Toll Brothers, Inc.

Good morning and welcome to the Toll Brothers third quarter fiscal year 2025 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, 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 telephone keypad. To withdraw your question, please press star then two. The company is planning to end the call at 9.30 when the market opens. During the Q&A, please limit yourself to one question and one follow-up. Please note this event is being recorded. I would now like to turn the conference over to Douglas Yearley, CEO. Please go ahead.

Thank you, Drew. Good morning. Welcome and thank you all for joining us. With me today are Marty Conner, Chief Financial Officer of Rob Parrahouse, President and Chief Operating Officer, Wendy Marlette, Chief Marketing Officer, and Greg Ziegler, Senior VP, Treasurer, and Head of Investor Relations. As usual, I caution you that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, interest rates, the availability of labor and materials, inflation, and many other factors beyond our control that could significantly affect future results. Please read our statement on forward-looking information in our earnings release of last night and on our website to better understand the risks associated with our forward-looking statements. Before we jump into our quarterly results and our outlook for the remainder of fiscal 2025, I'd like to take a moment to thank Marty for the enormous contributions he has made to our company since he joined us in 2008. As we announced in July, Marty plans to retire from the CFL role at the end of our fiscal year in October. During his 17 years with Toll Brothers, Marty has been an outstanding leader, business partner, financial steward, and good friend. He has played a central role in enhancing value for our stakeholders and helped shape the financial strategies that have been such a vital part of our success. Marty, your intelligence wit and the spirit of fun you bring to the office every day will be missed by all of us. On behalf of the entire Toll Brothers team, thank you. Of course, one of our responsibilities we take very seriously here is developing talent. We have a very deep bench in our finance group, which includes Greg Ziegler, a familiar name to many of you on this call. I am pleased that Greg will be stepping up in November to become our next CFO. He has a wealth of experience, including 23 years at Toll Brothers and an unmatched understanding of our business. I look forward to working with him in his new role, and I am confident that he is the right leader to continue our track record of financial success. With that, let's turn to our third quarter results. I am very pleased with our performance in the quarter. In a difficult market, our balanced operating model Broadly diversified luxury business and strategy of prioritizing price and margin over pace continues to pay dividends. In the quarter, we delivered 2,959 homes at an average price of $974,000, generating record third quarter home sale revenues of $2.9 billion. Our adjusted gross margin of 27.5% exceeded guidance by 25 basis points, and our SG&A expense was 8.8% of home sales revenues, or 40 basis points better than guidance. The outperformance on both our top line and in our margins contributed to third quarter earnings of $370 million, or $3.73 per diluted share. We also returned approximately $226 million stockholders through dividends and share repurchases in the quarter, positioning us to deliver another year of healthy profitability and solid returns in fiscal 2025. In the quarter, we signed 2,388 net contracts for $2.4 billion. While units were down approximately 4% year over year, dollars were flat due to an increase in average sales price to just over $1 million. Our ASP was up 4.5% versus the third quarter of fiscal 2024 and up 3% versus last quarter. We are pleased with the resilience of our luxury business and more affluent customer base. While our contract ASP was up and our margin outperformed, our sales volumes have been impacted by the softer market. As a result, and given our strategy of balancing price and pace, we now expect deliveries to be approximately 11,200 homes for the full year at the lower end of our previous range. We are maintaining all other key guidance metrics, including a full-year adjusted gross margin of 27.25%. In this environment, we continue to actively manage our spec starts and inventory levels on a community-by-community basis to match local market conditions. In some markets, especially in the north region, where inventory remains low and demand is strongest, we have increased spec production. Overall, as local markets evolve in the coming months, we will be making decisions as to how many spec homes to start as we plan ahead for fiscal 2026. In addition to the 3,200 specs that are in various stages of construction, we have another 1,800 building permits ready to go. As we see market improvement, we have the ability to quickly ramp up our spec production. Remember, our spec business model is differentiated. We sell our spec homes at various stages of construction, all the way from foundation poured to finished home. This offers some of our spec buyers the opportunity to personalize their homes with features and finishes that match their tastes, as choice remains a key pillar in the Toll Brothers' buying experience, while also providing us a faster and more efficient construction schedule. From a pricing perspective, we modestly increased incentives in the third quarter. The average incentive in new contracts was approximately 8%, up from approximately 7% in the second quarter. At third quarter end, our backlog stood at 5,492 homes, valued at $6.376 billion, with an average sales price in that backlog of $1.16 million. We are pleased with both the average sales price and the gross margin embedded in our backlog. We also have 3,200 spec homes at various stages of completion. Our cancellation rate was 3.2% of beginning backlog as compared to 2.4% in last year's third quarter and 2.8% in the second quarter. Our cancellation rate remains the lowest in the industry, continuing to reflect the financial strength of our buyers and demonstrating that they remain comfortable and confident in completing their home purchases. About 26 percent of our buyers paid all cash in the third quarter, consistent with recent trends and well above our long-term average of 22 percent. The loan-to-value ratio for finance buyers was approximately 70 percent, highlighting the strong financial profiles of our customers. We continue to make progress improving construction cycle time. Overall, we have not seen any significant impact on build costs from tariffs, and we do not expect to see any this fiscal year. In fact, we are anticipating that build costs will come down modestly in the foreseeable future. We ended the third quarter with 420 active selling communities. We remain on track to end the fiscal year with 440 to 450 communities, representing eight to 10% year-over-year community cap growth. Our land position remains strong, and we continue to prioritize capital-efficient deal structures that support long-term growth. In the quarter, we spent $433 million on new land. We remain disciplined in our underwriting and focused on securing high-quality land at attractive returns with a continued emphasis on keeping land off balance sheet as long as practical to enhance capital efficiency. At quarter end, we owned or controlled 76,800 lots, 57% of which were controlled and 43% owned. This land position allows us to continue to be selective, disciplined, and focused on efficiency when we assess new land opportunities. With that, I'll turn it over to Marty.

