Good morning. Welcome to day one of the 16th Annual J.P. Morgan Homeb uilding & Building Products Conference. My name is Michael Rehaut. I'm excited to start off the day. We have a great two-day agenda. 18 companies across our universe, eight homebuilders, one land developer, and nine building products companies. We're thrilled to start off the day with PulteGroup. CEO, Ryan Marshall is with us, along with VP of Investor Relations, Jim Zeumer. The format of the conference will be predominantly fireside chats. I'll start off with a series of questions. This is about a 35-minute session. If you would like to ask a question, there is an ability to do that through the conference portal. You can click on the Ask a Question icon, and those questions will be fed to me. We'll go from there. Hopefully, it'll be enough time for everyone to ask and get answered. I'm gonna kick it off again with Ryan and Jim. I think the first question that, you know, most people are interested in is just, you know, to the extent possible, any update on demand trends. How do you characterize? I guess specifically, you know, there's been a lot of talk, obviously, in the last month or two or three even about the somewhat of a return of demand to the marketplace, not coincidentally, alongside rates stabilizing, even pulling back a little bit, which is, you know, very typical. Curious, number one, Ryan, would you characterize the recent improvement in demand as being consistent with seasonality, or do you feel like it's something a little stronger than normal at this point in time and year? Mike, maybe I'll start with, we've not given any kind of market commentary update since we released earnings a few weeks ago. Just maybe as a kind of housekeeping item, a lot of my comments will kind of refer back to the comments that we gave then. We did talk, Mike, that through the third week of April, which is when we released earnings for the first quarter, that we were continuing to see a really strong build of momentum coming out of the first quarter and into the first, you know, two or three weeks of April. With that being said, I think if we look at some of the fundamental drivers of that strong demand, those same drivers are still there. Predominantly, we've got really tight supply, especially on the resale side, which is making the new home opportunity a bigger piece of the total market than it's ever been. I think it's a real tailwind for the industry. Rates have continued, I think, to moderate, settle in, and combined with that. That combined with a, at least in the case of PulteGroup, a reallocation of our incentives, predominantly directed toward interest rate buydowns that allow, you know, a consumer to get into a 30-year fixed mortgage at really attractive rates that are, you know, sub- 5% on a 30-year fixed mortgage. I think that really works to address some of the affordability challenges that we've seen from the consumer. You know, broadly speaking, Mike, we are very confident about the health of the consumer, what the inventory situation is, and kind of what that means for our ability to continue to sell homes. Great. Thanks. By the way, in my enthusiasm of jumping in and starting off on the questions, I should have first said welcome and thank you for joining and kicking us off today. Very much appreciate you guys being here and participating. Please excuse my jumping right in there, so. We'll try to do our job like a good leadoff hitter, Mike, and get on base. That's right. Now, don't hit me by a pitch or anything like that. I don't know. My, you know, my arm's getting rustier by the day, but, I'll try not to. I appreciate that, Ryan, you know, it kind of leads me to my second question around affordability. You know, you mentioned, you know, the Rate Buydowns and, you know, Sub- 5% is, you know, we've heard more about probably in the Mid-Fives where the Buydowns have been able to go. Curious on... Maybe you can just walk us through, number one, you know, the mechanics of what a, you know, Buydown costs. You know, if you're going from, let's say, where the prevailing rate is, I don't know if that's, let's say, for argument's sake, 6.25% or 6.5%. How much does it cost to buy it down to 5.5% or 5%? You know, maybe just kind of take us through the mechanics of it a little bit. Yeah, Mike, the mechanics of it are pretty straightforward. We're going out into. We're using our mortgage company, and we're going out, and we're buying Tranches of Mortgage Commitments in the market, and then we've got an obligation to fill those. You know, we've effectively created a Ladder of Tranches, of Forward Commitments at certain rates. There is an Upfront Fee that we pay to essentially secure that commitment, and then there are some additional incentives that need to be paid on the back end, by the individual deal that goes into that commitment. Today, with the prevailing rate kind of being Mid-Sixes, maybe even Low Sixes, the cost-effectiveness of getting to 5% rate as an example is the economics are much better for us today than they were 60 days ago. Today, you know, that's to get to a 5% type 30-Year Fixed is probably costing us around five points right there in the kinda five-to-six-Point range. It's not, it's not inexpensive. The biggest thing for us, Mike, is we've been able to reallocate other incentives toward that. It's not, you know, and you probably saw from our Q1 Gross Margins, and then even the guide that we gave for Q2 on Gross Margins, it's not having a detrimental impact to our ability to deliver outstanding Best-in-Class Gross Margins. You know, it's simply been reallocating the available incentives to things that really matter for the customer. Okay. The