taken by our field teams, we ended the quarter with an average of 1.4 finished specs per community which is inside our target range of 1 to 1.5 finished specs per community. This level of spec inventory allows us to effectively serve those homebuyers needing quick move-in homes while supporting our strategic shift back to selling more build-to-order homes.

Overall, I would say that the first quarter developed as a typical spring selling season with orders increasing sequentially as we move through the months. It is difficult to determine what impact global events may have had, but appreciate consumers were facing higher rates and costs in March. During the first few weeks of April, demand conditions have remained on track with typical seasonal trends. Still in the quarter, we experienced strong buyer traffic to our communities and sold more than 8,000 homes, which says consumers remain actively engaged in homebuying. And once again, our diversified business platform allowed us to capture the strongest segments of the business, namely the move-up and active adult buyers.

Economic reports talk to the K-shaped economy and how lower and middle-income families are struggling much more than those in upper incomes. Housing demand over the past 2 years has been consistent with these dynamics. We saw this play out again in our first quarter results with both relative demand strength in our move-up and active adult businesses and option and lot premium spend that continues to average over $100,000 per home.

However, on the lower leg of the K, first-time buyers continue to struggle with the challenges of stretched affordability and fear of job loss. Our ability to offer low fixed rate mortgages and other incentives is certainly helping solve the affordability riddle for some. But this comes at a price as incentives in the quarter reached 10.9% of gross sales price. Even at this level, I think we have done an excellent job of balancing the need to sell homes, particularly finished spec homes and turn our inventory while maintaining higher margins in support of delivering strong returns on invested capital.

Our critical support to this balance has been our ongoing willingness to adjust our starts pace in alignment with core demand. We again demonstrated such discipline as we started approximately 6,500 homes against orders of 8,000 homes in the quarter. This approach helped us to clear excess inventory and allow our communities to more easily sell from a position of strength while still providing sufficient production to achieve expected closing volumes for the full year.

Well, there is uncertainty about how events will develop over the next few quarters. I remain optimistic about long-term housing demand and confident about the strength of our business model. I could drop a long list of our strengths, but would highlight the following three key points: we control approximately 230,000 lots, including 35,000 owned and finished lots. So we have a land pipeline that we believe can meet current sales and accelerate as buyer demand improves going forward.

We have a strong market presence across the major markets and an unmatched ability to serve all buyer groups. We are benefiting currently from having 60% of our business among more affluent Pulte and Del Webb buyers, but we fully appreciate the importance of maintaining the presence of our Centex brand among first-time buyers.

And finally, we have a culture that is committed to delivering superior build quality and buyer experience into raising that bar every day. Thank you.

And let me turn the call over to Jim Ossowski for a review of our first quarter results. Jim?

Thank you, Ryan, and good morning. I look forward to providing a detailed review of PulteGroup's solid first quarter operating and financial results. On a year-over-year basis, the first quarter net new orders increased 3% to 8,034 homes with a value of $4.6 billion. Our net new orders of period benefited from a 9% increase in average community count to 1,043 while absorption paces decreased by 5% to 2.6 homes per month.

I would highlight that the growth in our net new orders was driven by the ongoing strength of our Florida operations. I am pleased to report that orders increased in every Florida market and were up 18% statewide. In addition to gradual improvements in Florida's new and existing home inventories, our strong performance reflects PulteGroup's superior land positions, our ability to serve all buyer groups and our outstanding leadership teams.

Our cancellation rate as a percentage of starting backlog in the quarter was 13% compared with 11% last year. The percentage increase in our cancellation rate reflects the smaller starting backlog we had entering the period as unit cancellations are actually slightly down in the quarter relative to last year.

In the first quarter, net new orders among move-up in active adult buyers were higher by 3% and 14%, respectively, over the first quarter of last year. Net new orders among first-time buyers decreased by less than 1% from Q1 of last year. By buyer group, net new orders in the first quarter consisted of 38% first time, 39% move-up and 23% active adults. In the first quarter of 2025, our net new orders were 39% first time, 40% move-up and 21% active adult. Net new orders benefited from land investments made in prior years as we grew community count across all buyer groups.

Home sale revenues in the first quarter were $3.3 billion compared with $3.7 billion last year. Lower home sale revenues for the period were the result of a 7% decrease in closings to 6,102 homes in combination with a 5% decrease in average sales price to $542,000. ASP was down to mid-single digits across each buyer group, and reflects the generally competitive conditions and elevated incentives that exist in many markets across the country.

By buyer group, closings in the first quarter break down as follows: 38% first time, 39% move-up and 23% active adult. This compares with prior year closing mix of 38% first-time, 41% move-up and 21% active adult. Based on sales and closings in the period, at the end of Q1, our backlog was 10,427 homes with a value of $6.5 billion. We ended the first quarter with 14,090 homes in production, of which 6,349 were spec homes.

As Ryan highlighted, and consistent with our stated objective, we lowered total spec inventory by almost 900 homes from the end of 2025. At quarter end, specs accounted for 45% of homes under construction. Of the specs under production, there were 1,515 finished spec homes, which is a decrease of nearly 500 homes or 24% in just the past 90 days. At this level, we are in our target range of having an average of 1 to 1.5 finished specs per community.

Based on the homes under construction and their stage of production, we expect to close between 6,700 and 7,100 homes in the second quarter of 2026. This keeps us on track with our previous guidance on closings in the range of 28,500 to 29,000 homes for full year 2026. Consistent with the guidance provided on our last earnings call, given land investments made in prior years, we expect year-over-year community count growth of 3% to 5% in each of the remaining three quarters of 2026.

Given competitive market conditions, and our belief that incentives will remain elevated, we expect the average sales price of second quarter closings to be in the range of $540,000 to $550,000. For the full year 2026, we reaffirm our previous guidance of ASP of $550,000 to $560,000 as we expect a higher mix of build-to-order closings in the third and fourth quarters. For the first quarter, we reported gross margin of 24.4%, which is down from 27.5% in the first quarter of 2025. The year-over-year decline in gross margin primarily reflects higher incentives, which were 10.9% of gross sales price in Q1 2026. This is an increase of 290 basis points last year and is up 100 basis points sequentially from Q4 2025.

As we're getting the question more frequently of late, I would note that within our Q1 home sale cost of revenues is approximately $6 million or 20 basis points associated with land impairments. Based on quarterly testing, impairments were triggered in two communities and are reflective of today's competitive market dynamics in combination with our ongoing efforts to clear excess spec inventory, particularly finished specs.

I'm pleased to report that thanks to a lot of outstanding work by our construction and procurement teams. Q1 house costs were down 5% from the first quarter of last year to $75 per square foot. Savings were led by lower lumber costs, but we have also achieved savings across a wide array of building products and services. Based on anticipated closing mix and current selling conditions, we expect second quarter gross margin to be in the range of 24.1% to 24.4%.

I would note that we expect Q2 gross margins to be the low point for 2026. We are forecasting gross margins to recover in the back half of the year as we benefit from increased closings of higher-margin active adult and built-to-order homes. As such, we maintain our guide for full year 2026 gross margin to be in the range of 24.5% to 25.0%, although likely towards the lower end of the range.

First quarter homebuilding SG&A expense of $380 million or 11.5% of home sale revenues compared with $393 million or 10.5% in Q1 of last year. On a dollar basis, our SG&A expense in the quarter was down $13 million from last year when we lost leverage given fewer home closings and revenues in the period. First quarter SG&A expense was in line with prior guidance, so we are maintaining our guidance for full year 2026 expense to be in the range of 9.5% to 9.7% of home sale revenues.

Pulte's Financial Services operations reported first quarter pretax income of $13 million which is down from pretax income of $36 million in the first quarter of 2025. Financial services pretax income in the first quarter was impacted by lower homebuilding volumes and reduced capture rate along with lower net gains from the sale of mortgages. Mortgage capture rate in the period was 85% compared with 86% last year. First quarter pretax income for PulteGroup was $449 million.

In the period, we recorded a tax expense of $102 million or an effective tax rate of 22.8%. Our Q1 tax rate reflects the benefits of stock-based compensation and federal tax credits. Looking out to the remainder of the year, we continue to expect our tax rate to be approximately 24.5%. Our expected tax rate does not take into consideration any discrete period specific tax events that might occur. PulteGroup's net income for the first quarter was $347 million or $1.79 per share.

In the comparable prior year period, the company reported net income of $523 million or $2.57 per share. Earnings per share for the first quarter was calculated based on 193 million diluted shares outstanding, which is down 5% from the prior year. In the first quarter, we repurchased 2.4 million common shares for $308 million, which brings total repurchases for the trailing 12 months to 10.3 million common shares for $1.2 billion.

In a separate press release we issued this morning, we announced that our Board authorized an additional $1.5 billion for share repurchases, which brings total availability to $2.1 billion. Along with returning capital to shareholders, we continue to prioritize investing in the growth of our operations. In the first quarter, we invested $1.3 billion in land acquisition and development which was evenly split between the two activities. We ended the first quarter with 229,000 lots under control, which is down approximately 5,000 lots from the end of 2025. We remain focused and disciplined in our land activities as we look for opportunities to grow our business while achieving acceptable risk-adjusted returns and managing overall portfolio risk.

After 24 months of variable housing demand and limited opportunities for price appreciation, land inflation has started to ease. We are seeing land prices stabilize in many parts of the country, and even move lower in individual deals in a handful of markets. Every land deal is different and eight locations are still in demand, but we are finding more opportunities to negotiate improved land terms, be it the price, the timing or both.

In the first quarter, we issued $800 million of senior notes, split equally in tranches of 5 and 10 years. We used approximately $600 million of the proceeds to repay existing notes, with the remaining $200 million to be used for general corporate purposes. Inclusive of these transactions, we ended the first quarter with a debt-to-capital ratio of 12.3%. Adjusting for the $1.8 billion of cash we held at quarter end, our net debt to capital ratio was effectively 0. Given current market dynamics and our expected 3% to 5% growth in community count, we are projecting land acquisition and development spend of $5.4 billion in 2026.

Assuming this level of land spend and the expectation that house inventory will increase commensurate with an increasing level of build-to-order home sales, we would expect 2026 cash flow generation to be approximately $1 million. Overall, it was another very productive quarter for the company.

Now let me turn the call back to Ryan.

Thanks, Jim. Before opening the call to questions, I will offer a few additional comments on demand conditions in the quarter. Given everything that is happening in the world, demand has actually held up better than might be expected and could certainly improve if global tensions eased and interest rates came back towards 6%. This would be highly consistent with the increased buyer activity we saw developing early in the first quarter when mortgage rates dipped below 6%.

Consistent with trends we experienced in the back half of 2025, the pockets of homebuying demand strength and softness didn't change dramatically. Home buying demand in our Northeast, Southeast and Florida markets generally remain positive. First quarter demand in the Midwest was more variable across the markets than we had been experiencing. That being said, the weather conditions were a bit more extreme. So we'll have to see how the trends progress over the next couple of quarters.

As I highlighted earlier, our Florida teams continue to operate at a high level as we benefit from a strong land pipeline and experienced leadership teams. Looking now to our Texas and West markets, overall demand trends remained slower relative to the rest of the country, but I would suggest they may be finding more stable footing. Between ongoing pricing actions and incentives, the markets are finding clearing prices where transactions can happen.

We still have work to do on clearing some final spec inventory in California and Washington, but I'm hopeful we are getting to the end of this tunnel. One final comment I would share on buyer demand, well-positioned communities that offer the right product and a compelling value equation to the consumer are selling homes. From Boston to Naples and Raleigh to San Jose, consumers are looking for the opportunity to buy homes that work for their stage of life and their financial capabilities. Our job is to make sure PulteGroup communities meet their requirements.

Let me close by thanking the entire PulteGroup organization for the great first quarter operating and financial results the company delivered. I also want to recognize our team for their tireless efforts to deliver a superior home buying experience. I'm proud to report that our customer surveys are now showing PulteGroup's Net Promoter Score as measured 1 full year after the initial delivery of the home has risen to a score of 65. To put this in perspective, these results place PulteGroup among such well-known service leaders as Apple, Google and Chick-fil-A. It's this type of commitment to our customers and to each other that has PulteGroup again ranked among the Fortune 100 Best Companies to work for. This marks Pulte's sixth year on this prestigious list. Our ranking on this list has never been a goal, but rather an outcome of the tremendous culture we work hard to maintain inside of our organization.

Now let me turn the call over to Jim Zeumer.

Great. Thanks, Ryan. We're now 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. Kelvin, we'll now open the call to questions.

[Operator Instructions] Your first question comes from the line of John Lovallo of UBS.

The first one is, can you just help us with some of the moving pieces in the gross margin walk from roughly 24.4% in the first half to 24.5% to 25% for the full year. I mean it certainly seems like closing mix is going to be a good guy. Stick and bricks could be a good guy. land maybe a little bit better than it had been. And then the incentive load, are you still assuming sort of 10.9% carries throughout the year?

Yes, John, I think you've got all the right pieces there. We are assuming a higher incentive load, but we'd expect it to likely come down driven by a couple of factors. One would be more build-to-order and more move-up and adult business, where we tend to incentivize less. We've also cleared a lot of the finished spec inventory, which we're carrying higher incentive loads. So while we'd expect the overall environment to remain competitive and the elevated incentive load to stay the mix of product and consumers that we have coming through will bring -- could potentially bring the overall number down, which is why we're guiding to the full year staying kind of within our range.

ou'll note that Q2 is going to be a low point for a couple of reasons. One of the big reasons in that is that a lot of the spec inventory that we sold in Q1 at a higher incentive load are closing -- some closed in Q1. You got a bunch more that are closing in Q2.

Okay. That's really helpful. And maybe just kind of echoing what you said, Ryan before. I mean, it seems like the spring has actually been reasonably good considering a lot of factors in the market, and most builders have reported orders that are up year-over-year, so indicating a little bit of a better spring despite this background geopolitical headwinds.

The question is, I mean, if we do, in fact, get some kind of resolution here to the conflict in the Middle East, I mean, do you think we could still have a really good spring selling season. And on top of that, is there a chance that we could get extended a bit maybe into June just given shorter cycle times for many of the builders?

Yes. Hard to know whether it gets extended or not, John. I think ultimately, the consumer will have to decide that. But as I tried to highlight in my prepared remarks, when rates came down to 6%, maybe even a touch below 6%, things were moving along really well. Despite the things that are going on globally, it was still -- it's still, I think, a very good spring selling season, and we're pretty pleased with kind of what we've delivered and how it has set us up for the full year.

I can promise you that we didn't have any of the current geopolitical disruption on our bingo card as we kind of laid out our full year guide and set expectations for how the year would play out. But as we look at the actual numbers for Q1, we're in line with kind of where we wanted to be, where we thought we were going to be, which is the big reason that we're reaffirming kind of our full year.

So all things considered, John, I'm incredibly pleased with how we performed. I'm really pleased with how the consumer is behaving. And I think there's a bias to the upside if things can get resolved, rates were to come down a little bit, I think, yes, I think things could get even a little bit better.

Your next question comes from the line of Alan Ratner of Zelman.

Ryan, you alluded to this several times, but I was hoping to dig in a little bit deeper on the incentive trends. And specifically, what I'm curious about is, do you have data or can you kind of talk through the difference in incentives you offer both across price points as well as BTO versus spec? I mean I see, obviously, they were up sequentially and year-over-year across the averages. But I'm curious if there's any notable differences across those price points or BTO versus spec.

Yes, Alan, there's definitely more incentive on spec broadly. And then there's more incentive as a percentage on first-time spec and I tried to provide some nuance around that in my comments around the K-economy. And that first-time entry-level buyer, they're the most challenged by affordability, and that's where we try to lean in more in order to solve the affordability equation. And I think we've done it pretty effectively. And then when you move into the move-up in the active adult buyers, we're incenting there as well. The types of incentives vary.

There's still a fair number of incentives that are going into a forward commitment program that's specifically targeted to dirt sales, so it's not as low as a 30-year fixed rate mortgage that we'd offer on a spec that's complete, but still in the kind of low to mid-5% range and materially below the current market. and it's locked in for the entire duration of the build cycle.

So there's a lot of value that we think is being offered there, and there's a cost to that, but that's factored in the incentive load. So all things considered, Alan, as I said, we still expect incentives to remain higher. But given the mix shift in buyers as well as spec to build to order. We think the overall incentive load for us as a company will come down.

Great. I appreciate the detail there. Second, I was hoping to ask about your land book. I think land banking has become a bit of a hot button topic in the investment community over the last couple of months. And you've seen a nice uptick in your share of lots held off balance sheet, but I know that includes a lot of different things, traditional land options, land banking. So can you quantify for us your exposure to land banking? And I guess, just talk more broadly about how your land banking deals are generally structured? Are you making periodic interest payments? Are they more kind of on the back end in like a pick fashion? Any color you can give would be great.

Yes. Sure, Alan. Happy to go into it. I'm going to ask Jim to give you some of the specific details. But before he does, philosophically, the way we've structured our land book for the better part of 6 or 7 years, we want as many lots as we can possibly control with underlying land sellers. And today, that represents well over 50% of our controlled land is controlled with options with underlying land sellers.

In our move to go from 50% controlled option to 70, we knew we were going to need to incorporate some element of land banking, and we've done that. We've maintained a diversified book of land banking partners which I'm very pleased with the number of partners and the alignment that we have with those partners. And then our overriding focus has been we want risk transfer. So we're looking for the ability to walk away in the event that things go sideways on a single individual transaction. So this overarching idea of risk transfer risk mitigation is the entire foundation of our land banking portfolio.

With that, I'll have Jim share a few more details with you.

Sure. Thanks, Ryan. Alan, I'll fill in a couple of things. So as it relates to land banking, of the 229,000 lots that we control, we have about 18,000 with land bankers. So it's about 8% of the book of business. To Ryan's point, what we really want to do is we would love to get underlying optionality with land sellers directly. And what I'd tell you of the 127,000 lots that we have under option, over 85% of those with underlying land sellers. So again, it's the vast majority. That's what we task our teams do. Let's go for that first and foremost. If we can supplement it with banking, we will, but we'd love to get a deal with people on the ground first.

Great. That's really helpful. And Jim, if you have it, of those 18,000 lots with land bankers, can you give a little bit of detail on how those are structured either in terms of average deposit, what the kind of carry is, et cetera? cetera?

Yes. I'd tell you that most bankers that are out there today, it's usually about a 15% deposit that they request on those. and then rates will be in the low double-digit range typically for those. To give you context, our deposits as a percentage of future purchases is only about $7,000 per unit for the whole company. So -- or I'm sorry, 7.5% for the whole company. So the vast majority are at very low deposits with underlying land sellers, but the bankers carry a little bit richer mix.

Your next question comes from the line of Stephen Kim of Evercore ISI.

