Q3 2024 Toll Brothers Inc Earnings Call

[music].

Good morning, and welcome to the toll brothers third quarter fiscal year 2024 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.

Good morning, and welcome to the Toll Brothers third quarter fiscal year 2024 conference call.

Good morning and welcome to the Toll Brothers third quarter fiscal year 2024 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.

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 1 on your telephone keypad. To withdraw your question, please press star, then 2.

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.

Go ahead please.

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To ask a question you May press Star then one on your telephone keypad.

To withdraw your question, please press star then two.

To withdraw your question. Please press Star then two the company is planning to end the call at 930, 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 yearly CEO. Please go ahead.

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.

The company is planning to end the call at 930 when the market opens.

Hi, good morning.

Hi, good morning.

Douglas Yearly: Thank you Dave good morning.

Douglas Yearly: Thank you, Dave.

Douglas Yearly: Welcome and thank you for joining US with me today are Marty Connor Chief Financial Officer, Rob Powerhouse, President and Chief Operating Officer, Wendy Marlett, Chief Marketing Officer, and Gregg Ziegler Senior VP Treasurer, and our head of Investor Relations.

Douglas Yearly: Good morning.

Douglas Yearly: Welcome and thank you for joining us.

Douglas Yearly: With me today are Marty Connor, Chief Financial Officer, Rob Parahouse, President and Chief Operating Officer, Wendy Marlette, Chief Marketing Officer, and Greg Ziegler, Senior VP, Treasurer, and our Head of Investor Relations.

Douglas Yearly: 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.

Douglas Yearly: 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.

Douglas Yearly: During the Q&A, please limit yourself to one question and one follow up.

Douglas Yearly: 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 statement.

Douglas Yearly: 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.

Douglas Yearly: Please note this event is being recorded.

Douglas Yearly: It's Rafe.

Douglas Yearly: It's Raph.

Douglas Yearly: We had another terrific quarter and are very pleased with our fiscal third quarter results.

Douglas Yearly: We had another terrific quarter and are very pleased with our fiscal third quarter results. We deliver 2,814 homes at an average price of $968,000, generating record third quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8%, exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations, as well as favorable net. Our SG&A expense was 9.0% of home sale revenues, or 20 basis points better than guidance.

Douglas Yearly: We delivered 2814 homes at an average price of $968000 generating a record third quarter home sale revenues of $2 $72 billion, our adjusted gross margin of 28, 8%.

Douglas Yearly: I would now like to turn the conference over to Douglas Yearley, CEO.

Douglas Yearly: Thanks for taking my question.

Douglas Yearly: Thanks for taking my question.

Douglas Yearly: <unk> guidance by 110 basis points, primarily due to greater efficiencies in our homebuilding operations as well as favorable mix.

Douglas Yearly: Please go ahead.

Douglas Yearly: I want to follow up on some, earlier questions on sort of the deliveries versus orders going forward. You've had three straight years of deliveries tracking above above orders, and that's partly been because the increase in spec.

Douglas Yearly: I want to follow up on some, earlier questions on sort of the deliveries versus orders going forward. You've had three straight years of deliveries tracking above above orders, and that's partly been because the increase in spec.

Douglas Yearly: Our SG&A expense was 9.0% of home sale revenues or 20 basis points better than guidance.

Douglas Yearly: Outperformance in both the top line and in our margin drove earnings of $3.60, per diluted share.

Douglas Yearly: Outperformance in both the topline and then our margin drove earnings of $3.60 per diluted share.

Douglas Yearly: Keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter.

Douglas Yearly: Keeping us on track to deliver another great year for toll brothers.

Douglas Yearly: Thank you, Dave.

Douglas Yearly: How do we think about deliveries relative to orders going forward here?

Douglas Yearly: How do we think about deliveries relative to orders going forward here?

Douglas Yearly: In the third quarter, we signed 2000 and 490 net contracts for $2 $4 billion.

Douglas Yearly: Approximately 11% in both units and dollars compared to last year's third quarter.

Douglas Yearly: Like would you anticipate spec to outgrow the BTO business in terms of deliveries as we go into 2025?

Douglas Yearly: Like would you anticipate spec to outgrow the BTO business in terms of deliveries as we go into 2025?

Douglas Yearly: On a per-community basis, we sold at a pace of 2.1 homes per month, down slightly versus the 2.2 pace we sold in last year's third quarter.

Douglas Yearly: On a per community basis, we sold at a pace of two one homes per month down slightly versus the 2.2 pace, we sold in last year's third quarter.

Douglas Yearly: I don't think so.

Douglas Yearly: I don't think so.

Douglas Yearly: Demand in our third quarter was uneven may started out strong but slowed into and through June.

Douglas Yearly: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August, with mortgage rates at their lowest point in a year and trending lower, and continued imbalance in the supply and demand of homes for sale.

Douglas Yearly: July was the strongest month in the quarter, especially in the latter half of the month.

Douglas Yearly: We have seen this strength continue into the first three weeks of August.

Douglas Yearly: With mortgage rates at their lowest point in a year.

Douglas Yearly: Good morning.

Trending lower.

Speaker Change: Verbal demographics.

Speaker Change: Continued imbalance in the supply and demand of homes for sale. We are optimistic that demand for new homes will remain solid through the end of fiscal 'twenty four and into 2025.

Speaker Change: We are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025. We are encouraged by demand trends we are seeing across the country, and also across our buyer segment. Demand where we, excuse me, markets where we saw particular strength in the quarter included New Jersey, Pennsylvania, Metro D.C., South Carolina, Atlanta, Boise, Las Vegas, and all of California.

John Lovallo, John Lovallo, Toll Brothers Inc[inaudible] John Lovallo, John Lovallo, John Lovallo, John Lovallo John Lovallo, John Lovallo, John Lovallo, John Lovallo 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.

Unknown Executive: John Lovallo, John Lovallo, Toll Brothers Inc[inaudible] John Lovallo, John Lovallo, John Lovallo, John Lovallo John Lovallo, John Lovallo, John Lovallo, John Lovallo 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.

Speaker Change: We are encouraged by demand trends, we are seeing across the country.

Speaker Change: And also across our buyer segments.

Speaker Change: Demand where are we on excuse me markets, where we saw particular strength in the quarter included New Jersey, Pennsylvania Metro D C South Carolina, Atlanta, Boise, Las Vegas, and all of California.

Speaker Change: Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others.

Speaker Change: Price adjustments in the quarter or community and market dependent.

Speaker Change: We raised prices in some communities and lowered it and others overall pricing was flat compared to the second quarter and incentives continued to run approximately five 5%.

Speaker Change: Overall, pricing was flat compared to the second quarter and incentives continued to run approximately 5.5 percent, of our average sales price.

Our average sales price.

As I noted earlier, we are optimistic that market conditions will remain positive for homebuilders into the foreseeable future.

Speaker Change: As I noted earlier, we are optimistic that market conditions will remain positive for homebuilders into the foreseeable future. Including favorable demographics driven by millennials, many of whom are buying their first home later in life when they have higher incomes and accumulated wealth. Older millennials are now hitting their 40s, which should provide a tailwind, for our luxury move up business over the next decade. In addition, baby boomers are moving into new homes as they retire and adjust their lifestyle. There also continues to be an underbuilt and aging stock of homes for sale, with the undersupply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low level.

Speaker Change: The underlying drivers of demand remain firmly in place, including favorable demographics, driven by millennials many of whom are buying their first home later in life, when they have higher incomes and accumulated well.

Speaker Change: Older Millennials are now hitting their forties, which should provide a tailwind.

Speaker Change: Our luxury move up business over the next decade.

Speaker Change: In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles.

Speaker Change: There also continues to be an under belt and aging stock of homes for sale with the under supply exacerbated by the lock in effect of higher rates, which is keeping resell inventory at historically low levels.

Speaker Change: But even as interest rates move lower, we believe the supply of homes will remain challenged. Due to nearly 15 years of underproduction.

Speaker Change: But even as interest rates move lower we believe the supply of homes will remain challenged due to nearly 15 years of under production.

Speaker Change: Lower rates alone will not fully address...

Speaker Change: Lower rates alone will not fully address the chronic under supply of housing.

Speaker Change: Chronic Undersupply of Hazard, The past several years have proven how impactful these fundamentals are.

Speaker Change: The past several years have proven how impactful. These fundamentals are with demand for new homes remains solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated.

Speaker Change: Demand for new homes remains solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated. As a large, well-capitalized home builder, we have benefited from and performed very well in this environment, with sales up 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing market. Our strategy of widening our geographies and price points to include more affordable homes, and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder.

Speaker Change: As a large well capitalized homebuilder, we have benefited from and performed very well in this environment with sales up 25% year to date.

Speaker Change: Well, we would clearly welcome lower rates and are excited by the prospect of a normalizing housing market.

Speaker Change: Our strategy of widening our geographies and price points to include more affordable homes.

Speaker Change: 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.

Speaker Change: And increasing our supply of spec homes as helped us meet demand, while becoming a more efficient homebuilder.

Speaker Change: As we have expanded and come down in price, We now have the widest variety of product and the widest range of price of any of the builders, presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Speaker Change: We have expanded and come down in price, we now have the widest variety of product and the widest range of price of any of the builders.

Speaker Change: We had another terrific quarter and are very pleased with our fiscal third-quarter results. We delivered 2,814 homes at an average price of $968,000 generating record third-quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8% exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations as well as favorable nets.

Douglas Yearley: We had another terrific quarter and are very pleased with our fiscal third-quarter results. We delivered 2,814 homes at an average price of $968,000 generating record third-quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8% exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations as well as favorable nets. Our FGNA expense was 9.0% of home sale revenues or 20 basis points better than guidance.

Speaker Change: Each presents us with a great opportunity to grow our core homebuilding business and our 60 markets across the country.

Speaker Change: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter.

Speaker Change: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec, with continued strong demand from buyers who are looking for quicker movements.

Speaker Change: We continue to target about 50% of our business is back.

Speaker Change: With continued strong demand from buyers who are looking for a quicker move ins.

Speaker Change: Our FGNA expense was 9.0% of home sale revenues or 20 basis points better than guidance.

Speaker Change: As a reminder, we define a SPAC as any home without a buyer that has a foundation port.

Speaker Change: As a reminder, we define as fast as any home without a buyer that has a foundation poured.

Speaker Change: We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide.

Speaker Change: We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide.

Speaker Change: Outperformance in both the top line and in our margin drove earnings of $3.60 per diluted share, keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter.

Douglas Yearley: Outperformance in both the top line and in our margin drove earnings of $3.60 per diluted share, keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter. On a per-community basis, we sold at a base of 2.1 homes per month down slightly versus the 2.2 pace we sold in last year's third quarter.

Speaker Change: This offers our spec buyers a degree of choice, which is a key pillar in the Toll Brothers buying experience, while providing us with a faster and more efficient, At third quarter end, our backlog stood at $7.1 billion.

This offers our spec buyers a degree of choice, which is a key pillar in the toll brothers buying experience.

Speaker Change: While providing us with a faster and more efficient construction schedule.

Speaker Change: At third quarter end, our backlog stood at $7.1 billion and 6769 homes.

Speaker Change: 6,769 homes.

Speaker Change: On a per-community basis, we sold at a base of 2.1 homes per month down slightly versus the 2.2 pace we sold in last year's third quarter.

Speaker Change: Our cancellation rate as a percentage of backlog. 2.4% in the third quarter, down from 2.8% in our second quarter and consistent with our long-term average of 2.3%. Our industry low cancellation rate is due to the significant upfront down payments our buyers make, as well as the emotional attachment they form as they personalize their homes with us. Our buyers also tend to be more affluent.

Speaker Change: Our cancellation rate as a percentage of backlog was two 4% in the third quarter down from two 8% in our second quarter and consistent with our long term average of two 3%.

Speaker Change: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August. With mortgage rates as our lowest point in a year and trending lower, favorable demographics and continued in balance in the supply and demand of homes per sale, we are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025.

Douglas Yearley: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August. With mortgage rates as our lowest point in a year and trending lower, favorable demographics and continued in balance in the supply and demand of homes per sale, we are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025.

Speaker Change: Our industry low cancellation rate is due to the significant upfront down payments are buyers make as well as the emotional attachment they form as they personalize their homes with us.

Speaker Change: Our buyers also tend to be more affluent.

Speaker Change: Approximately 28% of our buyers paid all cash in the third quarter, consistent with our second quarter and significantly above our long-term average of approximately twenty percent. The loan to value ratio for buyers who took a mortgage, Approximately 69% So, for the 72% of our buyers who took a mortgage, on average they put down 31%.

Speaker Change: Approximately 28% of our buyers paid all cash in the third quarter.

Speaker Change: Assistant with our second quarter and significantly above our long term average of approximately 20%.

Speaker Change: The loan to value ratio for buyers, who took a mortgage was approximately 69%.

Speaker Change: So for the 72% of our buyers who took a mortgage on average they put down 31%. These.

Speaker Change: We are encouraged by demand trends, we are seeing across the country and also across our buyer segments.

Douglas Yearley: We are encouraged by demand trends, we are seeing across the country and also across our buyer segments. Demand where we, excuse me, markets where we saw a particular strength in the quarter included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California. Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others. Overall, pricing was flat compared to the second quarter and incentives continued to run approximately 5.5%, of Our Average Sales Price.

Speaker Change: These metrics highlight the financial strength and affluence of our entire customer base.

Speaker Change: These metrics highlight the financial strength and affluence of our entire customer base.

Speaker Change: Demand where we, excuse me, markets where we saw a particular strength in the quarter included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California. Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others.

Speaker Change: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster turns spec homes.

Speaker Change: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization, and our increase in faster turn, We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flow.

Speaker Change: We remain hyper focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

We are on target to reach our goal of operating from 410 communities by fiscal year end.

Speaker Change: We are on target to reach our goal of operating from 410 communities by fiscal year end, which would represent 11% growth, compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year, and we have sufficient land under control to do it. At quarter end, we owned or controlled 72,700 lots, half of which were controlled and the other half owned.

Speaker Change: Overall, pricing was flat compared to the second quarter and incentives continued to run approximately 5.5%, of Our Average Sales Price.

Speaker Change: Which would represent 11% growth.

Speaker Change: Compared to the 370 communities, we are operating from it at the start of the year.

Speaker Change: As I noted earlier, we are optimistic that market conditions will remain positive for home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics driven by millennials, many of whom are buying their first home later in life when they have higher incomes than accumulated wealth.

Douglas Yearley: As I noted earlier, we are optimistic that market conditions will remain positive for home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics driven by millennials, many of whom are buying their first home later in life when they have higher incomes than accumulated wealth. Older millennials are now hitting their 40s, which should provide a tailwind for our luxury move-up business over the next decade.

Speaker Change: We plan to continue growing community count next year, and we have sufficient land under control to do it.

Speaker Change: At quarter end, we owned or controlled 72700 lots half of which were controlled and the other half owned.

Speaker Change: Excluding the 6,769 lots in our backlog, our controlled land represents 55%, of our lot. This land position provides us with sufficient lots needed for growth in fiscal 2025 and beyond, and allows us to continue to be selective, disciplined and focused on efficiency, when we assess new land opportunities.

Speaker Change: Excluding the 6769 lots in our backlog are controlled land represents 55%.

Speaker Change: Older millennials are now hitting their 40s, which should provide a tailwind for our luxury move-up business over the next decade. In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the under supply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low levels. But even as interest rates move lower, we believe the supply of homes will remain challenged due to nearly 15 years of under-production.

Speaker Change: Of our lives.

Speaker Change: This land position provides us with sufficient lots needed for growth in fiscal 2025, and beyond and allows us to continue to be selective disciplined and focused on efficiency.

Douglas Yearley: In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the under supply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low levels. But even as interest rates move lower, we believe the supply of homes will remain challenged due to nearly 15 years of under-production. Lower rates alone will not fully address the chronic under-supply of housing.

Speaker Change: When we assess new land opportunities.

Speaker Change: Our underwriting standards for new land continues to incorporate stringent thresholds for both margins and returns, and we continue to seek out land acquisition and development opportunities that allow us to be more capital efficient. Including through increased use of option arrangements, land banks, joint ventures, and similar structures, that allow us to defer payments and lot take down.

Speaker Change: Our underwriting standards for new land continues to incorporate stringent threshold trip thresholds for both margins and returns.

And we continue to seek out land acquisition and development opportunities that allow us to be more capital efficient, including through increased use of option arrangements land banks joint ventures, and similar structures that allow us to defer payments and lot takedowns.

Speaker Change: Lower rates alone will not fully address the chronic under-supply of housing.

Speaker Change: This focus on capital efficiency and returns extends beyond our land and other operations.

Speaker Change: This focus on capital efficiency and returns extends beyond our land and other operations.

Speaker Change: The past several years have proven how impactful these fundamentals are, with demand for new homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated.

Douglas Yearley: The past several years have proven how impactful these fundamentals are, with demand for new homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated. As a large, well-capitalized home builder, we have benefited from and performed very well in this environment, with sales of 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing market.

Speaker Change: It also includes our efforts to more programmatically returned capital to our stockholders since the start of our third quarter, we repurchased $246 million of our common stock.

Speaker Change: Since the start of our third quarter, we've repurchased $246 million of our common stock, bringing our year-to-date repurchases to $427 million at an average price of approximately $119 per share.

Speaker Change: As a large, well-capitalized home builder, we have benefited from and performed very well in this environment, with sales of 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing market. Our strategy of widening our geographies and price points to include more affordable homes and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder. As we have expanded and come down in price, we now have the widest variety of product and the widest range of price of any of the builders, which presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Speaker Change: Bringing our year to date repurchases to $427 million at an average price of approximately $119 per share.

Speaker Change: We also paid over $70 million in dividends year-to-date.

Speaker Change: We also paid over $70 million in dividends year to date.

Douglas Yearley: Our strategy of widening our geographies and price points to include more affordable homes and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder. As we have expanded and come down in price, we now have the widest variety of product and the widest range of price of any of the builders, which presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Speaker Change: So far this year, we've repurchased approximately 3% of our year-end diluted share count, and since 2016...

Speaker Change: So far this year, we've repurchased approximately 3% of our year end diluted share count and since 2016, we bought back approximately one half of the company.

Speaker Change: We bought back approximately one half of the company.

Speaker Change: Given our outstanding year to date financial performance, including strong operating cash flows we are raising our buyback expectations for the full year.

Speaker Change: Given our outstanding year-to-date financial performance, Including Strong Operating Cash Flows. We are raising our buyback expectations for the full year. 500 to 600 million dollars. Dividends and buybacks will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity. We now expect our return on beginning equity to be approximately 22.5% this year. This will be the third year in a row that we generate an ROE over 20%.

Speaker Change: $500 million to $600 million divot.

Speaker Change: Dividends and buybacks will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity.

Speaker Change: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec with continued strong demand from buyers who are looking for quicker movements. As a reminder, we define a spec as any home without a buyer that has a foundation port. We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide. This offers our spec buyers a degree of choice, which is a key pillar in the whole brother's buying experience, while providing us with a faster and more efficient construction schedule.

Douglas Yearley: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec with continued strong demand from buyers who are looking for quicker movements. As a reminder, we define a spec as any home without a buyer that has a foundation port. We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide.

Speaker Change: We now expect our return on beginning equity to be approximately 22, 5%. This year. This.

Douglas Yearley: This offers our spec buyers a degree of choice, which is a key pillar in the whole brother's buying experience, while providing us with a faster and more efficient construction schedule. At third quarter end, our backlog stood at $7.1 billion and $6,7609 on. Our cancellation rate as a percentage of backlog was 2.4% in the third quarter, down from 2.8% in our second quarter and consistent with our long-term average of 2.3%. Our industry low cancellation rate is due to the significant upfront down payments our buyers make, as well as the emotional attachment they form as they personalize their homes with us.

Speaker Change: This will be the third year in a row, our regenerate on row.

Speaker Change: Over 20%.

With that I will turn it over to Marty.

Marty Connor: With that, I will turn it over to Marty.

Marty Connor: Welcome and thank you for joining us.

Marty Connor: Thanks, Doug.

Marty Connor: Thanks, Doug.

Marty Connor: With me today are Marty Connor, Chief Financial Officer, Rob Perrahaus, President and Chief Operating Officer, Wendy Marlette, Chief Marketing Officer, and Greg Ziegler, Senior VP, Treasurer, and our Head of Investor Relations.

Marty Connor: I think you know the nuance may be that and we haven't really looked at this. The nuance may be that the build to orders generally concentrate more in the luxury, more in the bigger homes, have a few month longer build cycle and the spec homes have a shorter build cycle and so when we start one for one like we have been, there is a potential for the build to orders to fall below 50% long term but probably not from a revenue perspective.

Marty Connor: I think you know the nuance may be that and we haven't really looked at this. The nuance may be that the build to orders generally concentrate more in the luxury, more in the bigger homes, have a few month longer build cycle and the spec homes have a shorter build cycle and so when we start one for one like we have been, there is a potential for the build to orders to fall below 50% long term but probably not from a revenue perspective.

Marty Connor: Good morning, everyone.

Marty Connor: Okay, that's helpful.

Marty Connor: Got it.

Marty Connor: Good morning, everyone, thanks for being with us.

Marty Connor: Do you think deliveries can continue to outpace orders going forward?

Marty Connor: Okay, that's helpful.

Marty Connor: No, they will reach equilibrium pretty soon here.

Marty Connor: Thanks for being with us.

Marty Connor: Was a great quarter.

Marty Connor: It was a great quarter. We earned $504 million before taxes. $375 million dollars, or $3.60 of earnings per diluted share, well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter, third quarter record and an increase of 2% compared to one year ago. We delivered 2,814 homes in the quarter, up 11.5% year-over-year. This unit growth is a direct outcome of our strategies of broadening our price point, and increasing our supply of, Based on our third quarter results and our expectations for the fourth quarter. We are raising our full-year deliveries, guys.

Marty Connor: We earned $504 million before taxes and $375 million after.

Marty Connor: Or $3.60 of earnings per diluted share.

Marty Connor: Okay, and then the second question just on you increase the buyback guidance for the year.

Marty Connor: Can you talk about kind of what drove that decision and Doug, I think you said programmatic capital return which I don't think you've sort of said in the past.

Marty Connor: Well above the earnings we guided to last quarter.

Marty Connor: Home sale revenues were $2 $72 billion in the quarter.

Marty Connor: So has there been any change here?

A third quarter record.

Speaker Change: At third quarter end, our backlog stood at $7.1 billion and $6,7609 on. Our cancellation rate as a percentage of backlog was 2.4% in the third quarter, down from 2.8% in our second quarter and consistent with our long-term average of 2.3%. Our industry low cancellation rate is due to the significant upfront down payments our buyers make, as well as the emotional attachment they form as they personalize their homes with us.

Marty Connor: An increase of 2% compared to one year ago.

Marty Connor: How should we think about capital return and buyback going forward?

Marty Connor: So we expect free cash flow of 800 million to 1 billion dollars. That's up a little bit because of our strong performance and we want to continue to reward our shareholders, return capital to our shareholders.

Marty Connor: We are very focused on return on equity. We know one of the main levers of keeping return on equity high is having a robust programmatic stock buyback program in addition of course to how quickly we can build and turn houses and how efficiently we can buy land and so it seemed like a great time to take the 500 up to the 600 because of our performance and the additional free cash flow that we have.

Marty Connor: Going forward you will continue as we talked about going back to 2016 you will continue to see us, Transcripts provided by Transcription Outsourcing, LLC.

Marty Connor: We delivered 20 814 homes in the quarter.

Marty Connor: Awesome.

Marty Connor: Do you think deliveries can continue to outpace orders going forward?

Marty Connor: They will reach equilibrium pretty soon here.

Marty Connor: Up 11, 5% year over year.

Marty Connor: This unit growth is a direct outcome of our strategy is a broadening of our price points and increasing our supply of spec homes.

Marty Connor: Thanks, guys.

Marty Connor: Appreciate the color you gave on order cadence into the fourth quarter.

Marty Connor: Okay, and then the second question just on you increased the buyback guidance for the year.

Marty Connor: Based on our third quarter results and our expectations for the fourth quarter.

Marty Connor: Just want to piggyback off of some of those questions.

Marty Connor: Can you talk about kind of what drove that decision and Doug, I think you said programmatic capital return which I don't think you've sort of said in the past.

Marty Connor: We are raising our full year deliveries guidance.

Marty Connor: Are you looking to run any targeted promos in the fourth quarter that might be helping that better, versus seasonal trend relative to the third quarter, in addition to the benefits you might be seeing from selling more specs and just lower overall rates?

Marty Connor: So has there been any change here?

Marty Connor: We now expect to deliver between 10,650 and 10,750 homes, an increase of 100 homes at the midpoint of our previous guidance. This translates to a home building revenue projection of between $10.4 and $10.5 billion for the full year, or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Marty Connor: I expect to deliver between 10006 hundred 50, and 10750 homes, an increase of 100 homes at the midpoint of our previous guidance.

Speaker Change: We intend to be more affluent, approximately 28% of our buyers paid all cash in the third quarter, consistent with our second quarter and significantly above our long-term average of approximately 20%. The loan devalue ratio for buyers who took a mortgage was approximately 69%. So, for the 72% of our buyers who took a mortgage on average, they put down 31%.

Douglas Yearley: We intend to be more affluent, approximately 28% of our buyers paid all cash in the third quarter, consistent with our second quarter and significantly above our long-term average of approximately 20%. The loan devalue ratio for buyers who took a mortgage was approximately 69%. So, for the 72% of our buyers who took a mortgage on average, they put down 31%. These metrics highlight the financial strength and affluence of our entire customer base.

Marty Connor: No.

Marty Connor: You know, we always run sales events. Some are local, some are regional, some are national. They're on the calendar already.

We are also increasing our guidance for full year average delivered price by $10000.

Marty Connor: How should we think about capital return and buyback going forward?

Marty Connor: So we expect free cash flow of 800 million to 1 billion dollars. That's up a little bit because of our strong performance and we want to continue to reward our shareholders, return capital to our shareholders.

Marty Connor: We are very focused on return on equity. We know one of the main levers of keeping return on equity high is having a robust programmatic stock buyback program in addition of course to how quickly we can build and turn houses and how efficiently we can buy land and so it seemed like a great time to take the 500 up to the 600 because of our performance and the additional free cash flow that we have.

Marty Connor: Going forward you will continue as we talked about going back to 2016 you will, continue to see us programmatically, regularly, and consistently and predictably by our company's stock back.

Marty Connor: $975000.

Marty Connor: This translates to a homebuilding revenue projection of between 10, four and $10 5 billion for the full year or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Marty Connor: Yeah, I think our use of the term programmatic probably goes back a year or two at this point.

Marty Connor: But we're not going to eliminate the opportunity to be opportunistic.

Speaker Change: These metrics highlight the financial strength and affluence of our entire customer base.

Marty Connor: We signed 2400 90 net contracts in the third quarter for $2 4 billion.

Marty Connor: We signed 2,490 net contracts in the third quarter for $2.4 billion, of approximately 11% in dollars and units. The average price of contracts signed in the quarter was approximately $967,000.

Marty Connor: They're no different than prior years. We do traditionally have a national sales event in the month of September. That's occurred for many years. That will occur again. But beyond that, there's nothing out of the ordinary.

Marty Connor: Right.

Marty Connor: We just hope we don't have it.

Speaker Change: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster-turned-spec homes. We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Douglas Yearley: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster-turned-spec homes. We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Marty Connor: Approximately 11% in dollars and units.

Marty Connor: And I do caution, you know, we don't like to guide on sales.

Marty Connor: The next question comes from Sam Reid with Wells Fargo.

Marty Connor: So when I said, you know, we think we'll be better than down 10%, you know, we're thinking more consistent with what we did in Q3, that's not a limiter to me.

