PulteGroup (PHM) Q1 2023 earnings call transcript

Thank you, Audra. Good morning. I want to thank everyone for joining today's call. As you read in this morning's press release, PulteGroup had an exceptional first quarter, and we are excited to discuss our operating and financial results. Participating on today's call are Ryan Marshall, President and CEO, Pablo Shaughnessy, Executive Vice President and CFO, and Jim Osowski, Senior Vice President and Finance.

A copy of our earnings release and this morning's presentation slides have been posted to our corporate website at PulteGroup. com. We'll post an audio replay of this call later today. As noted in this morning's earnings release, to be more consistent with industry reporting practices, effective with our first quarter 2023 reporting, the company has reclassified closing cost incentives from cost of sales to net revenues for all periods presented. This reclassification impacted the company's reported home sale revenues and associated average sales price, as well as home sale gross margin and SG&A percentages, but had no impact on reported earnings. An analysis of the impacts on the current quarter, the incomparable prior year period is included in this morning's press release and can be found in our webcast slides associated with today's call.

Our comments today reflect these changes for all periods referenced. Also, I want to inform everyone that today's discussion 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 CTA's earnings release and within the accompanying presentation slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports.

Now let me turn the call over to Ryan. Ryan?

Thanks, Jim, and good morning. Based on the improving demand dynamics we experienced in the fourth quarter of last year, we were cautiously optimistic heading into 2023. I am extremely pleased to report that the market momentum that began building in Q4 continued to expand into the first quarter of 2023. Today's stronger market conditions, combined with actions implemented by our outstanding field teams to enhance our competitive position, helped drive our strong first quarter results that included a 15% growth in home sale revenues, a 100 basis point increase in operating margin, and a 28% increase in earnings per share. Among the actions we've taken has been to increase our production of spec homes, a strategy we began implementing in the back half of 2022.

As discussed in previous earnings calls, we made the decision to increase spec starts as we saw the opportunity to realize a number of strategic benefits within our home building operations. With more units in production, we can better meet buyer demand as more consumers are seeking quick-moving homes as a hedge against rising mortgage rates.

By maintaining the level of spec starts, we can commit to a more consistent start cadence. This is particularly valuable in today's environment when negotiating with our trades and suppliers. Keeping units in production allows us to turn assets more efficiently, which is critical to delivering high returns over the housing cycle. The importance of having an appropriate inventory of spec homes available can be seen in our first quarter signups, which on a gross basis increased 1% over last year to 8,900 homes. Of these signups, almost 60% were spec sales, so the decision to increase spec starts was the right one.

That said, I want to be clear that our strategy is to keep starts directionally in alignment with market demand. We believe this balanced approach is consistent with Pulte's historic business practices and allows us to turn our assets while maintaining a better margin profile. Our first quarter results show that we are successfully executing against this strategy, as we realize strong sales while still delivering exceptional gross margins of 29.1%. You've heard me say that we won't be margin proud, but we also won't sacrifice profits if we don't have to. By being more measured in our starts cadence, we can meet buyer demand while not oversupplying the market. Case in point, we ended the first quarter with 1,500 fewer specs in production than we started the quarter.

This gives us flexibility to maintain or increase production volumes, which in today's market is an important lever when working with trades and suppliers. As it relates to overall housing demand, home sales are benefiting from recent declines in mortgage rates, but I also think just having a general sense of stability in rates is important to consumer confidence. Given improvements in demand conditions and the broader interest rate environment, as well as a generally limited inventory of existing homes, we are starting to see the pressure on selling prices ease in many of our markets. In fact, in well over half our markets, we have found opportunities to pull back on incentives and or move prices higher in many of our communities.