only thing I might add to that, Mike, real quick is that what we're seeing with consumers, they're not taking the Rate Buydown all the way to 5%, for example. They're actually taking it more to 5.25%, maybe even 5.5% is very common. That gets them sort of their monthly payment, and then they're looking to say, "Okay, give me the rest of the associated incentives on something else." It might be Closing Costs. It might be I want upgraded floorings. I want better cabinets or countertops or something like that. The consumer has a number in mind, and we're able to get them there, and it's actually, it's been interesting. It's a little bit higher than kind of, you know, the Ryan, you know, where Ryan was mentioning all the way down to a 4.99% or a 5%. I think it's pretty consistent with a couple of the, you know, the John Burns and some others who put some numbers out there that says the Sweet Spot is kind of around 5.5% in terms of what consumers are looking for. Right. You know, maybe you're talking about five or six Points of total incentives, or hit to the Gross Margin, but those numbers are, you know, again, more or less being fully baked into your current guidance, your current Gross Margin level. That's correct, Mike. Great. You know, I guess in that context, how would you view today's level of Affordability? You know, obviously, I think that's one of still the big concerns that are out there. You know, Affordability Metrics, you know, are still, you know, pretty stretched relative to history. You know, you're seeing, you know, a good level of demand where, you know, you're able to get those incentives down or add, you know, allow those incentives to maybe make things a little more affordable than people realize. You know, how do you view, you know, your current product in that Affordability Matrix? Is this something where, you know, over the next year or two, we should be thinking about, you know, adjustments to Price Point to even better solve for that Affordability Equation? Mike, the short answer is, I think Affordability remains on the challenged side. That being said, it's much improved from where we were a year ago. And the markets that were most challenged from an Affordability standpoint, I think those are the markets where you've seen the biggest Price Adjustments. Some combination of those Price Adjustments in the really challenged markets, smaller Price Adjustments, kinda more broadly across the United States, combined with the mortgage rate environment stabilizing. I think we're in a, we're in a workable spot from Affordability standpoint. Mike, you hit the nail on the head. Historically speaking, Affordability and the Cost of Housing remains too high. I don't see, I don't see anything structurally changing as it relates to the Supply Side, you know, the Supply Side of the Affordability Equation that's going to change that. Entitlements remain very difficult. Land Development is taking as long as it ever has. There's not, there's not going to be an opportunity for a whole bunch of new supply to come on the market. You know, we've effectively reduced the amount of available Resale Supply by 25%-30%, just by virtue of you've got so many buyers that are locked into low interest rates, and they're just not willing to give them up. Through some combination of reduced New Home and lower Resale Supply, Mike, I think supply is gonna remain tight for the foreseeable future, which I think provides some stability or some floor underneath home prices generally. You know, in that time, at least the forecast that I'm seeing are suggest that rates are gonna continue to come down. You know, the most recent one that I saw suggested something in the kinda 5.25%-5.5% for the actual market 30-Year Fixed Rate. If we continue to see, you know, some Wage Inflation, maybe those three levers of Asset P rice plus wages plus interest rate, we end up into, you know, a livable zone, you know, when we're talking about Affordability. Right. You know, in terms of the actual home price, the product that you offer, you know, how should we think about ASPs from Pulte over the next year or two? I mean, is this something where? Some companies have talked about potentially trying to actively lower their Average Selling Price through, you know, over the next year or two or three, you know, adjustments to floor sizes, you know, you know, Attached versus Detached. But, you know, anything on the drawing board in terms of trying to actively, you know, if not lower, you know, let's say blunt the typical normal increase in ASPs over the next couple years? Yeah, Mike, I think we've done a nice job historically, and we continue to focus on this, where when you go into many of our Master Plan Communities, we offer a number of lot sizes. You know, we'll typically have product that's as small as 30 ft wide. We'll very often offer a 30-Foot wide product, a 40-foot wide product, and then a 55-foot wide product. You know, those will go on three different lot sizes. The 30-foot wide product, as an example, you know, those are homes that are typically, you know, two bedroom, two bath or three bedroom, two bath, and they're in the, you know, 1,400-1,700 sq ft range. That product line is always meant to be our most affordable, you know, targeted at, in some cases, an Active Adult, you know, a buyer that's downsizing or in the case of a, you know, an Entry-Level First-Time Buyer. You know, that'll be the first home that somebody buys coming out of an apartment or a rental home. I think in our portfolio, Mike, we've got a wide variety of product that's very affordable. You know, to even be more efficient with land values and, you know, really stretching those the