Marty Connor: Please go ahead.

Marty Connor: The average price of contracts signed in the quarter was approximately $967000, which was about flat compared to both the third quarter of last year and the second quarter of this year.

Marty Connor: You know, I'm hopeful as rates come down, the market improves, we continue to open new communities that, you know, we could have a roaring fall.

Marty Connor: Awesome.

Marty Connor: I'm not predicting that, but I don't want you to think we're giving some guidance right now on, you know, on sales, because we don't do that.

Marty Connor: And let's get a good market, let's get this thing cooking, and let's blow out sales.

Marty Connor: That's how I approach this business.

Marty Connor: Thanks, guys.

Marty Connor: And we'll have to see where it is.

Marty Connor: Our third quarter adjusted gross margin was 28, 8%.

Marty Connor: Our third quarter adjusted gross margin. 28.8% compared to 29.3% in the third quarter of 2023. And this was 110 basis points better than we had projected. The outperformance to guide was due primarily to greater efficiency in our home building operation, as well as Favorable Mix. With the outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% 28.3%.

Marty Connor: Appreciate the color you gave on order cadence into the fourth quarter.

Speaker Change: We are on target to reach our goal of operating from 410 communities by fiscal year end, which would represent 11% growth compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year and we have sufficient land under control to do it. At quarter end, we under-controlled 72,700 lots, half of which were controlled and the other half owned, excluding the 6,769 lots in our backlog, our controlled land represents 55% of our lots. This land position provides us with sufficient lots needed for growth in fiscal 2025 and beyond and allows us to continue to be selective, disciplined and focused on efficiency when we assess new land opportunities.

Douglas Yearley: We are on target to reach our goal of operating from 410 communities by fiscal year end, which would represent 11% growth compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year and we have sufficient land under control to do it. At quarter end, we under-controlled 72,700 lots, half of which were controlled and the other half owned, excluding the 6,769 lots in our backlog, our controlled land represents 55% of our lots.

Third to 29, 3% in the third quarter of 2023, and this was 110 basis points better than we had projected.

Marty Connor: Just want to piggyback off of some of those questions.

Marty Connor: You know, are you looking to run, any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter, in addition to the benefits you might be seeing from selling more specs and just lower overall rates?

Marty Connor: The outperformance to guide was due primarily to greater efficiency in our homebuilding operations as well as favorable mix.

Marty Connor: With the outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0%.

Marty Connor: It's a 28, 3%.

Marty Connor: We are now projecting a fourth quarter adjusted gross margin, of 27.5%. SG&A as a percentage of revenue was 9.0% in the third quarter compared to 8.6% in the third quarter of last year. And this was 20 basis points better than we had projected for this quarter.

Marty Connor: We are now projecting a fourth quarter adjusted gross margin of 27, 5%.

Douglas Yearley: This land position provides us with sufficient lots needed for growth in fiscal 2025 and beyond and allows us to continue to be selective, disciplined and focused on efficiency when we assess new land opportunities. Our underwriting standards for new land continues to incorporate stringent thresholds for both margins and returns and we continue to seek out land acquisition and development opportunities that allow us to be more capital-efficient, including through increased use of option arrangements, land banks, joint ventures, and similar structures that allow us to defer payments and lot take downs.

Marty Connor: 10 basis point increase.

Marty Connor: Compared to our previous implied guidance.

Marty Connor: SG&A as a percentage of revenue was 9.0% in the third quarter compared to eight 6% in the third quarter of last year.

Speaker Change: Our underwriting standards for new land continues to incorporate stringent thresholds for both margins and returns and we continue to seek out land acquisition and development opportunities that allow us to be more capital-efficient, including through increased use of option arrangements, land banks, joint ventures, and similar structures that allow us to defer payments and lot take downs.

Marty Connor: And this was 20 basis points better than we had projected for this quarter.

Marty Connor: Year over year, we modestly reduced G&A expenses in terms of total dollars. But this reduction was offset by higher selling expenses, due in part to increased community awareness.

Marty Connor: Year over year, we modestly reduced G&A expenses in terms of total dollars.

Marty Connor: But this reduction was offset by higher selling expenses due in part to increased community openings.

Marty Connor: But where we are three weeks in, with the communities we have open, with those we know that are opening, with the quality of traffic, I just wanted to suggest that the normal number of down 10% doesn't feel right.

Marty Connor: As we've pointed out before we've been very focused on becoming more efficient and we are seeing the benefits of that efficiency continue to flow through our results.

Marty Connor: As we've pointed out before, we've been very focused on becoming more efficient. And we are seeing the benefits of that efficiency continue to flow through our results.

Marty Connor: It feels like it should be at, or in my hope, better than Q3.

Marty Connor: Yeah, that certainly helps.

Speaker Change: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we repurchase $246 million of our common stock bringing our year-to-date repurchases to $427 million at an average price of approximately $119 per share.

Douglas Yearley: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we repurchase $246 million of our common stock bringing our year-to-date repurchases to $427 million at an average price of approximately $119 per share. We also paid over $70 million in dividends year-to-date. So far this year we've repurchased approximately 3% of our year-end deluded share count and since 2016 we've brought back approximately one-half of the company.

Marty Connor: For the fourth quarter, we expect SG&A expense to be eight 6% of home sales revenues.

Marty Connor: For the fourth quarter, we expect SG&A expense to be 8.6% of home sales revenue. And for the full year, we now expect it to be 9.4. This represents a 20 basis point improvement over our previous guide.

Marty Connor: And, you know, maybe this is a little ambitious here, but I want to quickly talk 25 just from a very high-level standpoint.

Marty Connor: For the full year, we now expect it to be nine 4%.

Marty Connor: This represents a 20 basis point improvement over our previous guidance.

Marty Connor: Yeah.

Marty Connor: Third quarter joint venture land sales and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture land sales and other income to be approximately $260 million, implying approximately $47 million in the fourth quarter.

Marty Connor: Third quarter joint venture land sales and other income was $1 million, which was consistent with our breakeven guidance.

Marty Connor: We continue to expect our full year joint venture land sales and other income to be approximately $260 million, implying approximately $47 million in the fourth quarter.

Speaker Change: We also paid over $70 million in dividends year-to-date. So far this year we've repurchased approximately 3% of our year-end deluded share count and since 2016 we've brought back approximately one-half of the company. Given our outstanding year-to-date financial performance including strong operating cash flows, we are raising our buy-back expectations for the full year from $500 to $600 million.

Marty Connor: Our tax rate in the quarter was 25, 6%.

Marty Connor: Tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25.4%. We expect interest and cost of sales to be approximately 1.3% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.

Marty Connor: We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25, 4%.

Douglas Yearley: Given our outstanding year-to-date financial performance including strong operating cash flows, we are raising our buy-back expectations for the full year from $500 to $600 million. Dividend and buy-backs will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity. We now expect our return on beginning equity to be approximately 22.5% this year.

Marty Connor: Yeah.

Marty Connor: We expect interest and cost of sales to be approximately one 3% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.

Speaker Change: Dividend and buy-backs will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity.

Marty Connor: You know, you've got some good visibility into your land pipeline, and the types of communities you're going to be delivering.

Marty Connor: As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities, open for sale by fiscal year-end. This would represent approximately 11% growth from the 370 communities we began the year with.

Marty Connor: As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities open for sale by fiscal year end.

Marty Connor: So to that end, you know, do you have any sense as to what kind of community count growth, you know, we might be on track to see, you know, especially as you look to potentially grow 5% to 10% over the long term?

Doug: This would represent approximately 11% growth from 370 communities, we began the year with.

Speaker Change: We now expect our return on beginning equity to be approximately 22.5% this year. This would be the third year in a row that we generate an ROE over 20%.

Douglas Yearley: This would be the third year in a row that we generate an ROE over 20%.

Doug: We plan to continue growing community count in fiscal year, 2025, and have the land to do it.

Doug: We plan to continue growing community count fiscal year 2025 and have the land to do it.

Turning to the balance sheet.

Speaker Change: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalents and $1.8 billion available under our $1.96 billion revolving bank credit. We have no significant bank or senior debt maturities until November 2025. All of this provides us with ample flexibility to both grow our business and return capitalist stockholders as we continue to focus on generating attractive returns.

Speaker Change: With that, I will turn it over to Marty.

Martin Connor: With that, I will turn it over to Marty. Thanks Doug.

Speaker Change: We finished the quarter with a net debt to capital ratio of 19, 6%.

Speaker Change: Thanks Doug.

Marty: Good morning everyone.

Martin Connor: Good morning everyone. Thanks for being with us. It was a great quarter. We earned $504 million before taxes and $375 million after or $3.60 of earnings per deluded share. Well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter. A third quarter record and an increase of 2% compared to one year ago. We delivered 2814 homes in the quarter up 11.5% year over year. This unit growth is a direct outcome of our strategies of broadening our price points and increasing our supply of spec homes.

Speaker Change: Thanks for being with us.

Speaker Change: $893 million in cash and equivalents and $1 8 billion available under our $1 $96 billion revolving bank credit facility.

Marty: It was a great quarter. We earned $504 million before taxes and $375 million after or $3.60 of earnings per deluded share. Well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter. A third quarter record and an increase of 2% compared to one year ago. We delivered 2814 homes in the quarter up 11.5% year over year. This unit growth is a direct outcome of our strategies of broadening our price points and increasing our supply of spec homes. Based on our third quarter results and our expectations for the fourth quarter, we are raising our full year delivery guides.

Speaker Change: We have no significant bank or senior debt maturities until November 2025.

Speaker Change: All of this provides us with ample flexibility to both grow our business and return capital to stockholders as we continue to focus on generating attractive returns.

Speaker Change: Our weighted average share count is expected to be approximately $104.75 million for the full year and $102.5 million for the fourth quarter.

Speaker Change: Our weighted average share count is expected to be approximately $104 $75 million for the full year and 100.

Speaker Change: Two and a half million for the fourth quarter.

Speaker Change: As Doug noted, we've increased our share repurchase guidance to approximately $600 million of repurchases this year, implying approximately $175 million of buybacks in the fourth quarter.

Speaker Change: As Doug noted, we've increased our share repurchase guidance to approximately $600 million of repurchases. This year, implying approximately $175 million of buybacks in the fourth quarter.

Speaker Change: We now expect to deliver between 10,650 and 10,750 homes an increase of 100 homes at the midpoint of our previous guidance. We are also increasing our guidance for full year average delivered price by $10,000 to $975,000. This translates to a home building revenue projection of between $10.4 and $10.5 billion for the full year or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Martin Connor: Based on our third quarter results and our expectations for the fourth quarter, we are raising our full year delivery guides. We now expect to deliver between 10,650 and 10,750 homes an increase of 100 homes at the midpoint of our previous guidance. We are also increasing our guidance for full year average delivered price by $10,000 to $975,000. This translates to a home building revenue projection of between $10.4 and $10.5 billion for the full year or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Speaker Change: Putting this all together.

Speaker Change: Putting this all together.

Speaker Change: We now expect to earn between $14.50 and $14.75 per diluted share in fiscal 2024.

Speaker Change: We now expect to earn between $14 50.

Speaker Change: In $2014 75 per diluted share in fiscal 2024, we.

Speaker Change: We expect to achieve a full year return on beginning equity of approximately 22.5%.

Speaker Change: We expect to achieve a full year return on beginning equity of approximately 22, 5%. We expect our book value at year end to be over $76 50.

Speaker Change: We expect our book value at year end to be over $76.50.

Speaker Change: This would cap off another great year for toll brothers.

Speaker Change: This would cap off another great year for Toll Brothers.

Speaker Change: Now let me turn it back to Doug.

Speaker Change: Now, let me turn it back to Doug.

Speaker Change: I like that number.

Speaker Change: No, you know, we always run sales events. Some are local, some are regional, some are national.

Doug: Thank you Marty.

Doug: Thank you, Marty.

Doug: 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.

Doug: I'm with you, 5% to 10%.

Doug: Before I open it up for questions I'd like to recognize the hard work of all of our toll employees.

Doug: We had another terrific quarter and are very pleased with our fiscal third quarter results. We delivered 2,814 homes at an average price of $968,000, generating record third quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8% exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations as well as favorable NICs. Our SG&A expense was 9.0% of home sale revenues, or 20 basis points better than guidance.

Doug: It is their passion for our business.

Doug: Dedication to our luxury brand and commitment to our customers that will ensure.

Speaker Change: We signed 2490 net contracts in the third quarter for $2.4 billion of approximately 11% in dollars and units. The average price of contract signed in the quarter was approximately $967,000 which was about flat compared to both the third quarter of last year and the second quarter of this year.

Martin Connor: We signed 2490 net contracts in the third quarter for $2.4 billion of approximately 11% in dollars and units. The average price of contract signed in the quarter was approximately $967,000 which was about flat compared to both the third quarter of last year and the second quarter of this year. Our third quarter adjusted gross margin was 28.8% compared to 29.3% in the third quarter of 2023 and this was 110 basis points better than we had projected.

Doug: Our continued success.

Doug: Outperformance in both the top line and in our margin drove earnings of $3.60 per diluted share, keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter.

Doug: More to come in December.

David Let's open it up for questions.

Doug: Before I open it up for questions, I'd like to recognize the hard work of all of our toll employees, is their passion for our business.

Doug: On a per community basis, we sold at a pace of 2.1 homes per month, down slightly versus the 2.2 pace we sold in last year's third quarter.

David: Dedication to our luxury brand and commitment to our customers that will ensure our continued success.

David: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August. With mortgage rates at their lowest point in a year and trending lower, favorable demographics, and continued imbalance in the supply and demand of homes for sale, we are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025. We are encouraged by demand trends we are seeing across the country and also across, our buyer segments.

David: Demand where we, excuse me, markets where we saw particular strength in the quarter, included New Jersey, Pennsylvania, Metro D.C., South Carolina, Atlanta, Boise, Las Vegas, and all of California.

David: This concludes our question and answer session.

David: They're on the calendar already.

David: Dave, let's open it up to questions.

David: We will now begin the question and answer session.

David: Strength adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others.

David: I would like to turn the conference back over to management for any closing remarks.

David: Dave, thank you very much.

David: They're no different than prior years.

Speaker Change: As a reminder, the company is planning to end the call at 930, when the market opens during the Q&A. Please limit yourself to one question and one follow up to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Speaker Change: Our third quarter adjusted gross margin was 28.8% compared to 29.3% in the third quarter of 2023 and this was 110 basis points better than we had projected. The Outperformance to Guide was due primarily to greater efficiency in our home building operations, as well as favorable mix. With the Outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% to 28.3%.

David: You were terrific.

David: We do, traditionally have a national sales event in the month of September. That's occurred for many years. That will occur again.

Speaker Change: Our first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Speaker Change: We will now begin the question and answer session.

Speaker Change: But beyond that, there's nothing, out of the ordinary.

Martin Connor: The Outperformance to Guide was due primarily to greater efficiency in our home building operations, as well as favorable mix. With the Outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% to 28.3%. We are now projecting a fourth quarter adjusted gross margin of 27.5%, a 10 basis point increase compared to our previous implied guidance. S-GNA, as a percentage of revenue, was 9.0% in the third quarter, compared to 8.6% in the third quarter of last year, and this was 20 basis points better than we had projected for this quarter.

Stephen Kim: Yeah. Thanks, very much guys I appreciate all the color so far.

Speaker Change: And I do caution, you know, we don't like to guide on sales.

Stephen Kim: And and good job in the quarter.

Stephen Kim: Wanted to ask sure Yeah, I wanted to ask you about profitability and I was intrigued by your comment about greater efficiency in the homebuilding operations.

Stephen Kim: Wanted to just sort of get a sense of if you could elaborate there and that seems to imply that there is a degree of sustainability to the strength that we're seeing in your margins and so I know you haven't given guidance here for 2025, but it would be helpful for I think us to to hear you.

Speaker Change: We are now projecting a fourth quarter adjusted gross margin of 27.5%, a 10 basis point increase compared to our previous implied guidance. S-GNA, as a percentage of revenue, was 9.0% in the third quarter, compared to 8.6% in the third quarter of last year, and this was 20 basis points better than we had projected for this quarter.

Speaker Change: Comment on the call. It the 17, 5% operating margin you're generating this year how sustainable.

Speaker Change: <unk> do you think that is generally is that a number that you think is inflated by any particular variables or is that a level that you sort of as you look forward across your business over the next several years is that a level that you sort of feel is is a reasonable level to use as kind of a base.

Speaker Change: Year over year, we modestly reduced GNA expenses in terms of total dollars, but this reduction was offset by higher selling expenses due in part to increase community openings.

Martin Connor: Year over year, we modestly reduced GNA expenses in terms of total dollars, but this reduction was offset by higher selling expenses due in part to increase community openings. As we've pointed out before, we've been very focused on becoming more efficient, and we are seeing the benefits of that efficiency continue to flow through our results. For the fourth quarter, we expect S-GNA expense to be 8.6% of home sales revenues, and for the full year, we now expect it to be 9.4%.

Speaker Change: Thanks, everyone, for your interest and support.

Speaker Change: And so when I said, you know, we think we'll be better than down 10 percent, you know, we're thinking more consistent with what we did in Q3.

Speaker Change: Have a wonderful end of your summer.

Speaker Change: We are here always to answer any questions you may have.

Speaker Change: Thanks, Steve Great question. The quick answer is yes, we believe that operating margin you referenced is sustainable we are targeting long term with this new business model.

Speaker Change: As we've pointed out before, we've been very focused on becoming more efficient, and we are seeing the benefits of that efficiency continue to flow through our results.

Speaker Change: කපීම කළ අපසන්න, අපසන්න කරල් සියලීමෙන් ඔබේ අපස් පොඟෂ ගෝස්මාම් ස්තූතියක සිරීමෙන් පෙලගේ විස්බානයක් එකතු කරන්න.

Speaker Change: අපි මිශ්රණය ස්තූතියේ අපි පෙලොක කරන්න තුරු ඇති තුරු කරන්න.

Speaker Change: අපි පෙලොක කරන්න.

Speaker Change: For the fourth quarter, we expect S-GNA expense to be 8.6% of home sales revenues, and for the full year, we now expect it to be 9.4%. This represents a 20 basis point improvement over our previous guidance.

Speaker Change: Good morning, and welcome to the Toll Brothers third quarter fiscal year 2024 conference, call.

Speaker Change: Although a very wide price point, a very wide geography about 50% spec more and more affordable luxury communities.

Speaker Change: 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.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

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Speaker Change: The company is planning to end the call at 930 when the market opens.

Speaker Change: A longer term gross margin in the 27% to 28% range and as we become more efficient on the SG&A line, which you've seen over the last couple of years.

Martin Connor: This represents a 20 basis point improvement over our previous guidance. Third quarter joint venture, land sales, and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture, land sales, and other income to be approximately $260 million, implying approximately $47 million in the fourth quarter. Our tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rates to approximately 25.4%.

Speaker Change: Third quarter joint venture, land sales, and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture, land sales, and other income to be approximately $260 million, implying approximately $47 million in the fourth quarter.

Speaker Change: We think that operating margin long term is definitely sustainable.

Speaker Change: That's not a limiter to me.

Speaker Change: Well, that's super clear so I appreciate that and that's obviously very encouraging.

Speaker Change: Was wondering if you could talk a little bit about yours, a little bit more about your spec.

Speaker Change: You know, I'm hopeful as rates come down, the market improves, we continue to open new communities that, you know, we could have a roaring fall.

Speaker Change: I'm not predicting that, but I don't want you to think we're giving some guidance right now, on, you know, on sales, because we don't do that.

Speaker Change: And let's get a good market.

Speaker Change: Model, what was the actual number of spec.

Speaker Change: Let's get this thing cooking and let's blow out sales.

Speaker Change: Our tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rates to approximately 25.4%. We expect interest and cost to sales to be approximately 1.3% in the fourth quarter, and for the full year as we continue to benefit from our reduced leverage.

Speaker Change: That's how I approach this business.

Speaker Change: And we'll have to see where it is.

Speaker Change: Specs both finished and in total specs that you had in the quarter and then I had a follow up regarding what that about that level.

Speaker Change: But where we are three weeks in, with the communities we have open, with those we know that are opening, with the quality of traffic, I just wanted to suggest that the normal number of down 10 percent doesn't feel right.

Martin Connor: We expect interest and cost to sales to be approximately 1.3% in the fourth quarter, and for the full year as we continue to benefit from our reduced leverage. As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities open for sale by fiscal year end. This would represent approximately 11% growth from the 370 communities we began the year with. We plan to continue growing community count in fiscal year 2025, and have the land to do it.

Speaker Change: At the end of the quarter Steve.

Speaker Change: It feels like it should be at, or in my hope, better than Q3.

Steve: Steve We had around 3400 specs around 750 of those were CLO.

Speaker Change: Yeah, that certainly helps.

Speaker Change: CLO or beyond or one eight per community.

Speaker Change: And, you know, maybe this is a little ambitious here, but I want, to quickly talk 25, just from a very high level standpoint.

Speaker Change: As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities open for sale by fiscal year end. This would represent approximately 11% growth from the 370 communities we began the year with.

That's interesting okay. So you had yet.

Speaker Change: You know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering.

Speaker Change: You had about eight and a half per community total but finished what she said are.

Speaker Change: So, to that end, you know, do you have any sense as to what kind of community count growth, you know, we might be on track to see, you know, especially as you look to potentially grow, 5 to 10 percent over the long term?

Speaker Change: I like that number.

Speaker Change: Below two.

Speaker Change: That level of those levels of specs is that a number that we are those numbers per community. What we can also expect going forward.

Speaker Change: We plan to continue growing community count in fiscal year 2025, and have the land to do it.

Speaker Change: I'm with you, 5 to 10.

Speaker Change: More to come in December.

Speaker Change: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalence, and $1.8 billion available under our $1.96 billion revolving bank credit facility. We have no significant bank or senior debt maturities until November 2025.

Martin Connor: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalence, and $1.8 billion available under our $1.96 billion revolving bank credit facility. We have no significant bank or senior debt maturities until November 2025. All of this provides us with ample flexibility to both grow our business and return capitalist stockholders, as we continue to focus on generating attractive returns. Our weighted average share count is expected to be approximately 104.75 million for the full year, and 102.5 million for the fourth quarter. As Doug noted, we've increased our share repurchase guidance to approximately $600 million of repurchases of this year, implying approximately $175 million of five acts in the fourth quarter.

Speaker Change: Or is that or do you see does this changing like growing perhaps as we go forward.

Speaker Change: This concludes our question and answer session.

Speaker Change: Steven.

Speaker Change: All of this provides us with ample flexibility to both grow our business and return capitalist stockholders, as we continue to focus on generating attractive returns.

Speaker Change: We're starting a spec essentially for every home we sell so the starts and specs starts include one BTL one spec.

Speaker Change: Kind of 50, 50, PTO as build to order.

Speaker Change: I would like to turn the conference back over, to management for any closing remarks.

Speaker Change: And I think we've hit a good but not bachman Turner.

Speaker Change: So the older people on the call.

Speaker Change: Well, we arent taking care of business here Doug.

Speaker Change: So I think we've hit a bit of a equilibrium point here are up to 50% spec strategy that'll.

Speaker Change: Our weighted average share count is expected to be approximately 104.75 million for the full year, and 102.5 million for the fourth quarter. As Doug noted, we've increased our share repurchase guidance to approximately $600 million of repurchases of this year, implying approximately $175 million of five acts in the fourth quarter.

Barry: Barry a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here and it's important I know we've talked I know, Steve we talked about before as you know we you know.

Speaker Change: Joyce at toll brothers is still alive and well, it's still very important not just on the build to order business, but we do hope that at least half of the spec buyers are buying early enough that they have enough time to pick some level of finishes. If you buy it very early you can hit that design studio.

Speaker Change: We're putting this all together.

Martin Connor: We're putting this all together. We now expect an earn between $14 and $15.75 for a diluted share in fiscal 2024. We expect to achieve a full year return on beginning equity of approximately 22.5%. We expect our book value at year end to be over $76.50.

Speaker Change: We now expect an earn between $14 and $15.75 for a diluted share in fiscal 2024.

Speaker Change: We expect to achieve a full year return on beginning equity of approximately 22.5%.

Speaker Change: Oh and truly customize the inside of your homes, if you're buying a little bit later, you have some opportunity for flooring for kitchen cabinets for countertops and then of course there are some as we described that get to the end can be delivered quickly for that buyer that wants a faster move in so we do define this fact as a foundation.

Speaker Change: We expect our book value at year end to be over $76.50.

Speaker Change: This would cap off another great year for Toll Brothers.

Martin Connor: This would cap off another great year for Toll Brothers.

Speaker Change: Now let me turn it back to Doug.

Douglas Yearley: Now let me turn it back to Doug. Thank you, Marty.

Doug: Thank you, Marty.

Doug: Before I open it up for questions, I'd like to recognize the hard work of all of our Toll employees.

Douglas Yearley: Before I open it up for questions, I'd like to recognize the hard work of all of our Toll employees. It is their passion for our business, dedication to our luxury brand, and commitment to our customers that will ensure our continued success.

Speaker Change: And the ground without a buyer and we market. Accordingly, so that choice is still a big part of that business model that also drives a little bit more margin because as you know.

Speaker Change: It is their passion for our business, dedication to our luxury brand, and commitment to our customers that will ensure our continued success.

The upgrades the design studio tend to be accretive to the company margin.

Speaker Change: During the Q&A, please limit yourself to one question and one follow-up.

Speaker Change: Dave, thank you very much.

Speaker Change: You were terrific.

Speaker Change: Dave, let's open it up for questions.

Unknown Executive: Dave, let's open it up for questions. We will now begin the question and answer session. As a reminder, the company is planning to end the call at 9.30 when the market opens.

Speaker Change: Yeah, absolutely and the level of finished specs per community is very encouraging I would say below 222 per community.

Speaker Change: We will now begin the question and answer session.

Unknown Executive: During the Q&A, please limit yourself to one question and one follow-up. To ask a question, you may press star the one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.

Speaker Change: As a reminder, the company is planning to end the call at 9.30 when the market opens.

Speaker Change: That's not at all an unusually high number so it it's very clear that your your process is working so great well I appreciate all the color thanks very much.

Speaker Change: During the Q&A, please limit yourself to one question and one follow-up.

Speaker Change: To ask a question, you may press star the one on your touch-tone phone.

Speaker Change: Thank you.

Speaker Change: As a reminder, the company is planning to end the call at 930 when the market opens.

Speaker Change: If you are using a speaker phone, please pick up your handset before pressing the keys.

Speaker Change: And the next question comes from John Lovallo with UBS. Please go ahead.

Speaker Change: To withdraw your question, please press star then two.

John Lovallo: During the Q&A, please limit yourself to one question and one follow up.

John Lovallo: Please note this event is being recorded.

John Lovallo: Thanks, everyone, for your interest and support.

John Lovallo: Good morning, guys. Thanks for taking my questions as well maybe just following up on Hey, Hey, how are you maybe just following up on Steve's question.

John Lovallo: I would now like to turn the conference over to Douglas Yearley, CEO.

John Lovallo: Have a wonderful end of your summer.

John Lovallo: We are here always to answer any questions you may have.

John Lovallo: To ask a question, you may press star, then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the.

Speaker Change: Our first question comes from Stephen Kim with Evercore ISI.

Stephen Kim: Our first question comes from Stephen Kim with Evercore ISI. Please go ahead. Thanks very much, guys. Appreciate all the color so far and a good job in the quarter. I wanted to ask you about profitability. I was intrigued by your comment about greater efficiency in the humbling operations. I wanted to just sort of get a sense of if you could elaborate there. That seems to imply that there is a degree of sustainability to the strength that we are seeing in your margins.

John Lovallo: And we look forward to seeing all of you soon.