Appreciate all that color, particularly on the land side, so that's great to hear. I wanted to talk a little bit about your free cash flow guide. I believe you said about $1 billion now the way I'm modeling things, it seems like your net earnings are going to be much higher than that. And so I was wondering if you could talk about the free cash flow conversion and what do you see as being offset to the net income this year?

Is it that you anticipate to end with a meaningfully higher owned land supply than you currently have? Or is there something else going on? Just some color there would be helpful.

Yes. Great question, Stephen. So there isn't an assumption that we have any significant increase in our own land supply. We've certainly been working down our house inventory in recent quarters as we talked about as we moved our spec down -- but there's an anticipation there'll be a little bit more build-to-order that's going to come in, in the back half of the year as we set ourselves up for 2027. So it's really on the house side, we'll see a little bit of an incremental increase.

I'll take that as a real positive, obviously, because it suggests that this is just kind of a temporary thing and the free cash flow conversion should improve once you get over this build of BTO. So first, I guess I would just ask, is that, in fact, the way you see things? And where do you see the BTO mix of, let's say, orders or maybe closings, finally reaching your 60% level? Is that something that would you think could be reached by the end of this year? Or is this something that is going to take well into next year, you think, to accomplish?

Yes, Stephen, so maybe starting with the cash flow, cash -- the conversion of net income into cash flow is a big focus for us. We believe it's a very meaningful and powerful driver of value for shareholders. So I think Jim provided some nice bread crumbs in terms of kind of where we're going and why it's at $1 billion. Hopefully, there's a slight bias to the upside this year, but it is as we rebuild that home inventory on build-to-order.

I agree with you. That's a good thing. It means we're selling homes and we're selling homes that are dirt. In terms of -- and I do think it is a kind of temporary situation that as we move into next year, you'd see kind of better, more normal conversion rates from us. And then as it relates to build-to-order target mix is 60-40. We made great progress in Q1. I'd expect that to continue as we move through the year. The fact that we were able to reduce so much spec inventory in Q1 is also a powerful driver in that journey. I think it might take a tad longer than the end of this year, but not much beyond Q1 of next year. So we'll keep you updated as we move, but we're going to do this in a measured, balanced way, but we're also not going to drag it out forever.

Your next question comes from the line of Anthony Pettinari with Citi.

You talked about stick and brick costs, I think down around 5%, and it sounds like lumber was a good guide there. I guess those lumber has been coming up for the last, I guess, 1.5 months. Can you just remind us the lag in which you'd see that? And then maybe a related question with the conflict in the Middle East, it seems like we're seeing metal prices, petchem-based building material price hikes out in the market. What would be the lag that you would maybe see some of that in your stick and brick costs?

Sure. Great question. I guess, first, what I'd tell you is, as we did -- you hit on it, we had a really good first quarter. Our procurement teams have done a great job. They were down 5% year-over-year. As we look out over the balance of the year, we want to reaffirm our -- we said that our house costs would be flat to slightly down. We still believe that, and that's baked into our guide.

On your question on lumber, when will we see that? It's usually two quarters out because the way that we buy the lumber today, those are going to turn into closings two quarters out from now. It has inflected higher in recent weeks. The other thing that we're keeping an eye on our fuel cost, we're monitoring that. At this point in time, we've done a good job. You'll hear things like fuel surcharges, we've combated those so far.

But in recent weeks as the cost of fuel has started to come down a bit from the highs, we're keeping an eye on it. But again, I'll go back to what I said, Q1 was a really great one. And even with some of these headwinds for lumber, we still believe we can be flat to slightly down for the remaining quarter.

Yes. And Anthony, in terms of kind of the metal and some of the other related costs, we'd see that being later in the year before we would see an impact. One of the things that our procurement teams have worked with our suppliers and trade partners on is let's just take a of patience here. We are in a conflict. If it continues, there will be real cost increases, but we're not going to overreact to kind of the whip sign of markets up, markets down based on kind of what's happening on a day-to-day basis from the conflict.

Okay. That's very helpful. Just one quick one on incentives. Without cutting it too finely, were incentive levels fairly steady for the 3 months of the quarter and maybe the exit rate into April? Or was there any kind of increase or decrease that you caught there?

They're fairly steady across the quarter. It really got down to a community-by-community basis of what we had to offer to move specs, but again, pretty consistent through the quarter.

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

Just a clarification actually on the incentive question, Jim, when you said kind of stable throughout the quarter. was that on closings or orders? And when we think about a slight dip down in 2Q gross margins, I believe you're saying that was kind of from the fuller impact of the reduction of spec maybe that was transacted 3, 4, 5 months ago. So just trying to get a sense of how incentives are still impacting 2Q gross margins from prior conditions and if the comments you just made were more on current market conditions on orders.

Yes, Mike, no offense, but I think you made things up there. I think what we talked about is in Q1, there were spec sales. What I said is there were spec sales in Q1 that had elevated incentives. Those -- some of those closed in Q1, some of those are going to close in Q2, which is impacting the guide that we're providing for Q2. It's part of the reason that we're saying that's the low point, and we'd expect it to go back into the range that we've guided to for the full year.

In terms of kind of how -- whether it was closings or sign-ups, it's probably slicing it a little too thinly, Mike. We report the incentives on closings. That's -- I think the -- that's the approach that we've been taking. We're going to stay consistent with that. And then the incentive load on future backlog, future closings, all that is embedded into our guide. But as I've said a couple of times, we're actually optimistic that while the overall incentive environment will stay elevated, we can see incentives come down because of buyer mix and brand mix.

Okay. No, that's great, Ryan. I'm sorry if I wasn't clear. I thought I implied the same thing that the bigger impact of the sale of specs would be more felt in the second quarter or that's really what's flowing through. So I think we're on the same page there. Shifting to the strength that you saw in Florida, I'd really love to dive into that a little bit.

Obviously, it was a bright spot for you this quarter. And really get to understand across your major markets, obviously, you benefit from a good amount of diversification and in your consolidated numbers had the relative strength and move-up in active adults from the order sign-up side. But I'd love to understand what's going on in Florida from a broader market perspective in terms of inventory both on new and existing homes? And how much do you think that contributed to the stronger results that you saw this quarter?

Yes, Mike, we're very happy with what we -- most of what we're seeing out of Florida, and this has been the third or fourth quarter in a row where we've highlighted the strength of the Florida market. If you went back a year ago, I think we were an outlier outperforming the market that was arguably a little tougher. And Florida has continued to get better over the last 12 months. And it's at the best point that we've seen it in a while.

In addition to that, the strength of our communities, the positioning of our communities, the expertise of our teams there has allowed us to outperform what is a pretty strong health -- a pretty healthy market there right now. So we're happy about Florida. It's not without its challenges. Insurance costs are high, affordability is stretched there just like it is in a lot of other places. There's been some recent headlines about affordability in Florida. And I think that's because Florida historically was very affordable. There are some attributes of Florida that aren't changing. It's a pro-growth, pro-business kind of a state that's got a lot of great jobs and more diversified economy than it's ever had.

Low taxes, no taxes, no income tax anyway, no state income tax. So I think there's a lot of reasons why people still want to go to Florida. But I can also understand appreciate why it's maybe not the best fit for others. But maybe just to sum it all up, Mike, we love our Florida business. And I think this quarter's results are a good demonstration of that.

And any comments on the inventory trends across the major markets? That would be very helpful.

Sure. We have seen inventory come down in certain locations, some of the more affordable parts of the state, Northport, Lakeland, they're still a little bit elevated, but we've been really pleased with both new and existing has come down in the places where we do business.

Last question from the line of Mike Dahl RBC Capital Markets.

I wanted to first ask about the -- just the mix dynamics in the back half of the year. Obviously, from an order standpoint, we kind of see that mix evolving in terms of the move-up and active adult outperforming first time. So in terms of what you're projecting on the margin in the back half, how much of that do you already have visibility on based on what you've sold over the past handful of months versus kind of an assumption of what's left to sell in the next several months and what that mix is going to look like?

Yes. I mean I would tell you, it's what we're seeing on the sales floor today, what we have out there, Ryan highlighted our Florida business has done really well. Our Northeast, our Southeast business, which carry a higher margin profile as well. So we're looking at what we sold in Q1 and kind of making predictions about what goes out over the balance of the year. But again, there's a lot of parts and pieces that go into it, but the build-to-order mix and the active adult are the 2 biggest components that will drive the increase.

Okay. And then relatedly, I guess, when you look at starts versus sales and your comments about you did a pretty good job taking down finished spec in the quarter. It sounds like there's a little left to go. In the current environment, if you're within that 1 to 1.5 per community band on finished spec, are you trying to get down to that lower end right now given what you're seeing in the market and how you think about optimizing profitability? And how does that kind of tie into how we should think about your prospective starts versus order pace?

Yes. The way I would probably guide you on that is that we're inside the target range we want for specs and we're very comfortable operating at the lower end. We're very comfortable operating at the higher end of that range. But we want to be inside that range.

Beyond that, where we're at in the range will really be driven by specific community level decisions and the type of buyer we're going after and whether it's a true entry level or more of a move-up type community. So that's the reason I think we give a range on that. We've said we're not going to chase the volume. We're going to get our company back to a build-to-order model, which we're doing. We made excellent progress. We've reaffirmed kind of the full year number and that we were going to be matching starts to sales cadence. So the starts that you saw in Q1 were really reflective of the sales that we had in Q4.

You'll see our starts in Q2 more closely matched the sale that we just had in Q1. So that's the kind of build that you want to see from us. And we're very comfortable with where we're at on the overall number of homes that we have in production, how many we started in Q1, what we will start in Q2 and kind of how that sets us up for the full year. I will note a big reason why we've been able to do it this way this year is because we've gotten build times, cycle times back down to pre-COVID cycle times of less than 100 days. So there's a lot of things that are working exactly the way that we've designed our operating model to work.

Your next question comes from the line of Sam Reid of Wells Fargo.

Wanted to drill down a little bit more on ASP. I believe in the prepared remarks, it sounds like ASP was down mid-single digits across all buyer cohorts, which would include move-up and active adult. And it did also sounds like based on your answer earlier in the Q&A that you might have stepped up some forward rate commitments to those move-up and active adult buyers. I just wanted to, though, understand, are you also making any surgical price cuts in move-up and active adult as well that we should be mindful of?

Yes. Sam, we look at pricing all the time and make sure that we're competitively priced. Discounts I think are an important thing psychologically for buyers today. So we try to have the right relationship between headline price and what incentives are. They're tethered together. There are some communities where we have taken price cuts and Jim highlighted in some of his remarks, that's been a big driver in the communities where we've had to take impairments. It's typically been the price cuts. Fortunately, it's just two communities, and it was a fairly small number. So hopefully, that's a bit indicative that we've made very few kind of top line major price reductions.

That's helpful. And maybe switching gears to the financial services line item. I noticed Financial Services pretax was lower. And I believe one of the reasons you called out were lower gains on mortgage sales. So just maybe curious the moving pieces behind that lower gain. And curious if it's also a function of perhaps a step-up in adjustable rate activity. So just wondering if that could be one of the drivers of the financial services pretax change year-over-year?

Sure, Sam. Great question. Let me start first off saying we're very pleased with the operating performance of our financial services organization. They do a great job supporting our homebuilding operations and supporting our customers. On the question on ARMs. ARMs were 9% of all closings in the first quarter versus 7% for all of last year. So a little bit higher, but nothing meaningful. When you look year-over-year, a couple of things I'll point out, and some of this is just timing, and we'll expect improvement over the balance of the year.

But homebuilding volumes were down. We noted lower net gains on the sale of mortgages as rates kind of ticked up on us. We had lower value ascribed that's time that we do our rate locks -- and then as well, we had slightly higher expenses as we've invested in people and technology for the year. So again, I think they performed very well in the first quarter, and I'd argue it's a little bit of timing, and we'll continue to see improvement in that over the balance of the year.

Your next question comes from the line of Matthew Bouley with Barclays.

Maybe just to pull on the thread of the build-to-order mix. I think you said from an order perspective, it was maybe 3% higher in Q1 relative to last year. And my question is on sort of the gross margin. So I think you're implying in the second half, maybe the gross margin is up 75 basis points, give or take, relative to the first half. So I think the build-to-order closings mix would need to be fairly meaningfully higher if it's -- if that's kind of the main driver. So I guess what exactly is the expected build-to-order closings mix in the second half? And is there anything else that kind of supports that level of sequential margin improvement?

You'll have both the richer mix of build-to-order, but then as well as Ryan highlighted, I said in my prepared comments, as we've gotten more of that finished spec inventory off the books, that will be less influential as you get out to Q3 and Q4. So a little bit built to order and as well some of these finished specs that came through in Q1 and Q2 for us.

Yes. Matt, it's not as if we've got a gigantic chasm to cross from where we're at today to where we're going to be. Q1, we were at 2.4%. We're going to be in that same kind of ZIP code for Q2 with a heavy load of finished specs that came with heavy discounts and then to go back to our kind of full year targeted range of 24.5% to 25%. So it's not as if there's got to be colossal shifts in margin performance in order to be in the guide that we've given.

Okay. Understood. That's perfect. And then Secondly, you mentioned sort of easing land prices. So the question is, how do you think about kind of the timing of what you're seeing in the land market today for when it actually flows through your P&L? And is there kind of a rule of thumb or broad average for Pulte on kind of land costs versus development costs as it pertains to the final lot costs that you ultimately see on your cost basis?

General rule of thumb is 50-50. Some markets, it goes 60-40. But general rule of thumb, I think, is pretty good at 50-50. In terms of kind of timing from when we contract a piece of land to when you start seeing it flow through the P&L, it's typically in the kind of 18- to 24-month range depending on how lengthy the entitlement process is. So anything that we're contracting today at lower cost, it's -- you're well into '27 and late '27 and beyond before you're going to see the benefit of the lower land cost.

Due to our limited time, your last question will come from the line of Trevor Allinson of Wolfe Research.

First one is on your approach to share repo here. You've got the new authorization out. Your net leverage is close to 0. I think you mentioned earlier that the cash flow headwind from more BTO is somewhat temporary in nature. Just want to gauge your appetite for accelerating share repo here maybe ahead of your cash generation and then your views overall on leverage versus the roughly 0% you're at currently?

Yes, Trevor, this is Ryan. I'll take that one. I'd reiterate that we've been incredibly disciplined on capital allocation. Our focus is on investing in our business. That is -- that is our number one priority. It's what our shareholders care about. It's what they've entrusted us to do and that's how we're structuring the business. And then we're paying a dividend, and we're using the share buybacks as a way to return excess cash that's being generated by a really well-running business back to shareholders in a very tax-efficient way.

So -- do we have the ability to do a levered buyback is what I think you're suggesting, well, sure. We've got the leverage capacity, you could do it. We don't think it's in the best interest long term of the company. And so what you're going to see us do as it relates to leverage, and we've talked about this for the better part of the year, a debt-to-cap ratio will be an outcome as opposed to a targeted goal.

We're going to decide the cash needs of the business based on how we're going to grow it how much land we're going to buy, how much land we're going to develop, how much inventory, house inventory, et cetera. And we'll see how much cash we have. We'll see how much debt we need to go raise to do that. That's going to be the driver of kind of our debt-to-cap leverage ratios as opposed to saying, we want to be a set number if that makes sense.

Yes, it does. Very helpful. And then second one, just on the Midwest. It's been a bright spot for you guys the last couple of years. I think you mentioned some weather impacts there, maybe also some comp dynamics just given it's been stronger. But are you starting to see any change in relative performance in the Midwest? Is it not outperforming by as much as what you've seen in recent quarters? Or do you think that, again, it's more just a comp dynamic and a weather impact that you saw in the quarter?

Yes, we're still really happy with our Midwest performance. It's been great. It continues to be very good. There are a couple of markets that maybe didn't do quite as well as what they have been doing. But it wasn't widespread across the entire Midwest. So we're -- for the couple of markets that were maybe a tad slower than what they had been, we're going to keep watching them. The Midwest and Northeast for that matter, actually had a real winter for the first time in a long time. Boston, as an example, I think, had snow 4 or 5 times -- it's probably been at least 4 or 5 years since they've had a winter like that.

So it was a tougher -- I think a tougher winter season than what we've historically seen. But our Midwest business does also tend to be more move-up and active adult, which, as I think we've highlighted quite a bit, continues to be one of the stronger consumer groups.

That concludes the Q&A session. With that, I will now turn the call over to James Zeumer for final closing comments. Please go ahead.

Thank you. Appreciate everybody's time this morning. I'm sorry we were unable to get through all the questions in the queue, but we'll certainly be available for the remainder of the day. And we will look forward to talking to you on our next earnings call.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

All right, everyone, we're going to try to keep it on schedule. So I appreciate you joining us for the 9:50 session. I'm thrilled to be able to welcome back PulteGroup to the Raymond James conference. My name is Buck Horn, the homebuilding and housing analyst for Ray Jay. To my left, I've got Jim Ossowski, the CFO of PulteGroup. We've also got Jim Zeumer the Chief Investment Relations specialist and thrilled. I mean, Pulte is the third largest homebuilder in the U.S., I'm sure many of you are familiar, but also one of the most successful in terms of the profitability metrics, consistent performance, consistent returns of capital to shareholders, best margins in the space or best-in-class margins in the space that have kind of preserved through this housing down cycle and we think are poised for a lot of improvement or well, certainly, profitability can improve quite a bit if we get some relief on the mortgage rates and some other things that could go in the demographic direction for housing.

So I'm going to turn it over to Jim. He'll do a presentation, and we should have plenty of time for Q&A. So with that, Jim, I will turn it to you.

Thanks, Buck. That's a drop to mic moment you took all my thunder, but yes, PulteGroup. We're a premier national builder. Our operating margin is best-in-class in the space. And what I'd tell you is even more important. We have a relentless focus on generating high through-cycle returns for our organization.

So I'm going to touch on today some of the different things that we believe differentiate ourselves as well as our key strategies and priorities that we believe deliver long-term shareholder value. In the past year, since I took over this role as a CFO, I get asked from time to time, what's the secret sauce for PulteGroup to generate long long-term shareholder returns.

What I would tell you, it's interesting, if you look back over time, historically, for many years, we thought it was to be the biggest builder with the highest top line growth. However, back in 2011, we took a really good hard look at our organization and our results and what we determined was what really drove shareholder value were returns. And so coming out of that moment, we created something called our value creation initiatives. And it was really about what can we do to improve the returns of our organization and more importantly, how do we operate our organization day in, day out. What I'm happy to say is 15 years later, those value creation tenants are still part of our DNA, and I'm going to get into those in a couple of minutes.