Residual Cost of the land over as many homes as possible, we use Townhomes. We also, in some communities will use Quads, which are, you know, effectively four single-family homes, that are all single story. we're also, you know, we're using some Motor Court type products that really leverage and get efficient with the use of driveways. You've got a shared driveway area between six or eight homes that help to really drive some Affordability in some of the high cost land markets. I think from a product portfolio, Mike, I'd put our product line up against anybody in the industry in terms of options that allow us to drive Affordability. Beyond that, the consumer's got the ability in our system to choose as much or as little as they want, as they want to if they can afford it, or, you know, we can make choices on Fit and Finish and Structural Options that keep the overall cost down. You know, maybe just the last thing, Mike, we have over, you know, the last four to five Years, made a deliberate push to have more of our product line be affordable, First-Time Entry-Level. Today, it's 40% of our business. You know, we have, the other, roughly 40% is Move-Up, and about 20% is Active Adult. We continue to be very geographically focused, but also geographically diversified, but also diversified in terms of the consumers that we're serving. With 40% of our business being First-Time Entry-Level, that is helping to push our Price Point, you know, further down from maybe where we historically would have operated. Right. No, that's a good point. I appreciate that. You know, maybe just switching back to Incentives for a moment. You know, maybe you could remind us, where we are in that life cycle or, or the current cycle rather. You know, where were Incentives plus Discounts at its peak, perhaps at some point late in 2022? Where are they today? Where do you think they might be as things continue to normalize? Well, Mike, my view would be most of your price, your downward Price Adjustments in most markets have taken place. Unless you've got an, you know, some kind of an odd, you know, poor position, poor location, poor product choice, I don't necessarily anticipate seeing any further downward Price Adjustments. In fact, most of our communities, we're actually seeing Price Increases. They're smaller in nature relative to maybe what you would have seen 18 months ago. But some combination of small Price Increases or reduction in Incentives, we're seeing prices kind of move up. The, you know, as we highlighted and talked on our most recent call, Mike, demand's good. There's such short supply that we're seeing, you know, we are seeing some relief of pricing pressure on the from the consumer, and we're starting to go the other direction. Right. Mike, just keep in mind that the timing difference between when we when we may take a contract and when we're gonna close that home. For example, in Q1 of this year, our Incentives were were, you know, to use your word in terms of peak, they were still at 6%, I mean, which was up over Q4 and would, at this moment in time, be the highest we've recorded in the recent housing cycle. You do just have to be mindful of the fact that you've got a quarter, maybe two Quarters, even though we're doing a little bit more S pecs, so the closings are a little bit more real time between when you sign that contract and when you're going to, for purposes of our reporting, realize that Incentive. Right. No, that's a great point, Jim, and maybe this kind of brings me back to the original question. If you're saying and part of it was certainly on the trends of pricing as well, which is kind of it's always, you know, one side or the other of the same coin. Just focusing on the Incentives and D iscounts, you know, you mentioned 6%, Jim, in the First Quarter, and I guess that's the High Watermark. Where are Incentives plus Discounts trading currently on Incoming Orders? Yeah, Mike, we haven't provided kind of that data historically on Incoming Orders. I don't wanna share that today. You know, I think some of, you know, anticipating where I think you're maybe going with the question is how much is maybe an easier way for me to answer is how much of price is adjusted, you know, from potentially where we peaked. I think most markets saw Price Adjustments in the High Single digits to roughly 10% range. You know, those were the types of Price Adjustments that we saw from peak to, you know, where I think things started to firm up again. There were certainly some markets that got way overheated on price, if you went back to the COVID days, and those types of markets, Austin would be in that category, maybe San Francisco, maybe things, markets like Seattle. There's a few of those markets that I think had Price Adjustments that were certainly much bigger because the price run-up was just that much higher. Right. Those Price Adjustments, just to be clear, exclude any additional adjustments on increased Incentives and Discounts? Yeah. Mike, I think the way I would probably suggest you look at it is when our Incentives start to get large, we as a company philosophically pivot to making Price Adjustments. You know, I think once your available Incentives and Discounts, you know, start to exceed, you know, 6%, 7% of your Asking Price, it's time for, you know, it's time to probably go into a Price Adjustment type situation. You know, and look, things are always fluid, things are changing. You know, as I mentioned when we started the call, for the most part, what we've tried to do is take the available incentives that we have, and we've directed those toward Interest Rate Buydowns because we just think that's where, you know, that's what's really talking