John Lovallo: Thanks.

John Lovallo: Take care.

John Lovallo: The conference is now concluded.

John Lovallo: To withdraw your question, please press star then two.

Speaker Change: Please go ahead.

John Lovallo: Thank you for attending today's presentation.

John Lovallo: You may now disconnect.

John Lovallo: Your backlog has continued to kind of get worked down over the past few years I mean, how confident are you that improved cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025.

Speaker Change: Thanks very much, guys.

John Lovallo: Our first question comes from Stephen Kim with Evercore ISI.

Speaker Change: Appreciate all the color so far and a good job in the quarter.

John Lovallo: Please go ahead.

John Lovallo: Thank you, Dave.

Speaker Change: I wanted to ask you about profitability.

Speaker Change: I was intrigued by your comment about greater efficiency in the humbling operations.

Speaker Change: We're very confident we're doing it right now.

Speaker Change: Please go ahead.

Speaker Change: I wanted to just sort of get a sense of if you could elaborate there.

Speaker Change: And.

Speaker Change: The more as we've talked about if we can keep this spec and about 50 50. Those houses are being built faster were able to deliver them quicker the conversion rate on our backlog.

Speaker Change: That seems to imply that there is a degree of sustainability to the strength that we are seeing in your margins.

Speaker Change: I know you haven't gotten guidance here for 2025, but it would be helpful for us to hear you comment on the 17.5% operating margin you are generating this year.

Stephen Kim: I know you haven't gotten guidance here for 2025, but it would be helpful for us to hear you comment on the 17.5% operating margin you are generating this year. How sustainable do you think that is generally? Is that a number that you think is inflated by any particular variables? Or is that a level that you sort of as you look forward across your business over the next several years? Is that a level that you sort of feel is a reasonable level to use as kind of a base? Thanks, Steve.

Speaker Change: It has come down and will continue to come down as this is excuse me. We will continue to go up but my apologies that we will turn houses faster you know what.

Speaker Change: How sustainable do you think that is generally?

Speaker Change: And.

Speaker Change: Is that a number that you think is inflated by any particular variables?

Speaker Change: As this business continues to mature we get better at it we turn these houses faster.

Speaker Change: Or is that a level that you sort of as you look forward across your business over the next several years?

Speaker Change: Youre going to can see an improvement and an improvement in that conversion.

Speaker Change: Is that a level that you sort of feel is a reasonable level to use as kind of a base?

Speaker Change: Makes sense and then you know.

Speaker Change: Moving on to the to the you know the fourth quarter gross margin what would drive the expected 140 basis points sequential decline from the third quarter. I mean is this the reverse of the positive mix impact in the third quarter and what specifically was that mix impact was it geographic was it product or spec versus bto.

Speaker Change: Thanks, Steve.

Speaker Change: Great question.

Douglas Yearley: Great question. The quick answer is yes, we believe that operating margin you reference is sustainable. We are targeting long-term with this new business model of a very wide price point, a very wide geography, about 50% spec, more and more affordable luxury communities. A longer-term gross margin in the 27 to 28% range, and as we see some more efficient on the SG&A line, which you have seen over the last couple of years, we think that operating margin long-term is definitely sustainable. Well, that's super clear, so appreciate that. And that's obviously very encouraging.

Speaker Change: The quick answer is yes, we believe that operating margin you reference is sustainable.

Speaker Change: We are targeting long-term with this new business model of a very wide price point, a very wide geography, about 50% spec, more and more affordable luxury communities.

Speaker Change: Thank you sure.

So, let's remember we raised guidance for Q4 gross margin.

Speaker Change: A longer-term gross margin in the 27 to 28% range, and as we see some more efficient on the SG&A line, which you have seen over the last couple of years, we think that operating margin long-term is definitely sustainable.

Speaker Change: Yes, when you compare it to the blow out gross margin of Q3.

Speaker Change: The GAAP there is bigger Q3, as we mentioned.

Speaker Change: <unk> was 110 basis points better than guide.

Speaker Change: Cause of mix, we had more high margin home is delivering in the Pacific and the south.

Speaker Change: Well, that's super clear, so appreciate that.

Speaker Change: And that's obviously very encouraging.

Speaker Change: Was wondering if you could talk a little bit about your, a little bit more about your spec model.

Stephen Kim: Was wondering if you could talk a little bit about your, a little bit more about your spec model. What was the actual number of specs both finished and total specs that you had in the quarter, and then I had to follow regarding what that about that level. At the end of the quarter, Steve, we had around 3,400 specs around 750 of those were at CO or beyond or 1.8 per community. That's interesting.

Speaker Change: And then and we have less spec homes, delivering and we had anticipated that reverses a bit in the fourth quarter, where we will have less.

Speaker Change: What was the actual number of specs both finished and total specs that you had in the quarter, and then I had to follow regarding what that about that level.

Speaker Change: High margin.

Speaker Change: Homes, delivering from the south and the Pacific.

Speaker Change: At the end of the quarter, Steve, we had around 3,400 specs around 750 of those were at CO or beyond or 1.8 per community.

Speaker Change: And by the way that the entire south and Pacific is not necessarily high margin. It has certain communities within the south and the Pacific.

Speaker Change: Have this higher margin, where we had more of those deliver Q3 and less of those in Q4, and we will have about 60% of our deliveries in the fourth quarter be spec.

Speaker Change: That's interesting.

Speaker Change: Okay, so you had about 8.5 per community total, but finish was you said below 2.

Stephen Kim: Okay, so you had about 8.5 per community total, but finish was you said below 2. That level of those levels of specs, is that a number that we, are those numbers per community, what we can also expect going forward, or do you see this changing that growing perhaps as we go forward? Stephen, we're, we're starting a spec essentially for every home we sell, so the starts and specs starts include one BTO, one spec, kind of 5050.

Speaker Change: That level of those levels of specs, is that a number that we, are those numbers per community, what we can also expect going forward, or do you see this changing that growing perhaps as we go forward?

Speaker Change: So you know.

Speaker Change: With our business running from we know of homes from the mid three hundreds to over $5 million. We have gross margins that have a very large range. We have we have a few communities with 10% gross margin and we have communities with 50% gross margin and so when you look at our business.

Speaker Change: Stephen, we're, we're starting a spec essentially for every home we sell, so the starts and specs starts include one BTO, one spec, kind of 5050.

S K: S K.

S K: 400, a quarter there may be a little bit more variation naturally and some of the other builders that have a much tighter range of price point and margin.

Speaker Change: BTO is filled the order, and I think we've hit a bit, not Foxman Turner, because the older people are on the call.

Stephen Kim: BTO is filled the order, and I think we've hit a bit, not Foxman Turner, because the older people are on the call. Well, we are taking care of business here. So I think we've hit a bit of a equilibrium point here on our up to 50% spec strategy. Now that'll vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here.

And so there's a little bit more variety there as you just saw in the third quarter and as we've guided to in Q4, but overall.

Speaker Change: Well, we are taking care of business here.

Speaker Change: So I think we've hit a bit of a equilibrium point here on our up to 50% spec strategy.

S K: That 20% to 28, 27% to 8% long term margin, while there could be some modest variation quarter to quarter, we're very comfortable with where this business is headed.

Speaker Change: Now that'll vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here.

Speaker Change: And it's important, I know we talked, I know Steve we talked about before as you know, but we, you know choice it told brothers is still alive and well, it's still very important, not just on the build order business, but we do hope that at least half of the spec buyers are buying early enough that they have enough time to pick some level of finishes.

Stephen Kim: And it's important, I know we talked, I know Steve we talked about before as you know, but we, you know choice it told brothers is still alive and well, it's still very important, not just on the build order business, but we do hope that at least half of the spec buyers are buying early enough that they have enough time to pick some level of finishes. If you buy it very early, you can hit that design studio and truly customize the inside of your home.

S K: Okay.

S K: And the next question comes from Alan Ratner with Zelman and Associates. Please go ahead.

Alan Ratner: Yeah thanks very much guys appreciate all the color so far and good job in the quarter.

Alan Ratner: Hey, guys good morning, nice quarter and thanks for all the helpful detail so far.

Alan Ratner: Good morning.

Alan Ratner: Welcome and thank you for joining us with me today are, Marty Conner, Chief Financial Officer, Rob Perrahaus, President and Chief Operating Officer, Wendy Marlette, Chief Marketing Officer, and Greg Ziegler, Senior VP Treasurer and our Head of Investor Relations.

Alan Ratner: Overall, pricing was flat compared to the second quarter and incentives continued to, run approximately 5.5% of our average sales price.

Alan Ratner: Doug.

Alan Ratner: I'd love to drill in on pricing and your comments suggest pricing is pretty flattish in the quarter plus or minus.

Speaker Change: If you buy it very early, you can hit that design studio and truly customize the inside of your home. If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops.

Speaker Change: Pending on the community.

Speaker Change: I wanted to ask you about profitability, and I was intrigued by your comment about greater efficiency in the home building operations.

Speaker Change: As I noted earlier, we are optimistic that market conditions will remain positive for, home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics, driven by millennials, many of whom are buying their first home later in life when they have higher incomes and accumulated wealth. Older millennials are now hitting their 40s, which should provide a tailwind for our luxury, move-up business over the next decade.

Speaker Change: I'm curious as you kind of sit here three weeks into August.

Speaker Change: In addition, baby boomers are moving into new homes as they retire and adjust their, lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the under, supply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low levels. But even as interest rates move lower, we believe the supply of homes will remain challenged, due to nearly 15 years of underproduction. Lower rates alone will not fully address the chronic under supply of housing.

Speaker Change: The past several years have proven how impactful these fundamentals are, with demand for new, homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated.

Speaker Change: So I'm pretty encouraged by the recent activity.

Stephen Kim: If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops. And then of course there are some as we described that get to the end can be delivered quickly for that buyer that wants a faster move in. So, you know, we do define the spec as a foundation in the ground without a buyer. And we market accordingly so that choice is still, you know, a big part of that business model that also drives a little bit more margin because as you know, the upgrades to the design studio tend to be a creative to the company margin.

Speaker Change: As a large, well-capitalized home builder, we have benefited from and performed very, well in this environment, with sales up 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing, market. Our strategy of widening our geographies and price points to include more affordable homes, and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder. As we have expanded and come down in price, we now have the widest variety of product, and the widest range of price of any of the builders, which presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Speaker Change: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third, quarter. We continue to target about 50% of our business as spec, with continued strong demand from, buyers who are looking for quicker move-ins. As a reminder, we define a spec as any home without a buyer that has a foundation port. We sell our specs at various stages of construction, which provides many of our buyers the opportunity, to personalize their homes at one of our 40 design studios nationwide. This offers our spec buyers a degree of choice, which is a key pillar in the Toll Brothers, buying experience, while providing us with a faster and more efficient construction schedule.

Speaker Change: With that, I will turn it over to Marty.

Speaker Change: At third quarter end, our backlog stood at $7.1 billion and 6,769 homes. Our cancellation rate as a percentage of backlog was 2.4% in the third quarter, down, from 2.8% in our second quarter, and consistent with our long-term average of 2.3%. Our industry-low cancellation rate is due to the significant upfront down payments our, buyers make, as well as the emotional attachment they form as they personalize their homes with us.

Speaker Change: Have you started to or have you seen any ability to begin either dialing back incentives now that rates are a bit lower may be pulling back on some of the rate buy downs or EBIT start to begin raising prices again or is it.

Speaker Change: Our buyers also tend to be more affluent. Approximately 28% of our buyers paid all cash in the third quarter, consistent with our, second quarter, and significantly above our long-term average of approximately 20%. The loan-to-value ratio for buyers who took a mortgage was approximately 69%. So for the 72% of our buyers who took a mortgage, on average they put down 31%.

Speaker Change: These metrics highlight the financial strength and affluence of our entire customer base.

Speaker Change: We continue to see modest improvement in our construction cycle times, consistent with, our focus on product and process optimization, and our increase in fast-return spec homes. We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Speaker Change: And then of course there are some as we described that get to the end can be delivered quickly for that buyer that wants a faster move in.

Speaker Change: We are on target to reach our goal of operating from 410 communities by fiscal year-end, which, would represent 11% growth compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year, and we have sufficient land under, control to do it. At quarter-end, we owned or controlled 72,700 lots, half of which were controlled and the, other half owned.

Speaker Change: Excluding the 6,769 lots in our backlog, our controlled land represents 55% of our lots. This land position provides us with sufficient lots needed for growth in fiscal 2025 and, beyond and allows us to continue to be selective, disciplined, and focused on efficiency when we assess new land opportunities. Our underwriting standards for new land continues to incorporate stringent thresholds for both, margins and returns, and we continue to seek out land acquisition and development opportunities that allow us to be more capital efficient, including through increased use of option arrangements, land banks, joint ventures, and similar structures that allow us to defer payments and lot takedowns.

Speaker Change: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we've repurchased $246 million of our common stock, bringing our year-to-date repurchases to $427 million at an average price of approximately, $119 per share.

Speaker Change: We also paid over $70 million in dividends year-to-date. So far this year, we've repurchased approximately 3% of our year-end diluted share count, and, since 2016, we've bought back approximately one-half of the company. Given our outstanding year-to-date financial performance, including strong operating cash, flows, we are raising our buyback expectations for the full year from $500 to $600 million.

Speaker Change: Dividends and buybacks will continue to be an important part of our capital allocation, strategy and a key factor in maintaining an attractive return on equity.

Speaker Change: We now expect our return on beginning equity to be approximately 22.5% this year. This will be the third year in a row that we generate an ROE over 20%.

Speaker Change: So, you know, we do define the spec as a foundation in the ground without a buyer.

Speaker Change: Still premature to do that given that the choppiness.

Speaker Change: And we market accordingly so that choice is still, you know, a big part of that business model that also drives a little bit more margin because as you know, the upgrades to the design studio tend to be a creative to the company margin.

Speaker Change: I wanted to just sort of get a sense of if you could elaborate there.

Speaker Change: Thanks, Doug.

Speaker Change: 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.

Speaker Change: Yes, so it was a.

Speaker Change: 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.

Speaker Change: It was a bit of a choppy quarter as we and other builders have talked about I went through the cadence.

Speaker Change: And that seems to imply that there's a degree of sustainability to the strength that we're seeing in your margins.

Speaker Change: We had another terrific quarter and are very pleased with our fiscal third quarter results. We delivered 2,814 homes at an average price of $968,000, generating record third quarter, home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8% exceeded guidance by 110 basis points, primarily due, to greater efficiencies in our home building operations as well as favorable NICs. Our FG&A expense was 9.0% of home sale revenues, or 20 basis points better than guidance.

Speaker Change: Our performance in both the top line and in our margin drove earnings of $3.60 per, diluted share, keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately, 11% in both units and dollars compared to last year's third quarter. On a per-community basis, we sold at a pace of 2.1 homes per month, down slightly versus, the 2.2 pace we sold in last year's third quarter.

Speaker Change: And so I know you haven't given guidance here for 2025, but it would be helpful for, I think, us to hear you comment on the, call it the 17.5% operating margin you're generating this year.

Speaker Change: First the beginning of may pretty much up to our call.

Speaker Change: Good morning, everyone.

Speaker Change: Demand in our third quarter was uneven. May started out strong but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August. With mortgage rates at their lowest point in a year and trending lower, favorable demographics, and continued imbalance in the supply and demand of homes for sale, we are optimistic that demand for new homes will remain solid through the end of Fiscal 24 and into 2025.

Speaker Change: Thanks for being with us.

Speaker Change: We are encouraged by demand trends we are seeing across the country and also across, our buyer segments. Demand where we, excuse me, markets where we saw particular strength in the quarter, included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California.

Speaker Change: We're looking pretty good and then.

Speaker Change: Yeah, absolutely.

Stephen Kim: Yeah, absolutely. And the level of finish specs your per community is very encouraging, I would say below two per community. That's not at all an unusually high number, so it's very clear that your process is working. So, great.

Speaker Change: It was a great quarter. We earned $504 million before taxes and $375 million after, or $3.60 of earnings per diluted, share, well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter, a third quarter record and an increase, of 2% compared to one year ago. We delivered 2,814 homes in the quarter, up 11.5% year-over-year. This unit growth is a direct outcome of our strategies of broadening our price points, and increasing our supply of spec homes.

Speaker Change: As we've pointed out before, we've been very focused on becoming more efficient, and we, are seeing the benefits of that efficiency continue to flow through our results.

Speaker Change: Based on our third quarter results and our expectations for the fourth quarter, we are, raising our full year deliveries guidance. We now expect to deliver between 10,650 and 10,750 homes, an increase of 100 homes at, the midpoint of our previous guidance. We are also increasing our guidance for full year average delivered price by $10,000 to, $975,000. This translates to a home building revenue projection of between $10.4 and $10.5 billion, for the full year, or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Speaker Change: And the level of finish specs your per community is very encouraging, I would say below two per community.

Speaker Change: For the fourth quarter, we expect SG&A expense to be 8.6% of home sales revenues, and for, the full year, we now expect it to be 9.4%. This represents a 20 basis point improvement over our previous guidance.

Speaker Change: How sustainable do you think that is generally?

Speaker Change: We signed 2,490 net contracts in the third quarter for $2.4 billion, up approximately, 11% in dollars and units. The average price of contracts signed in the quarter was approximately $967,000, which, was about flat compared to both the third quarter of last year and the second quarter of this year.

Speaker Change: The last week of May through all of June definitely saw a slowdown and we saw an accelerating pickup in July with the end of July being the best and that has continued into August we did run a spec events in the month of July so.

Speaker Change: Third quarter joint venture, land sales, and other income was $1 million, which was consistent, with our breakeven guidance. We continue to expect our full year joint venture, land sales, and other income to be, approximately $260 million, implying approximately $47 million in the fourth quarter. Our tax rate in the quarter was 25.6%.

Speaker Change: Our third quarter adjusted gross margin was 28.8% compared to 29.3% in the third quarter, of 2023, and this was 110 basis points better than we had projected. The outperformance to guide was due primarily to greater efficiency in our home building, operations as well as favorable mix. With the outperformance in our third quarter, we are raising our full year adjusted gross, margin guidance from 28.0% to 28.3%. We are now projecting a fourth quarter adjusted gross margin of 27.5%, a 10 basis point increase, compared to our previous implied guidance.

Speaker Change: We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25.4%. We expect interest and cost of sales to be approximately 1.3% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.

Speaker Change: SG&A, as a percentage of revenue, was 9.0% in the third quarter compared to 8.6% in the, third quarter of last year, and this was 20 basis points better than we had projected for this quarter.

Speaker Change: As Doug mentioned, we are maintaining our community account guidance of approximately 410 communities open for sale by fiscal year end. This would represent approximately 11% growth from the 370 communities we began the year with.

Speaker Change: Year over year, we modestly reduced G&A expenses in terms of total dollars, but this reduction, was offset by higher selling expenses due in part to increased community openings.

Speaker Change: We plan to continue growing community account fiscal year 2025 and have the land to do it.

Speaker Change: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalents and $1.8 billion available under our $1.96 billion revolving bank credit facility. We have no significant bank or senior debt maturities until November 2025. All of this provides us with ample flexibility to both grow our business and return capital to stockholders as we continue to focus on generating attractive returns.

Speaker Change: Putting this all together, we now expect to earn between $14.50 and $14.75 per diluted share in fiscal 2024.

Speaker Change: Our weighted average share count is expected to be approximately $104.75 million for the full year and $102.5 million for the fourth quarter.

Speaker Change: That's not at all an unusually high number, so it's very clear that your process is working.

Speaker Change: We expect to achieve a full-year return on beginning equity of approximately 22.5% and we expect our book value at year-end to be over $76.50. This would cap off another great year for Toll Brothers.

Speaker Change: As Doug noted, we've increased our share repurchase guidance to approximately $600 million of repurchases this year, implying approximately $175 million of buybacks in the fourth quarter.

Speaker Change: So, great.

Speaker Change: Well, appreciate all the color.

Stephen Kim: Well, appreciate all the color. Thanks very much. Thank you.

Speaker Change: Thanks very much.

Speaker Change: Is that a number that you think is inflated by any particular variables?

Speaker Change: Thank you.

Speaker Change: Or is that a level that you sort of, as you look forward across your business over the next several years, is that a level that you sort of feel is a reasonable level to use as kind of a base?

Speaker Change: Thanks, Steve.

Speaker Change: And the next question comes from John Lovalo with UBS.

John Lovallo: And the next question comes from John Lovalo with UBS. Please go ahead. Alright guys, thanks for taking my questions as well. Maybe just following up on, hey, how are you? Maybe just following up on Steve's question. Your backlog has continued to kind of get worked down over the past few years. I mean, how confident are you that improve cycle times in this increased spec level can continue to drive delivery growth as we move into 2025?

Speaker Change: We increase incentives modestly in July in some communities on the on spec, particularly those specs are vitamin further along and construction. However in July we did raise prices on our build to order homes. So the overall effect was pretty.

Speaker Change: Please go ahead.

Speaker Change: Alright guys, thanks for taking my questions as well.

Speaker Change: Maybe just following up on, hey, how are you?

Speaker Change: Maybe just following up on Steve's question.

Speaker Change: Your backlog has continued to kind of get worked down over the past few years.

Speaker Change: Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others.

Speaker Change: I mean, how confident are you that improve cycle times in this increased spec level can continue to drive delivery growth as we move into 2025?

John Lovallo: We're very confident, we're doing it right now, and the more, as we've talked about it, we can keep this spec at about 50-50, those houses are being built faster, we're able to deliver them quicker, the conversion rate on our backlog has come down and we'll continue to come down as this, excuse me, we'll continue to go up by apologies, it will turn out as faster, you know what I meant. And as the spec is continues to mature, we get better at it, we turn these houses faster, you're going to see an improvement in that conversion. Makes sense.

Speaker Change: Flat, but as we sit here in the third week of August traffic is up.

Speaker Change: Great question.

Speaker Change: Now let me turn it back to Doug.

Speaker Change: The quick answer is yes, we believe that operating margin you referenced is sustainable.

Speaker Change: Thank you, Marty.

Speaker Change: Before I open it up for questions, I'd like to recognize the hard work of all of our Toll employees.

Speaker Change: It is their passion for our business, dedication to our luxury brand, and commitment to our customers that will ensure our continued success.

Speaker Change: We're very confident, we're doing it right now, and the more, as we've talked about it, we can keep this spec at about 50-50, those houses are being built faster, we're able to deliver them quicker, the conversion rate on our backlog has come down and we'll continue to come down as this, excuse me, we'll continue to go up by apologies, it will turn out as faster, you know what I meant. And as the spec is continues to mature, we get better at it, we turn these houses faster, you're going to see an improvement in that conversion.

Speaker Change: The quality of traffic is improved rates are now down we're sitting on a six and five eight.

Speaker Change: <unk> rate in the year 30 year, no point mortgage with a feeling that those rates are going to come down further. So we are seeing a bit more pricing power right. Now we are being careful because mid August is not normally the time to aggressively raised prices.

Speaker Change: Families are just closing down some of our houses and getting kids into school and taking a deep breath, but in the fall we <unk>.

Speaker Change: Generally do see an improvement in activity and with how things are lined up with where the rates. We think will go and where we currently have higher quality traffic. We are encouraged that we think we will have more pricing power as we head into the fall.

Speaker Change: Makes sense.

Speaker Change: And then moving on to the fourth quarter gross margin, what would drive the expected 140 basis points sequential decline from the third quarter?

John Lovallo: And then moving on to the fourth quarter gross margin, what would drive the expected 140 basis points sequential decline from the third quarter? I mean, is this the reverse of the positive mix impact in the third quarter, and what specifically was that mix impact? Was it geographic, was it product, respect versus BTO? Thank you. Sure. So let's remember, we raised guidance for Q4 gross margin. Yes, when you compare it to the blowout gross margin of Q3, the gap there is bigger.

Speaker Change: Overall, pricing was flat compared to the second quarter and incentives continued to, run approximately 5.5%.

Speaker Change: The other thing to note Alan is that to the extent buy downs are part of our incentive offerings there.

Speaker Change: As I noted earlier, we are optimistic that market conditions will remain positive for, home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics, driven by millennials, many of whom are buying their first home later in life when they have higher incomes and accumulated wealth.

Speaker Change: I mean, is this the reverse of the positive mix impact in the third quarter, and what specifically was that mix impact? Was it geographic, was it product, respect versus BTO?

Speaker Change: Future millennials are now hitting their 40s, which should provide a tailwind for our, luxury move-up business over the next decade.

Speaker Change: In addition, baby boomers are moving into new homes as they retire and adjust their, lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the undersupply, exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low levels.

Speaker Change: But even as interest rates move lower, we believe the supply of homes will remain challenged, due to nearly 15 years of underproduction.

Speaker Change: Lower rates alone will not fully address the chronic undersupply of housing.

Speaker Change: The past several years have proven how impactful these fundamentals are, with demand for new, homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated. As a large, well-capitalized home builder, we have benefited from and performed very, well in this environment, with sales up 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing, housing market.

Speaker Change: Our strategy of widening our geographies and price points to include more affordable homes, and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder. As we have expanded and come down in price, we now have the widest variety of product, and the widest range of price of any of the builders, which presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Alan Ratner: They are less expensive for us to accomplish now in the lower rate environment.

Speaker Change: Thank you.

Speaker Change: Sure.

Speaker Change: So let's remember, we raised guidance for Q4 gross margin. Yes, when you compare it to the blowout gross margin of Q3, the gap there is bigger. Q3, as we mentioned, was 110 basis points that better than guide, because of mix, we had more high margin homes delivering in the Pacific and the South, and we had less spec homes delivering than we had anticipated.

Alan Ratner: Yes, I was going to follow up on that Marty. So thank you for providing that so when you say less expensive are you buying down the rate of lesser magnitude because you don't need to solve for a lower rate or is it actually to buy down that same whatever it is 50 basis points 100 basis points does it actually costing you less than <unk>.

John Lovallo: Q3, as we mentioned, was 110 basis points that better than guide, because of mix, we had more high margin homes delivering in the Pacific and the South, and we had less spec homes delivering than we had anticipated. That reverses a bit in the fourth quarter, where we will have less high margin homes delivering from the South and the Pacific. And by the way, the entire South and Pacific is not necessarily high margin, it is certain communities within the South and the Pacific that have this higher margin, where we had more of those deliver Q3 and less of those in Q4.

Speaker Change: So can you quantify that.

Speaker Change: It's costing less so.

Speaker Change: Our typical buying am deal around the country is to buy your write down of four and three eighths.

Speaker Change: The number we tact.

Marty Connor: And so when you when you buy from seven to four and three eighths, it's more expensive than when you buy from six and five eighths, two four and three eighths Marty the amount of that.

Speaker Change: That reverses a bit in the fourth quarter, where we will have less high margin homes delivering from the South and the Pacific. And by the way, the entire South and Pacific is not necessarily high margin, it is certain communities within the South and the Pacific that have this higher margin, where we had more of those deliver Q3 and less of those in Q4.

Speaker Change: Not to put you on the spot, but he did and you did ask the question on 5% to 6% of the mortgage amount.

Speaker Change: The bias down remember that that four and three eighths is a one year, yes. They are preferred to five and three <unk> for the balance of the 29 years.

Speaker Change: And as we've spoken before.

Speaker Change: It's a great marketing gag it drives traffic.

Speaker Change: Well, we don't actually sell a lot of it people tend to.

Speaker Change: And we will have about 60% of our deliveries in the fourth quarter be spec.

John Lovallo: And we will have about 60% of our deliveries in the fourth quarter be spec. So, you know, with our business running from, you know, we now have homes from the mid-300s to over $5 million. We have gross margins that have a very large range. You know, we have, we have a few communities with 10% gross margin, and we have communities with 50% gross margin. And so, when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin.

Speaker Change: Take a pass on that version of the incentive and they take the five 5% average incentive we have in the company.

