Toll Brothers, Inc.

Good morning and welcome to the Toll Brothers second 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. 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 Doug Yearley, Executive Chairman. Please go ahead.

Thank you, Bailey. Good morning. Welcome and thank you all for joining us. With me today are Carl Mistry, Chief Executive Officer, Greg Ziegler, Chief Financial Officer, Rob Parrahouse, President and Chief Operating Officer, and Wendy Marlette, Chief Marketing Officer. We're also joined today by Seth Ring, who will succeed Rob as President and Chief Operating Officer when Rob retires on June 30 and transitions to his new role as a senior advisor to the company. Rob has been an invaluable leader and contributor to the company's growth and transformation over the past 40 years, and I wish him well in his retirement. He has also done a great job of helping to mentor the next generation of leadership, working closely with Seth to prepare him for his new role. Seth is a proven leader and industry veteran who, in his own right, with over 20 years of experience with the company, is just terrific. He is the perfect successor to Rob, and I'm excited to watch as he partners with Carl and Greg to help lead this company into the future. During today's call, I will provide a brief overview of our results in the quarter, discuss the market at a 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 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 will 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. We are very pleased with our second quarter results. We beat guidance on both the top and bottom lines and posted another quarter of strong margins. Based on our first half performance, we are raising our full year guidance across all key home building metrics. Our results in the second quarter reflect our unique position as America's luxury home builder, as well as the success of our strategies of expanding our geographies, product lines, and price points. Our results also reflect the skills and experience of our teams, who continued to respond to a challenging demand environment with discipline, effectively balancing pace, price, and incentives to drive sales while maximizing returns. We are, quite simply, a more efficient and less cyclical home builder. Even in a difficult market, our business continues to perform well. In the second quarter, our orders were up 7% gross and flat on a per community basis. This trend has continued into the first three weeks of our third quarter, where overall deposits are up modestly year over year and flat per community. In this environment, we are pleased to be serving a more affluent customer base, a segment of the housing market that has proven more resilient despite the challenges facing the broader market. Overall, our buyers are less sensitive to affordability pressures as they have benefited from years of income growth, stock market gains, and home equity appreciation. Serving this market is in our DNA. We have spent nearly 60 years building and perfecting the business model required to meet the high standards of the luxury segment of the new home market. Through the desirable locations of our communities the distinctive architecture of our homes, the unrivaled choice we provide in our design studios, and the extraordinary customer experience we deliver, we have set our business apart. Our performance in the second quarter and over the past few years highlights the strengths of our differentiated business. Finally, I note that in our second quarter, we repurchased $175 million of our common stock, bringing our year-to-date total to approximately $226 million, and we raised our quarterly dividend. We continue to target $650 million of share repurchases in fiscal 2026. Our balance sheet remains very healthy. We have ample liquidity, significant operating cash flows, low net debt, and a strong investment-grade credit rating. Our solid financial position and healthy cash flows will enable us to continue investing in the future growth of our business while also returning capital to our stockholders. With that, I will turn the call over to Carl.