While the price changes are modest, it demonstrates the point that people desire homeownership and are willing to buy when they see a value. Earlier this month, there was an article in the Wall Street Journal that looked at the housing shortage in this country. The article raised the point that depending upon which expert you ask, the housing shortage ranges from 2 million to 7 million houses. While there are certainly debates about the number, I think there is broad agreement that we have a housing shortage. I believe this is one of the reasons homebuyers are quick to respond when affordability pressures can be eased. Before turning the call over to Bob, let me take a minute to address impacts on credit availability given recent disruptions in the banking industry, particularly among the regional banks.

The short answer is that we have not experienced any disruptions. On the mortgage side, we are advantaged by having a captive financial services operation that routinely originates mortgages for between 75 to 80 percent of Pulte homebuyers that require financing. On the project side, big builders such as PulteGroup self-fund or have access to capital that smaller builders typically cannot match. In the end, it may be that recent disturbances in the banking sector may create opportunities for PulteGroup to put its more than $2 billion in total liquidity to work. I am very proud of our team, as PulteGroup delivered exceptional operating and financial results in the quarter. I'm also highly encouraged by the improving demand conditions we've been experiencing over the past two quarters, and I would add that buyer demand has remained strong through the first few weeks of April.

While we have and will continue to take steps to best position PulteGroup for success within today's changing market dynamics, we remain measured and disappointed in our actions. From production rates and land spend to overheads and share repurchases, we remain focused on delivering performance over the long term.

Now let me turn the call over to Bob for a detailed review of the quarter.

Thanks Ryan, and good morning. As Jim noted at the beginning of the call, we have reclassified closing cost incentives from cost of sales to net revenues for all periods presented. The total incentive reclassified amounts between $81 million in the first quarter of this year and $38 million in the first quarter of last year. This reclassification impacted our reported home sales revenue and associated average sales prices, as well as our reported home sale gross margin and SG&A percentages. An analysis of the impact of this reclassification on the current quarter and prior year periods is included in today's webcast slides. Where appropriate, any numbers referenced in my comments, current, past, or future, are inclusive of this reclass.

Let me now get started with a review of our First quarter results. Home sale revenues in the first quarter increased 15% over the prior year to a first quarter record of $3.5 billion.

Higher revenues for the period reflect a 6% increase in closings to 6,394 homes and a 9% increase in average sales price to $545,000.

On a year-over-year basis, we realized higher average sales prices across all buyer groups, led by double-digit gains in both move-up and active adults. In the quarter, we reported 6,394 closings, which represents a 6% increase over the comparable prior year period. Our closings for the quarter came in above our guide as we capitalized on stronger demand for spec homes and improvement in select areas of our supply chain that allowed us to close additional homes this period. I'd like to take a moment to thank our procurement and construction teams working in partnership with our trades and suppliers for their contributions Looking at the mix of our closings in the quarter, our results included 39% from first-time buyers, 35% from move-up buyers, and 26% from active adults.

In the first quarter of last year, the closing mix was 34% first-time, 40% move-up, and 26% active adult. The higher percentage of closings from first-time buyers reflects our increased investment in that part of our business over the last several years, as well as an increase in the availability of spec homes in our first-time communities, resulting from our decision to increase spec production in the back half of 2022.

Looking at our orders in the quarter, our net new orders totaled 7,354 homes, which is down 8% from the prior year. Our cancellation rate as a percentage of beginning backlog was 13% in the first quarter, which is up from 4% last year. On a sequential basis, the 13% cancellation rate is up less than 200 basis points from the fourth quarter, so cancellations are beginning to stabilize. In fact, on a unit basis, cancellations in this quarter amounted to 1,544 homes, which is down sequentially from 1,871 homes in the fourth quarter. By buyer group, net new orders to first-time buyers increased 18% over the prior year to 3,177 homes, while move-up orders decreased by 20% to 2,645 homes, and active adult orders were lower by 22% to 1,532 homes.

Our average community count in the first quarter increased 13% over last year to 879. Based on the communities opening the period, our absorption pace of 2.8 homes per month was down from the prior year, but in line with our pre-pandemic sales rate, which averaged 2.7 for the five-year period from 2016 to 2020.