Speaker Change: So, you know, with our business running from, you know, we now have homes from the mid-300s to over $5 million.

Speaker Change: And.

Speaker Change: Have a lot of fun in our design studios with it and increase the finishes and all that.

Speaker Change: We have gross margins that have a very large range. You know, we have, we have a few communities with 10% gross margin, and we have communities with 50% gross margin.

Speaker Change: And that goes to the affluent nature of our client they're not rate dependent they don't need that lower rate to qualify the.

Speaker Change: They recognize rates will probably come down so they may be overpaying, because in a year or two they could probably refi and so they'd rather permanently improve their home to their lifestyle to the design studio with those incentive dollars.

Speaker Change: And so, when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin.

Speaker Change: And so, there is a little bit more variety there, as you just saw in the third quarter, and as we have got it to in Q4.

John Lovallo: And so, there is a little bit more variety there, as you just saw in the third quarter, and as we have got it to in Q4. But overall, you know, that is 20 to 27 to 28% long-term margin, while there could be some modest variation quarter to quarter, we are very comfortable with where this business is headed.

Speaker Change: Thanks, Alan and the next question comes from Michael Rehaut with JP Morgan. Please go ahead.

Michael Rehaut: Hi, Thanks, I appreciate you taking my questions. Good morning, everyone. Congrats on the quarter.

Speaker Change: But overall, you know, that is 20 to 27 to 28% long-term margin, while there could be some modest variation quarter to quarter, we are very comfortable with where this business is headed.

Mike: Thanks, Mike.

Michael Rehaut: I wanted to dial in a little bit about.

Speaker Change: Over the years now I guess over the last year or two years shift towards spec being 50%.

Speaker Change: We are targeting long term with this new business model, of a very wide price point, a very wide geography, about 50% spec.

Speaker Change: And the next question comes from Alan Ratner with Zellman and Associates.

Alan Ratner: And the next question comes from Alan Ratner with Zellman and Associates. Please go ahead. Hey guys, good morning. Nice quarter and thanks for all the helpful detail so far. Doug, I'd love to drill in on pricing. Your comments suggest price on this pretty flatish in the quarter, plus or minus, depending on the community. I'm curious as you come to sit here three weeks into August. You sound pretty encouraged by the recent activity.

Speaker Change: And how that kind of fits in with your prior or still.

Speaker Change: Please go ahead.

Speaker Change: To some degree ongoing.

Speaker Change: Hey guys, good morning.

Alan Ratner: Nice quarter and thanks for all the helpful detail so far.

Speaker Change: Preference of price over please.

Speaker Change: This quarter it was pretty interesting in that.

Alan Ratner: Doug, I'd love to drill in on pricing. Your comments suggest price on this pretty flatish in the quarter, plus or minus, depending on the community.

Speaker Change: Probably had them relative to prior.

Speaker Change: Builders reporting a little bit more about.

Speaker Change: Have a gap between or at least our estimates of order growth and what you put out.

Speaker Change: I'm curious as you come to sit here three weeks into August.

Speaker Change: You sound pretty encouraged by the recent activity.

Speaker Change: One of the stronger gross.

Speaker Change: Gross margins relative to our estimates.

Speaker Change: Have you started to or have you seen any ability to begin either dialing back incentives now that rates are a bit lower, maybe pulling back on some of the rate buy downs or even start to, you know, begin raising prices again or is it still premature to do that given the choppiness?

Alan Ratner: Have you started to or have you seen any ability to begin either dialing back incentives now that rates are a bit lower, maybe pulling back on some of the rate buy downs or even start to, you know, begin raising prices again or is it still premature to do that given the choppiness? Yeah, so it was a bit of a choppy quarter as we and other builders have talked about. I went through the cadence.

Speaker Change: And I think that's generally consistent with how new operate and more temporary periods of softness where.

Speaker Change: Maybe volume of orders fall off a little bit more and you hold on to the margin.

The same time.

Speaker Change: Yeah, so it was a bit of a choppy quarter as we and other builders have talked about.

Speaker Change: Youre shifting English.

Speaker Change: More of a spec model or hockey a business back.

Speaker Change: There are points, where you're going to have to as you did in this quarter increased incentives.

Speaker Change: I went through the cadence. First, the beginning of May, pretty much up to our call, you know, things were looking pretty good and then the last week of May through all of June, definitely saw a slowdown and we saw an accelerating pickup in July with the end of July being the best and that has continued into August.

Alan Ratner: First, the beginning of May, pretty much up to our call, you know, things were looking pretty good and then the last week of May through all of June, definitely saw a slowdown and we saw an accelerating pickup in July with the end of July being the best and that has continued into August. We did run a spec event in the month of July. So we increase incentives modestly in July in some communities on on specs, particularly those specs that might have been further along in construction.

Speaker Change: <unk> built up a little too much and so I'm wondering going forward, how investors should think about.

Speaker Change: <unk> balance.

Speaker Change: And.

Speaker Change: It was going to be points, where perhaps you are going to be a little more sensitive to pace.

Speaker Change: It's softness is going to go past a quarter or two and if that would drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change: We did run a spec event in the month of July. So we increase incentives modestly in July in some communities on on specs, particularly those specs that might have been further along in construction.

Speaker Change: Dave, let's open it up for questions.

Speaker Change: Yeah.

So.

I think it's fair to say that we may be.

Speaker Change: However, in July, we did raise prices on our build order homes.

Alan Ratner: However, in July, we did raise prices on our build order homes. So the overall effect was pretty much flat. But as we sit here in the third week of August, traffic is up. The quality of traffic is improved. Rates are now down. We're sitting on a 6 and 5, 8 lowest rate in a year, 30 year, no point mortgage with a feeling that those rates are going to come down further. So we are seeing a bit more pricing power right now.

Speaker Change: A little bit more focused on price than pace compared to the other.

Speaker Change: More and more affordable luxury communities.

Speaker Change: So the overall effect was pretty much flat.

Speaker Change: Builders that have more of a spec business and they have product that they need to move.

Speaker Change: But as we sit here in the third week of August, traffic is up.

Speaker Change: The quality of traffic is improved.

Speaker Change: We will now begin the question-and-answer session.

Speaker Change: Hi.

Speaker Change: As a reminder, the company is planning to end the call at 930 when the market opens.

Ryan Marshall: The steel aligned for my good friend, Ryan Marshall at Pulte, we are not margin proud.

Speaker Change: Rates are now down.

Speaker Change: We're sitting on a 6 and 5, 8 lowest rate in a year, 30 year, no point mortgage with a feeling that those rates are going to come down further.

Ryan Marshall: As a balance.

Ryan Marshall: We are definitely focused on topline growth.

Ryan Marshall: A longer-term gross margin in the 27 to 28 percent range, and as we become more efficient on the SG&A line, which you've seen over the last couple of years, we think that operating margin long-term is definitely sustainable.

Ryan Marshall: We are also focused on this 27% to 28% gross margin that we believe is sustainable long term.

Speaker Change: So we are seeing a bit more pricing power right now.

Speaker Change: We are being careful because mid August is not normally the time to aggressively raise prices as families are just closing down summer houses and getting kids into school and taking a deep breath.

Alan Ratner: We are being careful because mid August is not normally the time to aggressively raise prices as families are just closing down summer houses and getting kids into school and taking a deep breath. But in the fall, we generally do see an improvement in activity and with how things are lined up with where the rates we think will go and where we currently have higher quality traffic, we are encouraged that we think we will have more pricing power as we head into the fall. The other thing to note, Alan, is that these sent buy downs are part of our incentive offerings. They are less expensive for us to accomplish now in the lower rate environment.

Ryan Marshall: We are also focused on becoming more and more efficient.

Ryan Marshall: Lower SG&A higher operating margin long term.

We also as I've talked about.

Ryan Marshall: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec, with continued strong demand from, buyers who are looking for quicker move-ins. As a reminder, we define a spec as any home without a buyer that has a foundation port.

Speaker Change: But in the fall, we generally do see an improvement in activity and with how things are lined up with where the rates we think will go and where we currently have higher quality traffic, we are encouraged that we think we will have more pricing power as we head into the fall.

Are very aware of our spec inventory what stage of construction. It is that when we need to put it on the market. How we can make more margin if we sell it earlier and so we have a June reports of all that spec we focus on how far along it is if it gets too heavy.

Ryan Marshall: We sell our specs at various stages of construction, which provides many of our buyers the opportunity, to personalize their homes at one of our 40 design studios nationwide. This offers our spec buyers a degree of choice, which is a key pillar in the Toll Brothers, buying experience, while providing us with a faster and more efficient construction schedule.

Ryan Marshall: At third quarter end, our backlog stood at $7.1 billion and 6,769 homes. Our cancellation rate as a percentage of backlog was 2.4% in the third quarter, down from 2.8% in our second quarter, and consistent with our long-term average of 2.3%. Our industry-low cancellation rate is due to the significant upfront down payments our, buyers make, as well as the emotional attachment they form as they personalize their homes with us.

Ryan Marshall: Our buyers also tend to be more affluent. Approximately 28% of our buyers paid all cash in the third quarter, consistent with, our second quarter, and significantly above our long-term average of approximately 20%. The loan-to-value ratio for buyers who took a mortgage was approximately 69%. So for the 72% of our buyers who took a mortgage, on average they put down 31%.

Ryan Marshall: These metrics highlight the financial strength and affluence of our entire customer base.

Ryan Marshall: We continue to see modest improvement in our construction cycle times, consistent with, our focus on product and process optimization, and our increase in fast-return spec homes. We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Ryan Marshall: We are on target to reach our goal of operating from 410 communities by fiscal year-end, which, would represent 11% growth compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year, and we have sufficient land under, control to do it. At quarter-end, we owned or controlled 72,700 lots, half of which were controlled and the, other half owned.

Ryan Marshall: Excluding the 6,769 lots in our backlog, our controlled land represents 55% of our lots. This land position provides us with sufficient lots needed for growth in fiscal 2025 and, beyond, and allows us to continue to be selective, disciplined, and focused on efficiency when we assess new land opportunities.

Ryan Marshall: Our underwriting standards for new land continues to incorporate stringent thresholds for both, margins and returns, and we continue to seek out land acquisition and development opportunities that allow us to be more capital efficient, including through increased use of option arrangements, land banks, joint ventures, and similar structures that allow us to defer payments and lot takedowns.

Ryan Marshall: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we have repurchased $246 million of our common stock, bringing our year-to-date repurchases to $427 million at an average price of approximately, $119 per share.

Ryan Marshall: We also paid over $70 million in dividends year-to-date. So far this year, we've repurchased approximately 3% of our year-end diluted share count, and, since 2016, we've bought back approximately one-half of the company. Given our outstanding year-to-date financial performance, including strong operating cash, flows, we are raising our buyback expectations for the full year from $500 to $600 million.

Speaker Change: The other thing to note, Alan, is that these sent buy downs are part of our incentive offerings. They are less expensive for us to accomplish now in the lower rate environment.

Ryan Marshall: Dividends and buybacks will continue to be an important part of our capital allocation, strategy and a key factor in maintaining an attractive return on equity.

Ryan Marshall: We now expect our return on beginning equity to be approximately 22.5% this year. This will be the third year in a row that we generate an ROE over 20%.

Ryan Marshall: On the back end, which it hasn't because of this business model and yes on occasion, we might have to be a bit more aggressive but that is not <unk>.

Speaker Change: Something that I think you need to worry about.

Speaker Change: Yeah, I was going to follow up on MRT.

Alan Ratner: Yeah, I was going to follow up on MRT. So thank you for breading that too. When you say less expensive, are you buying down the rate a lesser magnitude because you don't need to solve for a lower rate? Or is it actually, you know, to buy down that same, whatever it is, 50 basis point, 100 basis point is it actually costing you less than if so, can you quantify that? So it's costing less.

Speaker Change: The business is working the spec strategy is maturing we are just out of just about at a point, where we've hit the equilibrium of long term, 50% specs, 50% build to order and the business plans in place, but yes, there's a little more focus for us on price and margin.

Speaker Change: So thank you for breading that too.

Speaker Change: When you say less expensive, are you buying down the rate a lesser magnitude because you don't need to solve for a lower rate?

Speaker Change: Or is it actually, you know, to buy down that same, whatever it is, 50 basis point, 100 basis point is it actually costing you less than if so, can you quantify that?

Speaker Change: So it's costing less.

Speaker Change: But we are not by any means margin proud and as you as we talked about we ran we ran a spec.

Speaker Change: So our typical buy down deal around the country is to buy your rate down to 4 and 3.

Alan Ratner: So our typical buy down deal around the country is to buy your rate down to 4 and 3. That's the number we picked. And so when you, when you buy from seven to four and three eighths it's more expensive than when you buy from six and five eighths to four and three eighths, and before, it's a great marketing gag, it drives traffic, but we don't actually sell a lot of it. People tend to take a pass on that version of the incentive and they take the five and a half percent average incentive we have in the company and have a lot of fun in our design studios with it and increase the finishes and the home.

Speaker Change: That's the number we picked.

Speaker Change:

Speaker Change: And so when you, when you buy from seven to four and three eighths it's more expensive than when you buy from six and five eighths to four and three eighths, and before, it's a great marketing gag, it drives traffic, but we don't actually sell a lot of it.

Speaker Change:

Speaker Change: And July modest modest increase in the in the incentive on the spec business.

Speaker Change: Which allowed us to sell a few more but it was at the same time when we could raise prices on the build to order. So in the end. It all worked out and it's that mix between spec and build to order and I think we're getting really good at and we are very confident in that long term margin.

Speaker Change: And there you haven't.

Ryan Marshall: With that, I will turn it over to Marty.

Speaker Change: The next question comes from Mike deal with RBC capital markets. Please go ahead.

Speaker Change: Well, that's super clear.

Speaker Change: During the Q&A, please limit yourself to one question and one follow-up.

Speaker Change: Thanks, Doug.

Speaker Change: People tend to take a pass on that version of the incentive and they take the five and a half percent average incentive we have in the company and have a lot of fun in our design studios with it and increase the finishes and the home.

Speaker Change: Good morning, everyone.

Speaker Change: Yeah.

Speaker Change: So appreciate that.

Speaker Change: Thanks for being with us.

Speaker Change: Good morning, Thanks for taking my questions Mike.

Speaker Change: And that's obviously very encouraging.

Speaker Change: It was a great quarter. We earned $504 million before taxes and $375 million after, or $3.60 of earnings per diluted, share. Well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter, a third-quarter record and an increase, of 2% compared to one year ago. We delivered 2,814 homes in the quarter, up 11.5% year-over-year. This unit growth is a direct outcome of our strategies of broadening our price points, and increasing our supply of spec homes.

Speaker Change: Based on our third-quarter results and our expectations for the fourth quarter, we are, raising our full-year deliveries guidance. We now expect to deliver between 10,650 and 10,750 homes, an increase of 100 homes at, the midpoint of our previous guidance. We are also increasing our guidance for full-year average delivered price by $10,000 to $975,000. This translates to a home building revenue projection of between $10.4 and $10.5 billion, for the full year, or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Speaker Change: We signed 2,490 net contracts in the third quarter for $2.4 billion, up approximately, 11% in dollars and units. The average price of contracts signed in the quarter was approximately $967,000, which, was about flat compared to both the third quarter of last year and the second quarter of this year. Our third-quarter adjusted gross margin was 28.8% compared to 29.3% in the third quarter, of 2023, and this was 110 basis points better than we had projected. The outperformance to guide was due primarily to greater efficiency in our home building, operations as well as favorable mix.

Speaker Change: Mike.

Speaker Change: Was wondering if you could talk a little bit about yours a little bit more about your spec model.

Speaker Change: So just.

Speaker Change: Just to keep going on kind of the margin in the spec and all the mixed dynamics I guess when you think about the <unk> gross margin understanding that you talked about political prior.

Speaker Change: That goes to the absolute nature of our client.

Alan Ratner: That goes to the absolute nature of our client. They're not rate dependent, they don't need that lower rate to qualify. They recognize rates will probably come down so they may be over pain because in a year or two they could probably re-fi and so they'd rather permanently improve their home to their lifestyle to the design studio with those in $100.

Speaker Change: They're not rate dependent, they don't need that lower rate to qualify.

Speaker Change: With the outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% to 28.3%. We are now projecting a fourth quarter adjusted gross margin of 27.5%, a 10 basis point increase compared to our previous implied guidance.

Speaker Change: SG&A, as a percentage of revenue, was 9.0% in the third quarter compared to 8.6% in the third quarter of last year. And this was 20 basis points better than we had projected for this quarter.

Speaker Change: Year over year, we modestly reduced G&A expenses in terms of total dollars, but this reduction was offset by higher selling expenses due in part to increased community openings.

Speaker Change #100: They recognize rates will probably come down so they may be over pain because in a year or two they could probably re-fi and so they'd rather permanently improve their home to their lifestyle to the design studio with those in $100.

Speaker Change: Meyer.

Speaker Change: Youre talking about kind of running that promotion, which may have looked at incentives.

Speaker Change: At the same time Steve.

Speaker Change: What was the actual number of specs both finished and in total specs that you had in the quarter?

Speaker Change: Followed up on your comments about efficiency, which does seem more sustainable.

Speaker Change: As we've pointed out before, we've been very focused on becoming more efficient, and we are seeing the benefits of that efficiency continue to flow through our results.

Speaker Change: Unclear why that would go away.

Speaker Change #100: And the next question comes from Michael Rehott with JP Morgan, please go ahead.

Michael Rehaut: And the next question comes from Michael Rehott with JP Morgan, please go ahead. I think I appreciate you taking my questions.

Speaker Change: The immediate term so can you just help us understand.

Speaker Change: In terms of maybe just the incentive load.

Speaker Change #100: I think I appreciate you taking my questions.

Speaker Change: It's projected to be in your fourth quarter deliveries.

Speaker Change #100: Good morning, everyone.

Michael Rehaut: Good morning, everyone. Congrats on the quarter. Thanks Mike. I wanted to dial in a little bit about year over the years now, I guess over the last year or two, your shift towards spec being 50% and how that kind of fits in with your prior or still to some degree ongoing preference of price over place. This quarter, it was pretty interesting that you probably had a relative to prior buildings reporting a little bit more of a gap between at least our estimates of order growth and what you put out and probably one of the stronger gross margins relative to our estimates.

Speaker Change #100: Congrats on the quarter.

Speaker Change #100: Thanks Mike.

Speaker Change: Versus your third quarter.

Speaker Change #101: I wanted to dial in a little bit about year over the years now, I guess over the last year or two, your shift towards spec being 50% and how that kind of fits in with your prior or still to some degree ongoing preference of price over place.

Speaker Change: <unk> deliveries.

Speaker Change: Know that you are back.

Speaker Change: And then I had a follow up regarding what that about that level.

Speaker Change: Margins can vary quite a bit regionally as well so maybe if you could let us know kind of on a like for like basis. What do you think that stack versus eto margin is going to run that in your fourth quarter versus what it's been year to date.

Speaker Change #102: This quarter, it was pretty interesting that you probably had a relative to prior buildings reporting a little bit more of a gap between at least our estimates of order growth and what you put out and probably one of the stronger gross margins relative to our estimates.

Speaker Change: For the fourth quarter, we expect SG&A expense to be 8.6% of home sales revenues.

Speaker Change: So our incentive.

Speaker Change: And for the full year, we now expect it to be 9.4%. This represents a 20 basis point improvement over our previous guidance.

Speaker Change: Third quarter, joint venture, land sales, and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture land sales and other income to be approximately $260 million, implying approximately $47 million in the fourth quarter.

Speaker Change: Our tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25.4%. We expect interest and cost of sales to be approximately 1.3% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.

Speaker Change: Is about five 5%.

Speaker Change: Of the delivered price of our homes that comes out to about 50 to $55000.

Speaker Change: As Doug mentioned, we are maintaining our community account guidance of approximately 410 communities open for sale by fiscal year end. This would represent approximately 11% growth from the 370 communities we began the year with.

Speaker Change: We plan to continue growing community account fiscal year 2025 and have the land to do it.

Speaker Change: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalents and $1.8 billion available under our $1.96 billion revolving bank credit facility. We have no significant bank or senior debt maturities until November 2025. All of this provides us with ample flexibility to both grow our business and return capital to stockholders as we continue to focus on generating attractive returns.

Speaker Change: Our weighted average share count is expected to be approximately $104.75 million for the, full year and $102.5 million for the fourth quarter.

Speaker Change: As Doug noted, we've increased our share repurchase guidance to approximately $600 million of, repurchases this year, implying approximately $175 million of buybacks in the fourth quarter.

Speaker Change: Summarizing this all together, we now expect to earn between $14.50 and $14.75 per diluted, share in fiscal 2024.

Speaker Change: We expect to achieve a full year return on beginning equity of approximately 22.5% and, we expect our book value at year end to be over $76.50. This would cap off another great year for Toll Brothers.

Speaker Change: Simple math on houses that are in the $9 50 range.

Speaker Change: Now let me turn it back to Doug.

Speaker Change: Thank you, Marty.

Speaker Change: Before I open it up for questions, I'd like to recognize the hard work of all of our Toll, employees. It is their passion for our business, dedication to our luxury brand, and commitment to our, customers that will ensure our continued success.

Speaker Change #103: And I think that's generally consistent with how you operate in more temporary periods of softness where maybe volume or orders fall off a little bit more and you hold on to the margin.

Michael Rehaut: And I think that's generally consistent with how you operate in more temporary periods of softness where maybe volume or orders fall off a little bit more and you hold on to the margin. And at the same time you're shifting in this, you know, more of a spec model or, you know, happier business spec. There are points where you're going to have to, as you did in this quarter, increase incentives if your specs broke up a little too much.

Speaker Change: That was Q3.

Speaker Change: At the end of the quarter, Steve, we had around 3,400 specs, around 750 of those were at CO or beyond or 1.8 per community.

Speaker Change: And we believe that will be the same incentives in Q4, I don't think that I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4 its mix related right and so.

Speaker Change #104: And at the same time you're shifting in this, you know, more of a spec model or, you know, happier business spec.

Speaker Change: That's interesting.

Speaker Change: Remember and we talked about how for Q4, we think we will have about 60% of our own spec.

Speaker Change: Okay, so you had, You had about eight and a half per community total, but finished, as you said, below two.

Speaker Change #105: There are points where you're going to have to, as you did in this quarter, increase incentives if your specs broke up a little too much.

Speaker Change: It doesn't mean.

Speaker Change: We incentivize the whole bunch to sell those and that's what's hurting the margin.

Speaker Change #105: And so I'm wondering going forward, how investors should think about that balance.

Michael Rehaut: And so I'm wondering going forward, how investors should think about that balance. And, you know, if there's going to be points where perhaps you're going to be a little more sensitive to pace, you know, if softness is going to go past a quarter or two. And if that would, you know, drive any greater degrees of variability in your gross margin relative to the past. So, Mike, I think it's fair to say that we may be a little bit more focused on price than pace compared to the other.

Speaker Change: That level of, those levels of specs, is that a number that we, are those numbers per community what we can also expect going forward, or is that, or do you see this changing, growing perhaps as we go forward?

Speaker Change: We tend to build spec.

Speaker Change: Do you remember?

Speaker Change #105: And, you know, if there's going to be points where perhaps you're going to be a little more sensitive to pace, you know, if softness is going to go past a quarter or two.

Speaker Change: On what I'll call the more average lot in our community we tend to save the very high premium to lots the special lots overlooking the 18th Green with beautiful woods in the backyard with a beautiful link in the backyard.

Speaker Change #105: And if that would, you know, drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change: For the build to order business because that client is more affluent they.

Speaker Change #106: So, Mike, I think it's fair to say that we may be a little bit more focused on price than pace compared to the other.

Speaker Change: They want to put a lot of upgrades into their dream home. They want that dream home on the best lot we have.

Speaker Change: And we let them run wild and the design studio and that margin tends to be higher.

Speaker Change #107: Builders that have more of a spec business and they have product that they need to move, but to seal a line from my good friend Ryan Marshall Apolty, we are not margin proud.

Michael Rehaut: Builders that have more of a spec business and they have product that they need to move, but to seal a line from my good friend Ryan Marshall Apolty, we are not margin proud. It is a balance, we are definitely focused on top line growth. We are also focused on this 27 to 28 percent growth margin that we believe is sustainable long-term. We are also focused on becoming more and more efficient, lower-RFTA, higher operating margin, long-term.

Speaker Change: We're starting a spec essentially for every home we sell.

Speaker Change: So when.

Speaker Change: When you think about the spec.

Speaker Change: So the starts and specs, starts include one BTO and one spec, kind of 50-50.

Margin you shouldnt be comparing it to the build to order margin.

Speaker Change: BTO is billed to order. Yep.

Speaker Change: And I think we've hit a bit of a... Not Bachman Turner over here, for the older people on the call.

Speaker Change: Well, we are taking care of business here, Doug.

Speaker Change: Need to recognize that the spec is generally built on a more average lot lower lot premium and that client generally even if it was a build to order home on that lot would not spend as much in the design studio and we know the design studio is margin accretive.

Speaker Change: So I think we've hit a bit of an equilibrium point here on our up to 50% spec strategy.

Speaker Change #108: It is a balance, we are definitely focused on top line growth. We are also focused on this 27 to 28 percent growth margin that we believe is sustainable long-term.

Speaker Change: Now that'll vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here.

Speaker Change: You know, choice at Toll Brothers is still alive and well.

Speaker Change: It's still very important, not just on the bill-to-order business.

Speaker Change: But we do hope that at least half of the spec buyers are buying early enough that they have enough, time to pick some level of finishes.

Speaker Change: If you buy it very early, you can hit that design studio and truly customize the inside of your home. If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops.

Speaker Change: And then, of course, there are some, as we described, that get to the end, can be delivered quickly for that buyer that wants a faster move in.

Speaker Change #109: We are also focused on becoming more and more efficient, lower-RFTA, higher operating margin, long-term.

Speaker Change: So, you know, we do define the spec as a foundation in the ground without a buyer.

Speaker Change: So while we may have to incentivize a little bit more to move.

Speaker Change: And we market accordingly.

Speaker Change: That spec home on that average lot if it gets towards the end and as unsold.

Speaker Change #110: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at, when we need to put it on the market, how we can make more margin if we sell it earlier.

Michael Rehaut: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at, when we need to put it on the market, how we can make more margin if we sell it earlier. We have age-uniforms of all that spec. We focus on how far along it is, if it gets too heavy on the back end, which it hasn't, because of this business model. Yes, on occasion, we might have to be a bit more aggressive, but that is not something that I think you need to worry about.

Speaker Change: It is a small difference.

Speaker Change: Between that margin and what the margin would be hadn't been a build to order.

Speaker Change: Alright.

Speaker Change: So that choice is still, you know, a big part of that business model that also drives a little bit more margin because as you know, the upgrades to the design studio tend to be accretive to the company margin.

Speaker Change: For the quarter was 28, 8%.

Speaker Change #111: We have age-uniforms of all that spec.

Speaker Change: Okay.

Speaker Change #112: We focus on how far along it is, if it gets too heavy on the back end, which it hasn't, because of this business model.

Speaker Change: Base orders were above that.

Speaker Change: The specs were below that.

Speaker Change: We're probably 100 to 100 points below that average and to build orders were 100 to 200 points above that average.

Speaker Change #112: Yes, on occasion, we might have to be a bit more aggressive, but that is not something that I think you need to worry about.

Speaker Change: Okay. Yeah, I was kind of triangulating back to make sure I would say fewer mixed dynamic versus something under the surface.

Speaker Change #113: The business is working, the spec strategy is maturing. We are just about at a point where we have hit the equilibrium of long-term 50 percent spec, 50 percent build-to-order, and the business plan is in place.

