Toll Brothers, Inc.

Good morning and welcome to the Toll Brothers third quarter fiscal year 2026 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 then one on your telephone keypad. To withdraw your question, please press star, then 2. The company is planning to end the call at 9.30 when the markets open. During the question and answer, 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, Betsy.

Good morning. Welcome and thank you all for joining us. With me today are Karl Mistry, Chief Executive Officer, Gregg Ziegler, Chief Financial Officer, and Seth Ring, President and Chief Operating Officer. During today's call, I will provide a brief overview of our third quarter results and current market conditions. Karl will discuss our operating performance and trends across our markets, and Gregg will review our financial results and our outlook. Before we begin, please note 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 pleased with our third quarter performance. In a challenging housing market, we continue to produce solid results. We delivered 2,662 homes and generated $2.6 billion of home sales revenue, exceeding the midpoint of our guidance in both units and dollars. Adjusted gross margin was 25.6%. were 35 basis points better than guidance, and we generated $280.1 million of earnings, or $2.97 per diluted share, which also beat guidance. Net signed contracts increased 5% compared to the third quarter of last year. Demand from luxury buyers remained relatively resilient, and we continue to benefit from the expansion of our community count. While orders improved, the overall sales environment remained subdued with low consumer confidence and elevated mortgage rates continuing to weigh on demand. Consistent with our long-standing approach, we continue to prioritize price discipline and margin performance over sales pace, a strategy that we believe is particularly important in the current environment. We also remain focused on our luxury move-up customer and Build to Order Business, where as the nation's leading builder of luxury homes, we are uniquely positioned to serve affluent buyers across a wide range of markets and product offerings. Over our nearly 60-year history, we have built a tremendous brand and a differentiated business model with advantages that include highly desirable community locations, distinctive home designs, extensive personalization opportunities, and exceptional customer experiences. These strengths have helped us attract a customer base with greater financial resilience, one that is less affected by affordability challenges due to higher income levels, substantial existing home equity and sizable stock portfolios. Our third quarter results further demonstrate the strength of our business model. Our strategy is durable precisely because it is built on differentiated capabilities that enable us to create value even when market conditions are less favorable. And while we remain focused on executing in the current environment, we are well positioned to accelerate growth, margins, and returns when market conditions eventually improve. During the quarter, we returned approximately $231 million Thank you for joining us. We remain on track to deliver 8-10% community count growth in fiscal 2026, which will be our third consecutive year of 8-10% growth. Our existing land position supports similar community count growth in fiscal 2027 and beyond. Finally, I note that our balance sheet remains very strong with ample liquidity, low leverage, and substantial operating cash flows. Our financial strength will enable us to continue investing in growth while returning capital to our stockholders. With that, I will turn the call over to Karl.

Thank you, Doug, and good morning, everyone. As Doug mentioned, our third quarter results were solid. We beat on both the top and bottom lines and positioned the company to deliver another year of healthy profitability and returns in fiscal 2026. Our adjusted gross margin was 25.6% in the quarter, or 35 basis points better than guidance, reflecting the disciplined execution of our sales strategy and our more efficient operations. We signed 2,508 net agreements in the quarter for $2.5 billion, up 5% in units and 4% in dollars. This increase was once again driven by the successful execution of our growth strategy. At quarter end, we were selling from 471 communities versus 420 at the end of the third quarter of fiscal 2025. We remain focused on opening new communities across the country and continue to expect to end the year with 480 to 490 selling communities. Based on our strong year-to-date performance and our outlook for the fourth quarter, we are reaffirming all of our full-year guidance metrics including an adjusted gross margin of 26.1% and home sales revenues of approximately $10.5 billion. In addition, we now expect our average delivery price to be between $995,001 million for the full year. At the midpoint of our settlements guidance, this increase is expected to generate approximately $53 million of additional revenue over prior guidance. Turning to market trends, as Doug mentioned, the demand environment remained challenging in the third quarter. These conditions have continued through the first two and a half weeks of our fourth quarter. Against this backdrop, we are pleased that we were able to increase sales by 5% year over year, modestly reduce incentives, and maintain our margins in the quarter. Geographically, stronger markets included Florida, Boston through the Carolinas, Boise, Idaho, Las Vegas and Reno and Nevada, and Denver, Colorado. Our challenging markets included Atlanta, Seattle, Portland, San Francisco, and Texas. Among our buyer segments, our luxury move-up business continued to perform the best, and as Doug mentioned, we are leaning into this core segment where we see great deal flow that meets our high underwriting standards. Our move-up business accounted for approximately 61% of home sales revenues in our third quarter, while our luxury first-time and move-down businesses represented approximately 23% and 16% respectively. Not only does our luxury move-up business remain the largest contributor to revenues, but it also generates the highest margin among our buyer segments. Importantly, in this market, the higher the price of our homes, the lower the incentive as a percentage of sales price. A continued strength of our luxury business reflects the resiliency of our affluent customer base, the desirability of our communities and product offerings, and the appeal of the Toll Brothers brand. We also continue to carefully manage spec starts to align with demand on a community-by-community basis, while actively managing the composition of our spec inventory. During the third quarter, we continue to reduce our inventory of spec homes. At quarter end, finished specs average 1.9 homes per community down from two at the end of the second quarter and 2.8 at the start of fiscal year 2026. As a reminder, the margin profile of spec homes sold before framing is completed is significantly higher than the margin on finished specs. Our objective is to sell spec homes as early as possible in the construction cycle when incentives are typically lower and customers have greater opportunities to personalize their homes at our design studios. Personalization remains an important competitive advantage for Toll Brothers as design studio upgrades are highly accretive to margins. Overall, upgrades, structural options and lot premiums average $207,000 or 24% of our average base sales price in the quarter. As Doug mentioned, during the quarter we continued to carefully balance sales pace, pricing, and incentives to drive sales while maximizing returns. Incentives on our net signed contracts averaged approximately 7.5% of gross sales price in the quarter, down modestly from approximately 8% over the past year, and consistent with our strategy of selling specs earlier in the construction cycle when buyers can still personalize their homes in our design studios. Approximately 25% of our buyers paid all cash in the quarter. Among buyers who financed their purchase, the average loan-to-value was approximately 69%, highlighting the financial strength of our customer base. In the third quarter, we continued to realize the benefits of production improvements, and our cycle time for bill-to-order homes remained stable at approximately nine months. The cycle time for our spec homes is generally about one month shorter than build-to-order homes. Overall, our building costs remained relatively flat in the quarter, even as the cost of the lumber rose during the period. Turning to land, the third quarter end, we owned or controlled approximately 75,500 lots, 58% of which were optioned. We spent approximately $452 million on land acquisition in the quarter. We remain focused on securing high-quality land at attractive returns with a continued emphasis on capital efficiency and rigorous underwriting standards. With that, I'll turn it over to Gregg.