Based on land investments we made in prior years, we expect to operate out of approximately 900 communities in the second quarter, which would represent an increase of 14% over the second quarter of last year. Looking over the balance of the year, we continue to expect community count growth of 5-10% over the comparable prior year quarter. Given our expanding community count, PulteGroup is well positioned to increase its market share within the improving demand environment. We ended the first quarter with a backlog of 13,129 homes with a value of $8 billion. This compares with last year's Q1 record backlog of 19,935 homes valued at $11.5 billion. At the end of the first quarter, we had a total of 16,872 homes under construction, of which 15% were finished.

Spec units represented 38% of our production, which is up from last year and consistent with our strategy to have specs available to meet buyer demand for homes that can close sooner.

Over the course of the first quarter, we started production on approximately 5,200 homes. This start rate was down about 40% from the first quarter of last year, but up on a sequential basis from the fourth quarter of 2022, as we continue to drive an appropriate start cadence as we focus on turning our assets. Based on the roughly 17,000 homes we have under construction and their stage of production, we expect to deliver between 7,000 and 7,400 homes in the second quarter. Given the ongoing improvement in the overall operating environment, we're pleased by the level of production we've been able to realize thanks to the efforts of our outstanding operating teams. In addition to these higher unit volumes, we are also seeing the beginning stages of a shortening in our At this point, depending upon the market, the gains range from just a few days to a few weeks, but the trends are generally positive.

Based on our strong Q1 results and the potential for cycle times to gradually improve, the production potential of homes we'll have available to close in 2023 has increased to 27,000 to 28,000 homes. This is up from our initial guide of 25,000 homes. Obviously, the strength of sign-ups in the second quarter will go a long way in determining how much of this production universe actually converts into 2023 closings. While the average sales price in our backlog is $608,000, we currently expect the average sales price for our second quarter closings to be in the range of $525,000 to $535,000. That estimate reflects both the mix of homes scheduled to close as well as the impact of We reported first quarter gross margin was 29.1%, which was 20 basis points below last year.

Please note that our reported gross margins in the first quarter benefited by approximately 70 basis points from the reclass of closing incentives from cost of sales to net revenue. The benefit to our first quarter 2022 gross margin was 40 basis points.

I would highlight that in the current quarter our margins benefited from our move up in active adult business where pressures on our selling prices have been relatively less impactful compared with entry homes After several years of gross margin parity across buyer groups we are seeing a reversion to the historic trend of I will now turn the call over to management for the PulteGraph In the first quarter, we reported SG&A expense of $337 million for 9.6% of home sale revenues. In the comparable prior year period, our SG&A expense was $329 million for 10.9% of home sale revenues. Higher closings and associated revenues in this year's first quarter drove the improved overhead leverage relative to last year and our guide.

With expected 2023 As we expect the second quarter SG&A to be in the range of 9.0% to 9.5%. In the first quarter, our financial services operations reported pre-tax income of $14 million, which is down from $41 million in the prior year. Pre-tax income in the period was impacted by lower loan volumes, competitive pricing dynamics, and higher mortgage incentives. The PulteGraph is being used throughout the industry. In Q1, our capture rate was 78% compared with 81% last year. Market conditions have clearly improved, but as we do under all market conditions, we continue to routinely reassess our own land positions and pending land transactions. Based on this review process, in the first quarter we walked away from 5,300 lots that were previously held We have a $1.5 million in the first quarter.

In the first quarter, our reported tax expense was $170 million, or an effective tax rate of 24.2%. We expect our tax rate in the second quarter to be 24.5%. Our net income for the first quarter was $532 million, or $2.35 per share, which is up from prior year net income of $455 million, In addition to significantly higher net income, our earnings per share benefited from the company's share repurchase program. In the first quarter, we repurchased 2.8 million common shares at a cost of $150 million, or an average price of $54.30 per share. Consistent with our plans to continue returning excess funds to our shareholders, our Board has approved an additional $1 billion of share repurchase authorization, bringing the total available under the program to $1.2 billion.