Michael Rehaut: The business is working, the spec strategy is maturing. We are just about at a point where we have hit the equilibrium of long-term 50 percent spec, 50 percent build-to-order, and the business plan is in place. But yes, there is a little more focus for us on price and margin, but we are not by any means margin proud. As we talked about, we ran a spec event in July, modest, modest increase in the incentive on the spec business, which allowed us to sell a few more, but it was at the same time when we could raise prices on the build-to-order. In the end, it won't work that. It's that mix between spec and build-to-order, but I think we are getting really good at it, and we are very confident in that long-term margin. There you have it.

Speaker Change: Incremental.

Speaker Change: Thank you for that I couldn't have answered your question and just said mix.

Speaker Change: Yes.

Speaker Change #114: But yes, there is a little more focus for us on price and margin, but we are not by any means margin proud.

Speaker Change: Sorry.

Speaker Change: Sorry for that.

Four minutes.

Speaker Change: That would be the color of that.

Speaker Change: Sure.

Speaker Change #115: As we talked about, we ran a spec event in July, modest, modest increase in the incentive on the spec business, which allowed us to sell a few more, but it was at the same time when we could raise prices on the build-to-order.

Speaker Change: Just thinking about seasonality here.

Speaker Change: Typically.

Speaker Change: Still keep seeing order pace of decline in the fourth quarter. Obviously, you just came through a weird and challenging third quarter and youre talking about potential acceleration in trends coming out of July.

Speaker Change: Any help you want to provide in terms of level setting I think typically your pace would be down kind of low double digits sequentially in <unk> versus <unk> should be should we be expecting kind of on on seasonal trend above below based on what youre seeing so far.

Speaker Change #115: In the end, it won't work that.

Speaker Change #115: It's that mix between spec and build-to-order, but I think we are getting really good at it, and we are very confident in that long-term margin.

Speaker Change: So youre right.

Speaker Change #115: There you have it.

Speaker Change: Work there our fourth quarter is typically.

Speaker Change #116: The next question comes from Mike Dale with RBC Capital Markets.

Michael Rehaut: The next question comes from Mike Dale with RBC Capital Markets. Please go ahead. Good morning. Thanks for taking my questions. I like Mike. Just to keep going on the margin and the spec and all the mixed dynamics. I guess when you think about the 4Q gross margin understanding that you took it up a little prior, the adverse year prior, you are talking about running that promotion, which may have looked at incentives at the same time.

Speaker Change: Others are typically about 10% lower than Q3.

Speaker Change #116: Please go ahead.

Speaker Change #117: Good morning.

Speaker Change: And we're confident we're going to do better than that.

Speaker Change #118: Thanks for taking my questions.

Speaker Change #119: I like Mike.

We think we will.

Speaker Change #120: Just to keep going on the margin and the spec and all the mixed dynamics.

Speaker Change: And our best guests three weeks in is that we may be flat to.

Speaker Change: Q3 versus down 10%.

Speaker Change #121: I guess when you think about the 4Q gross margin understanding that you took it up a little prior, the adverse year prior, you are talking about running that promotion, which may have looked at incentives at the same time.

Speaker Change: To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

Speaker Change: Dave, let's open it up for questions.

Speaker Change: And the next question comes from Trevor Allinson with Wolfe Research. Please go ahead.

Speaker Change: Our first question comes from Stephen Kim with Evercore ISI.

Speaker Change: We will now begin the question and answer session.

Trevor Allinson: Hi, Good morning, Thank you for taking my questions.

Trevor Allinson: Yeah, absolutely.

Trevor Allinson: As a reminder, the company is planning to end the call at 9.30 when the market opens.

Speaker Change #122: These followed up on your comments about efficiency, which does seem more sustainable and unclear why that would go away.

Michael Rehaut: These followed up on your comments about efficiency, which does seem more sustainable and unclear why that would go away. Can you just help us understand in terms of maybe just the incentive load that's projected to be in your 4Q deliveries versus your 4Q deliveries, and then I know that you're spec. Mark, margins can vary quite a bit regionally as well, so maybe if you could let us know kind of on a like for like basis, what you think that spec versus BTO, margin is going to run at in your fourth quarter versus what has been your state.

Trevor Allinson: Please go ahead.

Trevor Allinson: During the Q&A, please limit yourself to one question and one follow-up.

Trevor Allinson: And the level of finished specs here per community is very encouraging, I would say below two per community.

First one just wanted to touch on geography, you guys laid out some of the better performing markets. I don't believe you mentioned any markets in Florida, or Texas, where they've gotten a lot of attention.

Trevor Allinson: That's not at all an unusually high number.

Trevor Allinson: Thanks very much, guys.

Trevor Allinson: To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two.

Speaker Change #123: Can you just help us understand in terms of maybe just the incentive load that's projected to be in your 4Q deliveries versus your 4Q deliveries, and then I know that you're spec.

Speaker Change: For the last few months can you comment on how demand in those markets has trended relative to your.

Business overall.

Speaker Change: So it's very clear that your your process is working.

Speaker Change: Appreciate all the color so far, and good job in the quarter.

Speaker Change: Our first question comes from Stephen Kim with Evercore ISI.

Speaker Change: Sure.

Speaker Change: I wanted to ask you about profitability.

Speaker Change: Please go ahead.

Speaker Change: Texas has had a good August good ended July and good August.

Speaker Change #123: Mark, margins can vary quite a bit regionally as well, so maybe if you could let us know kind of on a like for like basis, what you think that spec versus BTO, margin is going to run at in your fourth quarter versus what has been your state.

Speaker Change #100: So great.

Speaker Change #100: Thanks very much, guys.

Speaker Change #100: Different stories in different markets in Texas Austin.

Speaker Change:

Speaker Change #101: <unk> has some elevated inventory, we're not feeling it directly but theres a bit of an overhang in that market as there is conversation around inventory.

Speaker Change #100: I was intrigued by your comment about greater efficiency in the home building operations.

Speaker Change #100: I wanted to just sort of get a sense of if you could elaborate there.

Speaker Change #100: That seems to imply that there's a degree of sustainability to the strength that we're seeing in your margins.

Speaker Change #100: How sustainable do you think that is generally?

Speaker Change #100: I know you haven't given guidance here for 2025, but it would be helpful for us to hear you comment on the 17.5% operating margin you're generating this year.

Speaker Change #124: So our incentive is about five and a half percent of the delivered price of our homes that comes out to about $50 to $55,000, simple math on houses that are in the 950 range, that was Q3, and we believe that will be the same incentive in Q4, I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4, it's mixed related.

Michael Rehaut: So our incentive is about five and a half percent of the delivered price of our homes that comes out to about $50 to $55,000, simple math on houses that are in the 950 range, that was Q3, and we believe that will be the same incentive in Q4, I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4, it's mixed related. Right, and so remember, and we talked about how for Q4, we think we'll have about 60% of our homes spec, that doesn't mean we incentivize the whole bunch to sell those, and that's what's hurting the margin, we tend to build spec on what I'll call the more average lot in a community, we tend to save the very high premium lots, the special lots, overlooking the 18th green, with beautiful woods in the backyard, with a beautiful link in the backyard, for the build or order business because that client is more affluent, they want to put a lot of upgrades into their dream home, they want that dream home on the best lot we have, and we let them run wild in the design studio, and that margin tends to be higher, so that when you think about the spec margin, you shouldn't be comparing it to the build or order margin, you need to recognize that the spec is generally built on a more average lot, lower lot premium, and that client generally, even if it was a build or order home on that lot, would not spend as much in the design studio, and we know the design studio is margin accretive, so while we may have to incentivize a little bit more to move that spec home on that average lot, if it gets towards the end and is unsold, it is a small difference between that margin and what the margin would be, how to fit a build or order.

Speaker Change #101: And Dallas and Houston.

Speaker Change #102: There are not inventory issues I think there was just a lot of price increases over the last few years and so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause.

Speaker Change #100: Is that a number that you think is inflated by any particular variables?

Speaker Change #100: Or is that a level that you sort of, as you look forward across your business over the next several years, is that a level that you sort of feel is a reasonable level to use as kind of a base?

Speaker Change #100: Thanks, Steve.

Speaker Change #102: But that seems to be working itself out is for the last month, we've seen.

Speaker Change #100: Great question.

Speaker Change #102: Pretty significant improvement in our action in the state of Texas.

Speaker Change #102: Of Florida and.

Speaker Change #100: The quick answer is yes, we believe that operating margin you, referenced is sustainable.

Speaker Change #100: We are targeting long term with this new business model of a very wide price point, a very wide geography, about 50% spec, more and more affordable luxury communities, a longer term gross margin in the 27 to 28% range.

Speaker Change #102: And by the way the Texas margin, even when we saw things that were a bit slower.

Speaker Change #125: Right, and so remember, and we talked about how for Q4, we think we'll have about 60% of our homes spec, that doesn't mean we incentivize the whole bunch to sell those, and that's what's hurting the margin, we tend to build spec on what I'll call the more average lot in a community, we tend to save the very high premium lots, the special lots, overlooking the 18th green, with beautiful woods in the backyard, with a beautiful link in the backyard, for the build or order business because that client is more affluent, they want to put a lot of upgrades into their dream home, they want that dream home on the best lot we have, and we let them run wild in the design studio, and that margin tends to be higher, so that when you think about the spec margin, you shouldn't be comparing it to the build or order margin, you need to recognize that the spec is generally built on a more average lot, lower lot premium, and that client generally, even if it was a build or order home on that lot, would not spend as much in the design studio, and we know the design studio is margin accretive, so while we may have to incentivize a little bit more to move that spec home on that average lot, if it gets towards the end and is unsold, it is a small difference between that margin and what the margin would be, how to fit a build or order.

Speaker Change #100: And as we become more efficient on the SG&A line, which you've seen over the last couple of years, we think that operating margin long term is definitely sustainable.

Speaker Change #100: Well, that's super clear.

Speaker Change #102: Last quarter that margin held up.

Speaker Change #102: And was above our company average.

Speaker Change #102: Florida.

Speaker Change #102: Sits at our company average margin.

Speaker Change #103: It has been a bit softer.

There have been some elevated inventory levels.

Speaker Change #103: In Florida, West, which is very small for us which is called southwest.

Speaker Change #103: And in the Tampa market.

The East Coast, Jacksonville, Orlando, and then for us down in the in the Jupiter Palm Beach, Boca Raton area.

Speaker Change #103: <unk> has done a bit better.

Speaker Change #103: It's really hard to gauge, Florida in the summer months.

Speaker Change #103: We'll have to see how we do as the market comes back in October and.

Speaker Change #103: In November.

Speaker Change #103: But Florida is okay, we're selling houses where at company average margin.

Speaker Change #103: At company average agreements per community as well right, but I think thats down from where Florida had been performing for the few years before that well said, we just opened last weekend, our first community in the Panhandle.

Speaker Change #100: So appreciate that.

Speaker Change #103: Well, appreciate all the color.

Speaker Change #104: And we killed it.

Speaker Change #104: We took.

Speaker Change #104: And in turn sales our first weekend.

Speaker Change #104: In August.

Speaker Change #104: So that's exciting so.

Speaker Change #106: A lot better about Texas, and feeling a bit better about Florida is the best way to describe it.

Speaker Change #103: And that's obviously very encouraging.

Speaker Change #103: I appreciate all the color so far, and good job in the quarter.

Speaker Change #107: Okay. Thank you for that that's definitely encouraging sounds like things are definitely trending in the right direction. There and then a question on SG&A.

Speaker Change #126: Our average margin for the corner was 28.8%.

Michael Rehaut: Our average margin for the corner was 28.8%. The build orders were above that, the specs were below that. The specs were probably 100 to 200 points below that average, and the build orders were 100 to 200 points above that average. Yeah, I was kind of trying to be waiting back to make sure it was that fewer mixed dynamic versus something under the surface that's, you know, instrumental. Back, so thank you for that. I could have answered your question and just said, meh. Sorry, sorry for four minutes. That was the color that we were looking for.

Speaker Change #103: I wanted to ask you about profitability.

Speaker Change #108: You talked about that moving down to 9% longer term due to some tech initiatives.

Speaker Change #127: The build orders were above that, the specs were below that.

Speaker Change #109: By 2025 or is that more of a longer term type of SG&A.

Speaker Change #128: The specs were probably 100 to 200 points below that average, and the build orders were 100 to 200 points above that average.

Speaker Change #110: SG&A level, and then for <unk>, specifically it looks like you've got it stepping down nicely sequentially should we think of that as just being leverage or is there anything else driving that.

Speaker Change #129: Yeah, I was kind of trying to be waiting back to make sure it was that fewer mixed dynamic versus something under the surface that's, you know, instrumental.

Speaker Change #110: We're.

We're growing this company without adding people.

Speaker Change #129: Back, so thank you for that.

Speaker Change #129: I could have answered your question and just said, meh.

Speaker Change #103: I was intrigued by your comment about greater efficiency in the home building operations.

Speaker Change #111: Becoming more efficient we changed our operations in the field, we moved away from our legacy project manager system.

Speaker Change #103: I wanted to get a sense of if you could elaborate there.

Speaker Change #103: That seems to imply that there's a degree of sustainability to the strength that we're, seeing in your margins.

Speaker Change #129: Sorry, sorry for four minutes.

Speaker Change #112: Two where we have stack leads that run land.

Speaker Change #129: That was the color that we were looking for.

Speaker Change #129: I mean, I'm just thinking about seasonality. If you're, you know, typically you still keep seeing order pace decline in the fourth quarter.

Michael Rehaut: I mean, I'm just thinking about seasonality. If you're, you know, typically you still keep seeing order pace decline in the fourth quarter. You know, obviously you just came through a weird and challenging third quarter and you're talking about potential acceleration and trends coming out of July. Any help you want to provide in terms of level setting. I think typically your pace would be down and a low double digit. It's sequentially in 4Q versus 3Q.

Speaker Change #112: Land acquisition land development construction sales et cetera.

Speaker Change #112: Community openings and that that organizational structure is allowing us to grow much more efficiently and so on the G&A front, we're very confident we can do more without spending more dollars on.

Speaker Change #103: I know you haven't given guidance here for 2025, but it would be helpful for us to hear, you comment on the 17.5% operating margin you're generating this year.

Speaker Change #130: You know, obviously you just came through a weird and challenging third quarter and you're talking about potential acceleration and trends coming out of July.

Speaker Change #103: How sustainable do you think that is generally?

Speaker Change #130: Any help you want to provide in terms of level setting.

Speaker Change #112: On the Es side.

Speaker Change #103: Is that a number that you think is inflated by any particular variables, or is that a, level that you, as you look forward across your business over the next several years, is that a level that you sort of feel is a reasonable level to use as kind of a base?

Speaker Change #112: The <unk> has actually been up a little bit, but that's variable we're paying our inside sales agents a little bit more.

Speaker Change #131: I think typically your pace would be down and a low double digit.

Speaker Change #132: It's sequentially in 4Q versus 3Q.

Speaker Change #133: It should be, should we be expecting kind of on seasonal trends above below based on what you're seeing so far?

Michael Rehaut: It should be, should we be expecting kind of on seasonal trends above below based on what you're seeing so far? So you're right. Good work there. Our fourth quarter is typically orders are typically about 10% lower than Q3. And we're confident we're going to do better than that. We think we'll, you know, our best guess three weeks in is that we may be flat to Q3 versus down 10%.

Speaker Change #103: Thanks, Steve.

Speaker Change #112: We have 65%.

Speaker Change #103: Great question.

Speaker Change #112: Of our sales involve a third party reorder.

Speaker Change #133: So you're right.

Spending a little bit more money on.

Speaker Change #133: Good work there.

Speaker Change #134: Our fourth quarter is typically orders are typically about 10% lower than Q3. And we're confident we're going to do better than that.

Speaker Change #112: Marketing and advertising.

Speaker Change #112: But overall.

Speaker Change #112: There is leverage as we grow on flat.

Speaker Change #135: We think we'll, you know, our best guess three weeks in is that we may be flat to Q3 versus down 10%.

G&A and the Asps will just move with sales.

Speaker Change #112: And we'll just see how that goes, particularly with the new rules around broker commissions.

Speaker Change #112: I think Trevor we're going to be.

Speaker Change #136: And the next question comes from Trevor Allinson with Wolf Research.

Trevor Allinson: And the next question comes from Trevor Allinson with Wolf Research. Please go ahead. Hi, good morning. Thank you for taking my questions. First one just wanted to touch on geography. You guys laid out some of the better performing markets. I don't believe you mentioned any markets in Florida or Texas. Those have clearly gotten a lot of attention over the last few months. Could you comment on how demanded in those markets has rendered relative to your business overall?

Trevor Allinson: Essentially flat in terms of G&A dollars spent in 2024 versus 2023.

Speaker Change #136: Please go ahead.

Speaker Change #136: Hi, good morning.

Speaker Change #137: Thank you for taking my questions.

Speaker Change #138: First one just wanted to touch on geography.

Trevor Allinson: And deliver roughly 10% to 12% more homes.

Speaker Change #139: You guys laid out some of the better performing markets.

Trevor Allinson: And have 10%, 11% more communities, so we're pretty proud of that.

Speaker Change #140: I don't believe you mentioned any markets in Florida or Texas.

Speaker Change #140: Those have clearly gotten a lot of attention over the last few months.

Speaker Change #113: S side is showing the variable nature of the commissions.

Speaker Change #140: Could you comment on how demanded in those markets has rendered relative to your business overall?

Speaker Change #113: And staffing out into job sites for the <unk>.

At the communities for the.

Speaker Change #113: Our sales teams.

Speaker Change #140: Sure.

Speaker Change #113: And it's also showing a little bit more expenditures for marketing.

Speaker Change #140: Texas has had a good August. Good end of July and good August.

Trevor Allinson: Sure. Texas has had a good August. Good end of July and good August. Different stories in different markets in Texas, Austin has, has some elevated inventory. We're not feeling it directly, but, you know, there's a bit of an overhang in that market. As is conversation around inventory and Dallas and Houston. There are not inventory issues. I think there was just a lot of pricing creases over the last few years. And so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause.

Speaker Change #114: The next question comes from rapid chat room Fitch with Bank of America go ahead. Please.

Speaker Change #141: Different stories in different markets in Texas, Austin has, has some elevated inventory.

Speaker Change #103: Was, wondering if you could talk a little bit about yours, a little bit more about your spec model.

Speaker Change #103: What was the actual number of specs, both finished and in total specs that you had in the quarter?

Speaker Change #114: Hi, Good morning, it's Rafe thanks for taking my question.

Speaker Change #114: Thanks very much.

Speaker Change #142: We're not feeling it directly, but, you know, there's a bit of an overhang in that market.

Rafe: Thank you.

Rafe: One quick follow up on some earlier questions.

Speaker Change #143: As is conversation around inventory and Dallas and Houston.

Rafe: And then I had a follow up regarding what that about that level.

Rafe: Questions on sort of the deliveries for gross orders going forward, you've had three straight years of deliveries tracking above above orders in.

Rafe: And the next question comes from John Lovallo with UBS.

Speaker Change #144: There are not inventory issues. I think there was just a lot of pricing creases over the last few years. And so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause.

Speaker Change #144: But that seems to be working itself out.

Speaker Change #116: Partially been because of the increase in spec and spec.

Speaker Change #117: How do we think about deliveries relative to orders.

Trevor Allinson: But that seems to be working itself out. As for the last month, we've seen, you know, a pretty significant improvement in our action in the state of Texas. Florida, and by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average. Florida sits at our company average margin. It has been a bit softer. There have been some elevated inventory levels in Florida West, which is very small for us, which is, I call Southwest.

Speaker Change #117: Forward here.

Would you anticipate spec to outgrowth Bcf bto business.

Speaker Change #144: As for the last month, we've seen, you know, a pretty significant improvement in our action in the state of Texas.

Speaker Change #119: In terms of deliveries as we go into 2025.

Speaker Change #145: Florida, and by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average.

Speaker Change #119: Yeah.

Speaker Change #120: I don't think so I think.

Speaker Change #121: The nuance maybe that we haven't really looked at this.

Speaker Change #121: The nuance, maybe the build to orders generally concentrate more in the luxury more in the bigger homes.

Speaker Change #145: Florida sits at our company average margin.

Speaker Change #121: A few months longer build cycle.

Speaker Change #145: It has been a bit softer.

Speaker Change #121: And the <unk>.

Speaker Change #146: There have been some elevated inventory levels in Florida West, which is very small for us, which is, I call Southwest.

Speaker Change #122: The spec homes.

Speaker Change #122: <unk> build cycle and so when we start one for one like we have been there is a potential for the build to orders to fall below 50% long term.

Speaker Change #147: And in the tamper market, the East Coast Jacksonville, Orlando, and then for us down in the, in the Jupiter Palm Beach Booker Reson area, has on a bit better.

Trevor Allinson: And in the tamper market, the East Coast Jacksonville, Orlando, and then for us down in the, in the Jupiter Palm Beach Booker Reson area, has on a bit better. It's really hard to gauge Florida in the summer months. We'll have to see how we do as the market comes back in October and November. But Florida's OK. We're selling houses, we're at company average margin. Actually, at company average agreements per community as well. But I think that's down from where Florida had been performing for the few years before the year.

Speaker Change #122: But probably not from a revenue perspective.

Speaker Change #122: Okay.

Speaker Change #123: Got it Okay. That's helpful and then the like.

Speaker Change #147: It's really hard to gauge Florida in the summer months.

Speaker Change #124: Do you think deliveries can continue to outpace quarters.

Forward.

Speaker Change #147: We'll have to see how we do as the market comes back in October and November.

Speaker Change #125: No they will it will reach equilibrium pretty soon here.

Okay.

Speaker Change #126: And then the second question just.

Speaker Change #148: But Florida's OK.

Speaker Change #127: You increased the buyback guidance for the year can.

Speaker Change #148: We're selling houses, we're at company average margin.

Speaker Change #148: Actually, at company average agreements per community as well.

Speaker Change #127: Can you talk about kind of what drove that decision and Doug I think you said.

Speaker Change #149: But I think that's down from where Florida had been performing for the few years before the year.

Speaker Change #128: Programmatic capital return, which I don't think you've sort of said in the past. So has there been any change here or how should we think about capital return and buyback going forward.

Speaker Change #150: Well said, we just opened last weekend our first community in the panhandle and we killed it.

Douglas Yearley: Well said, we just opened last weekend our first community in the panhandle and we killed it. We took 10 sales our first weekend in August. So that's exciting. So feel a lot better about Texas and feel a bit better about Florida is the best way to describe it. OK, thank you for that. That's definitely encouraging sounds like things are definitely trending in the right direction there.

Doug: So we expect.

Speaker Change #151: We took 10 sales our first weekend in August.

Speaker Change #129: Free cash flow of 800 millions of $1 billion.

Speaker Change #130: That's up a little bit because of our strong performance.

Speaker Change #151: So that's exciting.

Speaker Change #152: So feel a lot better about Texas and feel a bit better about Florida is the best way to describe it.

Speaker Change #130: And we want to continue to.

Speaker Change #130: Reward our shareholders.

Speaker Change #130: <unk> capital to our shareholders.

Speaker Change #152: OK, thank you for that.

Speaker Change #152: That's definitely encouraging sounds like things are definitely trending in the right direction there.

Speaker Change #130: We're very focused on return on equity.

Speaker Change #130: One of the main levers of keeping return on equity is having a robust programmatic stock buyback programs.

Speaker Change #152: And then a question on SGNA.

Trevor Allinson: And then a question on SGNA. He's talked about that moving down to 9% longer term due to some tech initiatives by 2025. Or is that more of a longer term type of SGNA level? And then for 4Q specifically looks like you've got it. So stepping down nicely sequentially should we think of that as just being leverage or is there anything else driving that? You know, we're growing this company without adding people becoming more efficient.

Speaker Change #152: He's talked about that moving down to 9% longer term due to some tech initiatives by 2025.

Speaker Change #130: In addition of course to how quickly we can build in turn houses and how efficiently we can buy land.

Speaker Change #152: Or is that more of a longer term type of SGNA level?

Speaker Change #130: And so it.

Speaker Change #152: And then for 4Q specifically looks like you've got it.

Speaker Change #130: It seemed like a great time to take the 500 up to 600 because of our performance.

Speaker Change #153: So stepping down nicely sequentially should we think of that as just being leverage or is there anything else driving that?

The additional free cash flow that we have going forward you will continue as we talked about going back to 2016, you'll continue to see us.

Speaker Change #153: You know, we're growing this company without adding people becoming more efficient.

Speaker Change #154: We changed our operations in the field.

Trevor Allinson: We changed our operations in the field. We moved away from our legacy project manager system to where we have stack leads that run land land acquisition, land development, construction sales, etc. Community openings and that that that organizational structure is allowing us to grow much more efficiently. And so on the GNA front we're very confident we can do more without spending more dollars. On the S side, the S has actually been up a little bit, but that's variable.

Speaker Change #130: Programmatically regularly.

Speaker Change #155: We moved away from our legacy project manager system to where we have stack leads that run land land acquisition, land development, construction sales, etc.

Speaker Change #130: And consistently and predictably via company stock back I think our use of the term programmatic probably goes back a year or two at this point.

Speaker Change #130: But we're not going to.

Speaker Change #156: Community openings and that that that organizational structure is allowing us to grow much more efficiently.

Speaker Change #130: Eliminate the opportunity to be opportunistic right.

Hope we don't have it.

Speaker Change #156: And so on the GNA front we're very confident we can do more without spending more dollars.

Speaker Change #130: Thanks.

Speaker Change #130: The next question comes from Sam Reed with Wells Fargo. Please go ahead.

Speaker Change #156: On the S side, the S has actually been up a little bit, but that's variable.

Sam Reed: Awesome. Thanks, guys. Appreciate the color you gave on order cadence into the fourth quarter I just wanted to piggy back off of some of those question.

Speaker Change #157: You know, we're paying our inside sales agents a little bit more.

Trevor Allinson: You know, we're paying our inside sales agents a little bit more. We have 65% of our sales involved a third party realtor. We're spending a little bit more money on on marketing and advertising. But overall there is leverage as we grow on flat GNA. And you know, the S will just move with sales. And we'll see how that goes particularly with, you know, the new rules around broker commissions. I think Trevor, we're going to be essentially flat in terms of GNA dollars spent in 2024 versus 2023 and deliver roughly 10 to 12% more homes and have 10% 11% more community.

Speaker Change #157: We have 65% of our sales involved a third party realtor.

Sam Reed: To run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter. In addition to the benefits you might be seeing from selling more specs than just lower overall rate.

Speaker Change #157: We're spending a little bit more money on on marketing and advertising.

Speaker Change #157: But overall there is leverage as we grow on flat GNA.

Sam Reed: Yes.

Speaker Change #132: No we always run sales event summer local some are regional some are national thereon.

Speaker Change #157: And you know, the S will just move with sales.

Speaker Change #132: They are on the calendar already they're no different than prior years, we do.

Speaker Change #158: And we'll see how that goes particularly with, you know, the new rules around broker commissions.

Speaker Change #132: Traditionally have a national sales event in the month of September that's occurred for many years that will occur again.

Speaker Change #159: I think Trevor, we're going to be essentially flat in terms of GNA dollars spent in 2024 versus 2023 and deliver roughly 10 to 12% more homes and have 10% 11% more community.

Speaker Change #132: But beyond that there's nothing.

Speaker Change #132: Out of the ordinary and I do caution you know, we don't like to guide on sales.

Speaker Change #132: And so when I said, we think we will be better than down 10%.

Speaker Change #132: We're thinking more consistent with what we did in Q3.

Speaker Change #160: So we're pretty proud of that.

Trevor Allinson: So we're pretty proud of that. The S side is showing the variable nature of the commission, and staffing out at the job sites at the communities for the sales teams. And it's also showing a little bit more expenditures for marketing.

Speaker Change #161: The S side is showing the variable nature of the commission, and staffing out at the job sites at the communities for the sales teams.