to the consumer right now. You know, as Jim highlighted, some go all the way to 5%. We find a lot of consumers settle out around 5.5%, which seems to be the Magic Number psychologically and financially. Then that still leaves them a little bit of money from the available pool of incentives that we're offering, for Closing Costs or cabinet upgrades or something else that they want to use that money for. Okay. Is it fair to say that your Normalized Level of incentives are closer to 2%-3%? Normalized Incentives, yeah, probably closer to Yeah, 2%-3% is I think a fair range for probably normalized incentives. Great. Let's switch to some company-specific questions. You know, I think, you know, the biggest thing that the people have noticed, and, you know, your stock has had some nice outperformance this year, is the relative, you know, staying power of the Gross Margins. You know, it's something that, you know, we view as a relative positive and probably, to be honest, as part of our Overweight rating, we felt that the relative valuation hasn't properly reflected that. I think you finally started to get some credit for it this year. You know, your 2Q Guidance Gross Margins of 27.5%- 28%, you know, I think, you know, maybe just a shorter-term question before the bigger picture question around your Gross Margin approach and your return approach. You know, how should we think about, you know, when you're thinking about the Second Quarter guidance, any impact of delayed impacts from the softer Second Half environment? You know, you talk about the lag between orders and deliveries. If the Second Quarter guidance kind of fully reflects all of the challenges and tougher pricing that we saw in the back half of last year, is there a little bit more to come on the downside or, you know, some of those negative after effects, either from higher incentives or Cost Inflation? Just trying to think about, you know, the puts and takes on Back Half Gross Margins relative to where you are today. Yeah. Mike, without getting too far into the weeds, you know I'd probably try and frame it as this. As a company, we've historically had Structurally Hi gher Gross Margins than the rest of the industry. In the COVID era, where I think what we saw is the predominantly Spec Builders, given the ability to take full advantage of all of the market price appreciation at the time that they went to market with the Spec, they were able to catch up and normalize with kind of where we were operating historically. You're now in the current environment, I think you're seeing more of a Reversion to the way things historically operated, which gave us, as a company, Structurally Higher Gross Margins, you know, somewhere in the 300-400 basis points higher than the rest of the industry. Today, you know, with our Q1 Actual Results as well as our Q2 Guide, we're, you know, 700-800 basis points higher than some of our near and large competitors. We delivered a great Q1. We've given a great Q2 Guide that still shows that the margins are holding strong. That is reflective, Mike, of all of the parts and pieces of the current environment. Current costs, current land, current incentives, and, you know, as you've heard us talk about 60% of our sales over the last kinda two to three Quarters have been Spec Homes. These are kind of nearer term for us anyway. They're nearer term deals that are selling and closing sometimes in the same quarter. You know, while we still do have a big Backlog, in the current environment with the consumer's preference to buy Spec, Specs are a much bigger piece of our overall closing volume than what it historically has been. You know, while we have not given a full year guide on gross margins, you know, there's just enough, you know, I think, you know, there's enough moving kind of pieces more broadly in the market that we just stuck with giving a Q2 Guide. We're very, kind of bullish on our ability to continue to deliver High Gross Margins. I would be remiss if I didn't take the opportunity to say you've heard from me, hopefully over the last two to three Quarters, we're not gonna be Margin Proud. Volume and Throughput are incredibly important in this space. And our number one focus is, and will continue to be on delivering High Return on Invested Capital, and a big part of that ROIC Equation is Inventory Turn. Some combination of optimizing margins, which happen to be great, and we're not going to discount just to discount, but we are going to make sure that we're pushing inventory through the system as well. Our Q1 Sign-Up Number, I think, demonstrated exactly that. We had, you know, a pretty phenomenal, even though it was a down on a Year-over-Year basis, relative to the peer set, we were one of, you know, the strongest performers on Year-over-Year Sign-Up Volume change, which I think highlights the fact that we are striking and kinda toeing the line of that balance between price and volume. Right. No, no, I appreciate that. I got a question from the audience, and I wanna make sure we have about, I think about eight minutes left for the session, so I just wanna make sure that I'll weave in some questions from the audience. The question is, your Cash Flow and Growth in Equity has been very strong. Is there a floor in terms of how low your Net Debt Ratio could be on a sustainable basis? Well, you know, Mike, we, you know, we're lower than what we typically run at, and I think that's really a by-product of the fact that the Cash-Generative Properties of the business have been so strong. That being said, we've made significant investments into Land, we've made significant investments into Share Buybacks, and we continue to pay our dividends. You know, we're