Toll Brothers, Inc.

Good day and welcome to the Toll Brothers, Inc. first quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Doug Yearley, Chairman and Chief Executive Officer. Please go ahead.

Thank you, Nicole. Welcome and thank you for joining us. I'm Doug Yearley, Chairman and CEO. With me today are Bob Toll, Chairman Emeritus, Rick Hartman, President, COO, Marty Connor, Chief Financial Officer, Fred Cooper, Senior VP of Finance and Investor Relations, Kira Sterling, Chief Marketing Officer, Greg Ziegler, Senior VP and Treasurer, and Don Salmon, President of TBI Mortgage Company. Before I begin, I ask you to read the statement on forward-looking information in yesterday's release and on our website. I caution you that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, and many other factors beyond our control that could significantly affect future results. Those listening on the web can email questions to dyearley at tollbrothers.com. Fiscal year 2019's first quarter results were strong with earnings per share of 76 cents, pre-tax earnings rising 15%, home sales revenue increasing 12%, and home sales gross margin improving 50 basis points compared to one year ago. Fiscal year 2019's first quarter pre-tax income was the highest Q1 in over a decade. Our first quarter contracts were down 31% in dollars and 24% in units. We attribute this decline to a difficult year-over-year comparison. Contracts were up 36% in dollars and 20% in units in fiscal 2018's first quarter and the industry-wide slowdown that began in the second half of 2018. California's drop was the most dramatic with contracts down 62% against a difficult comparison of up 72% in fiscal year 2018's first quarter. Some of this was due to market softening and some was attributable to mix and the life cycle of certain communities. Company-wide on a per community basis, contracts tracked more closely to fiscal year 2016 and 2017's first quarter which were still quite healthy, then to the more robust fiscal year 2018 first quarter. Although we experienced a year-over-year decline in contracts each month of the first quarter, the decline decreased as the quarter progressed. Non-binding reservation deposits for the first three weeks of February are behind last year, but we are encouraged by improving demand trends during the month and especially by our past week's deposits which exceeded last year's same week. This is only one week worth of data but it is an important week, historically one of the biggest sales weeks of the year. Nationally, the economy remains healthy, unemployment is low, and housing supply is still tight. Many of our potential customers have benefited from a strong stock market and enjoyed increased equity in their existing homes. Mortgage rates have recently decreased to their lowest levels in a year These factors are all generally positive for the home building sector. Given our focus on the upscale market, our strategy has always been to acquire the best land in the most attractive locations. We evaluate each community weekly to carefully balance sales pace and home price. With our unique land position, we intend to continue this balanced approach. With our strong balance sheet, We continue to evaluate attractive land, new markets, and builder acquisitions as we pursue our strategy of diversifying our product lines and geographic footprint. We recently announced our entry into the metro Salt Lake City, Utah and Portland, Oregon markets with our first communities in both markets planned to open this spring. We are excited about these markets as they represent our continued expansion in the West. Our apartment business continues to grow. In fiscal year 19's first quarter, we announced three new joint ventures to develop luxury apartment communities in Westchester, New York, Atlanta, and Frisco Square, a suburb of Dallas. Total cost of the three communities will be about $270 million to build about 1,020 units. Because we develop our multifamily platform with partners and use project construction loans for about 65% of the cost, Toll Brothers' total investment across The three communities is about $24 million. We generally get fees and promotes to increase our returns, and on occasion we may recognize an upfront gain on sale of land into the joint venture. In Q1, we recognized an $8.4 million gain from such a transaction. This is a great standalone business, and even better, serves as a complement to our for-sale home building business. We currently have over 18,000 apartment units in various stages of development or lease-up. We are proud of our tremendous brand. This quarter, we were once again named by Fortune magazine as the world's most admired home building company. This is the fifth consecutive year we have been so honored. We thank the tremendous team of Toll Brothers associates who make these recognitions possible. With our well-located land, strong brand, and wide variety of communities, we believe we are well positioned. Now let me turn it over to Marty.

Thanks, Doug. Before I address the specifics of this quarter, I do want to note that a reconciliation of the non-GAP measures referenced during today's discussion to their comparable GAP measures can be found in the back of yesterday's release. We exceeded our expectations for earnings this quarter. Our pre-tax income rose 15% on a home sale revenue increase of 12%. Home sale gross margin came in 50 basis points better than a year ago, driven primarily by solid operations and favorable mix. Interest expense through cost of sales was 2.6% of home sales revenues down 30 basis points compared to a year ago. Impairments remained modest at $7.6 million. In fiscal year 2019's first quarter, we had an SG&A margin of 12.3%, which is 110 basis point improvement over fiscal year 2018's first quarter. The improved Q1 SG&A margin reflects increased revenue and Good Cost Control. During the quarter, we recognized an $8.4 million net gain on the sale of land into an apartment joint venture that Doug just mentioned. And we also had a $12 million gain on the disposition of a golf course. We remain focused on maintaining our conservative balance sheet with great liquidity, low leverage and a long-dated maturity profile. We ended fiscal year 2019's first quarter with a debt to capital ratio of 42.7% on a gross basis and a net debt to capital ratio of 36%, both compared to 44.2% and 40.1% at fiscal year 2018's first quarter end. We had more than $1.9 billion of untapped cash and available credit facilities at quarter end. Our weighted average debt maturity is 5.2 years. Our weighted average interest rate is 4.65%, and we have only $250 million of maturities due in the next 36 months. Our book value per share at fiscal year 2019's first quarter end was $33.04, our highest ever, and it's up from $32.57 last quarter. We are well positioned to take advantage of land opportunities, to make acquisitions, to reduce our debt, or to invest in our company through further share repurchases. Here is our forward-looking income statement guidance for the second quarter of 2019. We expect deliveries of between 1,650 and 1,850 units with an average delivered price of between $860,000 and $890,000. We expect adjusted home sale gross margin of approximately 23.1% of home sales revenues and SG&A as a percentage of second quarter home sales revenues of approximately 11.3%. We expect other income, income from unconsolidated entities, and land sales gross profit of approximately $13 million in total. We expect a tax rate of approximately 27.5%. We are pleased that our community count has grown from 295 a year ago to 317 at the first quarter end, and we expect modest community count growth through the balance of the year. Lastly, we expect interest expense to cost of sales to be approximately 2.7% and our weighted average share count for the second quarter to be approximately 148 million shares. Now let me turn it back to Doug.