That's not a limiter to me you know I'm hopeful as rates come down the market improves we continue to open new communities that we could have a roaring fall I'm not predicting that but I don't want you to think we're giving some guidance right now on on sales because we don't do that.

Speaker Change #162: And it's also showing a little bit more expenditures for marketing.

Speaker Change #132: And.

Speaker Change #162: Next question comes from Rafe Jadrosich, with Bank of America.

Rafe Jadrosich: Next question comes from Rafe Jadrosich, with Bank of America. Go ahead, please. Hi, good morning and three. Thanks for taking my question. I will follow up on some earlier questions on sort of the deliveries. Resorters going forward. You've had three straight years of deliveries tracking above orders and that's partially been because the increase in spec and spec. How do we think about deliveries relative to orders going forward here? Like, would you anticipate spec to outgrowth, the BTO business in terms of deliveries as we go into 2025?

Speaker Change #132: Let's get a good market, let's get this thing cooking and lets blowout sales that's how I approach this business and want to see where it is but where we are three weeks in with the communities. We have opened with those we know that are opening with a quality of traffic.

Speaker Change #163: Go ahead, please.

Speaker Change #163: Hi, good morning and three.

Speaker Change #164: Thanks for taking my question.

Speaker Change #165: I will follow up on some earlier questions on sort of the deliveries.

Speaker Change #132: Just wanted to suggest that the normal number of down 10% doesn't feel right. It feels like it should be at or in my hope better than Q3.

Speaker Change #165: Resorters going forward.

Speaker Change #165: You've had three straight years of deliveries tracking above orders and that's partially been because the increase in spec and spec.

Speaker Change #133: Yes, that's certainly helps that.

Speaker Change #165: How do we think about deliveries relative to orders going forward here?

Speaker Change #134: This is a whole ambitious here, but I want to quickly talk 25, just from a very high level standpoint, you know you've got some good visibility into your land pipeline and the types of communities youre going to be delivering so to that end do you have any sense as to what kind of community count growth, we might be on track to see.

Speaker Change #166: Like, would you anticipate spec to outgrowth, the BTO business in terms of deliveries as we go into 2025?

Speaker Change #166: I don't think so.

Rafe Jadrosich: I don't think so. I think, you know, the nuance may be that, and we haven't really looked at this. The nuance may be that the build to orders generally concentrate more in the luxury, more in the bigger homes. We have a few months longer build cycle. And the spec calms have a shorter build cycle. And so when we start one for one like we have been, there is a potential for the build to orders to fall below 50% long term. But probably not from a revenue perspective.

Speaker Change #167: I think, you know, the nuance may be that, and we haven't really looked at this.

Speaker Change #135: Especially if you look to potentially grow 5% to 10% over the long term.

Speaker Change #168: The nuance may be that the build to orders generally concentrate more in the luxury, more in the bigger homes.

Speaker Change #136: I like that number.

Speaker Change #137: I'm with you five to 10.

Speaker Change #168: We have a few months longer build cycle.

Speaker Change #138: More to come in December.

Speaker Change #169: And the spec calms have a shorter build cycle.

Speaker Change #139: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Speaker Change #169: And so when we start one for one like we have been, there is a potential for the build to orders to fall below 50% long term.

Speaker Change #140: Thank you very much you are terrific.

Speaker Change #141: Thanks, everyone for your interest and support and have a wonderful end of your summer. We are here always to answer any questions you may have and.

Speaker Change #169: But probably not from a revenue perspective.

Speaker Change #141: And we look forward to seeing all of you soon thanks take care.

Speaker Change #169: Okay, that's helpful.

Rafe Jadrosich: Okay, that's helpful. Then do you think deliveries can continue to outpace orders going forward? They will reach equal everyone pretty soon here.

Speaker Change #142: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change #169: Then do you think deliveries can continue to outpace orders going forward?

Speaker Change #169: They will reach equal everyone pretty soon here.

Speaker Change #169: And then the second question just on, you know, you increase the buyback guidance for the year.

Rafe Jadrosich: And then the second question just on, you know, you increase the buyback guidance for the year. Can you talk about kind of what drove that decision? And Doug, I think you said programmatic capital return, which I don't think you sort of said in the past. So has there been any change here? How should we think about capital return and buyback going forward? So we expect free cash flow of $800 million to $1 billion.

Speaker Change #169: Can you talk about kind of what drove that decision?

Speaker Change #170: And Doug, I think you said programmatic capital return, which I don't think you sort of said in the past.

Speaker Change #171: So has there been any change here?

Speaker Change #172: How should we think about capital return and buyback going forward?

Speaker Change #173: So we expect free cash flow of $800 million to $1 billion. That's up a little bit because of our strong performance.

Speaker Change #174: And we want to continue to reward our shareholders, return capital to our shareholders.

Rafe Jadrosich: That's up a little bit because of our strong performance. And we want to continue to reward our shareholders, return capital to our shareholders. We are very focused on return on equity. We know one of the main levers of keeping return on equity is having a robust programmatic stock buyback program. In addition, of course, to how quickly we can build and turn houses and how efficiently we can buy land. And so it seemed like a great time to take the 500 up to 600 because of our performance and the additional free cash flow that we have.

Speaker Change #175: We are very focused on return on equity. We know one of the main levers of keeping return on equity is having a robust programmatic stock buyback program.

Speaker Change #176: In addition, of course, to how quickly we can build and turn houses and how efficiently we can buy land.

Speaker Change #177: And so it seemed like a great time to take the 500 up to 600 because of our performance and the additional free cash flow that we have.

Speaker Change #177: Going forward, you will continue, as we talked about going back to 2016, you will continue to see us.

Rafe Jadrosich: Going forward, you will continue, as we talked about going back to 2016, you will continue to see us. Yes, programmatically, regularly, and consistently and predictably, fire company stock back. I think our use of the term programmatic probably goes back a year or two at this point, but we're not going to eliminate the opportunity to be opportunistic. We just hope we don't have it.

Speaker Change #178: Yes, programmatically, regularly, and consistently and predictably, fire company stock back.

Speaker Change #179: I think our use of the term programmatic probably goes back a year or two at this point, but we're not going to eliminate the opportunity to be opportunistic.

Speaker Change #179: We just hope we don't have it.

Speaker Change #179: The next question comes from Sam Reid with Wells Fargo, please go ahead.

Sam Reid: The next question comes from Sam Reid with Wells Fargo, please go ahead. Awesome, thanks guys. Appreciate the color he gave on order paid and into the fourth quarter.

Speaker Change #179: Awesome, thanks guys.

Speaker Change #180: Appreciate the color he gave on order paid and into the fourth quarter.

Speaker Change #181: Just want to piggyback off of some of those questions.

Sam Reid: Just want to piggyback off of some of those questions. Are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter? In addition to the benefits you might be seeing from selling more specs and just lower overall rates? No, you know, we always run sales events, some are local, some are regional, some are national. They're on the calendar already.

Sam Reid: Are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter?

Speaker Change #183: In addition to the benefits you might be seeing from selling more specs and just lower overall rates?

Speaker Change #184: No, you know, we always run sales events, some are local, some are regional, some are national.

Speaker Change #185: They're on the calendar already.

Speaker Change #186: There are no different than prior years.

Sam Reid: There are no different than prior years. We do traditionally have a national sales event in the month of September. That's occurred for many years. That will occur again. But beyond that, there's nothing out of the ordinary.

Speaker Change #187: We do traditionally have a national sales event in the month of September. That's occurred for many years. That will occur again. But beyond that, there's nothing out of the ordinary.

Speaker Change #188: And I do caution, you know, we don't like to guide on sales.

Douglas Yearley: And I do caution, you know, we don't like to guide on sales. And so when I said, you know, we think we'll be better than down 10%. You know, we're thinking more consistent with what we did in Q3. That's not a limiter to me. You know, I'm hopeful as rates come down, the market improves, we continue to open new communities that, you know, we could have a worrying fall.

Speaker Change #188: And so when I said, you know, we think we'll be better than down 10%.

Speaker Change #188: You know, we're thinking more consistent with what we did in Q3.

Speaker Change #189: That's not a limiter to me.

Speaker Change #190: You know, I'm hopeful as rates come down, the market improves, we continue to open new communities that, you know, we could have a worrying fall.

Speaker Change #190: I'm not predicting that, but I don't want you to think we're giving some guidance right now on, you know, on sales.

Douglas Yearley: I'm not predicting that, but I don't want you to think we're giving some guidance right now on, you know, on sales. Because we don't do that. And let's get a good market, let's get this thing cooking, and let's blow out sales. That's how I approach this business and we'll have to see where it is. But where we are three weeks in, with the communities we have open, with those we know that are opening, with the quality of traffic, I just wanted to suggest that the normal number of down 10%, doesn't feel right. It feels like it should be at, or in my hope, better than Q3. Now that certainly helps.

Speaker Change #190: Because we don't do that.

Speaker Change #191: And let's get a good market, let's get this thing cooking, and let's blow out sales.

Speaker Change #191: That's how I approach this business and we'll have to see where it is.

Speaker Change #192: But where we are three weeks in, with the communities we have open, with those we know that are opening, with the quality of traffic, I just wanted to suggest that the normal number of down 10%, doesn't feel right.

Speaker Change #192: It feels like it should be at, or in my hope, better than Q3.

Speaker Change #192: Now that certainly helps.

Speaker Change #192: And, you know, maybe this is a little ambitious here, but I want to quickly talk 25 just from a very high level standpoint.

Sam Reid: And, you know, maybe this is a little ambitious here, but I want to quickly talk 25 just from a very high level standpoint. You know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering. So, to that end, you know, do you have any sense as to what kind of community count grows? You know, we might be on track to see, you know, especially if you look to potentially grow 5 to 10% over the long term. I like that number. I'm with you, 5 to 10. More to come in December.

Speaker Change #192: You know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering.

Unknown Executive: This concludes our question and answer session.

Speaker Change #192: So, to that end, you know, do you have any sense as to what kind of community count grows?

Speaker Change #193: You know, we might be on track to see, you know, especially if you look to potentially grow 5 to 10% over the long term.

Speaker Change #193: I like that number.

Speaker Change #193: I'm with you, 5 to 10.

Unknown Executive: I would like to turn the conference back over to management for any closing remarks. Dave, thank you very much. You are terrific. Thanks everyone for your interest and support.

Unknown Executive: Have a wonderful end of your summer. We are here always to answer any questions you may have. And we look forward to seeing all of you said thanks. Take care.

Unknown Executive: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. You You You You You You . . [inaudible] I don't know. I don't know. [inaudible] I don't know. I don't know.

Speaker Change #142: [music].

Speaker Change #142: [music].

Speaker Change #142: Please go ahead.

Speaker Change #142: At the end of the quarter, Steve, we had around 3400 specs, around 750 of those were at CEO, or beyond, or 1.8 per community.

Speaker Change #142: The quick answer is, yes, we believe that operating margin you referenced is sustainable.

Speaker Change #143: Good morning, and welcome to the toll brothers third quarter fiscal year 2024 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.

Speaker Change #143: 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 930, 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.

Speaker Change #142: That's interesting.

Speaker Change #142: We are targeting long-term with this new business model of a very wide price point, a very wide, geography, about 50% spec, more and more affordable luxury communities, a longer-term gross margin in the 27% to 28% range.

Douglas Yearly: Now I'd like to turn the conference over to Douglas yearly CEO. Please go ahead.

Speaker Change #142: Okay.

Speaker Change #142: And as we become more efficient on the SG&A line, which you've seen over the last couple, of years, we think that operating margin long-term is definitely sustainable.

Douglas Yearly: Morning, guys.

Douglas Yearly: Thank you Dave Good morning, welcome and thank you for joining US with me today are Marty Connor Chief Financial Officer, Rob Powerhouse, President and Chief Operating Officer, Wendy Marlett, Chief Marketing Officer, and Gregg Ziegler Senior VP Treasurer, and our head of Investor Relations.

Douglas Yearly: So you had yet about eight and a half per community total, but, finished was, you said, below two.

Douglas Yearly: Thanks for taking my questions as well.

Douglas Yearly: That level of those levels of specs, is that a number that we are those numbers per community?

Douglas Yearly: Maybe just following up on, hey, hi, how are you?

Douglas Yearly: Maybe just following up on on Steve's question.

Douglas Yearly: What we can also expect going forward?

Douglas Yearly: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show.

Douglas Yearly: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered, at www.profile-financial.com. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered, at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered, at www.profile-financial.com.

Douglas Yearly: You know, your backlog has continued to kind of get worked down over the past few years.

Douglas Yearly: 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.

Douglas Yearly: Or is that, Or do you see this changing, like growing perhaps, as we go forward?

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.

Douglas Yearly: I mean, how confident are you that improved cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025?

Douglas Yearly: Steven, we're starting a spec essentially for every home we sell.

Douglas Yearly: We're very confident.

Douglas Yearly: We had another terrific quarter and are very pleased with our fiscal third quarter results.

Douglas Yearly: We're very confident.

Douglas Yearly: So the starts and, specs, starts include one BTO, one spec, kind of 50-50.

Douglas Yearly: We're doing it right now.

Douglas Yearly: We delivered 2814 homes.

Douglas Yearly: At an average price of $968000 generating a record third quarter home sale revenues of $2 $72 billion. Our adjusted gross margin of 28, 8% exceeded guidance by 110 basis points.

Douglas Yearly: We're doing it right now.

Douglas Yearly: BTO is billed to order. Yep.

Douglas Yearly: And, you know, the more, as we've talked, about it, we can keep this spec at about 50-50.

Douglas Yearly: And, you know, the more, as we've talked about it, we can keep this spec at about 50-50.

Douglas Yearly: Those houses are being built faster. You know, we're able to deliver them quicker.

Douglas Yearly: Primarily due to greater efficiencies in our homebuilding operations as well as favorable mix.

Douglas Yearly: The conversion rate on our backlog has come down and will continue to come down as this, as this, excuse me, it will continue to go up.

Douglas Yearly: My apologies.

Douglas Yearly: Our SG&A expense was 9.0% of home sale revenues were 20 basis points better than guidance.

Douglas Yearly: It will, we will turn houses faster.

Douglas Yearly: You know what I meant.

Douglas Yearly: And I think we've hit a bit of a...

Douglas Yearly: Outperformance in both the topline and then our margin drove earnings of $3.60 per diluted share Keith.

Douglas Yearly: Not Bachman Turner over there.

Douglas Yearly: And, you know, as the spec business continues to mature, we get better at it.

Douglas Yearly: Keeping us on track to deliver another great year for toll brothers.

Douglas Yearly: We turn these houses faster.

Douglas Yearly: For the older people on the call.

Douglas Yearly: In the third quarter, we signed 2490 net contracts for $2 $4 billion up approximately 11% in both units and dollars compared to last year's third quarter.

Douglas Yearly: You're going to see an improvement in, an improvement in that conversion, makes sense.

Douglas Yearly: And then, you know, moving on to the to the, you know, the the fourth quarter, gross margin, you know, what would drive the expected 140 basis points to Clint sequential decline from the third quarter?

Douglas Yearly: I mean, is this the reverse of the positive mixed impact in the third quarter?

Keith: And what specifically was that mixed impact?

Keith: On a per community basis, we sold at a pace of two one homes per month down slightly versus the $2. Two pace, we sold in last year's third quarter.

Keith: Was it geographic?

Keith: Demand in our third quarter was uneven may started out strong but slowed into and through June.

Keith: Was it product?

Keith: Respect versus BTO?

Keith: July was the strongest month in the quarter, especially in the latter half of the month.

Keith: Thank you.

Keith: We have seen this strength continue into the first three weeks of August.

Keith: So let's remember, we raised guidance for Q4 gross margin. Yes, when you compare it to the blowout gross margin of Q3. The gap there is bigger. Q3, as we mentioned, was 110 basis points better than guide because of mix. We had more high margin homes delivering in the Pacific and the South, and we had less spec homes delivering than we had anticipated.

Keith: Well, we are taking care of business here, Doug.

Keith: With mortgage rates at their lowest point in a year and trending lower.

Keith: Favorable demographics and continued imbalance in the supply and demand of homes for sale. We are optimistic that demand for new homes will remain solid through the end of fiscal 'twenty four and into 2025.

Keith: That reverses a bit in the fourth quarter, where we will have less.

Keith: So I think we've hit a bit of an equilibrium point here on our up to 50% spec strategy.

Keith: High Margin.

Keith: Homes Delivering from the South and the Pacific. And by the way, the entire South and Pacific is not necessarily high margin, it is certain communities within the South and the Pacific that have this higher margin where we had more of those deliver Q3 and less of those in Q4.

Keith: And we will have about 60% of our deliveries in the fourth quarter be spent.

Keith: Now, that'll vary a little bit in terms of settlements or sales quarter to quarter.

Keith: We are encouraged by demand trends, we are seeing across the country and.

Keith: So, you know, with our business running from, you know, we now have homes from the mid 300s to over $5 million.

Keith: And also across our buyer segments.

Keith: We have gross margins that have a very large range.

Keith: But, strategically, we've kind of hit our equilibrium point here.

Keith: Demand, where we excuse me markets, where we saw particular strength in the quarter included New Jersey, Pennsylvania Metro D C South Carolina, Atlanta, Boise, Las Vegas, and all of California.

Keith: You know, we have a few communities with 10% gross margin and we have communities with 50% gross margin.

Keith: And so when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin.

Keith: And so there's a little bit more variety there, as you just saw in the third quarter, and as we've guided to in Q4. But overall, you know, that 27 to 28% long-term margin, while there could be some modest variation quarter to quarter, we're very comfortable with where this business is headed.

Keith: And the next question comes from Alan Ratner with Zelman and Associates.

Keith: Please go ahead.

Price adjustments in the quarter or community and market dependent.

Keith: We raised prices in some communities and lowered it and others overall pricing was flat compared to the second quarter and incentives continued to run approximately five 5%.

Keith: And it's important.

Our average sales price.

Keith: Hey, guys.

Keith: As I noted earlier, we are optimistic that market conditions will remain positive for homebuilders into the foreseeable future.

Keith: Good morning.

Unknown Executive: [inaudible] And our 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.

Keith: Nice quarter, and thanks for all the helpful detail so far.

Keith: The underlying drivers of demand remain firmly in place, including favorable demographics, driven by millennials many of whom are buying their first home later in life, when they have higher incomes and accumulated well.

Keith: Doug, you know, I'd love to drill in on pricing.

Keith: You know, your comments suggest pricing is pretty sladdish in the quarter, you know, plus or minus, depending on the community.

Keith: I'm curious, as you kind of sit here three weeks into August, you know, you sound pretty encouraged by the recent activity.

Keith: Older Millennials are now hitting their forties, which should provide a tailwind for our luxury move up business over the next decade.

Keith: In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles.

Keith: There also continues to be an under belt and aging stock of homes for sale.

Keith: With the under supply exacerbated by the lock in effect of higher rates, which is keeping resale inventory at historically low levels.

Keith: But even as interest rates move lower we believe the supply of homes will remain challenged due to nearly 15 years of under production.

Keith: Lower rates alone will not fully address the chronic under supply of housing.

Keith: The past several years have proven how impactful. These fundamentals are with demand for new homes remains solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated.

Keith: Have you started to, or have you seen any ability to begin either dialing back incentives now that rates are a bit lower, maybe pulling back on some of the rate buy-downs, or even start to, you know, begin raising prices again?

Speaker Change #145: As a large well capitalized homebuilder, we have benefited from and performed very well in this environment with sales up 25% year to date.

Speaker Change #193: More to come in December.

Speaker Change #145: Well, we would clearly welcome lower rates and are excited by the prospect of a normalizing housing market.

Speaker Change #145: Our strategy of widening our geographies and price points to include more affordable homes.

Speaker Change #193: This concludes our question and answer session.

Speaker Change #145: And increasing our supply of spec homes as helped us meet demand, while becoming a more efficient homebuilder.

As we have expanded and come down in price. We now have the widest variety of product and the widest range of price of any of the builders, which.

Speaker Change #194: I would like to turn the conference back over to management for any closing remarks.

Douglas Yearley: We had another terrific quarter, and are very pleased with our fiscal third quarter results. We delivered 2,814 homes at an average price of $968,000, generating record third-quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8% exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations, as well as favorable nets. Our SGA expense was 9.0% of home sale revenues, or 20 basis points better than guidance.

Speaker Change #195: Dave, thank you very much.

Which presents us with a great opportunity to grow our core homebuilding business and our 60 markets across the country.

Speaker Change #145: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter.

Speaker Change #196: You are terrific.

Speaker Change #145: We continue to target about 50% of our business is spec with.

With continued strong demand from buyers who are looking for quicker move ins.

Speaker Change #197: Thanks everyone for your interest and support.

Speaker Change #145: As a reminder, we define <unk> as any home without a buyer that has a foundation port.

Douglas Yearley: Outperformance in both the top line, and in our margin, drove earnings of $3.60 per diluted share, keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter. On a per-community basis, we sold at a pace of 2.1 homes per month, down slightly versus the 2.2 pace we sold in last year's third quarter.

Speaker Change #145: We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide.

Keith: I know we talked, I know, Steve, we talked about before, as you know, but we, you know, choice at Toll Brothers is still alive and well, it's still very important, not just on the bill to order business.

Speaker Change #145: This offers our spec buyers a degree of choice, which is a key pillar in the toll brothers buying experience.

Keith: But we do hope that at least half of the spec buyers are buying early enough that they, have enough time to pick some level of finishes.

Keith: If you buy it very early, you can hit that design studio and truly customize the inside, of your home. If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops.

Keith: And then, of course, there are some, as we described, that get to the end can be delivered, quickly for that buyer that wants a faster move in.

Speaker Change #145: While providing us with a faster and more efficient construction schedule.

Speaker Change #146: At third quarter end, our backlog stood at seven $1 billion and 6769 homes.

Our cancellation rate as a percentage of backlog was two 4% in the third quarter down from two 8% in our second quarter and consistent with our long term average of two 3%.

Douglas Yearley: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August. With mortgage rates as our lowest point in a year and trending lower, favorable demographics and continued in balance in the supply and demand of homes per sale, we are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025.

Speaker Change #146: Our industry low cancellation rate is due to the significant upfront down payments are buyers make as well as the emotional attachment they form as they personalize their homes with us.

Speaker Change #198: Have a wonderful end of your summer.

Speaker Change #146: Our buyers also tend to be more affluent.

Speaker Change #146: Proximately, 28% of our buyers paid all cash in the third quarter consistent with our second quarter and significantly above our long term average of approximately 20%.

Speaker Change #199: We are here always to answer any questions you may have.

Speaker Change #146: The loan to value ratio for buyers, who took a mortgage was approximately 69%.

Speaker Change #146: So for the 72% of our buyers who took a mortgage on average they put down 31%.

Speaker Change #200: And we look forward to seeing all of you said thanks.

Douglas Yearley: We are encouraged by demand trends, we are seeing across the country and also across our buyer segments. Demand where we, excuse me, markets where we saw a particular strength in the quarter included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California. Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others. Overall, pricing was flat compared to the second quarter and incentives continued to run approximately 5.5%, of our average sales price.

Speaker Change #146: These metrics highlight the financial strength and affluence of our entire customer base.

Speaker Change #200: Take care.

Keith: Those houses are being built faster. You know, we're able to deliver them quicker.

Speaker Change #146: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster turns spec homes.

Keith: The conversion rate on our backlog has come down and will continue to come down as this, as this, excuse me, it will continue to go up.

Speaker Change #146: We remain hyper focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Speaker Change #200: The conference is now concluded.

Speaker Change #200: Thank you for attending today's presentation.

Speaker Change #146: We are on target to reach our goal of operating from 410 communities by fiscal year end.

Speaker Change #201: You may now disconnect.

Speaker Change #146: Which would represent 11% growth.

Speaker Change #146: Compared to the 370 communities, we are operating from at the start of the year.

Speaker Change #201: You You You You You You .

Douglas Yearley: As I noted earlier, we are optimistic that market conditions will remain positive for home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics driven by millennials, many of whom are buying their first home later in life when they have higher incomes than accumulated wealth. Older millennials are now hitting their 40s, which should provide a tailwind for our luxury move-up business over the next decade.

Speaker Change #146: We plan to continue growing community count next year, and we have sufficient land under control to do it.

Speaker Change #146: At quarter end, we owned or controlled 72700 lots half of which were controlled and the other half owned.

Speaker Change #201: [inaudible] I don't know.

Speaker Change #146: Excluding the 6769 lots in our backlog are controlled land represents 55%.

Speaker Change #201: I don't know.

Speaker Change #146: Our lots.

Speaker Change #146: This land position provides us with sufficient lots needed for growth in fiscal 2025, and beyond and allows us to continue to be selective and disciplined and focused on efficiency.

Speaker Change #201: [inaudible] I don't know.

Douglas Yearley: In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the under supply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low levels. But even as interest rates move lower, we believe the supply of homes will remain challenged due to nearly 15 years of under-production. Lower rates alone will not fully address the chronic under-supply of housing.

Speaker Change #146: When we assess new land opportunities.

Speaker Change #201: I don't know.

Speaker Change #146: Our underwriting standards for new land continues to incorporate stringent thresholds threat.

Speaker Change #146: Thresholds for both margins and returns.

Speaker Change #146: And we continue to seek out land acquisition and development opportunities that allow us to be more capital efficient, including through increased use of option arrangements land banks joint ventures, and similar structures that allow us to defer payments and lot takedowns.

Speaker Change #202: [inaudible] And our head of investor relations.

Speaker Change #203: 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.

Speaker Change #146: This focus on capital efficiency and returns extends beyond our land and other operations.

Speaker Change #204: 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.

Douglas Yearley: The past several years have proven how impactful these fundamentals are, with demand for new homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated. As a large, well-capitalized home builder, we have benefited from and performed very well in this environment with sales of 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing market.

Speaker Change #146: It also includes our efforts to more programmatically return capital to our stockholders since the start of our third quarter, we repurchased $246 million of our common stock.

Speaker Change #205: We had another terrific quarter, and are very pleased with our fiscal third quarter results. We delivered 2,814 homes at an average price of $968,000, generating record third-quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8% exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations, as well as favorable nets.

Speaker Change #146: Bringing our year to date repurchases to $427 million at an average price of approximately $119 per share.

Speaker Change #205: Our SGA expense was 9.0% of home sale revenues, or 20 basis points better than guidance.

We also paid over $70 million in dividends year to date.

Speaker Change #206: Outperformance in both the top line, and in our margin, drove earnings of $3.60 per diluted share, keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter. On a per-community basis, we sold at a pace of 2.1 homes per month, down slightly versus the 2.2 pace we sold in last year's third quarter.

Douglas Yearley: Our strategy of widening our geographies and price points to include more affordable homes and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder. As we have expanded and come down in price, we now have the widest variety of product and the widest range of price of any of the builders, which presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Speaker Change #146: So far this year, we've repurchased approximately 3% of our year end diluted share count and since 2016, we bought back approximately one half of the company.

Speaker Change #207: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August. With mortgage rates as our lowest point in a year and trending lower, favorable demographics and continued in balance in the supply and demand of homes per sale, we are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025.

Speaker Change #146: Given our outstanding year to date financial performance, including strong operating cash flows we are raising our buyback expectations for the full year from $500 million to $600 million dividends.

Speaker Change #146: Dividends and buybacks will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity.

Speaker Change #207: We are encouraged by demand trends, we are seeing across the country and also across our buyer segments.

Douglas Yearley: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec with continued strong demand from buyers who are looking for quicker movements. As a reminder, we define a spec as any home without a buyer that has a foundation port. We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide.

We now expect our return on beginning equity to be approximately 22, 5% this year.

Speaker Change #208: Demand where we, excuse me, markets where we saw a particular strength in the quarter included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California. Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others.