Along with returning funds to our shareholders, we continue to strategically invest in our business. In the first quarter, we invested $906 million in land acquisition and development, down from $1.1 billion in Q1 of last year. Given the stronger demand environment and the increase in our overall construction activities, we now expect to invest between $3.5 billion and $4 billion in land acquisition and development in 2023. We ended the period with 210,000 lots under control. This is consistent with year-end and down 10% from last year. Based on our activity over the past several quarters, 51% of those lots are owned and 49% are options. We will continue to seek increased optionality of our land bank, with a target of up to 70% of our lots being controlled via option.

Reflecting the strength of our first quarter financial results and associated cash flow, we ended the quarter with $1.3 billion of cash, which lowered our net debt-to-capital ratio to 7.2%. On a gross basis, our debt-to-capital ratio was 18.1%, down from 21.5% at the end of the first quarter last year.

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

Thanks, Bob. I think there are a lot of positives to be taken out of our first quarter results, including we delivered record first quarter earnings driven by higher closings, continued strong gross margins, and improved overhead leverage. Overall market conditions continue to improve as we experience strong demand and are finding opportunities to reduce incentives and or increase prices in many communities. Supply chain conditions are stabilizing, and we've seen at least an initial turn towards shorter cycle times. At this point, the gains have been market specific, but we are optimistic that we've seen the high watermark in terms of construction cycle times. Our national and local teams are making strides and clawing back construction days, which is critical because shortening our cycle time is an important driver to expanding our 2023 production universe.

PulteGroup's board approved another $1 billion increase due to the company's share repurchase authorization. We have bought back over 40% of our shares and clearly remain committed to the systemic return of funds to our shareholders. One other positive I would highlight is that PulteGroup was once again ranked among the Fortune 100 best companies to work for. This is our third year on this prestigious list, and we again moved higher, climbing from number 43 last year to number 36 in the most recent ranking. We take pride in being included on this list because it is based on what our employees say about their experience as part of the PulteGroup team.

Our success in delivering quality homes and delighting our customers starts and ends with our 6,100 employees dedicated to doing the right thing, taking care of our customers, focusing on quality, and lifting the teammates around them. The amazing culture resident in PulteGroup doesn't happen by chance. But rather, it comes from a committed effort by every employee to create a world-class culture.

I am extremely proud of our team, and I want to thank all of our employees, along with our trade partners and suppliers, for their tremendous work in helping to deliver another outstanding quarter of operating and financial results.

Let me now turn the call back to Jim Zumer.

Thanks, Ryan. We are now prepared to open the call for questions so that we can get to as many questions as possible during the remaining time of call. We ask that you limit yourself to one question and one follow-up. Sandra, if you want to get the process started, we are prepared for Q&A.

Yeah, sure, John. Good morning. We're seeing continued strength in the Florida markets, the southeast markets, and Texas would be the three kind of regions that I would highlight with strength. Our Midwest business continues to be a steady performer. And then in terms of markets that are more challenging, it would really be the Western markets, particularly the ones in the high-priced coastal areas, Northern California, Seattle, probably being the two that I would highlight.

Got it. That's helpful. And then, you know, recognizing that you guys are not a spec builder, I mean, the quick-moving effort has been, you know, it's been helpful and it's been meaningful. I mean, can you just help us outline sort of your thoughts on that today, where you see this going, and will this be perhaps a slightly bigger piece of the Pulte business than it has historically? Yeah, John, I think we've demonstrated exactly that, and I think it shows that when we started really talking about this middle of last year, that specifically with the first-time entry-level business, there was an opportunity to have more homes that were sooner deliveries, which helped to alleviate pressure around rising interest rates.