So we call this our value creation formula slide. There's really 3 ingredients to it, and I'll try and move through some of these quickly and dive into them in future slides. It really starts with our disciplined land underwriting process. When we look at it, we created a proprietary model that looks at returns for every single transaction we're going to evaluate. It creates a common language from our field operators up to our home office and our corporate team that approves it. And really what I tell you is most important is we look to mitigate risk in our underwriting process, but more importantly, we underwrite to returns.

We compensate our operators for returns and we really get alignment around that. The second ingredient, I'll talk about design and build process. Really what I tell you is we have a very targeted segmentation strategy and we talk about it often. Both geographically and in the consumer segments that we attack and that we go after. The other one that we'll touch on a little bit later is our build-to-order model. There's always a balance, are you a build-to-order builder, are you a spec builder? We think we've got a really good healthy balance between that as we serve the different consumer groups that we go after.

And lastly and most importantly, the third ingredient generating and allocating cash, I would tell you that this is probably one that we didn't spend as much time 15 years ago talking about. But what we talk about all the time today is we're like -- we need to generate significant operating cash flows to reinvest in the business. And after that, we look for things like growing our share dividend as well as looking at share repurchases, which we've done very consistently for the past decade.

Looking at our underwriting, I'll boil it down. It's pretty simple. Really, what we do is every transaction we look at, we create a risk return threshold for that. And really, if it's a riskier transaction, it requires a higher return. And so really, what it does is it drives kind of a consistent message from both our corporate office all the way through the field. And so if you're an operator in our markets, and you're trying to do a new land deal that you want to buy, you're kind of balancing the risk and rewards. And again, it's striking that balance of getting the best deal you can to drive the highest returns for the organization. And really, the most important thing is the field teams or our operators are the ones buying the property, but it needs to be approved at a corporate level. And so again, we get buying all the way up and down the food chain.

Sticking to the front end of the pipeline. One of the things I always say is land is the lifeblood of our company. It's really where it all begins. And so when you look at our organization, we've got a very healthy pipeline. We have about 235,000 lots we control, a little bit under 60% of those are under option. And so when we talk about how do we approach the land market, we look for optionality with underlying land sellers. It's about 80% of the lots that we have under option or with those. And really what we talk with our teams a lot about is it's not only about generating the highest returns that we can get but it's a risk mitigation tool. The best thing about having a healthy land pipeline is that if the market is in a good spot, you can very easily lean into it and take advantage. On the other hand, if the market is a little bit softer, you can pull back from the investment. And so that's something that we had to do in 2025.

And so again, I think we've got a very healthy mix in our land pipeline.

[indiscernible]

It's a great question. So typically, you can go ahead and you can get an option, it's between a 5% and a 10% deposit. So if you'd rather, would I rather own 500 lots that I'm going to monetize over the next 5 to 10 years, would you rather walk from a 5% option, I would rather walk from a 5% option if the market is a little soft.

Geographic diversification. So we're going to talk a little bit about both geographic diversification and consumer segmentation. From a geographic, you can see we're spread out around the country. We have over 1,000 communities that are open today in 47 different housing markets. And so what I would tell you, what we like about this diversity is that each market ebbs and flows over time. And so if I rewind the clock a couple of years ago, our California and Texas markets were some of the strongest markets that are out there in the U.S., they were a little choppier in 2025. And so the good thing about it is we have a very healthy Florida business, Midwest business and Southeast business, kind of picked up the load last year.

And so again, I think sometimes people said, "Well, why don't you invest more in Florida? Why don't you invest more in California, for example, what we like to say is we like to be balanced. Because again, you're never going to be able to predict the ups and downs and so diversity and our portfolio is very important to us.

Buyer segments, there's really 3 different buyer segments that we pursue. First one is first-time buyers, and we have move-up and active adult that I'll touch on in a minute. That first-time buyer was about 38% of our business in 2025. It's the deepest part or biggest part of the overall market. But with mortgage rates going up, affordability being stretched, it's been a little bit harder in that particular part of the market.

So what we always talk a lot about is when we go after that segment, we need to be nimble. We need to have financing incentives for those consumers. We need to have inventory units that are ready and available for them to move into. So this is a part of the market that if you go back kind of pre-COVID it was about 30% of our business. We've actually increased that over time. And really, what we do is we like to index that to the markets that we operate in.

So first time is a little bit choppier now. But in a couple of years, it could be the strongest performing segment that's out there. So we'd like to be balanced, and we never like to starve any one of our segments.

Our move-up business. So about 40% of our volume last year came from our move-up business. This is typically under our Pulte brand. And I would tell you that this has been Pulte's bread and butter for many, many decades. We serve move-up consumers, family buyers who -- they worry about things like the location, schools, these are consumers that have more financial wherewithal than that first-time consumer. And so we've taken opportunities in this space. I would also tell you, one of the things that we like to do in this space is we talk about our build-to-order model this is where a consumer can come in and they've got choice. They want to pick out a particular lot. They want to go into their home. They want to pick their counters, their cabinets and their flooring. And so we offer them opportunities.

So again, this has always been what Pulte has always been about and we serve it very well. The last segment is active adult. So this is a little bit over 20% of our business last year. This is the highest margin part of the business. Almost 50% of the customers who buy in our active adult space are paying cash. So they really pay attention to things like the stock market. They know what they want. It might be the last home that they ever purchased. And so we've got a phenomenal brand. I'd argue it's the most powerful brand in all of homebuilding under Del Webb. It's been the leader in this space for 65 years and through our Del Webb brand, we've always gone to market in its age-restricted communities, that are 55 plus. And so again, this has been a very attractive one.

And even through 2025, when you read a lot of the headlines about first-time business or entry level being a little choppier. Our active adult business performed very, very well last year because these people, again, have the financial wherewithal. And I'd like to say I'm actually a Del Webb homeowner myself.

So before I leave segmentation, I'd be remiss if I didn't take a seconds to talk about the evolution of Del Webb. So what I mentioned earlier is Del Webb has been geared for age-targeted communities that are 55-plus. What we've done is we've looked at that same concept, and we've expanded it now. So we've got what we call our Del Webb Explorer communities. This is targeting a slightly younger age. I think 45-plus Gen Xers, they still want amenities, they still want lifestyle. But what they've said is, look, we want an all-ages community. And so we've introduced a couple of these already, and we really see this as an opportunity not to take away from the original Del Webb business that we always do, but we view this as supplemental in the coming years.

Balance sheet. So one of the things we talk about Pulte, I talked about it earlier, strong operating cash flows. We have a rock solid balance sheet. We've got low leverage. We've got investment-grade ratings. We've got a really strong cash position. I think what we always talk about internally is, look, leverage is an output of the decisions that we make. And so if we want to increase leverage, we always could do that if needed. But again, we're in a healthy pipeline. We feel like we have the opportunity to do everything that we need to do in our business today. And when we talk about what we spend money on in our business, first and foremost, I said it earlier, we want to reinvest in our business. We want to have a healthy land pipeline. We want to put our money to work. We want to put it into high returning projects that we can put under contract. And after that, we talk about things like we want to grow our dividend, and we want to have money available for share repurchases.

So over the last decade, we've repurchased about 50% of the company or a little bit over 50% of the company. And so again, that's something that we've been very consistent, and we will continue to do.

And Buck, I will wrap it up for any questions. But if you ask yourself why invest in PulteGroup, I've gone through a lot of them. I always go back to when I think about the strategic priority for our company, we talk about things like we want to generate strong operating cash flows. We want to have high returns on equity. We want to have a responsible balance sheet, and we want to profitably grow over time. And so that's part of our DNA. It's what we talk about all the time. It's done well for our shareholders, and we will continue to do well for our shareholders.

So Buck?

All right. Jim, great overview. Great start. We should have plenty of time for questions as well. So if you guys want to queue some up, feel free to chime in. But let me start with the mortgage rate outlook is starting to improve, finally. We've got, it feels like 5 handles and starting or getting close to 5 handles on mortgage rates. We'll see how that stimulates some demand. I was wondering if you can talk through a little bit of what works in terms of the incentive structure that you guys are rolling out? How do you adjust that if mortgage rates do roll a little bit lower? What kind of differentiates what you guys are doing versus some of the peers that are really rolling heavy these mortgage rate buy-downs? And just talk us through that strategy?

Well, it's a great question. And mortgage rates are important. And I've heard other people say this and I use it a lot as well. Mortgage rates are as much mental as they are math. I think for the normal consumer that's out there today, they may not know what a mortgage rate is. They may not know what their monthly payment would be. But if you start to hear things in the news like mortgage rates have started to go down, you hear about it. You go out to dinner with your family and friends, and they say, "Hey, now is a good time to buy because mortgage rates have gone down, your wife's elbowing over there saying, our house is too small. I told you I want a new house.

I think those are the kind of things that if you have a good healthy mortgage rate environment that's going down, and you've got a good employment. You've got a good job base and you feel comfortable in your job. That's all good news. You can almost see that as mortgage rates come down and it starts to get in the news, you'll see a little bit more foot traffic come into your communities. I would tell you that mortgage rate or buydowns are important to our organization, but maybe not as much as some of the competitors.

So if you think about it, I showed some of the slides. Over 60% of our business today are move-up consumers and active adult consumers. And so they have more financial wherewithal. I said, Del Webb, consumers 50% of them pay cash. So when we get into like mortgage rate buydowns. Our buyers, we have to figure out how do we get them across the finish line, how do we solve for their monthly payment. We don't have to get as aggressive.

We -- everybody asks us as mortgage rates go down, you keep buying rates down further, we really don't. We've been very static. And what you end up seeing is, look, you can stick a little bit of money into your pocket. You can use it for other incentives. A lot of customers really like when you say, "Look, I'll give you $5,000 to go pick options out of your community. So we just kind of move around the incentives in order to hope get the monthly payments solved for them.

What is the kind of the sweet spot for that entry-level buyer that you typically see nationally? What gets them most often over the finish line?

Everybody, here's, yes, every consumer is slightly different. I would tell you that what we've talked about for the past year, and it still holds true today, if you can get consumers in the 5s and so pick a number, if it's 5.25, 5.5, if you've got a good employment status, you feel good about it and you can get into that 5.25 to 5.5. Feels like it kind of fits the right balance, you can get consumers across the finish line or across the threshold.

Yes. It feels like we're -- it's interesting you mentioned how Florida has held up, you're seeing some signs of strength in Florida. We look at Florida and Texas kind of -- I kind of think of them as canaries in the coal mine to a certain degree because of the COVID inflow population. I mean post-COVID, Florida and Texas, we just saw just massive inflows of population. And we saw the builder response to that with aggressive new starts and entry levels. We saw a ton of housing starts. But now we're starting to see a little bit of differentiation, maybe it feels like Florida is coming out of it, maybe a little bit faster than Texas. I'm just wondering what you're seeing on the ground in terms of what differentiates those 2 regions of the country?

Yes. It's a great point. And if you've looked in the last 12 to 18 months, there's always headlines about Texas and Florida. And it's interesting because even within -- I'll start with Texas, and I'll pivot to Florida, which has been very resilient for us. Even within Texas, you've got different markets.

So you've got an Austin market. They have a lot of in migration and tech space there. There have been resetting of prices there. You've had Houston that's more affordable, Dallas, you've had a lot of like IT jobs that are there. San Antonio has been different. So even within the states, it's different. So I would tell you that what we started to see in the back half of '25 is you started to see some of those Texas markets get a little bit stronger.

We started to see some green shoots come out in places like Dallas and San Antonio. Florida is an interesting one because everybody talks about Florida and they talk about the amount of inventory that was out there in Florida. And I would tell you that a lot of that inventory were probably occasions where we weren't building. They were a little bit farther out, a little bit more affordable. Our Florida business has been the most resilient of all of our operations in the past year. And we have a really healthy move-up business and we have our active adult business. I said, if you go back to what I said earlier, those are consumers that today as a star market expands, active adults feel much more comfortable with their nest egg.

So they might be willing to transact in a move-up buyer who said, "Look, I bought my house in 2018. It's appreciated 40% over the past so many years. I can sell it. I have more equity in it. They're not as impacted. And so our Florida business really well. And again, I look at places like Orlando, Fort Myers and even the Tampa area, they've been very strong for us all year.

Yes, yes. Fantastic. Speaking of land, I'm curious if we're seeing any signs that land sellers are starting to negotiate a little bit more, are you finding any pockets of price relief or extending terms or deals and -- maybe just talk through like you said, you -- Pulte's made a very intentional decision to stay very close to population centers and premium locations and kind of paying up for that. But -- how is the kind of the A-ring versus the B-ring C-ring? How are things playing out in the land market right now?

Yes, it's a great question. I always say land sellers, they have long-term memories. So they know that you saw -- you bought a piece of property from Jim a year ago at $200,000 of the acre and Darnet, my property is better than his, so I want 2.25%. I would tell you in the land space, what we saw in 2025 is you started to see some land owners get more open to it.

Typically, what they're usually willing to do is if you approach them and say, "Look, I've tied up your property, I've entitled it. I'm open today. They usually give you time. Time is our best friend when we're going through that because the seller at the end of the day says, if I have to throw you off of the dirt and walk from it, walk from my contract, I have to go find somebody else, that's going to take a year, then they're going to entitle it. And so usually, they'll give you time. But even this year, we saw land prices start in 2025, you started to see some opportunity on land prices. What I would tell you is if you have an A+ cherry on top locations, you're not seeing the movement there. But as you start to get to the B-rings or even the C-rings, that's where you start to see land sellers get a little bit more opportunistic and more willing to play the game with you.

Yes. And you mentioned you still have a target of getting up to about 70% of kind of land optioning. How do you get to I mean, is there enough traditional land or I guess, core land sellers, but where do you have to pivot to land banking in a larger fashion. How do you think about land banking fitting into the equation?

It's a great question. If you go back maybe 5, 6 years ago, we used to be about 30% option. We got ourselves up to about 50% options a couple of years ago. And what we said was we started to feel a resistance point where every deal that we go into, we want to negotiate an option with an underlying land seller or a landowner in a market. Why? its most flexibility, usually smaller deposit requirements to your question earlier. And so those are the most ideal. And the good thing about it is about 80% of the lots that we have under option today are with underlying land sellers. It gives you great risk mitigation and it's capital efficient. But we have had to supplement it with land bankers. And so those are transactions that we look at. And when we approach them with land bankers and say, how do we get from 50% up to 70% in the coming years is what we want to do with land bankers is, first and foremost, you can get some capital efficiency off of it.

But we want to make sure there's risk mitigation. Because at the end of the day, if all we're doing is paying for financing charges, we can go out and borrow a lot cheaper than that. But if there's true risk mitigation and even in a land banking transaction, if the market is not in a good spot, I want to renegotiate with that land banker.

I don't want to see if there's opportunities to either get additional time or potentially change the price. So that's the way we do it. So we've got about 7% of our overall lots that we control are about 16,000 lots are under land banking. And so as we look over the next couple of years, we want to increase that. The one thing I would tell you, though, we don't want to be myopic about it. If tomorrow, I said, "Hey, let's turn into a 70% option book. We could do that, we could find people willing to loan us money and help us, but we're not looking for that. We want to look on a deal-by-deal basis, how do we programmically continue to increase that percentage.

I want to make sure there's time for any questions you guys want to chime in? Anybody having a. Yes.

Just as a follow-up on the [indiscernible] from the land sellers point of view. [indiscernible]

I mean it's interesting -- it's interesting. You would think everybody would say, no, I want my cash today. I want it now. I want to cash out of this, but what you find is a lot of the times land sellers, they're very sophisticated and so what they say is, look, I'll sell it to you under an option, but I want a financing component to it.

So it's a little bit higher, really sophisticated land sellers, a lot of times what they'll say is, I'm really proud of my land and what I'd really like to do is we negotiate where maybe you have kind of a participation in profits. When you actually close that home 3 years from now with a customer, maybe they get a little bit of additional profit.

So it's always interesting. Some of them are motivated, maybe you have 6 family that own a piece of property and they can't get along. They want to close that property now. Sophisticated land sellers might say, look, I'd rather sell it to you over time and they can maximize the value of their asset.

I think there was one more. Do you might have a hand up over here?

[indiscernible]

So there's a lot of talk out there. I guess, first and foremost, it's good that people are talking about housing. It's an important one. What I would tell you is that there's been a lot of ideas that have been thrown out there. I don't think there's any short-term fixes or anything like that. I think as you think of the state of the union in recent comments, I think there's been some positives that risks have been taken off the table.

At one point, there was talk of getting more supply into the market, new home supply into the market, which that's not a good answer. That creates pricing pressure for new homes. It also creates pricing pressure for existing homes. And so I think some of those risks have been taken off the table. I would tell you if longer term in the coming years, there's abilities to impact local municipalities, whether it's density or zoning changes that will allow to build more affordable homes, that would really be the unlock. But again, that's probably a multiyear before we get there.

Can you give us some insight into your cost of raw materials [indiscernible]

It is, yes. I mean you go through that supply chain disruption that we had. Things are being delivered out of order. So what I would tell you is that as we look from the middle of 2024 until the end of 2025, our cost per square foot, what we were building, they stayed flat. We were at about $79 a square foot so they held.

So I think our procurement teams did a great job looking for alternative suppliers and really squeezing it. As we look at 2026, we've said that we expect our house costs to be flat to slightly down. And so I think, again, our teams are doing a good job. We're seeing some different savings, whether it's in roofing or siding or maybe some of the drywall. So we started to see that start to come down. The other thing that's there is if you think about it from a labor standpoint, as builders slowed their start rates or their production last year, it created a little bit more availability of labor.

So that can change on a dime if the market accelerates, but we've seen some opportunity there, not that the trades are being paid less, but probably squeezing some of the profit margins for the owners. So...

Some people that the immigration challenge making the labor situation change haven't [indiscernible]

We have not seen that in any of our local markets today.

[indiscernible]

Sure. So maybe I'll split it into 2. resale inventory, and again, this is hard to describe for the whole country. But I think resale inventory in most locations today is in a good spot. It's not 1 month or 2 months of supply like we had kind of in the middle post-COVID. But I think most inventory is in a good spot. And I think a lot of that is because you have consumers that are locked into their home. They're sitting on a 3% or 4% mortgage rate. And so they're like, well, I don't want a 7% mortgage rate to move. And so I think resale is okay.

I would say new home supply has really gotten almost to an equilibrium where you'd want to be in most markets, not all of them. But what I would tell you is that builders ourselves and many others said, look, they slowed their production rate. We trimmed our spec inventory, for example, by 18% year-over-year. So I'd say that we're probably in my book, we're about 500 units higher than I want to be. We can get the last 500 units out. I would tell you we're at a very good healthy state. And I'd say most builders have done the same thing and kind of followed suit.