Speaker Change #146: This will be the third year in a row, our regenerate on ROE.

Speaker Change #146: Over 20%.

Speaker Change #208: Overall, pricing was flat compared to the second quarter and incentives continued to run approximately 5.5%, of our average sales price.

Speaker Change #146: With that I will turn it over to Marty.

Keith: So, you know, we do define the spec as a foundation in the ground without a buyer.

Keith: My apologies.

Marty Connor: Thanks, Doug.

Marty Connor: Or is it still premature to do that, given the choppiness? Yeah, so it was a, It was a bit of a choppy quarter as we and other builders have talked about, you know, I went through the cadence.

Marty Connor: And we market accordingly.

Marty Connor: We will turn houses faster.

Marty Connor: Good morning, everyone, thanks for being with us.

Speaker Change #209: As I noted earlier, we are optimistic that market conditions will remain positive for home builders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics driven by millennials, many of whom are buying their first home later in life when they have higher incomes than accumulated wealth.

Marty Connor: First, the beginning of May, pretty much up to our call, you know, things were looking pretty good. The last week of May through all of June definitely saw a slowdown, and we saw an accelerating pickup in July, with the end of July being the best, and that has continued into August.

Marty Connor: So that choice is still, you know, a big part of that business model.

Marty Connor: You know what I meant.

Was a great quarter.

Marty Connor: We did run a spec event in the month of July, so we increased incentives modestly in July in some communities on specs, particularly those specs that might have been further along in construction.

Marty Connor: And, you know, as the spec business continues to, mature, we get better at it.

Marty Connor: We earned $504 million before taxes and $375 million after.

Speaker Change #210: Older millennials are now hitting their 40s, which should provide a tailwind for our luxury move-up business over the next decade. In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the under supply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low levels. But even as interest rates move lower, we believe the supply of homes will remain challenged due to nearly 15 years of under-production.

Douglas Yearley: This offers our spec buyers a degree of choice, which is a key pillar in the told brothers buying experience. While providing us with a faster and more efficient construction schedule, at third quarter end our backlog stood at $7.1 billion and $6,7609 home. Our cancellation rate as a percentage of backlog was 2.4% in the third quarter, down from 2.8% in our second quarter and consistent with our long-term average of 2.3%. Our industry low cancellation rate is due to the significant upfront down payments our buyers make, as well as the emotional attachment they form as they personalize their homes with us.

Marty Connor: Or $3 60 of earnings per diluted share.

Marty Connor: Well above the earnings we guided to last quarter.

Marty Connor: However, in July, we did raise prices on our build-to-order homes.

Marty Connor: Home sale revenues were $2 $72 billion in the quarter.

Marty Connor: So the overall effect was pretty much flat, but as we sit here in the third week of August, traffic is up.

Marty Connor: The quality of traffic has improved, rates are now down.

Marty Connor: A third quarter record.

Marty Connor: We're sitting on a 6 and 5.8, lowest rate in a year, 30-year no point mortgage with a feeling that those rates are going to come down further.

Marty Connor: An increase of 2% compared to one year ago.

Marty Connor: We delivered 20 814 homes in the quarter.

Marty Connor: Up 11, 5% year over year.

Marty Connor: This unit growth is a direct outcome of our strategy is broadening our price points and increasing our supply of spec homes.

Marty Connor: So we are seeing a bit more pricing power right now.

Based on our third quarter results and our expectations for the fourth quarter.

Marty Connor: We are being careful because mid-August is not normally the time to aggressively raise prices. As families are just closing down summer houses and getting kids into school and taking a deep breath, but in the fall, we generally do see an improvement in activity. And with how things are lined up with where the rates we think will go and where we currently have higher quality traffic, we are encouraged that we think we will have more pricing power as we head into the fall.

We are raising our full year deliveries guidance.

Marty Connor: The other thing to note, Alan, is that the sent buy downs are part of our incentive offerings.

Marty Connor: I expect to deliver between 10006 hundred 50, and 10750 homes, an increase of 100 homes at the midpoint of our previous guidance.

Douglas Yearley: We intend to be more affluent, approximately 28% of our buyers paid all cash in the third quarter, consistent with our second quarter and significantly above our long-term average of approximately 20%. The loan devalue ratio for buyers who took a mortgage was approximately 69%. So, for the 72% of our buyers who took a mortgage on average, they put down 31%. These metrics highlight the financial strength and affluence of our entire customer base.

Marty Connor: We are also increasing our guidance for full year average delivered price by $10000.

Speaker Change #147: Two $975000.

Speaker Change #147: They are less expensive for us to accomplish now in the lower rate environment.

Speaker Change #147: This translates to a homebuilding revenue projection of between 10, four and $10 5 billion.

Speaker Change #147: Yeah, I was gonna follow up on that, Marty.

Speaker Change #147: For the full year or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Speaker Change #147: So thank you for adding that.

Speaker Change #147: So when you say less expensive, are you buying down the rate a lesser magnitude because you don't need to solve for a lower rate?

Speaker Change #147: We signed 2400 90 net contracts in the third quarter for $2 4 billion.

Douglas Yearley: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster-turned-speccoms. We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Speaker Change #147: Up approximately 11% in dollars and units.

Speaker Change #147: The average price of contracts signed in the quarter was approximately $967000, which was about flat compared to both the third quarter of last year and the second quarter of this year.

Speaker Change #147: Or is it actually, you know, to buy down that same whatever it is, 50 basis points, 100 basis points, is it actually costing you less?

Speaker Change #147: Our third quarter adjusted gross margin was 28, 8% compared to 29, 3% in the third quarter of 2023, and this was 110 basis points better than we had projected.

Douglas Yearley: We are on target to reach our goal of operating from 410 communities by fiscal year end, which would represent 11% growth compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year and we have sufficient land under control to do it. At quarter end, we under-controlled 72,700 lots, half of which were controlled and the other half owned, excluding the 6,769 lots in our backlog, our controlled land represents 55% of our lots.

Speaker Change #147: And if so, can you quantify that?

Speaker Change #147: The outperformance to guide was due primarily to greater efficiency in our homebuilding operations as well as favorable mix.

Speaker Change #147: With the outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0%.

Speaker Change #147: To 28, 3%.

Speaker Change #147: We are now projecting a fourth quarter adjusted gross margin of 27, 5%.

Speaker Change #147: 10 basis point increase.

Douglas Yearley: This land physician provides us with sufficient lots needed for growth in fiscal 2025 and beyond and allows us to continue to be selective, disciplined and focused on efficiency when we assess new land opportunities. Our underwriting standards for new land continues to incorporate stringent thresholds for both margins and returns and we continue to seek out land acquisition and development opportunities that allow us to be more capital-efficient, including through increased use of option arrangements, land banks, joint ventures and similar structures that allow us to defer payments and lot take downs.

Speaker Change #147: Compared to our previous implied guidance.

Speaker Change #147: SG&A as a percentage of revenue was 9.0% in the third quarter compared to eight 6% in the third quarter of last year.

And this was 20 basis points better than we had projected for this quarter.

Year over year, we modestly reduced G&A expenses in terms of total dollars.

Speaker Change #147: But this reduction was offset by higher selling expenses due in part to increased community openings.

Speaker Change #147: As we've pointed out before.

Speaker Change #147: We've been very focused on becoming more efficient and we are seeing the benefits of that efficiency continue to flow through our results.

Douglas Yearley: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we repurchase $246 million of our common stock bringing our year-to-date repurchases to $427 million at an average price of approximately $119 per share. We also paid over $70 million in dividends year to date. So far this year we've repurchased approximately 3% of our year-end deluded share count and since 2016 we've brought back approximately one-half of the company.

Speaker Change #147: For the fourth quarter, we expect SG&A expense to be eight 6% of home sales revenues.

Speaker Change #147: And for the full year, we now expect it to be nine 4%.

Speaker Change #147: This represents a 20 basis point improvement over our previous guidance.

Speaker Change #147: Third quarter joint venture land sales and other income was $1 million, which was consistent with our breakeven guidance.

Speaker Change #147: We continue to expect our full year joint venture land sales and other income to be approximately $260 million implying.

Speaker Change #147: Implying approximately $47 million in the fourth quarter.

Speaker Change #147: Our tax rate in the quarter was 25, 6%.

Speaker Change #147: We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25, 4%.

Douglas Yearley: Given our outstanding year-to-date financial performance including strong operating cash flows, we are raising our buy-back expectations for the full year from $500 to $600 million. Dividend and buy-backs will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity. We now expect our return on beginning equity to be approximately 22.5% this year. This would be the third year in a row that regenerate an ROE over 20%.

Speaker Change #147: We expect interest and cost of sales to be approximately one 3% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.

Speaker Change #147: As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities open for sale by fiscal year end.

Doug: This would represent approximately 11% growth from the 370 communities, we began the year with.

Doug: We plan to continue growing community count fiscal year 2025.

Doug: And have the land to do it.

Speaker Change #148: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19, 6%.

Speaker Change #211: Lower rates alone will not fully address the chronic under-supply of housing.

Martin Connor: With that I will turn it over to Marty. Thanks Doug.

Speaker Change #211: The past several years have proven how impactful these fundamentals are, with demand for new homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated.

Speaker Change #212: As a large, well-capitalized home builder, we have benefited from and performed very well in this environment with sales of 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing market.

Martin Connor: Good morning everyone. Thanks for being with us. It was a great quarter. We earned $504 million before taxes and $375 million after or $3.60 of earnings per deluded share. Well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter. A third quarter record and an increase of 2% compared to one year ago. We delivered 2814 homes in the quarter up 11.5% year over year. This unit growth is a direct outcome of our strategies of broadening our price points and increasing our supply of spec homes.

Speaker Change #148: $893 million in cash and equivalents and $1 8 billion available under our $1 $96 billion revolving bank credit facility.

Speaker Change #148: We have no significant bank or senior debt maturities until November 2025.

Speaker Change #148: All of this provides us with ample flexibility to both grow our business and return capital to stockholders as we continue to focus on generating attractive returns.

Speaker Change #148: Our weighted average share count is expected to be approximately $104 $75 million for the full year and $102 5 million for the fourth quarter.

Speaker Change #213: Our strategy of widening our geographies and price points to include more affordable homes and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder.

As Doug noted, we have increased our share repurchase guidance to approximately $600 million of repurchases. This year, implying approximately $175 million of buybacks in the fourth quarter.

Speaker Change #214: As we have expanded and come down in price, we now have the widest variety of product and the widest range of price of any of the builders, which presents us with a great opportunity to grow our core home building business in our 60 markets across the country.

Martin Connor: Based on our third quarter results and our expectations for the fourth quarter, we are raising our full year delivery guides. We now expect to deliver between 10,650 and 10,750 homes, an increase of 100 homes at the midpoint of our previous guidance. We are also increasing our guidance for full year average delivered price by $10,000 to $975,000. This translates to a home building revenue projection of between 10.4 and 10.5 billion dollars for the full year or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Doug: It's costing less.

Doug: Putting this all together, we now expect to earn between $14 50.

Doug: $14 75 per.

Doug: Per diluted share in fiscal 2024, we.

Doug: We expect to achieve a full year return on beginning equity of approximately 22, 5%. We expect our book value at year end to be over $76 50.

Doug: This would cap off another great year for toll brothers.

Doug: So our typical buy down deal around the country is to buy your rate down to four and three.

Doug: That also drives a little bit more margin because, as you know, the upgrades to the, design studio tend to be accretive to the company margin.

Doug: We turn these houses faster.

Doug: Now, let me turn it back to Doug.

Doug: That's the number we picked.

Doug: Thank you Marty.

Doug: John Lovallo with UBS, please go ahead.

Doug: You're going to see an improvement in, an improvement in that conversion.

Doug: Before I open it up for questions I'd like to recognize the hard work of all of our toll employees.

Doug: Morning, guys.

Doug: Makes sense.

Doug: It is their passion for our business dedication to our luxury brand and commitment to our customers that will ensure our continued success.

Speaker Change #215: Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec with continued strong demand from buyers who are looking for quicker movements. As a reminder, we define a spec as any home without a buyer that has a foundation port. We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide. This offers our spec buyers a degree of choice, which is a key pillar in the told brothers buying experience.

Martin Connor: We signed 2490 net contracts in the third quarter for $2.4 billion of approximately 11% in dollars and units. The average price of contract signed in the quarter was approximately $967,000 which was about flat compared to both the third quarter of last year and the second quarter of this year. Our third quarter adjusted gross margin was 28.8% compared to 29.3% in the third quarter of 2023 and this was 110 basis points better than we had projected.

Doug: Thanks for taking my questions as well.

Doug: And then, you know, moving on to the, to the, you know, the fourth quarter gross margin, you know, what would drive the expected 140 basis points sequential decline from the third quarter?

Doug: David Let's open it up for questions.

David: And so when you when you buy from seven to four and three eighths, it's more expensive than when you buy from six and five eighths to four and three eighths.

David: I mean, is this the reverse of the positive mixed impact in the third quarter?

David: We will now begin the question and answer session.

Speaker Change #216: While providing us with a faster and more efficient construction schedule, at third quarter end our backlog stood at $7.1 billion and $6,7609 home. Our cancellation rate as a percentage of backlog was 2.4% in the third quarter, down from 2.8% in our second quarter and consistent with our long-term average of 2.3%. Our industry low cancellation rate is due to the significant upfront down payments our buyers make, as well as the emotional attachment they form as they personalize their homes with us.

David: And what specifically was that mixed impact?

As a reminder, the company is planning to end the call at 930, when the market opens during the Q&A. Please limit yourself to one question and one follow up to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then.

Speaker Change #217: We intend to be more affluent, approximately 28% of our buyers paid all cash in the third quarter, consistent with our second quarter and significantly above our long-term average of approximately 20%. The loan devalue ratio for buyers who took a mortgage was approximately 69%. So, for the 72% of our buyers who took a mortgage on average, they put down 31%.

David: Maybe just following up on Steve's question, your backlog has continued to kind of get worked down over the past few years.

David: Was it geographic?

David: Two.

Speaker Change #149: Marty, the amount of that, Not to put you on the spot, but he did ask the question. It's around 5 to 6% of the mortgage amount, to buy it down.

Speaker Change #149: Our first question comes from Stephen Kim with Evercore ISI. Please go ahead.

Speaker Change #149: Remember that four and three-eighths is a one-year, it reverts to five and three-eighths for the balance of the twenty-nine years.

Speaker Change #149: I mean, how confident are you that improved cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025?

Speaker Change #149: Was it product or spec versus BTO?

Martin Connor: The Outperformance to Guide was due primarily to greater efficiency in our home building operations, as well as favorable mix. With the Outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% to 28.3%. We are now projecting a fourth quarter adjusted gross margin of 27.5%, a 10 basis point increase compared to our previous implied guidance. SGNA, as a percentage of revenue, was 9.0% in the third quarter compared to 8.6% in the third quarter of last year, and this was 20 basis points better than we had projected for this quarter.

Speaker Change #149: Thank you.

Stephen Kim: Yes, thanks, very much guys I appreciate all the color so far.

Speaker Change #149: Sure.

Stephen Kim: And and good job in the quarter.

Stephen Kim: Wanted to ask sure Yeah, I wanted to ask you about profitability and.

Speaker Change #149: So let's remember, we raised guidance for Q4 gross margin. Yes, when you compare it to the blowout gross margin of Q3, the gap there is bigger. Q3, as we mentioned, was 110 basis points better than guide because of mix. We had more high margin homes delivering in the Pacific and the South. And in, and we had less spec homes delivering than we had anticipated. That reverses a bit in the fourth quarter where we will have less high margin homes delivering from the South and the Pacific.

Speaker Change #149: And by the way, the entire South and Pacific is not necessarily high margin. It is certain communities within the South and the Pacific that have this higher margin where we had, more of those deliver Q3 and less of those in Q4.

Speaker Change #150: I was intrigued by your comment about greater efficiency in the homebuilding operations.

Speaker Change #150: I wanted to just sort of get a sense of if you could elaborate there and that seems to imply that there is a degree of sustainability to the strength that we're seeing in your margins and so I know you haven't given guidance here for 2025, but it would be helpful for I think us to hear you.

Speaker Change #151: Comment on the call it the 17, 5% operating margin you're generating this year.

Speaker Change #152: How sustainable you think that is generally is that a number that you think is inflated by any particular variables or is that a level that you sort of as you look forward across your business over the next several years is that a level that you sort of feel is is a reasonable level to use as kind of a base.

Martin Connor: Year over year, we modestly reduced GNA expenses in terms of total dollars, but this reduction was offset by higher selling expenses due in part to increase community openings. As we've pointed out before, we've been very focused on becoming more efficient, and we are seeing the benefits of that efficiency continue to flow through our results. For the fourth quarter, we expect SGNA expense to be 8.6% of home sales revenues, and for the full year, we now expect it to be 9.4%.

Speaker Change #152: And as we've spoken before, It's a great marketing gag.

Speaker Change #152: Thanks, Steve Great question. The quick answer is yes, we believe that operating margin you referenced is sustainable we are targeting long term with this new business model.

Speaker Change #152: It drives traffic, but we don't actually sell a lot of it.

Speaker Change #152: A very wide price point, a very wide geography about 50% spec.

Speaker Change #152: More and more affordable luxury communities.

Speaker Change #152: A longer term gross margin in the 27% to 28% range and as we become more efficient on the SG&A line, which you've seen over the last couple of years.

Martin Connor: This represents a 20 basis point improvement over our previous guidance. Third quarter joint venture, land sales and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture, land sales and other income, to be approximately 260 million dollars, implying approximately $47 million in the fourth quarter. Our tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rates to approximately 25.4%.

Speaker Change #152: We think that operating margin long term is definitely sustainable.

Speaker Change #153: Well, that's super clear so I appreciate that and that's obviously very encouraging.

Speaker Change #154: Was wondering if you could talk a little bit about yours, a little bit more about your spec.

Speaker Change #153: Model.

Speaker Change #155: What was the actual number of spec.

Speaker Change #156: Specs both of finished and in total specs that you had in the quarter and then I had a follow up regarding what that about that level.

Martin Connor: We expect interest and cost to sales to be approximately 1.3% in the fourth quarter, and for the full year, as we continue to benefit from our reduced leverage. As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities, open for sale by fiscal year end. This would represent approximately 11% growth from the 370 communities we began the year with. We plan to continue growing community count in fiscal year 2025, and have the land to do it.

Speaker Change #156: At the end of the quarter Steve.

Steve: Steve we had around 3400 specs around 750 of those.

Speaker Change #157: Or beyond or one eight per community.

Speaker Change #158: That's interesting okay. So you had.

Speaker Change #159: You had about eight and a half per community total but finished was you said.

Speaker Change #160: Below two.

That level of.

Speaker Change #161: Those levels of specs is that a number that we are those numbers per community. What we can also expect going forward.

Speaker Change #217: These metrics highlight the financial strength and affluence of our entire customer base.

Martin Connor: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalence, and $1.8 billion available under our $1.96 billion revolving bank credit facility. We have no significant bank or senior debt maturities until November 2025. All of this provides us with ample flexibility to both grow our business and return capitalist stockholders, as we continue to focus on generating attractive returns. Our weighted average share count is expected to be approximately 104.75 million for the full year and 102.5 million for the fourth quarter.

Speaker Change #161: Or is that or do you see this changing that growing perhaps as we go forward.

Speaker Change #161: Steven.

We're starting a spec essentially for every home we sell so the starts and specs starts include one BTL one spec.

Speaker Change #162: 50, 50, PTO as build to order.

Speaker Change #163: I think we've hit but not bachman Turner.

Speaker Change #163: For the older people on the call.

Speaker Change #163: Well, we arent taking care of business here Doug.

Speaker Change #163: Yeah.

Speaker Change #165: So I think we've hit a bit of a equilibrium point here on are up to 50% spec strategy now that will vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here and it's important I know <unk> talked I know, Steve we talked about before as you know we.

Martin Connor: As Doug noted, we've increased our share repurchased guidance to approximately $600 million of repurchases of this year, implying approximately $175 million with five acts in the fourth quarter. Putting this all together, we now expect to earn between $14.50 and $14.75 for a diluted share in fiscal 2024. We expect to achieve a full year return on beginning equity of approximately 22.5%. We expect our book value at year end to be over $76.50.

Choice at toll brothers is still alive and well, it's still very important not just on the build to order business, but we do hope that at least half of the spec buyers are buying early enough that they have enough.

Speaker Change #165: People tend to and increase the finishes in the home.

Time to pick some level of finishes if you buy it very early you can hit that design studio and truly customize the inside of your home if you're buying a little bit later, you have some opportunity for flooring for kitchen cabinets for countertops and then of course there are some as we described that get to the end can be delivered quickly for <unk>.

Speaker Change #218: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster-turned-speccoms. We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flows.

Martin Connor: This would cap off another great year for toll brothers.

Speaker Change #219: We are on target to reach our goal of operating from 410 communities by fiscal year end, which would represent 11% growth compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year and we have sufficient land under control to do it. At quarter end, we under-controlled 72,700 lots, half of which were controlled and the other half owned, excluding the 6,769 lots in our backlog, our controlled land represents 55% of our lots.

Douglas Yearley: Now let me turn it back to Doug. Thank you, Marty.

Speaker Change #165: That goes to the affluent nature of our client.

Speaker Change #165: Buyer that wants a faster move in so we do define this fact as a foundation in the ground without a buyer.

Speaker Change #220: This land physician provides us with sufficient lots needed for growth in fiscal 2025 and beyond and allows us to continue to be selective, disciplined and focused on efficiency when we assess new land opportunities. Our underwriting standards for new land continues to incorporate stringent thresholds for both margins and returns and we continue to seek out land acquisition and development opportunities that allow us to be more capital-efficient, including through increased use of option arrangements, land banks, joint ventures and similar structures that allow us to defer payments and lot take downs.

Speaker Change #221: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we repurchase $246 million of our common stock bringing our year-to-date repurchases to $427 million at an average price of approximately $119 per share.

Unknown Executive: Before I open it up for questions, I'd like to recognize the hard work of all of our toll employees. It is their passion for our business, dedication to our luxury brand, and commitment to our customers that will ensure our continued success. Dave, let's open it up for questions. We will now begin the question in the intercession. As a reminder, the company is planning to end the call at 9.30 when the market opens.

Speaker Change #165: And we market accordingly, so that choice is still.

Speaker Change #222: We also paid over $70 million in dividends year to date. So far this year we've repurchased approximately 3% of our year-end deluded share count and since 2016 we've brought back approximately one-half of the company. Given our outstanding year-to-date financial performance including strong operating cash flows, we are raising our buy-back expectations for the full year from $500 to $600 million.

Speaker Change #166: Big part of that business model that also drives a little bit more margin because as you know the upgrades the design studio tend to be accretive to the company margin.

Speaker Change #222: Dividend and buy-backs will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity.

Speaker Change #167: Yeah, absolutely and the level of finished specs per community is very encouraging I would say below 222 per community.

Speaker Change #222: We now expect our return on beginning equity to be approximately 22.5% this year.

Speaker Change #168: That's not at all an unusually high number so it's very clear that your your process is working so great well I appreciate all the color thanks very much.

Unknown Executive: During the Q&A, please limit yourself to one question and one follow-up. To ask a question, you may press star the one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two.

Speaker Change #167: You.

Speaker Change #167: They're not rate dependent.

Speaker Change #167: And the next question comes from John Lovallo with UBS. Please go ahead.

John Lovallo: They don't need that lower rate to qualify.

John Lovallo: Morning, guys. Thanks for taking my questions as well maybe just following up on Hey, how are you maybe just following up on Steve's question.

John Lovallo: They recognize rates will probably come down, so they may be overpaying because in a year or two, they could probably refi.

John Lovallo: And so they'd rather permanently improve their home through their lifestyle, through the design studio with those incentive dollars.

John Lovallo: And the next question comes from Michael Rehaut with J.P. Morgan.

Stephen Kim: Our first question comes from Stephen Kim with Evercore ISI. Please go ahead. Thanks very much, guys. Appreciate all the color so far and a good job in the quarter. I wanted to ask you about profitability. I was intrigued by your comment about greater efficiency in the humbling operations. I wanted to sort of get a sense of if you could elaborate there. That seems to imply that there is a degree of sustainability to the strength that we are seeing in your margins.

Backlog has continued to kind of get worked down over the past few years I mean, how confident are you that improved cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025.

Speaker Change #223: This would be the third year in a row that regenerate an ROE over 20%.

Speaker Change #224: With that I will turn it over to Marty.

John Lovallo: We're very confident.

Speaker Change #169: Please go ahead.

Speaker Change #169: We're very confident we're doing it right now.

Speaker Change #169: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.

Speaker Change #169: Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC.

Speaker Change #169: Member NYSE & SIPC, a Fidelity Investments company.

Speaker Change #169: Thanks, Mike.

Speaker Change #225: Thanks Doug.

Speaker Change #169: His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or can be ordered at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel.

Speaker Change #169: And.

Speaker Change #169: Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA.

Speaker Change #169: The more as we've talked about if we can keep this spec at about 50 50, those houses are being built faster.

Marty: Good morning everyone.

Speaker Change #169: We're doing it right now.

Speaker Change #169: I wanted to dial in a little bit about your, over the years now, I guess, over the last year or two, your shift towards spec being 50% and how that kind of fits in with your prior or still, to some degree, ongoing, you know, preference of price over pace.

Speaker Change #169: We're able to deliver them quicker the conversion rate on our backlog.

Speaker Change #226: Thanks for being with us.

Stephen Kim: I know you have been getting guidance here for 2025, but it would be helpful for us to hear you comment on the 17.5% operating margin you are generating this year. How sustainable do you think that is generally? Is that a number that you think is inflated by any particular variables or is that a level that you sort of as you look forward across your business over the next several years? Is that a level that you sort of feel is a reasonable level to use as kind of a base? Thanks, Steve.

Speaker Change #169: Has come down and will continue to come down.

Speaker Change #169: This is excuse me will continue to go up but my apologies that we will turn houses faster.

Speaker Change #169: And, you know, the more, as we've talked about it, we can keep this spec at about 50-50.

Marty: It was a great quarter. We earned $504 million before taxes and $375 million after or $3.60 of earnings per deluded share. Well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter. A third quarter record and an increase of 2% compared to one year ago. We delivered 2814 homes in the quarter up 11.5% year over year. This unit growth is a direct outcome of our strategies of broadening our price points and increasing our supply of spec homes. Based on our third quarter results and our expectations for the fourth quarter, we are raising our full year delivery guides.

Speaker Change #169: And.

Speaker Change #227: We now expect to deliver between 10,650 and 10,750 homes, an increase of 100 homes at the midpoint of our previous guidance. We are also increasing our guidance for full year average delivered price by $10,000 to $975,000. This translates to a home building revenue projection of between 10.4 and 10.5 billion dollars for the full year or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Speaker Change #169: As the spec business continues to mature we get better at it we turn these houses faster you're going to see an improvement and an improvement in that conversion.

Speaker Change #169: Those houses are being built faster. You know, we're able to deliver them quicker.

Speaker Change #169: The conversion rate on our backlog has come down and will continue to come down as this, as this, excuse me, will continue to go up.

Speaker Change #169: My apologies.

Speaker Change #169: We will turn houses faster.

Speaker Change #169: You know what I meant.

Speaker Change #169: You know, this quarter, it was pretty interesting in that you probably had a relative to prior buildings reporting a little bit more of a gap between at least our estimates of order growth and what you put out, and probably one of the stronger gross margins relative to our estimates.

Speaker Change #228: We signed 2490 net contracts in the third quarter for $2.4 billion of approximately 11% in dollars and units. The average price of contract signed in the quarter was approximately $967,000 which was about flat compared to both the third quarter of last year and the second quarter of this year.