executing on all four, really all three key elements of our, you know, our Capital Allocation Philosophy. Our next Long-Term Debt Maturities, we have one in 2026, we have one in 2027. you know, I don't necessarily see us changing anything with that in the near term, but, you know, as we continue to generate cash, certainly, as strong as the business is, you could see the Net Debt continue to go lower. I, you know, I guess I'd just kind of bring you back, Mike, I think we're doing all the things that we've promised to shareholders, which is to, number one, invest in our business, pay our dividend, and then we've still been able to significantly repurchase, you know, over the course of the kind of 10-Year Buyback Program we've been on, we've repurchased 45% of the company. I think we're creating significant value for our shareholders in all three elements of our Capital Allocation Strategy. The only thing I would add, Mike, is, you know, if we had to carry more cash, while, you know, Bob O'Shaughnessy, our CFO, would kinda suggest that our Balance Sheet is being a little bit lazy, I think we've also demonstrated it won't burn a hole in our pocket. You know, we're not going to go out and force it into dirt and, you know, or over-accelerate into in terms of Share Repurchase. We've been pretty methodical in that. If the idea at the end of the day, 'cause to your point, you know, the potential for Very Strong Cash Flows, we'll be very thoughtful and it gives us an opportunity, and certainly gives us a lot of flexibility. Right. Right. You know, maybe just going back to Product Mix and margins. You know, there's obviously been a lot of volatility, you know, between Spec and To-Be-Built margins. You know, there's been comments more recently in this past earnings cycle that, you know, Spec has kind of reverted, at least a couple of companies have noted, you know, to the more typical discount to To-Be-Built. At the same time, the demand for Spec is probably as strong as it's ever been. Just wanted to, from your perspective, hear about, you know, if that indeed is true, if Spec Homes have kind of reverted to that typical, you know, several hundred basis point spread lower than To-Be-Built. How do you think about Product Mix, if that's the case, around, you know, the margins kind of reverting back to those normalized dynamics? Yeah. Mike, we are, we have, we would, we would validate or we'd affirm that, that, you know, Spec Homes are trading for at a discount to the To-Be-Builts. You know, the distinction that I would probably wanna point out, though, the majority of the Spec Homes that we're building are in our Centex product, which is our First-Time Entry-Level home, you know, footprint and brand structure. Those, you know, those are homes where we typically turn more volume, each month, relative to our Pulte Move-Up communities or even our Del Webb communities, where we'll sell fewer, you know, homes in a community per month. While the margins are lower, the, you know, the volume's higher, the return attributes are still very attractive, and that's what we continue to focus on. you know, but where you started your question, are Specs trading, at a discount? The answer is yes, they are. You know, I mean, you also alluded to, you know, about 60% of your closings today being Spec, which is, I wanna say, at least, you know, 10, 20 points higher than normal. You know, is that something that we should expect that type of level of Spec Percentage to persist in the near term and/or over time, would you expect it to revert more in your own company's approach, would, you know, revert more towards your typical mix? Mike, I would I think it'll depend on the normalization of the mortgage rate environment. To your point, we've historically, you know, our Spec Sales have probably been closer to 30%. Today, we're at 60%, partly driven by the fact that we're building more Entry-Level product. The biggest driver has been consumers have just had a preference to buy things that are nearer term because it allowed them to lock in a known mortgage rate for an affordable amount of Upfront Fees. You know, as you got into longer kind of build time, Cycle Times, it became cost-prohibitive or even impossible to lock in an interest rate. I think that was the big driver of the preference for Spec. you know, you'd also layer into that a little bit that the challenged Supply Chain where it was creating some real uncertainty around when is my home going to be delivered because I'm waiting for appliances, or I'm waiting for windows, or I'm waiting for some of the other things that were in short supply. That's, you know, that part of it's also, I think, largely kind of healed and normalized. you know, my guess is over the next six to nine months, Mike, we'll start to see somewhat of a reversion to more normal, you know, Spec To-Be-Built type volume. The big driver there is gonna be stabilization in the mortgage environment. Right. No, that makes a lot of sense. I think we're basically just coming up on the 8:50 mark, so I wanna keep things on time, at least at the beginning of the day. You know, I wanna thank you again, Ryan and Jim, for your participation. You guys have actually, I believe, kicked us off on our conference for several years now, so it's always a pleasure to see you and have you participate. We'll have our next session at the top of the hour, with, we're switching to Building Products. We have The AZEK Company followed by Masonite before our first break. Again, thanks so much, Ryan and Jim. Have a great rest of the day. I know you have a bunch of meetings scheduled, so, appreciate your participation, and we'll talk to you soon. Okay. Thanks, Mike. Thanks.