I want to go back to kind of the materials question. I mean you guys made a decision on ICR and to get out of the kind of the off-site manufacturing business. You guys have put a lot of time and effort into that. So maybe you're seeing some different things or new entrants into that market. Can you walk us through kind of the -- what you're seeing or the change in decision on that strategy? And what's kind of the future of building technology or off-site manufacturing, anything else?

Yes. We're as excited about off-site manufacturing as we were several years ago when we first pursued ICG and we acquired it. So what I would tell you, though, what we've learned over time is, one, ICG has been a great producer for us, high quality, gotten the material to our home sites on a timely basis. So it's been really good. But it's time intensive. There's a lot of capital investment, a lot of time and focus that you have to do. And so as we've seen other entrants come in, they're making significant investments in it. What we decided is, look, we want to take advantage of technology and innovation in this space going forward, but we'd rather do it as a buyer than an owner of it.

And so we see opportunity, whether it's with ICG or with other facilities that are out there or other suppliers, we think we can take advantage of that better going forward.

All right. Sounds good. Well, I think we're running on time. So I just want to keep us on schedule. Thanks again, Jim. Great presentation. Thanks again, and we have a breakout session downstairs.

Thanks, Buck.

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 PulteGroup Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Jim Zeumer. Please go ahead.

Thank you, Jordan, and good morning. I want to welcome everyone to today's call to review PulteGroup's fourth quarter operating and financial results. Joining me on today's call are Ryan Marshall, President and CEO; and Jim Ossowski, 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 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 PulteGroup has ranked #1 in total shareholder returns among homebuilders for both the past year and the past decade. This is a sustained record of success for which we are rightfully proud.

PulteGroup'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 build-to-order production as well as a highly disciplined approach to project underwriting and overall capital allocation.

In a year that subbuyer 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 PulteGroup. Among the 2025 financial results that I would highlight, we closed over 29,500 homes and generated wholesale 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 homebuilding 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 overall home buying demand was softer such as Texas and in many of our Western markets. Beyond this broad geographic footprint, PulteGroup 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 signups 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 Del Webb communities routinely deliver our highest gross margins. Del Webb has been and will continue to be an important driver of multigroup superior gross margins and most importantly, high returns. While I think we all view 2025 as a more challenging year than anticipated, PulteGroup still reported $2.2 billion of net income, the fifth most profitable year in our mystery 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, PulteGroup has invested a total of $24 billion in land acquisition and development over the past 5 years. We believe our disciplined land investment will enable us to routinely achieve community count growth in the range of 3% to 5% in 2026 and in the years beyond.

As part of our keen focus on advancing the homebuilding 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 off-site 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 homebuilding platform. but we have determined that our business and in turn, our shareholders are best served by us focusing on our core homebuilding operations.

After the sale, we will be able to benefit from any innovation in 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, PulteGroup 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 PulteGroup's ability to capitalize on any opportunities the market may present.

Now let me turn the call over to Jim Ossowski, for a review of our fourth quarter performance. 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 orders for the quarter reflects a 6% increase in average community count to 1,014, and 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 to 2.6 homes per month for all of 2024.

For the fourth quarter, our cancellation rate as a percentage of starting backlog was 12% 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% from 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 doll business as we grow that segment towards our targeted range 25% of total unit volume. Quarter fourth 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 of 7,821 homes in combination with a 1% decrease in the average sales price of closing to $573,000.

By buyer group, closings in the fourth quarter were 37% first time, 39% move-up and 24% active adult. In the prior year fourth quarter, our closing mix was 40% first time move up and 20% active adult. In response to questions we have received, I would note that our Q4 closings included approximately 100 build for rentals. 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 respectful. 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 or to increase the percentage of built-to-order homes and our production pipeline.

Given the number of homes under construction, -- in the 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 in 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, even investment made in prior years and a land pipeline of 235,000 lots under control, we expect our average community count for all 4 quarters of 2026 and be 3% to 5% higher than the comparable quarter of 2025. For our fourth quarter, we reported gross margin of 24.7% and compared with 27.5% in Q4 of last year.

As noted in this morning's press release, our 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 incentive of 9.9% of gross sales pricing. This compares to $7.2 million 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 to 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 homebuilding SG&A expense of $389 million or 8.7% of wholesale revenues includes an insurance benefit of $34 million recorded in the period.

Prior year homebuilding SG&A expense of $196 million or 4.2% of home sale revenues included 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 revenues. In the fourth quarter, we reported other expenses of $99 million, which includes a charge of $81 million, resulting from the expected divestiture of our off-site manufacturing operations.

For the fourth quarter, our financial services operations reported pretax income of $35 million, which is down from pretax income of $51 million in the fourth quarter of last year. Financial services pretax income for the period was impacted by a number of factors, including lower ASPs and closing volumes in our homebuilding operations and a lower mortgage capture rate. Our mortgage capture rate in the fourth quarter was 84% compared with 86% last year.

PulteGroup's reported pretax 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 a renewable energy tax credits recorded in Q4.

Looking ahead to 2026, we expect our tax rate to be approximately 24.5%. 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, PulteGroup's for net income of $2.2 billion or $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, PulteGroup repurchased 2.4 million common shares for $300 million. Including our Q4 activity, we repurchased 10.6 million common shares in 2025 and were $1.2 million or an average price of $11.76 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 acquisition and development, which was evenly split between the 2 activities.

For 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 down on a sequential basis by 5,000 lots from Q3 as we continue to carefully review each land deal to make tactical decisions to exit select transactions. It is fair to say that the slower housing environment is beginning to have an impact on the land dynamics in some markets around the country.

Depending on the market, the seller and the underlying land assets, 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 to ensure deals still meet our risk-adjusted return hurdles given current prices and bases. Our local teams are also looking for opportunities to upgrade positions, which is land deals that were previously under contract and back to marketing.

As Ryan mentioned earlier, we generated $1.9 billion of cash flow from operations in 2025 as we managed our housing starts, controllably and spend includes incremental homes in the fourth quarter. We will maintain the same disciplined approach to 2026 as we align investments into the business with buyer activity.

Given current market dynamics, 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 spend, the expectation that house inventory will increase commensurate with an increased level of build-to-order home sales, we 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 at quarter end and 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 peatedly, 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, on fleet 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 moved 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 D.C. 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 a year-over-year increase in fourth quarter sign-ups of 13%. Beyond the strength of our land positions and our overall homebuilding operations throughout the Florida markets, data suggest 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 increase by upwards of 4%, a more financially capable consumer in combination with an improved 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 Zeumer.

Great. Thanks, Ryan. Now prepared to open the call for questions. So we can get to as many questions as possible during the remaining time of this call. [Operator Instructions] Jordan, if you would, we're prepared to take question prepared question now.

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

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 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?

Yes. 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 5 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 that, we've really just tried to run kind of a balanced, thoughtful business, not be wasteful, but make sure that we're investing in the right places. We have made some targeted reductions in force in a handful of markets. We did that in the November time frame 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 is extraordinary.

Okay. That's helpful. And then I wanted to touch on ICG. I mean we've been pretty big proponents of off-site 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 homebuilding as a longer-term solution to the chronic undersupply?

Yes, 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 homebuilding machine -- and we've learned a lot over the last 6 years, gotten a ton of benefits in kind of what the overall housing operation has derived from the innovation that's happen there. .

We've just come to the conclusion that we think we're better off focusing on the core competency, buying land and titling, developing, building homes. And including ICG and whoever the eventual owner of that will be combined with many of the other national off-site manufacturers, they're making a truckload of investment in innovation, and we think we'll be able to continue to benefit from those innovations that innovation spending into the whole building operation without necessarily being a direct owner of it.

Your next question comes from the line of Michael Rehaut from JPMorgan Chase.

First question, I'd love to get maybe dive in a little bit to the full year gross margin outlook that you laid out on the call and I appreciate that. given that it may be a step more in the direction of guidance than some of your peers are willing to do. I wanted to understand the assumptions, particularly as you anticipate your first quarter gross margin, it seems like being 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 you're thinking about promotions of promotions or incentives stabilized. They obviously rose throughout 2025, labor materials? And if there's any positive impact from the divestiture of ICG?

Mike, it's Ryan. I appreciate the question. And we take 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 cost to increase in the range of 7% to 8%, and we'd expect to see the discounts remain elevated. We'd hoped 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 work. And it was the reason in my opening comments, I said we've -- that strategy and the way we operate has generated the highest TSR, not only for the last year, but also the last decade. So I would say those are the big components of how we think about margin.

No, that's great. 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, concern 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 3 to 6 months? And if you describe that stabilization is 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 is an important market for us, Mike, and we've talked -- we tried because it's such an important market to us, and we think all of housing, really, we try 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 or Myers, Naples, the East Coast of Florida, so Palm Beach, Bureau Beach, Canaccord Lauderdale. Orlando continues to be exceptional. Tampa has been stable, but 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.

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

Your next question comes from the line of Sam Li from Wells Fargo.

I wanted to unpack the step-up in incentive lows from the third to fourth quarter. I believe they were up about 100 bps sequentially based on the prepared remarks. It sounds like a lot of that was geared towards clearing spec inventory. So would just love to hear the levers that you pull to clear the spec inventory, maybe delineate between price reductions versus buydown. 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. Yes, the increase in the fourth quarter really was the incentives to move some of the speculative inventory. We closed a couple of extra 100 units at the to the high end of our guide. And so we got a little bit more aggressive in some places. So that's really where it's coming from. Financing incentives for the quarter were flat. It was really just had to get a little bit lean in a little bit more in some places. And so that's what we did in the fourth quarter.

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

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

Yes. I'd point you back to the answer that I gave to Mike. We're -- we don't specifically guide to incentive loans 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 2 any categories, so I'm thinking of material categories where you're getting price concessions would just love to hear the wins that you might be achieving here to get the lower stick and brick. And then perhaps also talk through the labor component. And just what you're seeing on the labor side?

Sure. So 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 prepared remarks, they'll be down flat to down slightly next year. 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.

The one thing I'd say is included in that, the impact of tariffs are in that guide 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 that as a good opportunity for next year.

Your next question comes from the line of Stephen Kim from Evercore ISI.

Appreciate all the color 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 at about little -- basically at 7 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 am 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 3 to 4 months. to make sure that our start rate matches our sales rate and that we weren't adding to the stocks that we have.

Ideally, what we're really endeavoring to do is to move back more into a build-to-order builder, where 60-plus percent of our sales are built to order, 40% are spec. The last couple of years, we've kind of been inverted. We've been 60% spec, 3% dirt. And it won't happen overnight, but we're moving the company slowly back in the direction of more build to order. We think that's better for the way that we have our capital allocated to homebuilding business. Our margins are higher on build 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 build-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 build-to-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 stock available, especially in the entry-level price points.

As it relates to the incentives, the spring selling season, I think, is ultimately 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 increased lot cost, which is not insignificant at 7% to 8% and a little bit of a tailwind or a help from lower house costs. So we think the range is where we sit in kind of early -- or late January, early February. I think it's a pretty good range. but we're optimistic that maybe there's more.

Yes. I 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 pre-pandemic, you all were running kind of like 3 to 4 specs per community, which is 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 doing the math properly here? And then I haven't missed something.

Yes, Stephen, not having the luxury of seeing your model, I probably wouldn't want to comment on your math. We'd certainly be happy to follow up with you on that. I would say we've got a pretty complicated model on our side as well. And we've gone through and made 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 pre-COVID level cycle times at around 100 days. So 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.

Next question comes from the line of Alan Ratner from Zelman & Associates.

Ryan, you brought up an interesting point that I was hoping to touch on in terms of the forward commitments on build 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.

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

Just the margin differential between BTO and spec right now.

Sure. Yes, yes. So Alan, in terms of kind of the forward commitments, it's really driven by the faster cycle times. So we're -- overall, for the entire enterprise, we're at 100 days on single family. We've got some multifamily in there that takes a little longer. But on single-family, we're 100 days, and we have some markets that are down into the 70s. So that's the predominant driver.

And then the rates that we can offer on those longer-term rate locks, they're not quite as competitive or as low as what you might see on 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 5s, low to mid-5s. So roughly 100 basis points below what you could get kind of in the open market today.

And then in terms of kind of margin differential between spec and build to order, depends. But suffice it to say that I think we've been fairly consistent with us. We have 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 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 that's the biggest kind of contributor to the marginal performance as 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, sign-ups 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, call it, couple of months alongside all the policy noise and interest rates hopping around. Any color you can give would be great.

Yes, 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 pings really being felt. So I think we've leaned in. We've really worked to try and address affordability. Move-up and active adult pricing has really been kind of flat. So I hope that kind of helps give you a little color on what you're after.

Your next question comes from the line of Anthony Pettinari from Citigroup.

I was wondering if you could talk a little bit more about the 80 bps of impairments in the quarter 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.

Yes. Thanks for the question, Anthony. So Ryan touched on it a little bit earlier in some of our prepared remarks. 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 the 1,000 communities that we operate in, we had to them that we took a land impairment charge on, which is really just the matter we had to get a little bit more aggressive on pricing. And so we move 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, and it was in our prepared remarks, we've been more disciplined as we've been looking at it. In the quarter, 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 it's in that, there was about $22 million of land charges which is included in our other expense categories where we classified in the fourth...

Okay. That's very helpful. And then just switching gears, with regards to affordability, do you see the administration's 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 could help stimulate housing demand in kind of a sustainable way?

So I'll take the build-to-rent question first. Jim shared the numbers for us and for both the full year and the quarter, and they're really immaterial. We had 100 build-to-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 towards that.

We just -- we felt that we wanted to dip our toe in the water, but we didn't want to be overexposed and I think, hindsight in 2020, that was a great decision. In terms of kind 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?

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

Yes. It's -- we've had conversations with the administration. And the administration has been very active in leading in and trying to address housing affordability. There's a lot being talked about. As I know you can appreciate, it's hard because housing remains very, very local.

And so I think the entire industry else included, are going to continue to work with the administration to try and create more supply, which ultimately will impact affordability. The American terrain is -- and home ownership is at the core of the American terrain. And we want to make sure that we're doing everything that we can to keep that healthy, and I think the administration is as well.

Your next question comes from the line of Matthew Bouley from Barclays.

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, was 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 purpose-built build for rent, would still be potentially okay if that does all go through.

So I'm curious if there's actually an opportunity to do more build for rent. Or is that given what you just said, look, 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.

Yes. 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 will drive better returns for our shareholders. 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. Does that mean the entire community is built for rent? Does that mean it never goes on the MLS? There are 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. 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 interest rates that we've had?

I would tell you the financing incentives have stayed very consistent for the last 3, 4 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, as we get to the spring selling season, and we've gotten our spec levels down, there's hope that there's opportunities that maybe you could pull back on that other lever. But otherwise, financing incentives have stayed flat for us on expected.

Your next question comes from the line of Trevor Allinson from Wolfe Research.

A question on your volume performance in the quarter. From an orders perspective, you outperformed historical seasonal trends for the second straight quarter. With that in mind, should we think of the roughly $2.3 billion absorption rate that you did in 2025 is 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 that $2.3 billion level or higher moving forward?

Trevor, I think we would certainly endeavor to do more. We always like to sell more in terms of saying are we at a floor, that's hard to tell. The market will ultimately kind of 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 $2 billion.

So we're above that we endeavor to do more in such a way that we can deliver the guide that we've given for the full year. So hopefully, that helps.

Yes, 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 $2 billion number is very helpful. And then second, just a follow-up question on spec.

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 efforts to do some in 4Q. So I may have missed it earlier, but where do you -- where do you finish spec per community to today? And with that in mind, what is your expectation for starts moving forward relative to...

Yes. Trevor, so as I mentioned, for the last 4 or 5 months, we've been matching our starts to our sales. So 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 Vinyls sit at 2000. That's a number that's probably a little higher than what I'd ideally like it to be just because you've got a lot of capital tied up in those homes. So 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 sitting out there.

I go back to the very first question that I addressed. Ideally, we'd like to see kind of our business revert over time back to predominantly build-to-order model. We think it is a major contributor of our kind of return outperformance. And it's hard to do. It's hard to run a build-to-order business. but we think we know how to do it. We've got a good model, but we'll endeavor to put back in place.

Next question comes from the line of Kenneth Zener from Seaport Research. .

Ryan and team, I wonder if we thought about your business, which you report consolidated and we look at it, if you could give us some comments by your regional disclosure, I was using like third quarter is kind of a 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 historically would have been higher to compensate for more asset terms, it's lower.

Is this -- 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 see last call it, quarters? Is there immigration issues or headwinds that are distinct in the West versus Florida or Texas. Can you just talk about why that region has -- appears to have a structurally greater challenge on the gross margin side?

Yes. Sure, Ken. We -- I think we, along with the entire industry has been pretty clear for over 1.5 years the West has been a more challenged environment, predominantly driven by affordability. It does have -- especially the coastal markets, some of the highest home prices in the country and as interest rates have gone up, but 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 the 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 on our Florida Southeast, Midwest and Northeast businesses have done. So another advertorial kind of pitch for why the diversity in geography is so important to kind of who we are.

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

Just a couple of follow-ups. One to go back on the incentives and sorry to harp on this, but if incentives were kind of up your dips and the quarter. Can you just comment on 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 the quarter and year? Or should we be thinking more in line with kind of the average levels that you've seen?

Yes, Mike, we're probably not going to slice the ballooning quite that thing. So we were 9.9% in the quarter. We were 9% the prior quarter. So the exit rate probably was a little higher than 9.9% as we move 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 3 quarters. .

As we go into the current year, I wouldn't -- again, I wouldn't slice the ballooning quite so then on exit rate versus quarter rate. Just 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 of 24.5% to 25%, which 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, right. And then second one, just back on ICG. I guess your company and its predecessors had previous experience in owning some of these assets added 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 what ultimately catalyzed your decision here that just for whatever reason, this -- you reached the decision that this doesn't make sense? And can we think of this as -- nothing is 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.

Yes. I think it's a couple of things. Number one, we bought it right is coat was starting. So I think the supply chain challenges and some of the things that happened kind of in a post-code 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, off-site 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 McCanless from Citizens.

The first one, just wanted to square up the commentary that Jim Ossowski made about being able to maybe reprice some land deals and relating that to the land inflation you talked about 7% to 8% for this year. Is there any chance you all could work that number down as you rework some of these land deals?

Great question, Jay. I would tell you, the land that we're under contract or we're seeking to buy right now, the ones that we're renegotiating, those are 2027 to '28 closing. So really, the increase that's in our guide for this coming years, land we bought a couple of years ago. So really don't see the opportunity in the short term. But as we look for 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 guys, in the last couple of quarters, have talked about Del Webb communities more than coming line. Just wanted to get an update on that and see if that's still going to be the case in '26.