It helped to alleviate pressure around certainty of one things we're going to deliver, and we made the strategic decision to put more spec in the ground. To your point, we've historically not been a spec builder, but it's never been 0% of our business. We've always had specs as part of our business, but we made the decision to make it a bigger piece. It got as much as as high as about 45% of our total work and process inventory with spec. And I highlight that number, John, because that matches up pretty well with our Centex business, which is about 40% of our overall business, which is, you know, catered toward the entry level first time buyer.

So, you know, in terms of where it goes in the future, we're going to continue to, you know, as we highlighted in our prepared remarks, match our spec production with what we think the market demand is. And right now, that's certainly higher spec production than maybe what we've historically done. It's working for us, and I think this most recent quarter's results are, you know, a great example of how that strategy is working.

Great. Thanks, Ryan.

Yeah, Alan, it's a good question. I would tell you broadly, we saw strength in all price points. That being said, there is a higher likelihood of the entry-level buyer transacting at this point in time because they don't have a home to sell. And so they're not, you know, they're not hampered by the low interest rate that they may be hanging on to with their existing home.

But look, as we've talked in prior calls, life continues to happen for buyers, marriages, more kids, relocations, job promotions, you know, All the things that I think create a need for a family and a potential buyer to move into a different home for whatever reason, and our move-up and our active adult business, they're certainly benefiting from that as well. We are seeing easing of sales price pressure in both the move-up and the active adult segment, which is allowing us to moderately raise prices and moderately pull back on incentives. And I think that demonstrates some of the strength we're seeing. We intentionally don't build a lot of spec in those price points. We find that debt buyer group, they prefer to have the bill-to-order model.

But when it comes to our entry-level first-time syntax business, we're leaning in more with the spec-first strategy than it's working for us. Got it. That makes a lot of sense. And I guess on that note, if we think about the price point segmentation and entry level seemingly a bit stronger in the near term, you kind of alluded to this when you talked about the margin differential reverting back to more historical norms where entry level is a bit of a lower margin but higher term business for you. How should we think about the margin going forward, assuming the mix of the business kind of continues on this current trajectory? You guided for margins to be down about 100 bps sequentially, which probably is some of that mix impact there.

But can you quantify exactly what that mix looks like today and what it would look like if this mix holds steady here overall for the business?

Yeah, Alan, it's Bob. We haven't given a guide. You know, there's a lot of moving pieces out in the market. So we've got pretty good visibility based on our backlog and the sales activity we're seeing. You know, the commentary was, you know, if you think about the last several years, there's been sort of a compression in margins, and you saw it both in our results and our peers, where some of the folks that were selling entry level had higher margins than they historically would have. So, you know, that was based on availability, pricing dynamics, a lot of different things.

What we've now seen is sort of in our book of business, and I think you see it more broadly in the market, you know, that differentiation in margins between first-time move-up and active adult, for us, pretty consistent in the most recent quarter with what I would characterize as the norm from several years ago. So, you know, obviously still very strong margins. You can see it both in our results and in our guide.

You know, so as you go forward, you know, you heard Ryan say about 40% of our business is targeted at that entry level. That's a little bit richer than it was four or five years ago for us. That was conscious on our part. And so if you think about mix adjusted over time, we'll see a little bit more contribution from a margin perspective, It's worth it to always highlight. We don't underwrite the margin. We are focused on return. And you made the point, and I'd agree with you, that's a business that typically spins a little faster, so we're able to get the returns out of that business by virtue of that velocity coupled with the margins that we're able to generate.

Understood. Appreciate that, Bob.

Thanks, Alan.

You know, going back over the last several quarters, you've heard me talk about we're not going to be margin proud, And we are going to work to take market share and turn our assets, and I think you've seen us do that. I highlighted in my prepared remarks today that we're very pleased with the absorptions that we turned out, the absorption for our community that we turned out of the first quarter, and we were able to do it at outstanding margins as well. So I think we were successful on both fronts there. Going forward, we're going to continue to follow that same approach. We think it's really important to continue to turn the assets and to continue to have reasonably high absorptions per community.

