Toll Brothers, Inc. Q3 FY2025 earnings call

• Marty Connor plans to retire as CFO at the end of fiscal year 2025, with Gregg Ziegler stepping up as CFO in November.
• Strong Q3 performance: delivered 2,959 homes for record revenues, adjusted gross margin exceeded guidance, SG&A outperformed.
• Spec home strategy: 3,200 specs in construction, 1,800 building permits ready; sell specs at various construction stages, allowing buyer personalization and efficient schedule.
• Backlog details: $6.376 billion in backlog with average sales price $1.16 million; cancellation rate 3.2%, low due to buyers' financial strength.
• Balance sheet and liquidity: net debt-to-capital ratio 19.3%, $852 million in cash and equivalents, $2.2 billion available under credit facility.

In the third quarter, Toll Brothers delivered 2,959 homes with an average price of $974,000, generating record third quarter home sale revenues of $2.9 billion. The adjusted gross margin was 27.5%, exceeding guidance by 25 basis points, and SG&A expense was 8.8% of home sales revenues, 40 basis points better than guidance. They signed 2,388 net contracts for $2.4 billion. At quarter end, backlog stood at 5,492 homes valued at $6.376 billion with an average sales price of $1.16 million. Spec homes were at various stages of completion, and cancellation rate was 3.2% of beginning backlog.

• Full year deliveries expected ~11,200 homes (lower end of previous range).
• Full year adjusted gross margin projected at 27.25%.
• Fourth quarter adjusted gross margin expected at 27%; SG&A as % of home sales revenues expected at 8.3% for Q4 and 9.4%-9.5% for full year.
• Other income, income from unconsolidated entities and land sales gross profit projected at $110 million for full year, $65 million for Q4.
• Community count expected to be 440-450 by end of fiscal year; weighted average share count projections for full year.

• Forward-looking statements subject to risks from economy, world events, housing and financial markets, interest rates, labor and material availability, inflation, etc.
• Impact of market conditions on sales volumes and margins; dependence on ability to navigate changing market conditions.
• Risk associated with land acquisition and community opening timelines and their impact on business performance.

Q: What was the year-to-date cash flow from operations and breakdown of expected construction cost decline?

A: Year-to-date cash flow from operations was over $400 million, with Q4 expected to help reach $1 billion; construction costs expected to be flat to modestly down due to subcontractor and material negotiations.

Q: Concern about growth in 2026 and community count growth?

A: Confident in community count growth in 2026, excited about land positions and upcoming community openings; backlog and market positioning set for growth.

Q: Sales pace trend through the quarter and incentive changes?

A: Sales pace had May as worst, June-July better; August similar to quarter; incentive up to 8% from 7% due to some finished spec discounting, but moderating in last 3 weeks; web and foot traffic up, conversion ratio high.

Q: Development cost softening and 4Q community count timing?

A: Not seeing much relief on development costs yet; 4Q community count of 445 is spread throughout the quarter with no regional concentration but some North, Mid-Atlantic, South concentration.

Q: Cycle times and SG&A cost controls?

A: 65% of communities have cycle times 8 months to 11 months; SG&A cost controls include stable headcount, reasonable sales commissions, and technology investments; Q4 SG&A guide higher due to community openings with front-end expenses.