Yes, Jay, it is. You see it in the sign-up trends in the quarter and even in the full year, we're up to -- in the most recent quarter, 24% of our closings were from Del Webb. 23% of the sign-ups in the quarter were Del Webb. Those new communities have opened in the last kind of 1 to 2 quarters. We've got some more that are coming next quarter, which is what we always said. 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 look forward to speaking to you on our next earnings call.

Thank you for standing by, and welcome to the PulteGroup, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

Thank you. I'd now like to turn the call over to Jim Zeumer. You may begin.

Thanks, Rob. Good morning, and thank you for joining today's call as we look forward to discussing PulteGroup's third quarter operating and financial results. With me today are Ryan Marshall, President and CEO; Jim Ossowski, Executive Vice President and CFO; and David Carrier, Senior Vice President, Finance.

As always, a copy of our earnings release this morning's presentation have been posted to our corporate website at pultegroup.com. We will 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 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. Ryan?

Good morning, and thank you for joining this morning's call. I look forward to updating you on PulteGroup's strong Q3 financial results and underlying business strategies that have positioned our operations for ongoing success.

Specific to the company's third quarter results, our homebuilding operations successfully closed over 7,500 homes, which helped to drive another quarter of overall strong financial results. As Jim will expand on shortly, I am pleased to highlight that PulteGroup generated third quarter home sale revenues of $4.2 billion, operating margins of 16.8% and earnings of $2.96 per share. And given our focus on returns, I would also highlight that the company has delivered a return on equity of 21% for the trailing 12 months. These results reflect the strength of our diversified operating model, which continues to serve us well in a U.S. housing market where home buying demand has been challenging.

Geographically, our diversified operating platform that spans across 47 major markets remains a key strength. While our broad reach across buyer groups, first-time move up and active adult provides unique strategic advantages that are helping us to successfully navigate today's demand dynamics. Specifically in today's market, weaker consumer confidence and stretched affordability are limiting opportunities with first-time buyers, while demand has been more resilient within the active adult segment, where we, through our Del Webb brand, are a recognized leader. For those of you that have not had the opportunity to visit the Del Webb community, think Disney Cruise ship for those 55 and older.

At 500 to 1,000 homes, Del Webb communities are larger and offer amenity packages that can include everything from tennis, pickleball, fitness, spa, to social activities, food and dining. But more than anything, Del Webb communities offer personal connections in a place to belong. As we highlighted on previous calls, we are capitalizing on the brand recognition and power of the Del Webb name through our new Del Webb Explorer communities. Our new Del Webb Explorer brand is designed to serve today's GenX buyers looking for the amazing luxury lifestyle but without the age restriction. We are in the early stages of planning a get to no Del Webb event in 2026, and we will keep you posted on the timing.

Getting back to our results, in the third quarter, traffic to our communities was higher than last year. Although conversion rates fluctuated from week to week, based on feedback from our sales associates, consumers remain engaged in the home buying process, but they are proceeding with caution given concerns, which I think range from economic weakness and job stability to stretch affordability. I think that is why by a response to the decrease in interest rates was more muted than we experienced in other periods of recent rate declines.

We have always said that interest rates are a positive, lower interest rates are a positive for housing demand, but rates don't operate in a vacuum. There is a clear offset if rates are coming down because the economy is slowing and people are worried about their jobs. I believe that is the scenario we are experiencing right now. That being said, I would note that our Q3 absorption rate of 2.2 homes per month was consistent with our pre-COVID average, although down from last year's third quarter absorption rate of 2.4. Again, while demand conditions differ by market and buyer segment, we would characterize U.S. housing demand as good, albeit competitive and with some challenges. But one in which our size and scale allow us to compete effectively.

As discussed on prior calls, earlier in the year, we proactively made decisions to better align production levels with sales volumes. In the third quarter, we started 6,557 homes, which effectively equaled our Q3 sales pace. This pace is consistent with our strategy to match starts with sales as we work toward an appropriate level of inventory relative to current market demand. When setting our starts pace, our goal is to have the right level of inventory to meet core demand while avoiding excess finished spec production, thus allowing our sales team to sell through a position of strength.

With our average build cycle now down to just 106 days, we can carry less inventory and still be responsive to any demand acceleration in Q4 or as we enter 2026. Along with adjusting our pace of production, earlier in the year, we moderated our planned land spend for 2025 and remain on track to invest approximately $5 billion in land acquisition and development. At over $5 billion, our land spend would be down 5% from last year, but we remain in a strong position with a healthy land pipeline. A pipeline that can enable us to grow the business when home buying demand increases.

Let me finish my comments by recognizing and saying thank you to the entire Pulte team. They have truly done an outstanding job navigating 2025's evolving market conditions, while staying focused on delivering outstanding quality and service to our home buyers. You've done an amazing job team.

Now let me turn the call over to Jim for a detailed review of our third quarter results. Jim?

Thank you, Ryan, and good morning, everyone. I appreciate the opportunity to review PulteGroup's Q3 financial results.

In the third quarter, Pulte's net new orders totaled 6,638 homes to 6% lower than the third quarter of last year. The year-over-year decline in Q3 net new orders reflects a 10% decrease in absorption pace, partially offset by a 5% increase in our average community count to 1,002 communities for the quarter. As a percentage of starting backlog, our cancellation rate for the third quarter was 12%, which is modestly up from 10% last year.

On a sequential basis, the Q3 cancellation rate was up 60 basis points from the second quarter, which tells us that most home buyers once under contract remain committed to their own purchase. As Ryan noted, our third quarter absorption pace is 2.2 homes per month compared with 2.4 homes per month in Q3 of last year. Higher demand in the quarter reflected a typical seasonal pattern, although core demand in 2025 has been below what we experienced in 2024.

Broken down by buyer group, Net new orders among first-time buyers were down 14% from last year, and our move-up business was down 3%. As has been the case throughout 2025, our active adult business remains our strongest buyer group, as net new orders increased 7% over Q3 of last year. In the third quarter, net new orders within our active adult business benefited from both an increase in community count and absorption base. Active adult sales represented 24% of Q3 net new orders. And as we have shared on previous calls, most of these homes will be delivered in 2026.

Home sale revenues in the third quarter totaled $4.2 billion, which is down 2% from last year's Q3 revenues of $4.3 billion. The decline in home sale revenues reflects a 5% decrease and closing volumes to 7,529 homes, partially offset by a 3% increase in average sales price of $564,000. Closing ASP benefited from the geographic mix of deliveries realized in Q3 of this year. By buyer group, closings in the third quarter were comprised 39% first-time, 39% move-up and our active adult business represented 22%. This is generally in line with our mix in the third quarter of last year when our closings were 40% first-time, 40% move-up and 20% active adult.

Reflective of Q3 orders and closing volume, we ended the third quarter with a backlog of 9,888 homes valued at $6.2 billion. In the third quarter of last year, our backlog was $12,089 homes with a value of $7.7 million. We ended Q3 with 15,096 homes in production, of which 7,369 or 49% were spec homes. In absolute numbers, our quarter-end inventory of spec homes was down 1% from the third quarter of last year and down 16% for almost 1,400 houses from the start of this year. Our field teams have done an excellent job managing starts as they work to balance inventory levels with consumer demand.

Given current sales trends, and specifically the number of built-to-order contracts we are executing, specular likelihood remain closer to 50% of production for the next several quarters, which is higher than our targeted range of 40% to 45%. Since spec homes continue to make up a large percentage of overall sales, we are comfortable with our strategy for managing our spec position. Based on sales activity and a number of homes in our production pipeline, we expect to close between 7,200 to 7,600 homes in the fourth quarter. Given this guide for expected Q4 closing, the math tells you that we could exceed our previous guidance, this full year closings likely end up in the range of 29,000 to 29,400 homes.

We still have homes to sell close to achieve these numbers who are focused on converting spec inventory into closing and finishing the year strong. Given our backlog, production pipeline and recent order trends, we are still guiding to our average sales price of closings to be in the range of $560,000 to $570,000 in the fourth quarter and the full year of 2025. Looking at our land pipeline. We continue to expect our community count for the fourth quarter to be 3% to 5% higher than the comparable prior year period. In line with our previous guidance, we reported a third quarter gross margin of 26.2%, which on a sequential basis is down 80 basis points from Q2.

Pulte's third quarter gross margin is inclusive of higher incentives incurred during the period resulting from demand conditions and local competitive dynamics. Incentives in the third quarter were 8.9% of gross sales price, which compares with 7.0% last year and 8.7% in the second quarter of this year. While incentives move slightly higher, team is doing an excellent job controlling build costs, which at $79 per square foot were consistent with the prior year and with the second quarter of 2025.

Let me just add a quick update here to our prior comments regarding the impact of tariffs. At this time, we estimate that tariffs will effectively have little to no impact on our closings in Q4 of 2025, but they could increase build costs by roughly $1,500 per home starting in 2026. We will provide a more definitive estimate on tariffs when we report our fourth quarter earnings in January.

Factoring in current demand conditions, the generally competitive local market dynamics and our goal of reducing excess finished spec inventory, we now expect fourth quarter gross margins in the range of 25.5% to 26.0%. For the third quarter, SG&A expense was $401 million or 9.4% of wholesale revenue. This is comparable to prior SG&A expense of $407 million and 9.4% of home sale revenues. In the face of current market dynamics, we remain focused on appropriately controlling our overhead spend and finding opportunities to lower expenses while still delivering fulfill quality and buying experience for which Pulte has known. Given the success of our efforts, we are maintaining our previous guide for full year 2025 SG&A expense to be in the range of 9.5% to 9.7% of wholesale revenues.

Our financial services operations reported third quarter pretax income of $44 million, which is down from $55 million Q3 of last year. Pretax income for the quarter was impacted by lower closing volumes in our homebuilding operations and a lower capture rate in the period. Our mortgage capture rate in the third quarter was 84% [ to ] 87% last year. For the third quarter, PulteGroup's reported pretax income was $768 million. In the period, our tax expense was $182 million or an effective tax rate of 23.7%. Our effective tax rate in Q3 benefited from the purchase of renewable energy tax credits. For the fourth quarter, we expect our tax rate to be approximately 24.5%, assuming no discrete period specific tax events.

We reported third quarter net income of $568 million or $2.96 per share. In the third quarter of last year, company reported net income of $698 million or $3.35 per share. PulteGroup's third quarter earnings per share was calculated based on 198 million diluted shares outstanding. Our share count is down 5% from the prior year as we continue to execute our stock repurchase program. In this year's third quarter, we repurchased 2.4 million common shares for $300 million. Through the first 9 months of 2025, the company repurchased 8.2 million common shares for a total of $900 million or an average price of $109.81 per share. At quarter end, we have $1.3 billion remaining under our existing share repurchase authorization.

Consistent with our stated capital allocation priorities, we invested $1.3 billion in land acquisition [indiscernible] in the third quarter with 54% deployed towards the development of our existing land set. Year-to-date, we have invested $3.8 billion in land acquisition and development as we work to maintain a reliable pipeline of near and long-term [ billable ] bonds. We ended the third quarter with approximately 240,000 lots under control. On a sequential basis, down 9,000 lots in the second quarter as we elected to walk away from certain option deals that were years out and early in the impediment process. These actions are consistent with our disciplined land underwriting practices and capital allocation process. Our ability to proactively manage our land pipeline demonstrates the importance of our differentiated approach to rolling critical land assets.

As we have highlighted in the past, over 80% of Pulte's land options with the underlying land seller, the remainder structure was one-off transactions with a select and [indiscernible]. We remain disciplined in executing our option strategy and focus on enhancing project returns and mitigating market rent. Based on our operating results in the first 2 quarters of 2025 and adjustments we have made to this year's production and planned land spend, we still expect cash flow generation for the full year to be approximately $1.4 million.

Let me close with a few comments about our balance sheet. We ended the third quarter with $1.5 billion of cash and a debt-to-capital ratio of 11.2%. Adjusting for the cash balance, our net debt-to-capital ratio at quarter end was 1.1%.

Now let me turn the call back to Ryan for some final comments.

Thanks, Jim. Before opening the call to questions, I wanted to provide some additional color as to the market conditions we are experiencing.

Generally, buyer demand in the third quarter reflected a typical seasonal pattern, although buyer demand at the local market level also reflected new and existing home inventories, which in a number of markets remain elevated. Seasonal demand trends remain on track through the first few weeks of October with traffic and buyer interest generally comparable to what we experienced in Q3. From a sales standpoint, we are now in the seasonally slowest part of the year, but we remain optimistic that lower rates in combination with the strong economy and higher confidence can ultimately work to energize new and just as importantly, existing home sales. For all those reasons, we focus on the new home market, but demand within existing home market remains soft, resulting in elevated levels of inventory. The extent to lower rates can revitalize existing wholesales, it will be a positive for U.S. housing.

Specific to PulteGroup's third quarter results, we experienced better home buying demand in parts of the Midwest, Northeast in the Southeast in markets ranging from Cleveland, Charlotte and the coastal Carolinas and Tennessee and D.C., Northern Virginia. I'm also extremely pleased to get to call out the relative strength of our Florida operations as our teams there continue to execute at a very high level. As you can see in this morning's press release, Third quarter net new orders for the state of Florida increased by 2% over the prior year. Market conditions are competitive. Our local teams are led by experienced operators who have assembled exceptional land pipelines over the years.

As has been the case for much of the year, consumer demand in our Texas and Western markets remained soft in the third quarter. You have heard me say before that we can't be margin proud. So when operating in more difficult market conditions, our local teams understand the importance of finding the market and turning assets while not giving away price needlessly. That is the approach we continue to take as we compete for sales and work to sell through finished inventory. I think it's fair to say that home buying demand in 2025 has been more challenging than the industry was an anticipating. And while it has been more challenging, I think PulteGroup's year-to-date results continue to demonstrate the importance of our diversified and balanced approach to the business. With a platform that extends across multiple markets and buyer groups and a business model that allows for greater operating flexibility, we continue to deliver strong cash flows and high returns.

Before wrapping up, I think it's appropriate to offer some thoughts about comments issued recently by President Trump regarding the need for more housing and better affordability. We agree with the President's perspective as it is consistent with industry estimates that routinely reference and underbuild in this country of 3 million to 4 million houses. While the supply deficit certainly has an impact on affordability generally, the complexities of the new home construction industry dictate that tackling a problem of this scale requires a coordinated and comprehensive approach that brings together federal, state and local leaders working in partnership with the new home construction industry.

We share the President's focus on housing in wanting to make the American dream more attainable for everyone. We look forward to helping address the issue of housing in America and working with the administration in developing actionable solutions that are consistent with Pulte's long-term strategic plans.

Now let me turn the call over to Jim Zeumer.

Great. Thanks, Ryan. We are prepared to open the call for questions. So we can get to as many questions as possible during the remaining time of this call. [Operator Instructions]. Thank you. And I'll ask Rob to explain the process and open the call for questions.

[Operator Instructions] Your first question today comes from the line of Matthew Bouley from Barclays.

I'd love to pick up on, of course, that last comment there, Ryan. So maybe if you can kind of delve into a little bit your dialogue with either the FHFA and the administration today kind of, from your perspective, what's sort of the right path forward here for Pulte in the homebuilding industry? And I'm curious if you can expand on that last comment around what may be some of those actionable solutions could potentially be?

Yes. So Matt, in fairness, we're not going to have this call be dominated by some of the comments in recent past. There's too many positive things happening inside of our business, and we're too excited about the future strategic direction that we're going.

The prepared remarks that I just shared, I think our fully comprehensive of how we fill on the topic. We have had communication with the administration, and we certainly think it is a complicated issue that is largely rooted in local politics and anti growth mentalities and it's going to be complicated to unravel and it's going to take a coordinated effort. So hopefully, that helps, but it's going to -- it's taken us a long time to get into the situation that we're in as a country to create this structural housing shortage. It's going to take time to unwind it as well.

Okay. No, fair enough. I really appreciate those thoughts. Maybe secondly, kind of delving into your own strategy. I think I heard you mention at the top that you're planning to run spec production closer to 50% now. You've been saying for a while, you were trying to get it back down to 40% to 45%. So I mean, is this more of kind of a market-driven approach, just simply saying, look, this is where the demand is better today for quicker move-in homes? Or kind of any other subtle shifts around your intention going forward from a volume and production perspective?

Yes, Matt, there's probably 2 concepts here that I'd highlight. Number one, we've been saying consistently for the entire year, we wanted to start to be aligned with sales and we'd ideally like our overall spec production to be -- our spec inventory to be 40% to 45%. That hasn't changed. Because of the challenging sales environment that we've been in, we've sold fewer tube built homes than we would have anticipated. And so just the way the math works out of what our overall backlog looks like the map has yielded a slightly higher percentage of specs despite actually lowering the number of specs that we have in production.

So the headline percentage is higher. We're not worrying too much about that. We're more focused on what are the actual number of specs that we have that we're comfortable with. And then what we really -- what we're really focused on is more dirt to-be-built sales, which is fully aligned with how we've historically operated the company -- in due time, I think that percentage will come very much in line with where we ultimately want to be.

Our next question comes from the line of John Lovallo from UBS.

The first one kind of dovetails off of Ryan's comments towards the end there about Florida and the Southeast, in particular, I mean Florida orders were up about 2.4%. Southeast was up 1%. I mean our checks seem to indicate some stabilization in demand pricing and even inventory in these markets. Just curious for your comments on those factors. Are you seeing something similar?

Yes. We are, John. There are markets that we've been bullish on even if you went back 2 or 3 quarters ago, and there was a lot of concern in the Florida, we were pretty consistent in saying, Florida is a good market for us. We've got great locations. We're not worried. And I think the results that we demonstrated over the last 2 quarters that have -- so we're now 2 quarters in a row of showing positive comps in the Florida business. And I think it is indicative one of the outstanding locations that we have that buyers want to live in those communities.

And then two, I think there is some good stabilization in Florida. You mentioned the Southeast as well. I think the same holds true. So these -- the Southeast and Florida are still places people want to move to. The weather is certainly desirable. From a business standpoint, the locations are generally program. They've got good tax policies. And I think those are things that are very accommodative to having a healthy housing operation.

Okay. That's encouraging. And then the $79 per square foot in stick and brick being consistent. I think that, that's encouraging. We've heard on the land side that not only are builders able to get a little bit of a break on the development side, but actually able to go back and renegotiate price and take down schedules? Are you seeing anything along those lines as well that might be helpful as we move into next year?

We are, John. We're definitely seeing some favorable terms, particularly on earth moving and some of the underground work, things that involve heavy machinery we're seeing more favorable terms than what we've experienced over the last few years. And those input costs to go into our future lot cost, I think that will certainly be beneficial in helping to reduce the amount of land inflation that we've been seeing.

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

Wanted to shift the focus or from a question standpoint, around the mix. And I know, Ryan, in your earlier comments, you kind of highlighted the active adult business, which is obviously a real distinction in terms of what Pulte is able to offer versus the competition.