Thanks, Doug. I appreciate the kind remarks at the outset and want to express my sincere gratitude for the opportunity afforded to me to be Toll's CFO for the past 15 years. It has been a real honor, and I'm proud of all that Toll Brothers has achieved over the past decade and a half. I would also like to express appreciation for the great teams I have here at Toll as well as at home. I'm proud and pleased that Greg will be picking up the reins when I step down. Greg and I have worked closely since my first day, and I have the utmost confidence that Greg is the right person for the job. Turning back to the numbers, it was a great third quarter. We significantly exceeded our guidance with earnings of $500 million before taxes $370 million after, or $3.73 per diluted share. As Doug mentioned, we delivered 2,959 homes, generating record third-quarter home sales revenues of $2.9 billion. This was a 5% increase in units and a 6% increase in dollars compared to last year's third quarter. The average delivered price of $974,000 was in line with the midpoint of our guidance of $975,000, and included approximately $207,000 spent on lot premiums, structural options, and design studio upgrades, which are highly accretive to our margins. We signed 2,388 net contracts for $2.4 billion in the quarter. Four percent decline in units, but flat in dollars compared The average price of contracts signed in the quarter was $1,010,000. The average price in our backlog is even higher at $1.16 million, which includes $234,000 of lot premiums, structural options, and design studio upgrades. Our buyers continue to demonstrate their financial strength and the value they place on their homes with the significant investments they make. Our third quarter adjusted gross margin was 27.5%, or 25 basis points better than we had projected and guided. The outperformance was spread evenly across products and regions, and it was attributable to both greater efficiency in our home building operations and favorable mix. SG&A, as a percentage of revenue, was 8.8% in the third quarter, compared to 9.0% in the third quarter of 2024, and compared to our guidance of 9.2%. SG&A came in better than expected, primarily due to increased leverage from higher-than-forecast revenues as well as cost controls. We remain very focused on efficiency, and we continue to see the benefits flow through our results. Third quarter joint venture, land sales, and other income was $15 million ahead of our break-even guidance as we realized gains in income related to several joint ventures in the quarter and saw better than forecast earnings in our mortgage operations. Our tax rate in the quarter was 26%. I'll turn it over to Greg to review our balance sheet, financial position, and liquidity.