Toll Brothers, Inc.

Good morning, everyone, and welcome to the Toll Brothers third quarter earnings conference call. All participants will be in a 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 and then one on your telephone keypads. To withdraw your questions, you may press star and two. We do ask that you please limit yourselves to one question and one follow-up. If you have further questions, you may re-enter the question queue. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Douglas Yearley, Chairman and CEO. Sir, please go ahead.

Douglas Yearley Thank you, Jamie. Welcome and thank you for joining us. With me today are Rick Hartman, President, COO, Marty Connor, Chief Financial Officer, Fred Cooper, Senior VP of Finance and Investor Relations, Kira Sterling, Chief Marketing Officer, and Gregg Ziegler, Senior VP and Treasurer. Before I begin, I ask you to read the statement on forward-looking information in our earnings 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 the many other factors beyond our control that could significantly affect future results. Those listening on the web can email questions to investorrelations at tollbrothers.com. We produced strong fiscal year 2019 third quarter results, including home sales revenue of $1.8 billion, a 23.1% adjusted gross margin, $146.3 million of net income, and earnings per share diluted of $1.00. Our third quarter contracts were down 8% in dollars and 3% in units. In our third quarter, we were able to decrease incentives slightly on new contracts versus our second quarter. In addition, with demand off to a good start in our fourth quarter, we have increased prices modestly at over half of our communities. We will continue to strategically balance sales pace and price. According to the NIHB, builder sentiment in August rebounded to the highest level of the year. The Census Bureau reported single-family housing starts in July were at the highest level over the past six months, and single-family building permits rose for the third month in a row. And just one hour ago, July existing home sales numbers came out and exceeded consensus expectations. We view these as positive signs of the overall health of the housing market. We continue to broaden our product lines and price points beyond our traditional move-up and active adult buyers. We serve the widest variety of home buyers in the industry with homes ranging from $275,000 to over $3 million. In fact, about one-third of our communities today offer homes with a base price under $500,000. We have also expanded geographically. This year we have entered the Atlanta, Salt Lake City, and Portland, Oregon markets. We are also expanding northward on Florida's west coast into Tampa. We have seen healthy demand across these new markets. We are also serving urban and suburban renters. Through Toll Brothers Apartment Living, we currently have a pipeline of 19,000 units in various stages of approval and development across the country. In addition, our new single-family build-to-rent joint venture is growing, and we are excited to be a leader in this evolving market segment. With demographics improving, low interest rates, record low unemployment, continued wage growth, and limited new and resale inventory in many markets, we are optimistic about the opportunities ahead. Now let me turn it over to Marty.

Thanks, Doug. Before I address the specifics of this quarter, I want to note that a reconciliation of the non-GAAP measures referenced during today's discussion to their comparable GAAP measures can be found in the back of our earnings release. I also want to note that our guidance is subject to our normal caveats on forward-looking statements. This quarter, we have increased the midpoint of our guidance for fiscal 2019 full-year deliveries, average price, and revenue, and we are reiterating our adjusted home sales gross margin guidance. With the longer construction timeline from our build-to-order model, particularly at our higher price points, the exact delivery date of homes in our backlog can shift between quarters. During the third quarter, adjusted gross margin came in better than expected, driven primarily by favorable mix and timing of certain deliveries. Some of the timing benefits that we experienced in our third quarter, we expect to reverse in our fourth quarter. Irrespective of these timing differences, we are reiterating our fiscal 2019 Full-Year Adjusted Home Sales Gross Margin Guidance of 23% that we provided on our second quarter earnings call. Turning to SG&A, our third quarter SG&A as a percentage of home sale revenue was 10.6%. This is better than expected due to home sales revenue coming in at the high end of our previous guidance. We continue to expect SG&A margin to be approximately 10.4% for the full year. Our SG&A margin is expected to be higher this year than in fiscal year 2018 due to lower revenue than last year, compensation increases, continued investment in our infrastructure and information systems, and an increase in the number of communities we are operating from. We now expect fiscal year 2019 other income, income from unconsolidated entities, and land sales gross profit to be $105 million, up $5 million from our previous guidance of $100 million. Our fiscal year 2019 tax rate is expected to be approximately 25.6%. We remain focused on maintaining our conservative balance sheet with ample liquidity, low leverage, and long-dated debt maturities. At the end of our third quarter, we had more than $1.9 billion of liquidity comprised of cash and available bank credit facilities. And we have only $250 million of debt maturing over the next 30 months. Our leverage and liquidity give us the flexibility to execute on our balanced capital allocation strategy. This strategy includes capital-efficient land acquisitions, returning capital to our shareholders through share repurchases and dividends, and maintaining conservative leverage. During our third quarter, we repurchased $142 million of our stock, and since the beginning of our fourth quarter, we have repurchased an additional $8 million. This reduced our share count by 4.2 million shares or nearly 3% since the start of our third quarter. Our book value per share at fiscal year 2019's third quarter end was $34.72, up 3% from $33.84 last quarter and up 14% from $30.55 one year ago. Our backlog at the third quarter end was $5.84 billion. We are pleased that our community count has grown from 301 a year ago to 322 at the third quarter end. We expect modest growth in community count in our fourth quarter as well. Now let me turn it back to Doug.