If you look at the other 2 segments over -- in the back of your slide deck over the last 5 years, 4, 5 years, you've had the move-up business kind of shrink from 45% to 38%. And the first-time go from 31% to 40%. So I'm curious, as you look at '26, '27, and obviously, talking about higher margins for the move-up business as well as active adult, how should we think about that mix over the next couple of years, particularly as your build times continue to come in line and that was a big issue, I think, in offering spec and maybe shifting a little bit towards a ready-built model.

Yes. So Mike, we've worked really hard to kind of position our land pipeline towards what we view as an optimal mix of business that's indexed against what the overall opportunity is starting with the first-time entry-level buyer group. We see that business in the kind of 38% to 40% range overall. So pretty consistent with where we're operating today, and I think that is indexed against the overall buying opportunity or buyer profile in the United States.

The move-up business, we have intentionally brought down into that same range of about 35% to 38% ideally. And then the balance is our active adult business at 25%. So we're -- with our current sales rate, which Jim shared was basically we were 40%, 38%, 22% in the quarter. We're almost like perfectly indexed to where we want to be. The change that you'll see continue to play out over the next few quarters will be the active adult business going up to that ideal 25%. So we like the way the business is positioned. Certainly, the first-time entry-level buyer group is one that's been more challenged in this current environment that won't last forever. And we certainly think as the housing demand starts to return. That's a buyer group that we're going to be well positioned to serve.

I would remind everyone that our first-time entry-level communities do tend to play on the higher end of the price range of first-time entry level. They're typically closer in slightly better located. And so while it is a first-time entry-level buyer, it's not the lowest price segment of that particular consumer group.

Great. I appreciate that, and that's an important reminder on the first-time business. I guess, secondly, I know it's a little premature to give formal '26 guidance. But I think one of the questions we've gotten and maybe not just for Pulte, but more broadly for the group is right now, you're trending backlog volumes down as of the end of this quarter, 18%. I would assume that by the end of the next quarter, it might be in a similar type of ZIP code.

I think a lot of people are kind of struggling with volume growth, the prospects for volume growth next year, even if community count is up or mid-single digits, which I know is probably your ongoing goal. Maybe you could kind of walk through how you get the volume growth for next year and again, not asking for formal guidance, but either your directional level of confidence or what investors might be missing?

Yes. Mike, we'll look forward to giving kind of full 2026 guidance at the end of our next quarter as we wrap up the full year. So stay tuned for that. That said, we've got an amazing land pipeline that we work incredibly hard to build over the last 3 or 4 years that is very much in line and prepped for us to continue to grow our business. We certainly need the consumer and the market to cooperate with that. And what you've heard from us is we're going to continue to be balanced in our start rate to make sure that, that's responsive and reflective for the actual demand that we're seeing.

Some of those things we can't control. All that said, we are seeing some things out there that I think if they shape up with rates that come down a little bit, consumer confidence improves a little bit. We know that there is a desire for homeownership and we certainly think that we're well positioned to capitalize on that. The other piece that I think sets us up for success next year is our build time. We're down to 106 days. And then some of our entry-level starter communities, it's even faster than that. So we've really got some time before we need to make the decision on ramping our production levels to deal with the prospect of growing our business in 2026 over what we've done in 2025.

So we remain pretty positive and optimistic, Mike, about kind of where the business is at and more importantly, what the opportunity is. And stay tuned for kind of our full 2026 guide at the end of next quarter.

Your next question comes from the line of Alan Ratner from Zelman.

Nice quarter. First question, Ryan, I'd love to get some of your thoughts on kind of where the consumer sits today. You had a comment in the prepared remarks saying in a vacuum, lower interest rates are always good for housing. But maybe right now, people are perhaps incrementally worried about either their job or the direction of the economy.

And I'm just curious whether over the last 60 or 90 days, have you actually seen however you can think about this or quantify it, have you actually seen the consumer looking and feeling more stretched that's coming into your communities? Are you having a harder time getting buyers qualified? Are you hearing more concerns about the direction of the economy? Any color you can give would be great.

Yes, Alan, I think the majority of the focus that I would probably share is around consumer confidence. And so the benefit that we've seen when rates have come down has been the overall lift in consumer confidence. The actual financial benefit from rates coming down is still not at the level that we're incentivizing with our forward mortgage commitments.

So the REITs we've been offering and continue to offer are far better than anything that the consumer will get by a change in the interest rate environment coming -- getting better or coming down. So what we're kind of looking toward and for is some improvement in the kind of overall footing and foundation of consumer confidence. There's a lot that goes into that. We're at a dog on near at a 10-year low. So hopefully, we're kind of bottoming out on that, and we can start to turn that around and go the other direction. You combine that with the opportunity potentially for some further rate cuts this year and into next year, and I think the industry can be in a tremendous position to capitalize on what is that underlying desire for homeownership and housing demand. We know there's a structural shortage of housing. And if we can just get consumers confident about making this major purchase in their life, I think we can see some upside in '26.

Great. I appreciate those comments, Ryan. Second question pivoting back to the government, but not early, I guess, what everybody has been most focused on. There has been some good news coming out. I mean, I think the Senate recently passed the bill called the Road the Housing Act, which seems like it has a few pieces in there that could be longer-term positive for your business. We've heard a little bit of chatter about the potential for purchases of MBS by some entity. I know Jerome Powell kind of throw some cold water on that.

But I'm curious if you're seeing either anything in that bill or any other chatter you're hearing that could actually be near term or intermediate term positives for housing demand in your business?

Yes, Alan, what I would highlight, trying to stay neutral on the political spectrum. We're seeing left, right and middle politicians talk about housing. And that's the piece that I think we should all be focused on is this country -- we all want to grow the economy. We want to see jobs growing. And we need to strike the balance that has -- we grow jobs. We've got -- when we have new jobs, we need new homes to go with those jobs.

And if we can get our political leaders, community in both the federal, state and local level to really focus on saying housing is an essential ingredient to growing the economy. That's where I think it's positive. So whether it's conversations that are having in Senate or in the executive branch or at your local city council if we can put some things in place, and I would really boil it down to a simple formula of the general [ themes ] for every 2 jobs that are created, we need 1 home. So if we can focus on a mantra of 2 for 1, 2 jobs, 1 home and we can work on policies that put that into play. I think over time, we could really see ourselves work out of this structural housing shortage that we've created.

Your next question comes from the line of Stephen Kim from Evercore.

Good job in a really tough market. I wanted to talk about the incentives a little bit. I think you brought up forward purchase commitments. But I think you said incentives, if I heard correctly, were 8.9%. I think last year, they were 7.0%. So kind of up about 190 bps and at a pretty high level, obviously.

So I'm wondering, first of all, just to get our facts straight, how much of these incentives at this point, would you classify or categorize as financial incentives, like closing costs, rate buy-downs, forward purchase commitments and stuff like that? And are these reflected in ASP or COGS and compare that to like upgraded features and stuff, like nicer countertops and all that kind of stuff? And are they in ASP or in COGS? Just to level set our understanding.

Yes, Stephen, great question. So any of the incentives that we have, whether it's in the form of financing incentives or, say, a discount to your point on some of the options that we might give people off, those are a reduction in your gross sales price to their reduction in your ASP. The financing incentives are probably about 1/3 of the total incentive package that we report each quarter.

Okay. So about 1/3 are financed. So the majority of yours are like upgraded features and stuff like that? It's just to clarify.

Yes. We want to give you some money off in a design center, maybe you have a finished spec inventory, you gave a little bit of a discount on that. So that's about 2/3 of the mix.

That's great. That's not a lot. So that's encouraging that not a lot are financial. But if we could do a little bit deeper, so within the financial incentives, how much -- I'm trying to get a sense how much is like forward purchase commitments, specifically versus like regular rate buydowns and closing costs and stuff like that. Maybe like if you could give us a sense for how much have you spent this year on forward purchase commitments or maybe what principal amount has that covered and that sort of thing? If you have any detail you can share there?

Yes. I mean the forward commitments, I tell you, probably roughly 30% of our consumers actually use that. So it's not a large percentage in total. But I would tell you, financing incentives have been around forever. If you go back, either pre-COVID times, those have always been there and probably 80% of our customers have had some sort of financing incentives. So I'd say it's probably maybe half of it is some of the forward commitment. But again, we're always looking for things that we can go ahead and help consumers as they're looking to kind of find the right financial payment that they need every month or closing costs to get them over the finish line.

Your next question comes from the line of Anthony Pettinari from Citigroup.

I was wondering if you could drill down a little in terms of the bridge between the current 4Q gross margin guide, 25.5% to 26% versus the prior I guess, 26%, 26.5%. And I guess, specifically, kind of how to think about the impact of lower mortgage rates, maybe making those buy-downs cheaper for you versus maybe any kind of other offsets you'd like?

Yes. Great question. So I can tell you the forward commitments or mortgage buydowns, really, it's not that impactful. Rates have moved a little bit, but it's really not there. It's really as we step back and we created the guide for the fourth quarter, there's a lot of moving parts and pieces in there. We look at the backlog we have, we look at incentives that we have on the sales for today. Speculative inventory, we talked about that. We have to stay competitive market. So as we created the guide and we looked at it, it was really a matter of kind of putting all the parts and pieces together. And I'd say moving some of that spec inventory is what drew us to the conclusion to lower our guidance a little bit going into the fourth quarter.

Okay. That's very helpful. And then just one -- maybe one policy question, if I could. Does the shutdown hinder your ability to offer mortgages at all? Or does it impact closings or any other kind of part of the home buying process?

To this point, no. Now there are certain loan programs that we don't use very often that are impacted. But for the shape and size of our business and the types of programs that we use, we've not been impacted to this point.

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

I wanted to follow up on the incentive comments and just talk a little bit more about the trajectory of incentives. Maybe if you can elaborate on the order trends because you talked about kind of normal seasonality on orders, traffic continuing in October. So relative to that 8.9% incentives in the 3Q closings, how did your incentives on orders trend through the quarter? And can you be more specific on what level of incentives is embedded in the 4Q gross margin guide?

Yes. I would tell you that incentives through the 3 months of the quarter were fairly consistent. As it relates to kind of the guide, I step back as we created the guide, I mean there's on 1,000 homes that we have to kind of book and close within the quarter. So when we came up with the guide, we had to make assumptions about where we were going to sell them, when we were going to sell them until those all factored into it. So we haven't gotten that more granular, but we've assumed that as we move some of the spec inventory in the fourth quarter, we feel comfortable with the guide that we presented.

Got it. Okay. As a follow-up, I guess, this hedges into 2026 comments. But when you think about the 25.5 to 26 and your comments that spec mix is likely to remain at 50% for the next few quarters, just given the dynamics today, should we be thinking about if incentives are stable and spec mix is stable, that's kind of the baseline going into next year? Understanding that you highlighted some of the tariff impacts as well and then there's moving pieces around rates. But any comments you could provide on kind of how to think about beyond 4Q.

Yes, Mike, we'll hold on that. Like I shared when Mike Rehaut asked the question. give us 90 days when we report Q4, we'll have full 2026 guidance for you and kind of break it all down.

Our next question comes from the line of Rafe Jadrosich from Bank of America.

First, can you talk about where you are in terms of finished specs per community today and where you want that to be and how you're planning starts going forward?

Yes, Rafe, we have right around 2,000 finished back, so it's about 2 per average community. It's almost double where we'd ideally like to be. We generally like to run somewhere around 1 per, slightly more than 1 [ per ] maybe $1.2 million finished specs per community is ideal for us. So like I said, we're a little higher than we'd like to be. Part of that is rolled into the incremental incentive load that Jim has been talking about.

We're not exactly worried about the inventory position, but we'd like it to be lower to be optimized. So the rate at which we've been starting homes is perfectly aligned with where we want to be in terms of kind of a sales rate. We'll continue to chip away at the kind of the finished specs and that will be part of -- we think as we move into 2026, we'll get that kind of normalized and we'll start to work our way back into the optimal balance of finished specs, total specs as a percentage of inventory and then really focus on increasing the number of [ DIRT ] sales or build-to-order sales that we have, which is the ideal place for us to be in terms of how we run our business.

Great. That's helpful. And then when we look at the sort of SG&A guidance for the fourth quarter, it's a pretty wide implied range. Your sales are down year-over-year. Just because of the base you had from last year. I think like on the low end of the S&A guidance, you have your levering and then at the high end of your deleverage, what sort of gets you to the high end or low end of the range? Were you able to leverage or not leverage? Like what are the puts and takes there?

As we look at it, I think our Q4 SG&A fairly consistent with where we are in Q3. We've got a wider range as it relates to our closing guide. As we said, we've got a lot of spec inventory that we're looking to move in the quarter. So that probably cognitive, but I would tell you, there isn't anything out of the norm that I would point to with our SG&A in the fourth quarter.

Your next question comes from the line of Sam Reid from Wells Fargo.

Just following up on an earlier question, what's the lag between lower historic -- or lower horizontal development costs and when that actually hits the P&L? Is it 2 quarters? Is it 3 quarters? And not looking necessarily for 2026 guide here. But if you are seeing lower horizontal development costs, could that potentially be a favorable lever for log cost inflation in 2026?

Land development generally runs 9 to 12 months, depending on the geography and the size of the phase that you're developing. So things we're developing right now in Q3, Q4 will have a favorable impact in the back half '26 potentially. And then kind of fully impacted in 2027.

That helps. And then switching gears, just wanted to quickly touch on Del Webb/active adults. You're still building very large communities. But you're also building, say, smaller communities relative to what you might have historically. I'm looking, I think, around 750 or so units at the midpoint. Does this at all kind of change the margin profile for Del Webb as you rebuild your pipeline of active adult orders? Just want to think about margin implications there.

Sam, we've been building communities of that size now for about a decade. So that is what our Del Webb business has been. We have a few less than 5 legacy communities that are of the older vintage, very large 2,000 and 3,000 unit plus Del Webb communities. But there's not really anything in our Del Webb business that's different from what it's been that would have an impact on the margin profile of how those communities have historically performed.

Your next question comes from the line of Susan Maklari from Goldman Sachs.

Is thinking a little bit more about the regional variations that you mentioned in your remarks. It sounds like Texas and the West are especially tough relative to what you're seeing in the Northeast and much of the East Coast. When you think about those dynamics, are there different variables that you need to see in order to get some of those markets that are underperforming to come back? Is it all related to rates and jobs or other affordability? Or are there other factors that are going on a local level that are influencing some of the differences you're seeing on the ground?

Yes. Sue, I think as it relates to Texas, there was a buildup of inventory there post-COVID along with rapid price appreciation and the combination of those 2 things, the Texas markets have been working through that. We're seeing progress being made. We're still selling homes there, still good jobs and a lot of people that want to be in Texas.

So we think we're at a moment in time. We're not overly worried about it. As it relates to California, I think we're dealing with a very high cost state that's also got a lot of tech dependent jobs and some of the -- I think, the concern and the challenges around the tech industry have played into consumer confidence with the buyers that work in those spaces or in those job categories and there's a lot there. I won't unpack every single one of them. And then you just combine that with kind of overall high prices and challenged affordability. And I think that's what's made Northern and Southern California more challenged, but I put Seattle in the same category for a lot of the same reasons.

Yes. Okay. That's helpful. And then thinking about capital allocation, you obviously have a very strong balance sheet. The cash flows are healthy despite everything that's going on out there. Can you talk to your willingness to ramp shareholder returns? Or how you're thinking about priorities in general in terms of uses of cash?

Yes. Sue, we have a really thorough detailed process for how we think about capital allocation. Our view is always to generate the best outcome for our shareholder, whether it's about capital allocation or the number of homes we're building or the amount of spec inventory that we're carrying, I mean we really think about what's going to yield optimal return on invested capital.

So we meet with our Board often, and they take a very active role in working with us as management to find the best outcome for capital allocation. We've been very consistent with share buyback and we've been very consistent in laying out our priorities of we want to invest in our business, first and foremost. That's what our investors have charged us with. They've given us their capital to say, go invest in your business, go grow your business. We do that to the level that we believe generates great results. And then we think about returning cash -- excess cash that's being generated by successful operations in the business. And that's what we think about returning.

Fortunately, for us, over the last number of years, we've been able to do everything. We've invested in the business. We've grown our land pipeline. We've increased our dividend several times. We've paid down debt. And we've continued to be a consistent buyer of our own equity. So we'd like to continue to do everything but we'll go through kind of the prioritization and the priority setting in that way, invest in the business, pay our dividend, return excess cash to shareholders.

And our final question comes from the line of Ken Zener from Seaport Research.

Ryan, I think you talked about incentives generally. So Texas and the West, which Texas is a little more, right? There's 4 big markets there. So can you talk about perhaps the 8.9%, how that's distributed amongst the regions awaiting your Q. But also, if you could substitute the word , you talked about consumer confidence. When we look at job growth, we see it half the long-term level in places like Dallas, I'd call that lack of jobs, which you obviously mentioned, but could you talk about how that is also impacting your buyer group? So active adult, let's say, Georgetown, Texas versus the entry level. If you could add that dynamic.

Yes. So Ken, in terms of kind of the distribution of incentives, broadly, I would tell you, less incentives in places like Florida and Southeast, Northeast, Midwest, more incentives in Texas and the West, which is it's totally distributed and aligned based on where things are harder to sell, where things are easier to sell slicing at any thinner than that is probably more than we'd want to get into on this call.

In terms of the Texas markets and slowing job growth, I'd probably not over-index on that. Dallas -- in fact, all 4 Texas markets are places where population is growing and jobs are growing. And as long as you have those 2 factors, you can and will have a thriving housing environment. And the Texas market satisfied both those criteria, growing jobs, growing population. So the fact that the rate of change is a little bit different. I probably wouldn't read too much into that just based on one period of slightly lower job growth.

And that concludes our question-and-answer session. I will now turn the call back over to Jim Zeumer for closing remarks.

Great. Thank you, everybody, for their time this morning. We're certainly available for the remainder of the day if you have any follow-up questions. Otherwise, we will look forward to speaking with you again in the fourth quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, and thank you for standing by. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the PulteGroup, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Jim Zeumer. Please go ahead.

Thank you, Jenny. Good morning, and thank you for joining today's call as we look forward to discussing PulteGroup's second quarter operating and financial results. With me today are Ryan Marshall, President and CEO Jim Ossowski, Executive Vice President and CFO; and David Carrier, Senior VP of Finance.

As always, a copy of our earnings release and this morning's presentation have been posted to our corporate website at pultegroup.com. We will also post an audio replay of this call later today. I will 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?

Good morning, and thank you for joining our call. As always, I appreciate the opportunity to update you on PulteGroup and our work in delivering outstanding business results. PulteGroup's earnings release details another quarter of positive financial performance that the company delivered strong closings, gross margins and overhead leverage. Consistent with such results, we also continue to realize high returns as the company generated a return on equity of 23% for the trailing 12 months ended June 30. In a few minutes, I'll turn the call over to Jim for a detailed review of the numbers.