And we'll combine that with what has been a historically best-in-class margin profile. And so we think we've got a lot of the elements of our playbook and our strategy working well.

So, Stephen, for our total year delivery, you know, what we've highlighted is that we've got a production universe in process. What's in process and what we expect to start, it'll give us a universe that will allow us to potentially close up to 27,000 to 28,000 homes. We have assumed the cycle times that we're currently seeing, so we have not incorporated any improvement. We have seen improvement, and we've incorporated that. We haven't incorporated further improvement, and certainly we've got lofty goals that we're endeavoring to claw back even more cycle time, but that's going to take a lot of hard work by our teams and our trade suppliers.

Yeah, Stephen, you know, it's a multi-month kind of program that we look at in terms of the, you know, our starts cadence and what we put into the ground. You know, I think it's, you know, widely well known that the first three months of the quarter tend to be more difficult on the weather side, especially for our businesses in the Midwest and the Northeast. It's probably a little bit of an impact on the number being a tad lower, but our forward plans in terms of our starts cadence, that's all wrapped up into the 27,000 to 28,000 unit range kind of production guide. So I'd probably look at everything in its entirety, not just what we started in Q1, but what was in backlog, what was in production, what we started in Q1, plus the kind of implied Q2 start rate.

I think that all works into the way that we're running the business.

That's not a number we provided, Stephen.

Thanks, guys.

Yeah, it wasn't a cliff. It was a pretty consistent cadence, and I think your point is a good one. The consumer has, I think, largely now oriented themselves around the stability and rates that Ryan talked about. They're moving, but they're not moving anywhere near as much as they were in the back half of last year. Couple that with the fact that most of the backlog and folks that signed contracts back when rates were much lower and got to a much higher rate at the closing table and the kind of the shock and cancellation impact from that has largely worked through the system. So I think the combination of those two things has the current contracted customer base and people signing contracts today are less sensitive to those rate movements than we saw in the back apple last year, and I think that's why you've seen the can rates.

And candidly, the reason we provided it, we had less total cancellations in the first quarter than we did in the fourth, I think, for all those reasons.

Yeah, I'd like to tell you its cost, but it really wasn't. I mean, that was for the stuff that we closed in the quarter. Those costs were baked in. You know, we're working with our trades to find efficiencies going forward. Lumber was obviously a benefit, but we knew that. So that was in our guide. I think it, you know, really, and we highlighted this in our remarks, it was reflective of the sales environment. You know, it was the relatively strong demand. Again, it was our ability to manage our incentive load. So we've had a national mortgage rate buy-down program in effect since the beginning of the year. And what we've been able to do is use that as another selling tool.

And so for some people, it's, hey, get my rate as low as you can get it. For others, it's, I want my rate down a little bit, and I want you to help me with closing costs. The nice part is that that incentive replaced the incentives that we were offering before as opposed to added to it. And then you couple that with the fact that we highlighted that we were able to stop reducing prices and actually started to increase prices in more than half of our communities. Now, these aren't massive increases, but it's the psychology of sales. You know, that relative strength was better than we had forecast in our guide for the quarter and showed up in the margin for the quarter.

Thanks, Anthony.

Yeah, Mike, we haven't given that level of granularity. I think the previous question that Bob just answered really highlighted what we've seen, which has been a build of sales momentum. If, you know, you remember going back to November, December of last year, you know, the market was still pretty tough. But, you know, we did comment our year-end, you know, report that we had in January that we were starting to see, you know, some momentum building in the back half of January or December and into January. We've seen that continue, and that's allowed us to pull back on incentives. It's allowed us to take some very moderate price increases, but it's definitely a change in, you know, kind of the sentiment that we're seeing from buyers.