Thank you, Doug, and good morning, everyone. I would also like to extend my congratulations to Rob and Seth. Rob has been an incredible mentor to both me and Seth. We've learned so much at his side, and we look forward to building on the strong foundation that Rob, along with Doug, Bob, and many others have built at Toll Brothers. As Doug mentioned, our second quarter results were quite strong. In the quarter, we delivered 2,491 homes at an average price of $1,009,000, generating $2.5 billion of home building revenue, or approximately $110 million above the midpoint of our guidance. Our adjusted gross margin was 26.2% in the quarter, or 70 basis points better than guidance. And our SG&A expense as a percentage of home building revenues was 10.3% or 40 basis points better than guidance. We earned $260.6 million in the quarter, or $2.72 per diluted share, an 18 cent beat relative to the midpoint of our guidance. In addition, we signed 2,834 net agreements in a quarter for $2.8 billion, up 7% in units and 8% in dollars. This increase was driven by the successful execution of our growth strategy over the past several years. At quarter end, we were selling from 459 communities versus 421 one year earlier and 386 just two years ago. We remain focused on opening new communities across the country and expect to end the year with 480 to 490 selling communities, including the communities we acquired in the Buffington Homes transaction, which closed earlier this month. We plan to grow community count at a similar eight to 10% rate in fiscal 2027 and beyond. And we currently own or control sufficient land to do so. We are very excited to enter Northwest Arkansas with the acquisition of Buffington Homes. The home of Walmart and a host of terrific other companies, the Fayetteville-Bentonville market is vibrant and growing. Buffington Homes is the leading builder of luxury homes in the area, and it is a great fit for toll roaders. We look forward to leveraging their local expertise and strong land position to scale their business well into the future. Turning to market trends, as Doug mentioned, The demand environment remained challenging in the second quarter and through the first three weeks of our third quarter. Against this backdrop, we are pleased that we were able to increase sales by 7% year over year, keep our per-community sales pace flat, and maintain our margins in the quarter. Geographically, Florida was a bright spot in the quarter with improved demand in all our markets in the state. Boston, all the way down to South Carolina, continued to perform well as did Boise and Las Vegas in our mountain region, and Austin, Texas in the south. Weaker markets included Atlanta, San Antonio, Seattle, Portland, and San Francisco. Among our buyer segments, our luxury move-up business continued to perform the best. In the second quarter, our move-up business accounted for 62% of home sales revenues, up from 59% in the first quarter. Luxury first time was 22%, and move down was 16%. Our luxury move-up business has the highest margin among our buyer segments, so we are very pleased that it remains the largest part of our business. As Doug mentioned, in the quarter, we continue to operate with discipline, effectively balancing sales pace, price, and incentives to drive sales while maximizing returns. we are pleased that our average incentive for new contracts in the second quarter remained flat at 8% of the gross sales price, the fourth consecutive quarter it has remained in this range. This is a testament to the immense appeal of our brand and the desirability of our homes and communities. It also speaks to the financial strength of our customers who continue to demonstrate their desire to invest in new homes. Consistent with the past several quarters, Approximately 23% of our buyers paid all cash in the second quarter, and the loan-to-value for buyers who took a mortgage was approximately 69%, also consistent with recent quarters. We are also benefiting from the breadth of our offerings, which is the widest in the industry and includes a balanced mix of bill-to-order and spec homes. In the quarter, spec homes represented approximately 51% of deliveries and and 41% of home sales revenues, which is broadly consistent with the range that we have targeted and maintained over the past few years. We are very comfortable with our delivery mix in this 50-50 range. It is important to remember 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. The margin profile for these homes is very similar to the 30% adjusted gross margin we routinely achieve on our build-to-order homes. Our goal is to sell our specs as early in the construction cycle as possible. Incentives are generally lower on specs that are sold earlier, and there is greater opportunity for our customers to visit our design studios and personalize our homes with finishes that match their tastes. The ability to customize remains an important competitive advantage for Toll Brothers as design studio upgrades tend to be highly accretive to our margins. In the second quarter, design studio upgrades, structural options, and lot premiums averaged $219,000, or 25% of our average base sales price. Given our focus on selling spec homes earlier in the construction process, I'm pleased to report that in the first half of fiscal 2026, we reduced the number of finished specs in our inventory by 28%. We held two finished specs per community at second quarter end versus 2.8 at the end of fiscal 2025. In the second quarter, we also continued to benefit from improved production efficiencies. For our bill-to-order homes, our cycle time improved to approximately nine months. The cycle time for our spec homes is generally about one month shorter then built to order homes. Overall, our building costs remain flat in the quarter, even with the cost of lumber rising in the period. Turning to land, at second quarter end, we owned or controlled approximately 76,800 lots, 58% of which were optioned. This existing lot position allows us to maintain our highly disciplined approach to acquiring and developing land, including our rigorous underwriting standards. When buying land, we actively seek out acquisition and development opportunities that improve our capital efficiency while achieving prudent and balanced financing structures. Where possible, we favor seller financing, joint ventures, and traditional option arrangements. But we also utilize land banking when it makes sense to do so. I would also point out that because we are a luxury builder buying land at the corner of Main and Main, where not as many of the big public and private builders play, we often find there are fewer bidders at the table when we are pursuing deals. This is one of our competitive advantages. In many markets, we often compete for land against smaller custom builders who do not have the same financial strength or access to capital that we enjoy. In addition, for larger master plan communities, our recognized luxury brand serves to elevate the community which can present us with more opportunities. Combined, all of these factors put us in a favorable position when buying land, helping us improve returns. With that, I'll turn it over to Greg.