Our results demonstrate that in an operating environment that has grown more challenging, our diversified and balanced operating model offer strategic benefits to help sustain performance. In this competitive operating environment, we are reaping the advantages of being diversified across all buyer groups, particularly our industry-leading position in serving active adult buyers. Specific to this group, I am pleased to report that we are experiencing a great response to our newest Del Webb and Del Webb Explorer communities as buyers embrace the active lifestyle at the core of [ Bols ] brand. As it relates to this part of our business, I would highlight that along with being among our higher priced homes, these homes typically represent our highest margin closings. Along with the broad customer base, we have geographic breadth and market diversity that are again proving their value.

Our business results continue to demonstrate the benefit of having large and stable operations in the Midwest, Southeast and Northeast, as these work to offset some of the more challenging market conditions the industry is facing out West and in Texas. And I'm pleased to highlight the relative strength of our Florida operations displayed in the quarter as net new orders increased 2% over the last -- over last year.

Beyond Florida remaining a beneficiary of long-established migration patterns in this country, we have exceptional land positions throughout the region. I would also highlight that our operating teams across Florida are second to none, and I truly believe we are seeing the importance of having such experienced leadership in place.

And finally, our ability to serve both the buyer who needs the immediacy of an in-production spec home as well as the buyers seeking to build a more personalized home from scratch remains an important competitive advantage. The former allows us to effectively serve the first-time buyer and use our national rate incentive, while the latter allows the buyer to select a lot and the options that they value most, which in turn provides margin enhancement opportunities for us.

Through the first half of 2025, we realized an average of $109,000 of options and lot premiums which is an important driver of PulteGroup superior gross margins. The half of the year, including the important selling -- spring selling season now complete, I thought it would be useful to offer a few high-level comments on the demand dynamics we have been experiencing.

Over the past few quarters, our industry has routinely referenced demand conditions being volatile and that remains the most accurate description of buyer activity in the first and second quarters. Within a market demonstrating a typical seasonal pattern from month to home, we do see days of strong demand followed by days displaying a step-down in sign up activity.

Feedback from [ Wood ] beat homebuyers indicates a variety of concerns ranging from affordability and the inability to sell an existing home to a slowing economy and the fear of potentially losing their job. And some, I think consumer confidence is uncertain at best and confident that something that's difficult to solve with a lower price or higher incentive. This is where our disciplined approach to the market to the market focuses on capturing incremental volume without giving up too much price.

If we look beyond the day-to-day volatility, the overall demand environment isn't far off our historical pre-COVID absorption paces. Our Q1 absorption pace of 2.7 homes per month was consistent with our pre-coated averages, while our Q2 absorptions of 2.4 homes per month were just under our 2.6 pre-COVID average. In other words, our demand is reasonable, but we are happy to compete for each home sale, and we are seeing meaningful differences in demand strengths and weaknesses from market to market.

One of the most encouraging dynamics that I would highlight is that a drop in interest rates does stimulate traffic into our communities and a corresponding increase in sign of activity. This was clearly evident as rates dropped in the last 2 weeks of June as well as at different points during our first and second quarters. I think this supports our view that people desire home ownership and remain actively engaged in the process. They just -- they just need to value equation to work and to have confidence in their financial circumstances to feel more comfortable signing the contracts.

Given the demand conditions we have experienced in the first 6 months and an overall heightened sense of uncertainty among consumers, we have taken actions to adjust our operations to today's market conditions. We made the decision early in the year to slow our land spend, reduce our starts rate and we have worked aggressively to sell excess spec inventory. We have been proactive and very tactical in responding to demand conditions as they exist in each market.

Our focus on achieving high returns doesn't change. but the approach may as we balance the primary drivers of pace and price within each community.

Before turning the call over to Jim, I do want to recognize and thank our incredibly talented team as they continue to deliver the highest quality homes and customer experience while still achieving exceptional financial results.

Now let me turn the call over to Jim Ossowski.

Thank you, and good morning. As Ryan indicated, while there are challenges within stays as market are certainly positives to be taken PulteGroup's second quarter results and how we have positioned our business for long-term success. Net new orders in the second quarter totaled 7,083 homes, which is down 7% from last year's second quarter.

The year-over-year decline in net new orders for Q2 reflects a 13% decrease in overall absorption pace, partially offset by a 6% increase in our average community income for the quarter to 994. As a percentage of starting backlog, our cancellation rate for the second quarter was 11%, which is consistent with Q1 and only 1.5 point increase from Q2 of last year. Stability in the cancellation rate suggests that most homebuyers remain comfortable and confident completing their home purchase once they are under contract.

Our second quarter absorption pace of 2.4 homes per month was down from 2.7 homes per month in Q2 of last year. The year-over-year differential of roughly 3 homes is fairly constant through the 3 months of Q2. Said another way, we experienced a typical seasonal trend and the core demand is simply running at a lower pace this year.

Looking at our net new orders by buyer group. The first time in move-up buyers were down 9% and 14%, respectively, from last year, while our active adult business was up 9%. Specific to our active adult business, in addition to the underlying demand among these buyers, we are benefiting from new community openings coming online this year. To be clear, while these active adult orders make up 24% of the total this quarter, they will primarily deliver its 2026 closing. It is fair to say that we are pleased to see the new Del Webb communities being well received.

Second quarter home sale revenues of $4.3 billion were down 4% from prior year revenues of $4.4 billion. The decrease in wholesale revenues was driven entirely by lower closing volume as deliveries were down 6% to 7,639 homes. The decrease in closing was partially offset by a 2% increase in average sales price of $550 million. By buyer group, closings in the second quarter were 38% first time, 42% move up and 20% active adult.

In the second quarter of last year, the closings mix was 40% first time, 37% with [indiscernible] 23% active adult. Given second quarter orders and closing activities, we ended the quarter with a backlog of 10,779 homes valued at $6.8 billion. In comparable prior year period, company's backlog totaled 12,982 homes, the value of $8.1 million.

In the second quarter, we started 7,220 homes, which is down 11% from the 8,146 homes we started in the second quarter of 2024. Given the volatility and demand that we have experienced thus far in 2025, we continue to carefully manage our start base to better align our available inventory with current rate of sales. As such, we ended Q2 with a total of 16,105 homes in production, of which 47% were spec homes. On a sequential basis, our inventory of 7,606 spec homes under production, is down 3% from the first quarter and up 13% from the start of the year.

Based on expected home sales and starts, we anticipate our spec inventory to be within our target range of 40% to 45% of overall units in production by year-end. In managing specs, we are trying to achieve multiple objectives including having enough units to meet higher demand, while still allowing our sales counselors to sell from a position of strength.

As the market evolves over the third and fourth quarters, we'll be making decisions as to how much production is start as we plan ahead for 2026. Given the recent pace of sales and stage of units under construction, we currently expect to close between 7,200 and 7,600 homes in the third quarter. As it relates to the full year, given our level of backlog and a slightly lower absorption paces we have realized over the past several months we are refining our full year 2025 closing guide to 29,000 homes.

We still expect the average sales price of closings to be in the range of $560,000 and $570,000 each in the remaining quarters and in turn for the full year. Consistent with our prior guidance, we expect our Q3 and Q4 edge community count to be 3% to 5% higher than the comparable prior year period. For our second quarter, we are reporting gross margin of 27.0%, which is at the top end of our guide.

Relative to our guidance, our Q2 gross margin reflects both the benefit of a favorable mix of homes closed as well as the headwind of higher incentives. Incentives for the second quarter were 8.7% of gross sales price which is up from 6.3% last year and on a sequential basis, up from 8.0%. As we assess the back half of 2025, we are affirming our guidance as we expect gross margins in the third and fourth quarters to be in the range of 26.0% to 26.5%.

During our Q1 call, we indicated a potential impact of tariffs of approximately $5,000 per unit that could hit in the latter part of Q4. At this time, we now expect any impact from tariffs in Q4 to be lower, which will help offset the cost of elevated [ insets ]. While we have reasonable visibility into giving this gross margin guide, I will note that we still need to sell and close a meaningful number of spectrums to achieve our closings guide.

SG&A expense in the second quarter totaled $390 million or 9.1% of wholesale revenues. In the prior year, our reported SG&A expense of $361 million or 8.1% of home sale revenues, included a $52 million pretax insurance benefit are within the period. We remain diligent in controlling our overhead costs, and we expect SG&A expense for the full year of 2025 to be in the range of 9.5% to 9.7% of home sale revenues.

For the second quarter, our financial services operations reported pretax income of $43 million, down from $63 million in the prior year. The decrease in pretax income for the quarter reflects the impact of lower closing volumes slightly higher expenses. Capturing in the second quarter was 85% compared with 86% last year. PulteGroup's reported pretax income for the second quarter was $807 million. For the period, we recorded a tax expense of $199 million or an effective tax rate of 24.6%. We continue to expect our tax rate to be approximately 24.5%, excluding the impact of any discrete period specific tax events.

On the bottom line, we reported second quarter net income of $608 million or $3.03 per share. In comparable prior year period, we reported net income of $809 million or $3.83 per share. Prior year results are inclusive of $0.25 per share related to an insurance benefit and favorable resolution of certainty same tax matters. Our second quarter earnings per share was calculated based on 201 million shares, which is a decrease of 5% from the prior year as the company continues to execute its share repurchase program.

In the second quarter, we repurchased 3 million shares to $300 million at an average price of $100.54 per share. Through the first 2 quarters of 2025, the company has returned $600 million to shareholders through the share repurchase activities. Along with allocating excess capital back to shareholders, we invested $1.3 billion in land acquisition and development in the second quarter.

Through the first 6 months of 2025, we invested $2.5 billion in [indiscernible] acquisition and development which keeps us on track with full year guidance of investing $5 billion in land and development. Inclusive of these most recent investments, we have further advanced our land pipeline in 2 critical areas.

First, we have increased the total number of [indiscernible control to approximately 250,000. And second, we continue to make progress on becoming more land [indiscernible] as option last now comprise [ 16 ]% for a total land pipeline. This is gratifying progress we are making towards achieving our target of having a land pipeline be comprised of 70% options and 30% owned lives. In just the past 12 months, we have added almost 30,000 option lots to the pipeline or reducing our old block count by approximately [ 4,000 ] months. Relative to peers, for land options are differentiated and that the vast majority of [indiscernible] options are with the underlying land seller for one-off transactions with a select number of land bankers.

And assessing each and every land transaction [indiscernible] the balance in evaluating the cost versus the risk mitigation opportunities that result from optioning the land parcel.

As Ryan noted earlier, they're an operating environment that has become more challenging we're adhering to our disciplined business practices and making any needed adjustments consistent with our focus on generating strong cash flow and high returns. On system with its focus, we continue to expect cash flow generation for 2025 to be approximately $1.4 million.

Looking at the balance sheet, PulteGroup continues to maintain a strong and highly supportive financial position. We ended the quarter with $1.3 billion of cash and debt to capital ratio of 11.4%. Adjusting for the cash balance and net debt to capital ratio at quarter end was 2.8%.

Now let me turn the call back to Ryan for some final comments.

Thanks, Jim. As I discussed at the outset of this call, beyond the overall volatile demand dynamics, we are seeing meaningful differences in relative by our strength across our portfolio. More specifically, in the second quarter, we experienced very positive demand conditions in key markets in the Midwest and Southeast, including Cleveland, Chicago, Indianapolis, Charlotte and the Coastal Carolinas.

I would also call out the positive net new order numbers realized in Florida as our operations grew orders 2% over the prior year. Within the state, gains in our Central, West and Southwest markets were partially offset by softer numbers in our Northeast and Southeast Florida operations. We fully appreciate there is inventory on the ground and builders are competing hard, but we are selling from exceptional communities following years of hard work to assemble an outstanding land pipeline.

As shown in this morning's press release, we are experiencing less favorable demand out West and in our Texas markets. Within these geographies, we are seeing some of our biggest challenges in Dallas, Boston and our Northern and Southern California markets, most notably among move-up buyers. While these are very different markets serving different buyers and price points, they do share some commonalities. These are markets that have realized significant price appreciation in recent years and have a meaningful tech employment component within their local economies.

Given the tremendous variation in market conditions, it's so important to have experienced operators who know what actions are needed. In some markets, this means raising prices starting homes and pushing aggressively to get new communities open. In other markets, it means slowing starts, focusing on selling finished inventory and taking the opportunity to retrade or even exit land deals. With an average tenure approaching 20 years among our division presidents, we have experienced leaders running our operations.

And finally, before opening the call to questions, I want to note a press release issued earlier this month announcing plans for Deb Still to retire at the end of this year. Then is currently the Vice Chair of Holding Financial Services. But if you have had any involvement with monthly over the years, [indiscernible] a force in the mortgage industry.

We, and the entire lending industry have benefited from Deb's for decades of insightful leadership and tireless work to make the industry better and more accessible to all home buyers.

On behalf of our Board, the company and the shareholders of Pulte, I want to thank Deb for the success she has delivered and the foundation she established and upon which we will continue to build going forward.

Now let me turn the call over to Jim Zeumer.

Great. Thanks, Ryan. We're now 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. And Jenny, if you would again explain the process, we will open the call for questions.

[Operator Instructions] And your first question comes from the line of John Lovallo with UBS.

The first one I had is that you guys talked about some encouraging signs as rates kind of pull back in [indiscernible] to curious, rates had been a little bit bouncy, but fairly stable, I guess, due to [indiscernible] if the improvement that you saw in June kind of carried through into July. And we've also seen some recent improvement in consumer confidence, is that helping kind of support this demand in your view?

Yes, John, we did see real positive response from the consumer the last couple of weeks of June when rates came down. As we highlighted in the prepared remarks, it drove extra or incremental traffic into the communities and spend a little up and down. There's been just some really good days and there have been some down dates as well. The first week of July was -- I feel like the entire country went on vacation with the way the 4th of July fell, but we're encouraged by what we've been seeing in the last couple of weeks.

Okay. That's great. And then maybe just on stick and brick cost, maybe how they trended in the quarter? And then on the land side, we've heard some signs of perhaps a little bit relief on the development side of the cost equation. Maybe if you can comment on both of those would be great.

Sure. Thanks, John. The sticks in bricks, they were at $79 per square foot. So consistent with last year and sequentially the same as Q1. So they're holding firm for us. On the development side, yes, we're hearing some of the same things, a little bit of opportunity on the development side. You've got trades out there, a lot of heavy machinery, people want to put it to work. So it's encouraging with what we're seeing. Don't really see that coming through in kind of our quarterly results. But as we look forward we're hoping that we see some benefit from that going forward.

Your next question comes from the line of Ivy Zelman with Zelman & Associates.

Great quarter, guys. Congrats really strong performance. Maybe we can start with the comments you made Jim, as it relates to the land options that you're predominantly utilizing land developers as you're the one selling you those options as opposed to land bankers. Can you elaborate as to why you think that's better -- or maybe there is -- it's a lower cost, I presume. Can you just go through your rationale there?

Yes, Ivy, it's Ryan. Good to hear from you. And we've made optionality specific with land bankers a piece of our business. Our primary focus is with underlying land sellers. And with those individual families or owners that own that land we think in those -- the reason that we like that, Ivy, is we end up with a more diversified risk profile. And we also get better execution of price with those underlying land sellers and what it costs us to get the options.

We found that we ran into natural resistance somewhere between 50 -- around 50% is kind of -- it was about as high as we could get and so to get more optionality, we went to the idea of using land bankers in a moderate way. And we think that's the tool that allows us to go from 50% option to 70% option. The other -- and the reason that we've kind of elected this type of mix, we think that it's the best tool to give us risk mitigation, which is the primary thing that we're looking for when we think about optionality. Certainly, there is a trade-off. We give up a little bit of return -- or a little bit of margin to get a better return. And we know that return is what creates value for our shareholders. That we think that is the second order or a follow-on benefit. The primary benefit we're after with optionality risk mitigation.

No, that's really helpful. And thinking about -- you spent $1.3 billion you invested in land acquisition development, are you able to take some of the options that you have right now and re-trade them and get better pricing because the market has been soft. We've been hearing from our land context that there is a lot of trading going on retrading, I should say.

Yes. We are definitely taking advantage of that, where appropriate, Ivy. We value the relationships that we have with land sellers. So I think we're being responsive to the current market conditions, and I think land sellers recognize that as well. In some cases, we're getting better price and we're closing. In other cases, price might be staying similar to what it was in the underlying contract that we're getting more time. And so I think our really experienced operators in the field are picking the lever that needs to be pulled in order to yield the best outcome for the company.

That's great. One quick last one. We see news about Canadian tariffs potentially doubling. Can you comment on -- I don't even know if you guys are using U.S. source lumber or what percent is Canadian, but maybe you can give us some perspective on what that doubling impact might be to your direct costs.

Great question, Ivy. Today, about 20% to 25% of our lumber comes from Canada, the rest of it were domestically sourcing.

Got it. And therefore, the ones that you're acquiring from the Canadian, how much will that impact just double assume that 25% will go up or by double? Or do you think you'll get better pricing despite that?

Yes. Hard to say where that ultimately kind of plays out, Ivy. If tariffs double on 25% of our lumber load, we would see a higher cost load. So it had an impact. I don't know that it would necessarily be catastrophic. The -- I know there was an article and that was out last night or this morning early that was talking about added significant cost of housing. I think that article likely alluded to the fact that the entire lumber package would be Canadian lumber, which in our case is not true.

Your next question comes from the line of Michael Rehaut with JPMorgan.

Wanted to first just kind of talk about the pluses and minuses on gross margins in the second quarter came in at the high end of guidance. And just kind of curious about how you saw incentives trend during the quarter maybe compared to the first quarter? And if there was any outliers, any kind of drivers to I know it's only 25 bps from the midpoint of guidance to the high end. But if there's any kind of additional tailwinds or headwinds, even that you saw in the quarter relative to what you were expecting 3 months ago?

Yes. Great question, Mike. As we look to the quarter, we really just had a different mix product and geography in the quarter to give you a frame of reference, over 1,200 homes that we both sold and closed within the quarter. So we make assumptions about where we're going to sell and when we're going to sell and what the costs are associated with that. [indiscernible] a little bit better than we thought. So as we looked at it, incentives were 8.7% in what we closed for the quarter and again, the mix gave us a little lift and get us to the top end of our guide.

Great. Great. And then maybe just kind of looking forward, reiterating the 3Q and 4Q gross margin guidance I know you talked -- I believe I heard that you said maybe incentives, at least -- I'm sorry, tariff headwinds as they are today, maybe outside of the recent headlines around Canadian lumber it sounded like you talked about maybe tariff headwinds being a little less than expected, offsetting maybe a little bit higher incentives than maybe you were at the beginning of the year, is that the right way to think about it in terms of being able to reiterate that back half gross margin guide?