I think some of that is interest rate stabilizing. I think some of that is the interest rate incentives that we've done. I think a lot of that is kind of buyer psychology. And then, you know, the biggest thing, as I go back to, we've got a housing shortage in this country, and that hasn't changed. And so in the places where we've been able to demonstrate value, which we've worked very hard to do, we're seeing some nice momentum on the sales floor. And, you know, I think you've heard from us, we've seen that continue into April. And, you know, that's allowed us to be optimistic and bullish with our forward start projections and some of the things that we're anticipating to be able to do for the balance of the year.

Great. I appreciate that, Ryan.

Well, we haven't given a guide beyond Q2, and there's a lot of moving parts in the market. It's the reason I mentioned that we are only going to go out one quarter. We've got lumber. It's ticking up again. That'll be later in the year or next year. However, it's worth it while looking at the cost environment, we still see inflation.

We think that it's a little bit lower in rate than we probably projected at the beginning of the year, but we are still feeling cost increases, and labor in particular is pretty sticky. We've talked about that. And, you know, obviously, you know, if you look at the production cycle, our land is typically more expensive as we move through time. So we've got, you know, incremental costs against a relatively flat and at some points during the last two quarters decreasing pricing. So I think that's what's actually resulting in the margin decline year over year.

You know, the strength in the market that we saw last year produced, you know, margins we had never seen before, Mike. And this is just a reflection of the reality that costs are up, and we haven't been able to offset all of those today.

Yeah, Matt. What we saw in the quarter was a strengthening of sales pace as we moved January to February, February to March. Sequentially, sales pace has got stronger. And then we've seen April continue to – the first three and a half weeks, three weeks of April continue to perform at a really strong level. So we're pleased with what we're seeing. You know, to your point, I think in certain markets, particularly on the West Coast during the, you know, the banking, regional banking crisis, I think, you know, certain buyer groups in certain cities were probably more impacted psychologically than others. I think most of the things that we were seeing resulting from that have dissipated. You know, we're continuing to see good momentum on the sales.

Yeah, nothing necessarily on the ground yet, Matt. I think we're more, you know, being responsive to some of the things that have been widely written about and talked about that, you know, the smaller banks that provide operating lines and project-specific financing, that credit has gotten tighter. We are not in a position where we use project financing We self for almost everything that we do and we have the ability to given our size to tap into the public capital markets if so needed So I think when it comes to land development, land acquisition, you know, the desire or the decision to put more spec into the ground, we've got tremendous flexibility because of the way that we're capitalized.

And I do think that could potentially give us the opportunity to take advantage of any kind of dislocation that might appear. It's an always-on mindset, which we've always had, not trying to send any kind of a message there other than there was a banking crisis, credit has gotten tighter, and we've got our ears open to any opportunities that that might create for us.

Yeah, fair question. That is just our projection of what we see on the ground. And so, you know, the increase in absorptions that we've seen, the relative stability in pricing gives us a little bit more confidence as we're looking at some of the deal flow that we, for land transactions, it does not anticipate or incorporate any M&A or anything of that sort. That would happen separate from that, and we would evaluate it. But we haven't projected that in the overall increase.

We haven't given that level of detail in a while. I think from a community account perspective, you've heard us say we're investing in the entry level. So a lot of the growth that you saw, we had growth across all three buyer segments in our community account. It was more oriented towards the first time, and, you know, interestingly, then next to the move-up and the active adult is, you know, those are bigger positions, so they don't, you know, we don't have quite as much flexibility in those over time, but the 13% was spread across all, but it was largely in the first time.

Thanks, Mike.

Yeah, Sue, I think, you know, Bob highlighted it in his prepared remarks, just with the increased, you know, potential for production in the year. You know, we raised our production potential by 2,000 to 3,000. So, you know, we've added sales and construction headcount in the right locations that matches up where we've been able to kind of turn up the volume there just a little bit. But, you know, we'll, I think Bob highlighted, we'll continue to maintain SG&A leverage as a percentage of revenue. So, you know, no hidden message there, nor should there be an expectation that you would see dilution to our leverage rates.

