Toll Brothers, Inc.

Good day, and welcome to the Toll Brothers first quarter fiscal year 2026 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 telephone keypad, and to withdraw your question, please press star then two. We do ask that you please limit yourself to one question and a single follow-up. Please also note, today's event is being recorded. I would now like to turn the conference over to Douglas Yearley, CEO. Please go ahead, sir.

Thank you, Rocco. Good morning. Welcome and thank you for joining us. With me today are Greg Ziegler, Chief Financial Officer, Rob Parrahouse, President and Chief Operating Officer, Wendy Morlette, Chief Marketing Officer, and Carl Mistry. who will be taking over as the third CEO in our company's history on March 30th, when I will transition to the executive chairman role. Carl is an outstanding leader who has been with Toll Brothers for over 20 years. He has run home building operations in many of our key markets and currently heads all of our eastern operations. He knows this company inside and out, and I am very confident he is the right person to lead us through the next phase of growth. During today's call, I will provide a brief overview of our results in the quarter, discuss the market at the macro level, and touch on our strategic initiatives. Carl will focus on our operational results and provide a deeper dive on conditions across our markets and product lines. And as usual, Greg will provide a detailed review of our financial results in the quarter and discuss guidance for the balance of the year. Before we start, however, I need to provide the usual cautionary notice 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. I am pleased with our first quarter results as we met or exceeded guidance across nearly all metrics. We delivered 1,899 homes in the quarter and generated $1.85 billion of home building revenue, approximately $24 million above the midpoint of our guidance. Both our adjusted gross margin and SG&A margin were also better than guidance by 25 and 30 points, respectively. We earned $2.19 per diluted share, a 25% increase compared to the $1.75 we earned in last year's first quarter and 5 cents above our implied guidance. We are off to a good start in fiscal 2026. In the quarter, we signed 2,303 net contracts for $2.4 billion, flat in units but up 3% in dollars compared to last year's first quarter as the average sales price increased to $1,033,000. Since mid-January, we have seen an increase in overall traffic and sales consistent with the start of the spring selling season. While it is early, we are cautiously encouraged by the increase in activity over the past month. Our strategy of balancing price and pace worked well in the first quarter. Our overall incentive remained flat compared to the fourth quarter at 8% of sales price. This is the third consecutive quarter that incentives remained flat on a percentage basis. We are benefiting from a healthy mix of build-to-order and spec homes in our inventory, balancing the higher margin in our bill-to-order business with the lower margin but faster turns in our spec business. Impressively, our average adjusted gross margin in our bill-to-order business remained above 30% in the first quarter. Overall, as we head into the heart of the spring selling season, we are very comfortable with the level of specs in our inventory and their stage of construction. Consistent with the strategy I discussed during our last call, we increased our spec production in our first quarter in order to have the right amount available for delivery in the summer when many buyers are looking to move into their new homes ahead of the start of the school year. We expect to increase community count in the second quarter from 445 communities at the end of the first quarter to 455 at the end of the second. For the full year, we are targeting another 8% to 10% increase over the 9% we grew last year. We also have enough land under control to continue growing community cap at this pace over the next several years. At first quarter end, we under-controlled approximately 75,000 lots, 55% of which were options. Our land is well located in desirable locations, which allows us to be highly selective and disciplined as we evaluate new land opportunities. We also continue to structure land acquisition and development opportunities to be more capital efficient, including through option arrangements, land banks, joint ventures, and similar structures that allow us to defer payments and lot takedowns. I'd also point out that we continue to benefit from our more affluent customer base, which is less sensitive to the affordability pressures that continue to impact the entry-level buyer. Over 70% of our business is luxury move up and luxury move down, which serves a wealthy cohort that has benefited from growth in their home equity and stock market appreciation. The remaining 25% to 30% serves the more affluent first-time buyer who is less impacted by affordability pressures. Many of them are older millennials buying their first home later in life when they have higher incomes and are more financially secure. The average delivery price of our first-time buyer was approximately $670,000 in our first quarter. Lastly, I will note that our balance sheet remains very healthy. We have ample liquidity low net debt, and a strong investment grade credit rating. We recently extended the maturities of our revolving credit facility and most of our term loan facility to February 2031. We also continue to expect significant cash flow generation from operations this year. All of this enables us to continue investing in the growth of our business while also returning capital to our stockholders. With that, I will turn it over to Carl. Thank you, Doug.

I'm excited for this opportunity and grateful for the trust that you and the board have placed in me. I very much appreciate our investors and the analyst community, and I look forward to building on the great relationships that you and Bob before you have developed over the years. We started the year off with a solid first quarter. We beat the midpoint for a home building revenue guidance exceeded margin expectations, and increased our earnings per share by 25% over last year's first quarter. From a demand perspective, we saw the typical seasonal pattern unfold in the first quarter. Based on signed contracts on both an absolute and per community basis, November was the slowest month, followed by December, with a market uptick in January. As Doug mentioned, we saw an increase in demand beginning in mid-January, that is consistent with the start of the spring sowing season. With our broadly diversified portfolio and affluent buyer profile, we are well positioned to capitalize on any further improvement in home buyer demand. Geographically, the Boston to South Carolina corridor has continued to perform well, as has Boise, Las Vegas, and Reno in our mountain region and all of California. Most of Florida seems to have found its footing, although Tampa remains challenged, along with Atlanta, San Antonio, and the Pacific Northwest. Among our buyer segments, our luxury move-up business also continued to perform well. In the first quarter, luxury move-up accounted for 59% of home building revenues. Luxury first time was 25%, and luxury move-down was 16%. Our luxury move-up business has the highest margin among our buyer segments, so we are very pleased that it is the largest part of our business. Turning now from buyer segments to our build-to-order and spec home strategy, I will note that we generate about one half of our home building revenues from specs and the other half from build-to-order. We believe we have achieved the right balance in our overall business with this healthy 50-50 mix of high-margin build-to-order homes, with buyers who want to customize their dream home with specific layouts, designs, and finishes, alongside lower-margin but faster-turning spec homes that appeal to buyers who want to move into their homes on a quicker schedule. I will also point out that we sell our specs at various stages of construction. Although the mix can change from quarter to quarter, on average, approximately one-third of our specs sell before framing is completed. And the risk profile and margin for these homes is not all that different from our build to order homes. Our goal is to sell our specs as early in the construction cycle as possible. The earlier we sell our specs, the greater the opportunity for our customers to visit our design studio and personalize their homes with finishes that match their tastes. This ability to customize remains an important competitive advantage for Toll Brothers, and it benefits our margins, as design studio upgrades tend to be highly accretive. In the first quarter, design studio upgrades, structural options, and lot premiums averaged $212,000, or 25% of our average base sales price. Doug mentioned the benefits of serving a more affluent customer base. 24% of our buyers paid all cash in the first quarter. And the loan-to-value for buyers who took a mortgage was approximately 70%, also consistent with recent quarters. Our contract cancellation rate in the first quarter remained low at 2.8% beginning backlog. This industry-low cancellation rate speaks to the financial strength of our buyers, as well as the sizable deposits they make and how emotionally invested they become as they personalize their homes at our design studios. We benefited from improved production efficiencies in our construction cycle times in the first quarter. For our build-to-order homes, the cycle time was approximately nine and a half months and was about one month shorter for spec homes. Additionally, our build costs in the first quarter were flat compared to the fourth quarter of 2025. With that, I will turn it over to Greg. Thanks, Carl.