In other words, maybe if -- and specifically, I guess I'm just wondering around the incentive loads, that has maybe been a little bit higher. It almost sounded like you said, it sounds a little higher, but tariffs are a little lower, and hence, we're able to reiterate the back half guide. I wasn't sure if that was the right way to think about it or if there are other pluses and minuses to consider?

Yes, Mike, I think it's really as simple as exactly what you just laid out there. Our procurement teams are the best in the business. They've done a wonderful job navigating another difficult procurement environment. I think we've also gotten a little bit of luck on our side with there being more inventory in the supply chain is allowed prices to stay more. To stay stable longer.

I don't think anybody believes that's going to last forever, and we're certainly anticipating tariff load hitting our closings in next year. But we think for this year, it's going to be minimal and mostly in the back half of Q4. So a little bit of the upside, a little bit of upside to our expectations from a quarter ago on that. You can see the sequential lift in incentives I think you're hearing from some of our competitors as well that are seeing similar elevated incentive loads as we work to solve the affordability equation for customers. And in total, you think that balances out and we're able to maintain our margin guide, which continue to be the best in the business.

Your next question comes from the line of Stephen Kim with Evercore ISI.

Ryan, I think you mentioned in your press release that you're positioning to grow market share as demand strengthens in the future. And I wanted to see if you could elaborate what you mean and maybe also what you don't mean with respect to that statement about growth.

For instance, I guess my question would be like, are you planning for spec homes to be up on a year-over-year basis as you head into next spring? Are you willing to carry more owned land in the near term in order to accelerate community count next year? I just wanted to try to frame out what you mean by looking to grow market share as demand strengthens in the future.

Yes, Stephen, it's really around the strength of our land pipeline. We've got 250,000 locks that we control now, which is -- we're up about 25,000 total lots that we control compared to this time last year, probably even a little bit more than that. So I think our division team has just done an outstanding job putting new communities in the pipeline that are going to be great performers. The most recent quarter that we just reported, our new Del Webb communities are a great example of that.

So -- and no, I don't think it means that we'll have more owned land. In fact, we've gone the other direction. We owned less land, we control more via option and our option percentage is as high as it's ever been. So I feel like we're doing all the things that we want to do. we continue to think that we have the opportunity to grow this company long term 5% to 10%.

So I continue to reiterate that. And we're seeing in this type of difficult market quality cells, and we have high-quality land positions. We have high-quality homes. We're delivering great customer experience and all of those things, we think, yield and the ability to take market share. And so my comments about being positioned and prepared to do that, we're really alluding to those things.

Okay. That's helpful. And then one other question, you talked again today a lot about your land positions and how proud you are of them. And this is bringing prop to mind something that we've take -- fielded a lot of questions from regarding your land positions from investors. A lot of people seem to have this view that you have a lot of land that's maybe legacy land from sort of pre-COVID type vintages and that, that's supporting your margin, your gross margin specifically.

I was wondering if you -- that is not, by the way, what we see running our sort of quick analysis. I was curious if you could elaborate a little bit more on what you see in your land positions. How much of your active communities would you say are actually from kind of pre-COVID vintage land?

In terms of pre-COVID vintage land sale, when we really have one left, I mean, there's probably a few stragglers here and there, but we're turning our land pipeline every 3.5 years. So, we're on fresh land, I think, just like the rest of our competitors. Do we have some bigger, longer legacy communities, sure, but -- it's a very small number of our actual closings and a very small number of our total 250,000 lots that we control. So this is that some continue this narrative that some continue to push. I'm going to see if I can get that Discovery TV channel net busters to come in do a show on the idea that our margin performance comes from a land just simply not true.

Your next question comes from the line of Matthew Bouley with Barclays.

I wanted to ask a question around product mix and how that's going to impact your margins. I know you mentioned some of the improvement in the active adult business and the new community openings, and it sounded like you're speaking to the benefit of that mix.

As that delivers in early 2026, if I heard you correctly, I think at the same time, you're seeing some of that pressure on the move-up business as you spoke to. So I guess my question is, I guess, number one, how does move up margins compare versus active adult margins? And I guess any additional color on how that mix of your product types may affect the gross margins here over these next several quarters?

Yes, Matt, thanks for the question. We had a really good performance with our new Del Webb communities. And as we've highlighted in the prepared remarks, those will be next year closings. We haven't given any kind of a guide to next year's margin. We'll do that as we get towards the end of the year. What we have talked about in the past is our when you look at our 3 consumer groups, the entry-level, first-time buyer group, that's our lowest margin performer, our lowest margin buyer group, the move-up communities generate about 200 basis points higher than that, and then we get an incremental 200 basis points out of the active adult communities.

So they are -- and I mentioned it in my prepared remarks, they are among our higher priced homes. We're also our highest margin homes. So it's certainly favorable to our overall margin performance. And it's part of the reason that we've been highlighting and sharing today, the overall mix of our Del Webb business is 20%. We'll see that going back to the more traditional 24% to 25% in '26, as these new communities came online, which we're certainly going to see that coming. But I'd just reiterate, we haven't given a margin guide for 2026. We'll do that as we get later into the year.

Understood, yes. And even still, that was very, very helpful color. So then secondly, I wanted to ask back on construction costs. We've certainly seen from a couple of your peers that they've been able to push back a little bit on construction costs. It sounds like you guys are seeing flat stick and brick and appreciating, obviously, regional differences and product type differences and all that. My question is if there is room for you guys to drive construction costs lower at some point? And if so, when might we begin to see that?

As Ryan said earlier, our procurement teams are all over this stuff. Best in the business as it relates to it. Similar to my comments a little earlier on land development, you'd hope to see some opportunity. Our teams are certainly working to see what they can do. Again, the $79 a square foot that we have now. These are homes that we contracted 6 months ago and started. So as we go forward, our teams are certainly pushing for opportunity led to see that opportunity come through in the future.

And Matt, we have seen in certain categories, prices come down. We've taken cost increases. There's been other things where we've had offsetting increases to Jim's point, we're going to continue to push to get the best prices that we possibly can so that we can pass that value on to the consumer. Affordability is tough out there for everybody, and we want to do everything in our power to pass that savings on to the consumer.

Your next question comes from the line of Anthony Pettinari with Citigroup.

Just staying on the cost side, I'm wondering if you could talk a little bit about labor availability and maybe where labor costs might shake out for the full year? And if that's changed maybe relative to expectations on January 1?

Labor is available, Anthony. We haven't seen any change there. We continue to be an employer of choice. We've got consistent, predictable work. We pay on time. We pay well and fairly. So I think we'll continue to be a place that will attract available labor in terms of our cost assumptions, really no change from what we rolled out at the beginning of the year on the labor front.

Got it. And I'm just curious on ICG and off-site manufacturing. How is that business performing? And are there any kind of learnings about off-site as we've moved from kind of this white hot market in the pandemic to kind of more of a choppy volume environment today how that fits in the portfolio?

Yes. I think the things that we've learned or consistent with what we've shared in kind of previous cycles. So I wouldn't suggest that there's a lot that's different today. We're getting a lot of benefit out of cycle time improvements with the amount of work that can be done ahead of time in a factory. We're getting really good product quality. We're certainly getting some efficiencies and economies of scale based on the way that we buy lumber when we're bringing it into the factory as opposed to buying a load of lumber for a specific house. So I think there's a lot of benefits that we continue to get from it. It's been an important part of our overall innovation work, and we look forward to continuing to see that part of the business expand.

Your next question comes from the line of Mike Dahl with RBC Capital Markets.

And just to go back on labor quickly. Anecdotally, it sounds like maybe a little more noise in the market in terms of some ICE-related dynamics. It doesn't sound like you're necessarily seeing that on your job sites, but can you just give us your view on or take from the market in terms of any impact there?

Yes. Really nothing that I'd probably share with you that's different than I think what you're seeing play out in the news media. We have always and continue to require all the labor that's on our job site to be able to work legally in the country. That's always been the case. We continue to make that a priority. There certainly is, I think, disruptions within the broader labor force, not just in construction related to kind of ICE enforcement. And that's something that I think the country is going to have to grapple with. And as that impacts the total available labor force. I don't think it will be specifically just a construction challenge depending on what level of enforcement deportation ultimately happens.

Got it. Okay. And shifting gears. Your order ASP was down a decent amount of 5% sequentially, 4% year-on-year. Obviously, there's always a lot of mix dynamics in there. Can you help us understand kind of what's like-for-like versus what's mix related in that and maybe how to think about the back half of the year from obviously your closing ASP supported by a backlog to a certain degree, but just help us in through the ground how your order ASP is shaking out?

Sure. As we look at order ASP in the quarter, what we saw there was both MIPS and product and geography. If you look at our West business and Ryan alluded to it, was the softest and particularly in some of the move-up segments, if you look at places like the California or 2 regions out there. So you've got a mix influencing that with some of the move up, taking a little bit of a step down in some of our higher-priced markets. And then is why you've got the incentives that are underneath that as well. So primarily the mix and then as well as the incentives played into the $549 million imported for the quarter and order ASP.

Your next question comes from the line of Kenneth Zener with Seaport Global.

Good morning, everybody. What do you expect your inventory units? I know you talked about the spec mix, but what do you expect your inventory units to be roughly at the end of the year? And then in Florida, how many of those buyers, which are largely active adult, are actually coming from Florida as opposed to from other states?

Yes, Ken, inventory -- finished inventory at the end of the year is not a number we guide to. So let me start with that. That said, we have guided that overall spec inventory will be in the 40% to 45% range. Our finished inventory today is running a little higher than what we'd normally like to see we typically like it to be around 1.5, 1.25 to 1.5 finished units per active community. So we're probably 400 units north of kind of where we'd like to be optimally. But on the margin. I just don't -- I don't think it's moving the needle one way or the other.

But I think our bias would be to continue to work that down. And then in terms of kind of Florida, as I mentioned in some of my prepared remarks, we're really happy with the performance that we're getting there. And then where those buyers come from Florida is a big melting pot. And so we see a lot of buyers coming from all over the country. The Midwest, the North, West Canada foreign, we did buyers from all over the country, all over the world to come into Florida. We also see a healthy mix of folks moving within Florida as well. We can certainly follow up with you on specific numbers.

That would be great.

My fingertips, but I think what you'll find is that it's a melting pot of buyers.

And Ken, if you don't -- I would add that if you made a reference to it being heavy active adults. I mean there's parts. So if you look at our Southwest business, you may be more active adult, but you get into Orlando, you get up in the Jacksonville, you get on Tampa. It's pretty well diversified across first time move-up and active adult. Again, you obviously get a drop because of the weather down there. But it is -- we've built a business with the divisions of a very diversified business down there. So it is not just Del Webb's [ Exploring ].

Your next question comes from the line of [ Paul Przybylski ] with Wolfe Research.

I guess to start off, are you seeing any difference in the elasticity of incentives between your different consumer segments? And then, if you could provide some color on the incentive levels across the consumer segments relative to the 8.7% average in the quarter?

Yes, Paul. I think the commentary that you've heard from us is that there's actually in elasticity in pricing and that more incentive doesn't necessarily translate into incremental volume, so we're trying to get incentives to the level where we get the appropriate level of volume, but pouring more incentives on top of that doesn't necessarily translate in the incremental volume that would justify those incentives. So that's why we've tried to continue to maintain some discipline around what we're doing on the incentive load. I'd continue to reiterate, we think the opportunity is to bring incentives lower over time.

We're clearly not there right now, but I would -- I long for the days of more normal incentive loads of kind of 3% to 3.5%. Hopefully, as we get out into kind of future years, that will become possible again. And then in terms of kind of where the incentives are they're everywhere. They're in all buyer groups. They just come in different shapes and sizes.

When we're in the first-time buyer those incentives predominantly are in our forward commitments and interest rate incentives, and things of that nature. When you're getting into the active adult, the move up, they tend to come in the form of either just outright price discounts or lot premium incentives or option incentives or contributions toward financing related incentives that aren't necessarily forward commitments. So it's fairly consistent. It's just in different shapes and sizes based on buyer group.

Okay. And did you see any impact on orders this quarter from the change in FHA eligibility for nonresident buyers. Any pull forward maybe before the May 25 deadline and then slowing us afterwards?

Yes. We really didn't see an impact. It's a very small portion of our business.

Your next question comes from the line of Susan Maklari with Goldman Sachs.

Good morning, everyone. First question is on the SG&A, which came in a little lower than we had modeled in terms of both dollars and as a percent of the revenue. Can you just talk about maybe some of the puts and takes there and how we should be thinking about the next 2 quarters?

Great question, Susan. We stay very diligent all the time as we look at our SG&A -- we talk with our teams constantly about the discretionary spend that they have. We look at our people costs. So I think we're running a very effective an efficient business that we have. We reiterated our guide of 9.5% to 9.7%. We still think that's a good guide. But again, it's something we talk about all the time, and I think our experience operators are doing a nice drive in this space.

Okay. That's helpful. And then I guess maybe just thinking about capital allocation. With the operating environment being what it is, the guide for the land spend that you reiterated. Any thoughts on just buyback activity in the next couple of quarters? And how you're thinking about that given the valuation relative to the outlook for the business?

Yes. Sue, on share buyback, our -- the way we operate there is we report what we do in the quarter. I would reiterate that we've been a consistent buyer of our equity, and we're using it as an opportunity to return excess capital back to the shareholders. So we did another $300 million in the most recent quarter, following $300 million in Q1. And I think our practice will be to share Q3 and Q4 results as they happen.

Your next question comes from the line of Jay McCanless with Wedbush.

So the first question, what percentage of communities were able to raise price this quarter?

Probably about 10% for the quarter.

And then I know you talked about Del Webb a lot, but, when we think about the communities coming online, does the bulk of these new gel Web communities coming online by year-end? Or is it going to go into maybe first half of '26?

Well, you saw, Jay, in this quarter, the percentage of sign-ups in the quarter were 23% 23% or 24% of this quarter's sign up. So, typically, from the time we sell until deliver, it's about 6 months. So this quarter sign-ups will end up being first quarter '26 closings. So what you should expect is that we'll get back into the Del Webb closing mix being about 1/4 of our business once we hit 2026.

And we'll see those communities coming in over the balance of this year and next year. I mean, I'd tell you a lot of excitement. We've got a couple more that are opening in the Tampa market, first one in Greenville, another one opening in Charleston, another one out in Southern California. So I'd say in the coming quarters, we're going to have kind of a big flow up of new Del Webb coming online.

Your next question comes from the line of Rafe Jadrosich with Bank of America.

Great. I just wanted to -- you spoke a little bit about land seeing some relief on the land cost and development side and some more retreating there. Can you talk about when that would potentially start to flow through your P&L on the actual cost side?

Yes. Ray, it typically land development occurs roughly 6 to 12 months before you see the closing it. a typical land development cycle of 6 to 9 months. Then you have the home construction period of, call it, 4 months, and then you start to see those closings, so it depends on how big the phase is. It depends on -- there's a lot of variables. But I think if you got savings today at this moment in time, you're likely back half of 2026 is when you'll start to see the benefit of those lots closing that have lower land development costs.

That's helpful. And then you spoke a little bit about Del Webb Explorer that launched earlier this year. Can you tell us how that differs from the legacy Del Webb business and what the size of that is? Like how you're planning on growing that?

Yes. We think it's a huge growth opportunity for the Dell Web kind of overall brand and the difference between Del Webb Explorer and our traditional Del Webbs. The Del Webb Explorers are not age restricted. The target consumer for that is the Gen X buyer. So think about buyers that are over the age of 45, they've -- they're high on homeownership. They've got wealth. They may be looking to start to make that semi-retirement type transition, but they still consider themselves to be very young and active.

And so they're looking for a community that gives them all of those benefits without the restriction of being age-restricted or they don't qualify just through physical age. They're not 55 yet; and two, mentally, they don't see themselves or think of themselves anywhere near the age of 55. And so -- but they love the way that these Del Webb communities provide lifestyle, and that's what it's really intended to be.

You will see some changes in the programming, so while still heavy on lifestyle, the types of physical activities or the types of physical business will be slightly more geared to that demographic. And then you'll see more in terms of kind of dining and social, almost private club type dine-in in social as opposed to in our Del Webb community to see more large-scale community gathering. So a lot of similarities with some nuance around how the programming is actually rolled out and implemented.

And your final question comes from the line of Buck Horne with Raymond James.

I just wanted to go back to Florida real quick and the positive shift you're seeing in those REITs or in those markets there. specifically, just wondering for a little extra color if you can provide it in terms of like buyer segments. Are we seeing any particular buyers responding more positively right now? It seems to be coinciding with a decline in resale inventory in Florida, which seems to be a little bit happening sooner than seasonal patterns would project. So just wondering if you've noticed any particular dynamics within Florida within the buyer groups or any other characteristics you can explain why that shift is occurring now?

Yes. Buck, we're really happy with what we saw out of Florida. I don't know that I'm terribly surprised. We just -- we've been more bullish on Florida. And then your comment about buyer groups, the move-up buyer in Florida was up 18% for us year-over-year. So we're pretty pleased with what we got out to move up. The active adult buyer performed very well in Florida. I highlighted that the Northeast Florida market was a little slower for us, that tends to be a part of the state where we have a little bit more entry-level product. So I don't know that it was -- I don't know that I would consider it to be down, rather. It's -- that's a buyer group that continues to be challenged by affordability no matter where you live in Florida, the Florida entry-level buyer is certainly not immune to some of those affordability challenges.

Overall, though, I'm very pleased with how the inventory has started to clear up in Florida, and we've certainly seen our business perform incredibly well in the most recent quarter.

That's great news. I appreciate the additional feedback there. And just lastly, in terms of single-family rental partnerships, just wondering if you're getting any further opportunities, inquiries of interest? How you're thinking about blending single-family rentals into the operating platform, what's your kind of current line of thinking on rentals right now?

Yes. Even going back to the go-go days of single-family rental, we wanted it to be a fairly small part of our business. We were targeting somewhere around 5% of our total volume. In terms of what we're delivering today, Buck, it's in that kind of 3%, 4% of our total volume of single-family rental on new orders for kind of future business, it's certainly been slower and those buyers are not as active. But in the last couple of quarters, we started to do some more deals not back to the level we were doing a couple of years ago. But there's activity out there, and we'd expect it to still be a small part of our business today and well into the future.

That concludes our Q&A. I will now turn the call back over to Jim Zeumer for closing remarks.

I appreciate everybody's time this morning. It was a busy -- good morning for everyone. We are available for the rest of the day. If you got any other questions. Otherwise, we will look forward to speaking with you on our next earnings call. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.