Yeah, we don't provide, you know, forward guidance, Sue, but in terms of appetite, I think, you know, the increased authorization, which we're very pleased, you know, our board made the decision to increase the authorization by a billion dollars. I think it shows that we've got a continued appetite for this to be a part of our capital allocation philosophy, which has been a consistent part, you know, for going on nearly 10 years. So, you know, if consistency is a virtue, if it's not, we should make consistency a virtue. I think we're, you know, we're demonstrating that we're living up to the capital allocation philosophy that we've articulated for our shareholders.

Yeah, Dan, in terms of the West, for us it encompasses the coastal markets, you know, California, Seattle, but also includes Las Vegas, Nevada, Colorado, New Mexico. So there's, you know, there is a mix of different cities and geographies and product type in the West. When we get into the coastal markets, we build a lot of multifamily, three- and four-story product. And so those buildings actually generally start as spec just by the nature. So there is spec there, and there's not anything that we're necessarily concerned about. I would highlight in the West, we have seen some strengthening in Las Vegas, and particularly in Phoenix over the last two to three months. We've actually started to see those markets firm up and start to get back on to some pretty positive sales trends and positive footing.

So, you know, the two places that we're continuing to kind of pay attention to, Northern California and Seattle, those are markets that I think are pretty tech heavy. The price points are generally higher. Affordability is more challenged. Also, a couple of the areas that are probably more directly impacted by some of the regional bank crisis. So, you know, but on the whole, we're still very optimistic about the way our West business is positioned. Just relative to Texas, the Southeast, and Florida, those markets have done exceptionally well.

Well, Dan, the way we're really looking at it, we're looking at it from start to final, and certainly we pay attention to overall cycle time from start to close, which is improved by a quicker flow-through on the spec side. But when we talk about cycle time, it's separate and independent from anything related to a buyer. It's purely within how long does it take us to build a home, and that's where we're starting to see some gains.

I was going to say it's hard to react to that. I think what we've seen reflected in our results is that we started a fair number of homes that We're speculative. Last year, they were available, and we've been able to sell them. I wouldn't characterize it as a huge incentive. I mentioned earlier, we have a national rate buy-down, and it is probably most appealing to that buyer group. But, you know, it probably is, you know, only a relatively small percentage of our total population of signups that actually took that. You know, they may have other things that are more important to some buyers.

The one thing, you know, the one thing, Truman, that I think I'd probably highlight is that our entry-level product tends to be on the higher side of the entry-level price band. And the locations are excellent. And so I think we've got a well-located product that's still within the affordable range that appeals to a first-time entry-level buyer. And so, you know, if our performance exceeds maybe kind of what you were expecting, you know, my guess is on a relative basis, that's probably some of the strength is we've got excellent locations for those entry-level communities. And then as far as kind of the exit rate for the quarter, that's not a number that we quoted. I did highlight, though, in one of the previous questions, we saw absorption strength progress as we moved through the quarter.

So March was our highest sales and the highest absorption rate of the quarter. We've seen strength continue as we've moved into April.

Yeah, we're very happy with the relationship that we have with Invitation. And, you know, I probably answered the question more I will now turn the call over to management for the PulteGraph. You know, being something in the range once we get the full capacity of about 5% of our annual deliveries, we're still on track as we get this ramped up that that's about what it will be, and we're pretty comfortable with that.

Yeah, candidly, no. Most of the folks that we work with are pretty well capitalized. They're big developers in their market. And the truth is that we self-develop a great deal of the land that we control anyway. The vast majority of our business is actually self-funded. But for those deals where we've got partners, they are typically pretty well capitalized.

Yeah, traffic I think was pretty consistent with what we expected. Conversion was better, and the incentives that we had to provide to get that conversion were better than our expectations, which is what really contributed to the margin outperformance.

Appreciate everybody's time today. We're certainly available the remainder of the day for any follow-up questions. Otherwise, we'll look forward to speaking with you on the next quarter.