Speaker Change #169: And I think that's generally consistent with how you operate in more temporary periods of softness where, you know, maybe volume or orders fall off a little bit more and you hold on to the margin.

Speaker Change #169: Makes sense and then moving on to the.

Speaker Change #169: At the same time, you're shifting in this, you know, more of a spec model or, you know, half of your business spec.

Speaker Change #170: The fourth quarter gross margin what would drive the expected 140 basis points sequential decline from the third quarter. I mean is this the reverse of the positive mix impact in the third quarter and what specifically was that mix impact was it geographic was it product spec versus bto. Thank you sure.

Douglas Yearley: Great question. The quick answer is yes, we believe that operating margin you reference is sustainable. We are targeting long term with this new business model of a very wide price point, a very wide geography, about 50% spec, more and more affordable luxury communities. A longer term grows margin in the 27 to 28% range and as we become more efficient on the SG&A line which you have seen over the last couple of years, we think that operating margin long term is definitely sustainable. Well, that's super clear. So appreciate that. And that's obviously very encouraging.

Speaker Change #229: Our third quarter adjusted gross margin was 28.8% compared to 29.3% in the third quarter of 2023 and this was 110 basis points better than we had projected. The Outperformance to Guide was due primarily to greater efficiency in our home building operations, as well as favorable mix. With the Outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% to 28.3%.

Speaker Change #171: There are points where you're going to have to, as you did in this quarter, increase incentives if your specs build up a little too much.

Speaker Change #171: So, let's remember we raised guidance for Q4 gross margin.

Speaker Change #229: We are now projecting a fourth quarter adjusted gross margin of 27.5%, a 10 basis point increase compared to our previous implied guidance. SGNA, as a percentage of revenue, was 9.0% in the third quarter compared to 8.6% in the third quarter of last year, and this was 20 basis points better than we had projected for this quarter. Year over year, we modestly reduced GNA expenses in terms of total dollars, but this reduction was offset by higher selling expenses due in part to increase community openings.

Speaker Change #172: Yes, when you compare it to the blow out gross margin of Q3.

Speaker Change #173: The GAAP there is bigger Q3, as we mentioned.

Speaker Change #173: And so I'm wondering, going forward, how investors should think about that balance.

Speaker Change #173: And, you know, if there's going to be points where perhaps you're going to be a little more sensitive to pace, you know, if softness is going to go past a quarter or two, and if that would, you know, drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change #173: So, Mike, I think it's fair to say that we may be, A little bit more focused on price than pace compared to the other builders that have more of a spec business and they have product that they need to move, but steal a line from my good friend Ryan Marshall at Pulte, we are not.

Was 110 basis points better than guide.

Speaker Change #230: As we've pointed out before, we've been very focused on becoming more efficient, and we are seeing the benefits of that efficiency continue to flow through our results.

Speaker Change #174: Cause of mix, we had more high margin.

Speaker Change #231: For the fourth quarter, we expect SGNA expense to be 8.6% of home sales revenues, and for the full year, we now expect it to be 9.4%. This represents a 20 basis point improvement over our previous guidance.

Speaker Change #232: Third quarter joint venture, land sales and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture, land sales and other income, to be approximately 260 million dollars, implying approximately $47 million in the fourth quarter.

Home is delivering in the Pacific and the south.

Speaker Change #232: Our tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rates to approximately 25.4%. We expect interest and cost to sales to be approximately 1.3% in the fourth quarter, and for the full year, as we continue to benefit from our reduced leverage.

Stephen Kim: Was wondering if you could talk a little bit about your, a little bit more about your spec model. What was the actual number of specs both finished and in total specs that you had in the quarter, and then I had to follow regarding what that about that level. At the end of the quarter, Steve, we had around 3,400 specs, around 750 of those were at CO or beyond or 1.8 per community.

Speaker Change #174: And then and we have less spec homes, delivering and we had anticipated that reverses a bit in the fourth quarter, where we will have less high.

Speaker Change #233: As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities, open for sale by fiscal year end. This would represent approximately 11% growth from the 370 communities we began the year with. We plan to continue growing community count in fiscal year 2025, and have the land to do it.

Stephen Kim: That's interesting. Okay. So you had about 8.5 per community total, but finished was you said below two. That level of those levels of specs, is that a number that we, are those numbers per community, what we can also expect going forward, or is that, or do you see this, this changing that growing perhaps as we go forward? Stephen, we're starting a spec essentially for every home we sell. So the starts and specs starts include one BTO, one spec, kind of 5050.

Speaker Change #174: Margin Proud.

Speaker Change #174: High margin homes, delivering from the south and the Pacific.

Speaker Change #174: It is a balance.

Speaker Change #234: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalence, and $1.8 billion available under our $1.96 billion revolving bank credit facility. We have no significant bank or senior debt maturities until November 2025.

Speaker Change #174: And by the way that the entire south and Pacific is not necessarily high margin. It has certain communities within the south and the Pacific.

Speaker Change #174: That have this higher margin, where we had more of those deliver Q3 and less of those in Q4, and we will have.

Speaker Change #174: And we will have about 60% of our deliveries in the fourth quarter be spec.

Speaker Change #235: All of this provides us with ample flexibility to both grow our business and return capitalist stockholders, as we continue to focus on generating attractive returns.

Speaker Change #174: 60% of our deliveries in the fourth quarter be spec so.

Speaker Change #174: And, you know, as the spec business continues to mature, we get better at it.

Speaker Change #174: So, you know, with our business running from, you know, we now have homes from the mid 300s to over $5 million.

Speaker Change #174: We turn these houses faster.

Speaker Change #174: You're going to see an improvement in that conversion.

Speaker Change #235: Our weighted average share count is expected to be approximately 104.75 million for the full year and 102.5 million for the fourth quarter.

Speaker Change #174: Our business running from we now have homes from the mid three hundreds to over $5 million. We have gross margins that have a very large range.

Speaker Change #174: Makes sense.

Speaker Change #174: And then, you know, moving on to the, you know, the fourth quarter gross margin, you know, what would drive the expected 140 basis points sequential decline from the third quarter?

Speaker Change #174: We have gross margins that have a very large range. You know, we have, we have a few communities with 10% gross margin and we have communities with 50% gross margin.

Speaker Change #174: We have a few communities with 10% gross margin and we have communities with 50% gross margin and so when you look at our business quarter to quarter, there may be a little bit more variation naturally and some of the other builders that have a much tighter range of price point and margin.

Speaker Change #174: And so when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin. And so there's a little bit more variety there, as you just saw in the third quarter and as we've guided to in Q4.

Speaker Change #236: As Doug noted, we've increased our share repurchased guidance to approximately $600 million of repurchases of this year, implying approximately $175 million with five acts in the fourth quarter.

Speaker Change #236: Putting this all together, we now expect to earn between $14.50 and $14.75 for a diluted share in fiscal 2024.

Speaker Change #236: We expect to achieve a full year return on beginning equity of approximately 22.5%.

Stephen Kim: BTO is filled the order. And I think we've hit a bit, not Bachman Turner, because the older people are on call. So we are taking care of business here. So I think we've hit a bit of a equilibrium point here on our up to 50% spec strategy. Now that'll vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here. And it's important, I know we talked, I know Steve we talked about before as you know, but we, you know choice until brothers is still alive and well, it's still very important, not just on the build order business.

Speaker Change #236: We expect our book value at year end to be over $76.50.

Speaker Change #174: <unk>.

Speaker Change #174: And so theres a little bit more variety there as you just saw in the third quarter and as we've guided to in Q4, but overall.

Speaker Change #174: I mean, is this the reverse of the positive mixed impact in the third quarter?

Speaker Change #237: This would cap off another great year for toll brothers.

Speaker Change #238: Now let me turn it back to Doug.

Speaker Change #174: And what specifically was that mixed impact?

Speaker Change #174: But overall, you know, that's 20 to 28, 27 to 28% long-term margin. While there could be some modest variation quarter to quarter, we're very comfortable with where this business is headed.

Speaker Change #174: That 20% to 28, 27% to 8% long term margin, while there could be some modest variation quarter to quarter, we're very comfortable with where this business is headed.

Speaker Change #239: Thank you, Marty.

Doug: Before I open it up for questions, I'd like to recognize the hard work of all of our toll employees.

Speaker Change #174: Was it geographic?

Speaker Change #174: And the next question comes from Allen Ratner with Zellman & Associates.

Speaker Change #174: We are definitely focused on top line growth.

Speaker Change #174: And the next question comes from Alan Ratner with Zelman and Associates. Please go ahead.

Speaker Change #174: Was it product or spec versus BTO?

Speaker Change #174: Please go ahead.

Alan Ratner: Hey, guys good morning, nice quarter and thanks for all the helpful detail so far.

Speaker Change #240: It is their passion for our business, dedication to our luxury brand, and commitment to our customers that will ensure our continued success.

Stephen Kim: But we do hope that at least half of the spec buyers are buying early enough that they have enough time to pick some level of finishes. If you buy it very early, you can hit that design studio and truly customize the inside of your home. If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops. And then of course there are some as we described that get to the end can be delivered quickly for that buyer that wants a faster move in.

Doug: Thanks, Doug.

Alan Ratner: I'd like to drill in on pricing.

Alan Ratner: Comments suggest pricing is pretty flattish in the quarter plus or minus.

Speaker Change #174: Thank you.

Speaker Change #174: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show.

Speaker Change #241: Dave, let's open it up for questions.

Speaker Change #175: Pending on the community I'm curious as you kind of sit here three weeks into August.

Speaker Change #176: So I'm pretty encouraged by the recent activity.

Speaker Change #241: We will now begin the question in the intercession.

Speaker Change #177: Have you started to or have you seen any ability to begin either dialing back incentives now that rates are a bit lower maybe pulling back on some of the rate buy downs or EBIT start to begin raising prices again or is it.

Speaker Change #242: As a reminder, the company is planning to end the call at 9.30 when the market opens.

Speaker Change #243: During the Q&A, please limit yourself to one question and one follow-up.

Stephen Kim: So, you know, we do define the spec as a foundation in the ground without a buyer and we market accordingly so that choice is still, you know, a big part of that business model. That also drives a little bit more margin because as you know, the upgrades to the design studio tend to be a creative to the company margin. Yeah, absolutely. And the level of finish specs your per community is very encouraging. I would say below to per community that's not at all an unusually high number. So it's very clear that your process is working. So great.

Still premature to do that given that the choppiness.

Speaker Change #178: We are also focused on this 27-28% gross margin that we believe is sustainable long term. We are also focused on becoming more and more efficient.

Speaker Change #178: Yes, so it was.

Speaker Change #178: It was a bit of a choppy quarter as we and other builders have talked about I went through the cadence.

Speaker Change #178: Lower rest DNA, higher operating margin, long term.

Speaker Change #178: First the beginning of may pretty much up to our call.

Speaker Change #178: Things were looking pretty good and then.

Speaker Change #178: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at, when we need to put it on the market, how we can make more margin if we sell it earlier.

Speaker Change #178: Over the last week of May through all of June definitely saw a slowdown and we saw an accelerating pickup in July with the end of July being the best and that has continued into August we did run a spec events in the month of July.

Stephen Kim: Well, appreciate all the color. Thanks very much. Thank you.

Speaker Change #178: And so, you know, we have agent reports of all that spec, we focus on how far along it is, if it gets too heavy on the back end, which it hasn't, because of this business model, then yes, on occasion, we might have to be a bit more aggressive, but that is not, something that I think you need to worry about.

Speaker Change #244: To ask a question, you may press star the one on your touch-tone phone.

John Lovallo: And the next question comes from John Lovalo with UBS. Please go ahead. All right, guys, thanks for taking my questions as well. Maybe just following up on hey, how are you? Maybe just following up on Steve's question. You know, your backlog has continued to kind of get worked down over the past few years. I mean, how confident are you that improve cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025?

Speaker Change #178: Sure.

Speaker Change #178: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show.

Speaker Change #178: So we increased incentives modestly in July in some communities.

Speaker Change #244: If you are using a speaker phone, please pick up your handset before pressing the keys.

Speaker Change #178: So let's remember we raised guidance for Q4 gross margin. Yes, when you compare it to the blowout gross margin of Q3, the gap there is bigger. Q3, as we mentioned, was 110 basis points better than guide because of mix. We had more high margin homes delivering in the Pacific and the South. And we had less spec homes delivering than we had anticipated. That reverses a bit in the fourth quarter where we will have less high margin homes delivering from the South and the Pacific.

Speaker Change #244: To withdraw your question, please press star then two.

Speaker Change #244: Our first question comes from Stephen Kim with Evercore ISI.

Speaker Change #179: <unk>, particularly those specs have either been further along in construction. However in July we did raise prices on our build to order homes. So the overall effect was pretty much flat, but as we sit here in the third week of August traffic is up.

Speaker Change #245: Please go ahead.

Speaker Change #246: Thanks very much, guys.

Speaker Change #178: And by the way, the entire South and Pacific is not necessarily high margin. It is certain communities within the South and the Pacific that have this higher margin where we had more of those deliver Q3 and less of those in Q4.

Speaker Change #178: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show.

Speaker Change #247: Appreciate all the color so far and a good job in the quarter.

Speaker Change #179: The business is working, the spec strategy is maturing. We are just about at a point where we've hit the equilibrium of long-term 50% spec, 50% build-to-order, and the business plan is in place.

Speaker Change #248: I wanted to ask you about profitability.

John Lovallo: We're very confident. We're doing it right now. And, you know, the more, as we talked about it, we can keep this spec at about 50-50. Those houses are being built faster. You know, we're able to deliver them quicker. The conversion rate on our backlog has come down and will continue to come down as this, excuse me, will continue to go up. My apologies. We will turn houses faster. You know what I meant. And, you know, as the spec business continues to mature, we get better at it. We turn these houses faster. You're going to can see an improvement in that conversion. Makes sense.

Speaker Change #249: I was intrigued by your comment about greater efficiency in the humbling operations.

The quality of traffic is improved rates are now down we're sitting on a six and five eight.

Speaker Change #249: I wanted to sort of get a sense of if you could elaborate there.

Speaker Change #179: Lowest rate in the year 30 year note point mortgage with a feeling that those rates are going to come.

Speaker Change #179: Down further so we are seeing a bit more pricing power right. Now we are being careful because mid August is not normally the time to aggressively raised prices.

Speaker Change #179: As families are just closing down some of our houses and getting kids into school and taken a deep breath, but in the fall.

Speaker Change #179: Generally do see an improvement in activity and with how things are lined up with where the rates. We think will go and where we currently have.

Speaker Change #250: That seems to imply that there is a degree of sustainability to the strength that we are seeing in your margins.

John Lovallo: And then, you know, moving on to the fourth quarter gross margin, what would drive the expected 140 basis points sequential decline from the third quarter? I mean, is this the reverse of the positive mixed impact in the third quarter? And what specifically was that mixed impact? Was it geographic, was it product, respect versus BTO? Thank you. So, let's remember, we raised guidance for Q4 gross margin. Yes, when you compare it to the blowout gross margin of Q3, the gap there is bigger.

Quality traffic.

Speaker Change #179: We are encouraged that we think we will have more pricing power as we head into the fall.

Speaker Change #179: That's the number we pegged.

The other thing to note Alan is that the extent buy downs are part of our incentive offerings.

Speaker Change #251: I know you have been getting guidance here for 2025, but it would be helpful for us to hear you comment on the 17.5% operating margin you are generating this year.

Speaker Change #251: How sustainable do you think that is generally?

Alan Ratner: They are less expensive for us to accomplish now in the lower rate environment.

Speaker Change #252: Is that a number that you think is inflated by any particular variables or is that a level that you sort of as you look forward across your business over the next several years?

Speaker Change #252: Is that a level that you sort of feel is a reasonable level to use as kind of a base?

Speaker Change #252: Thanks, Steve.

Alan Ratner: Yes, I was going.

Alan Ratner: Follow up on them already so thank you for reading that too when you say less expensive are you buying down the rate of lesser magnitude because you don't need to solve for a lower rate or is it actually to buy down that same whatever it is 50 basis points 100 basis points of it actually costing you less and if so can you quantify that.

Speaker Change #252: Great question.

John Lovallo: Q3, as we mentioned, was 110 basis points better than guide because of mix. We had more high margin homes delivering in the Pacific and the South. And we had less spec homes delivering than we had anticipated. That reverses a bit in the fourth quarter where we will have less high margin homes delivering from the South and the Pacific. And by the way, the entire South and Pacific is not necessarily high margin.

Speaker Change #180: It's costing less so are our typical buying am deal around the country is to buy your rate down to four and three eighths.

Speaker Change #179: And so when you when you buy from seven to four and three-eighths, it's more expensive than when you buy from six and five-eighths to four and three-eighths.

Speaker Change #181: The number we tact.

Marty Connor: And so when you when you buy from seven to four and three eighths, it's more expensive than when you buy from six and five eights to four and three eighths Marty the amount of that.

Speaker Change #179: Marty, the amount of that, not to put you on the spot, but he did ask the question.

Speaker Change #182: Not to put you on the spot and then you did ask the question on 5% to 6% of the mortgage amount.

Speaker Change #179: Five to six percent of the mortgage amount to buy it down.

Speaker Change #183: To buy it down remember that four and three eighths is a one year, yes, they preferred to five and three <unk> for the balance of the 29 years.

Speaker Change #179: Remember that four and three-eighths, is a one-year that reverts to five and three-eighths for the balance of the 29 years.

John Lovallo: It is certain communities within the South and the Pacific that have this higher margin where we had more of those deliver Q3 and less of those in Q4 and we will have about 60% of our deliveries in the fourth quarter be spec. So, you know, with our business running from, you know, we now have homes from the mid-300s to over $5 million. We have gross margins that have a very large range.

Speaker Change #179: Right.

Speaker Change #179: And as we've spoken before, it's a great marketing gag.

Speaker Change #183: And as we've spoken before.

Speaker Change #184: It's a great marketing gag it drives traffic.

Speaker Change #179: It drives traffic, but we don't actually sell a lot of it.

Speaker Change #184: Don't actually sell a lot of it people tend to take a pass on that version of the incentive and they take the five 5% average incentive we have in the company and.

Speaker Change #179: People tend to take a pass on that version of the incentive and they take the five and a half percent average incentive we have in the company and have a lot of fun in our design studios with it, increase the finishes in the home.

Speaker Change #184: Have a lot of fun in our design studios with it and increase the finishes and all that.

Speaker Change #179: That goes to the affluent nature of our client.

Speaker Change #184: That goes to the affluent nature of our client they're not rate dependent they don't need that lower rate to qualify they recognize rates will probably come down. So they may be overpaying, because in a year or two that could probably refi and so they'd rather permanently improve their home to their lifestyle to the design studio with it.

John Lovallo: You know, we have, we have a few communities with 10% gross margins and we have communities with 50% gross margin. And so, when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin. And so, there is a little bit more variety there as you just saw in the third quarter and as we have got it to in Q4. But overall, you know, that is 20 to 27 to 28% long term margin, while there could be some modest variation quarter to quarter, we are very comfortable with where this business is headed.

Speaker Change #179: They're not rate dependent.

Speaker Change #184: Incentive dollars.

Speaker Change #184: Thanks, and the next question comes from Michael Rehaut with Jpmorgan. Please go ahead.

Speaker Change #253: The quick answer is yes, we believe that operating margin you reference is sustainable.

Michael Rehaut: Hi, Thanks, I appreciate you taking my questions. Good morning, everyone. Congrats on the quarter.

Speaker Change #179: They don't need that, lower rate to qualify.

Speaker Change #179: They recognize rates will probably come down, so they may be overpaying because in a year or two they could probably refi.

Speaker Change #179: And so they'd rather permanently improve their home to their lifestyle to the design studio with those incentive dollars.

Thanks, Mike.

Michael Rehaut: I wanted to dive a little bit about.

Speaker Change #179: And we will have about 60% of our deliveries in the fourth quarter be spec.

Speaker Change #179: Thanks, Alan.

Speaker Change #185: Over the years now I guess over the last year or two year shift towards expecting 50% and how that kind of fits in with your prior.

Alan Ratner: And the next question comes from Alan Ratner with Zellman and Associates. Please go ahead. Hey guys, good morning. Nice quarter and thanks for all the helpful detail so far. Doug, I'd love to drill in on pricing. Your comment suggests pricing is pretty flatish in the quarter, plus or minus depending on the community. I'm curious as you come to sit here three weeks into August. You sound pretty encouraged by the recent activity.

Speaker Change #179: And so when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin.

Speaker Change #179: And the next question comes from Michael Rehatz with J.P. Morgan.

Speaker Change #186: To some degree ongoing preference of price over pace.

Speaker Change #254: We are targeting long term with this new business model of a very wide price point, a very wide geography, about 50% spec, more and more affordable luxury communities.

Speaker Change #179: And so there's a little bit more variety there as you just saw in the third quarter and as, we've guided to in Q4. But overall, you know, that 27 to 28% long-term margin, while there could be some modest variation, quarter to quarter, we're very comfortable with where this business is headed.

Speaker Change #179: Please go ahead.

Speaker Change #255: A longer term grows margin in the 27 to 28% range and as we become more efficient on the SG&A line which you have seen over the last couple of years, we think that operating margin long term is definitely sustainable.

Speaker Change #179: Hi, thanks.

Speaker Change #187: This quarter it was pretty interesting in that.

Speaker Change #255: Well, that's super clear.

Speaker Change #187: You probably had a relative to prior.

Speaker Change #187: <unk> is reporting a little bit more of a.

Speaker Change #188: I have a gap between at least our estimates of order growth and what you put out.

Speaker Change #255: So appreciate that.

Speaker Change #255: And that's obviously very encouraging.

Speaker Change #188: One of the stronger.

Speaker Change #188: Gross margins relative to our estimates.

Speaker Change #255: Was wondering if you could talk a little bit about your, a little bit more about your spec model.

Alan Ratner: Have you started to or have you seen any ability to begin either dialing back incentives? Is now that rates are a bit lower, maybe pulling back on some of the rate buy downs, or even start to begin raising prices again, or is it still premature to do that given the choppiness? Yeah, so it was a bit of a choppy quarter as we and other builders have talked about. I went through the cadence.

Speaker Change #188: And I think that's generally.

Speaker Change #189: With how new operate.

Speaker Change #189: More temporary periods of softness where.

Speaker Change #189: Maybe volume of orders fall off a little bit more and you hold on to the margin.

Speaker Change #189: At the same time.

Speaker Change #256: What was the actual number of specs both finished and in total specs that you had in the quarter, and then I had to follow regarding what that about that level.

Speaker Change #190: Youre shifting English.

Javier: More of a spec model Javier business back.

Javier: There are points, where you're going to have to as you did in this quarter increased incentives.

Speaker Change #257: At the end of the quarter, Steve, we had around 3,400 specs, around 750 of those were at CO or beyond or 1.8 per community.

Speaker Change #257: That's interesting.

Alan Ratner: First, the beginning of May, pretty much up to our call, you know, things were looking pretty good, and then the last week of May through all of June, definitely saw a slow down. And we saw an accelerating pickup in July with the end of July being the best, and that has continued into August. We did run a spec event in the month of July, so we increase incentives modestly in July in some communities on specs, particularly those specs that might have been further along in construction.

Speaker Change #192: <unk> built up a little too much and so I'm wondering going forward, how investors should think about.

Speaker Change #192: <unk> borrowings.

Speaker Change #193: It was going to be points with perhaps you are going to be a little more sensitive to pace.

Speaker Change #257: Okay.

Speaker Change #192: Yeah.

Speaker Change #194: It's softness is going to go past a quarter or two.

Speaker Change #258: So you had about 8.5 per community total, but finished was you said below two.

Speaker Change #195: And if that would drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change #194: Yeah.

Speaker Change #194: Yeah.

Speaker Change #194: So.

Speaker Change #194: Mike I think it's fair to say that we may be.

Alan Ratner: However, in July, we did raise prices on our build order homes. So the overall effect was pretty much flat, but as we sit here in the third week of August, traffic is up. The quality of traffic is improved. Rates are now down. We're sitting on a 6 and 5, 8 lowest rate in a year, 30 year, no point mortgage with a feeling that those rates are going to come down further. So we are seeing a bit more pricing power right now.

Speaker Change #196: A little bit more focused on price than pace compared to the other.

Speaker Change #259: That level of those levels of specs, is that a number that we, are those numbers per community, what we can also expect going forward, or is that, or do you see this, this changing that growing perhaps as we go forward?

Speaker Change #196: Builders that.

Speaker Change #197: I have more of a spec business and they have product that they need to move.

Speaker Change #260: Stephen, we're starting a spec essentially for every home we sell.

Speaker Change #196: Yes.

Speaker Change #261: So the starts and specs starts include one BTO, one spec, kind of 5050.

Speaker Change #196: Still alive for my good friend, Ryan Marshall at Pulte, we are not margin proud.

Speaker Change #262: BTO is filled the order.

Speaker Change #196: It is a balance.

Speaker Change #196: We are definitely focused on topline growth.

Speaker Change #196: We are also focused on this 27% to 28% gross margin that we believe is sustainable long term.

Speaker Change #263: And I think we've hit a bit, not Bachman Turner, because the older people are on call.

Speaker Change #264: So we are taking care of business here.

Alan Ratner: We are being careful because mid-August is not normally the time to aggressively raise prices. As families are just closing down summer houses and getting kids into school and taking a deep breath, but in the fall, we generally do see an improvement in activity. And with how things are lined up with where the rates we think will go and where we currently have higher quality traffic, we are encouraged that we think we will have more pricing powers we had into the fall.

Speaker Change #196: We are also focused on becoming more and more efficient.

Speaker Change #196: Lower SG&A higher operating margin long term.

Speaker Change #196: We also as I've talked about are very aware of our spec inventory what stage of construction. It is that when we need to put it on the market. How we can make more margin if we sell it earlier.

Speaker Change #196: And so we have a June reports of all of that spec we focus on how far along it is if it gets too heavy on the backend, which it hasn't because of this business model and yes on occasion, we might have to be a bit more aggressive but that is not.

Alan Ratner: The other thing to note now is that the extent buy downs are part of our incentive offerings. They are less expensive for us to accomplish now in the lower rate environment. Yeah, I was going to follow up on MRT. So thank you for breading that. So when you say less expensive, are you buying down the rate a lesser magnitude because you don't need to solve for a lower rate? Or is it actually, you know, to buy down that same, whatever it is, 50 basis point, 100 basis point because it's actually costing you less than it's so can you quantify that?

Speaker Change #196: Something that I think you need to worry about.

Speaker Change #196: The business is working the spec strategy is maturing we are just out of just about at a point, where we've hit the equilibrium of long term, 50% back 50% build to order.

Speaker Change #196: And the business plans in place, but yes, theres, a little more focus for us on price and margin, but we are not by any means margin proud and as you as we talked about we ran we.

Speaker Change #196: But yes, there's a little more focus for us on price and margin, but we are not, by any means, margin proud.

Alan Ratner: So it's costing less. So our typical buy down deal around the country is to buy your rate down to four and three. That's the number we picked and so when you when you buy from seven to four and three eighths it's more expensive than when you buy from six and five eighths to four and three eighths and before it's a great marketing gag, it drives traffic but we don't actually sell a lot of it.

Speaker Change #196: And as we talked about, you know, we ran a spec.

Speaker Change #196: We ran a spec.

Speaker Change #196: Unknown Speaker , event in July, modest, modest increase in the incentive on the spec business, which allowed us to sell a few more.

Speaker Change #196:

Speaker Change #196: Event in July.

Speaker Change #198: Modest modest.

Speaker Change #198: Increase in the in the incentive on the spec business.

Speaker Change #198: But it was at the same time when we could raise prices on the bill to order.

Speaker Change #198: Which allowed us to sell a few more but it was at the same time, when we could raise prices on the build to order.

Speaker Change #198: So in the end, it all worked out.

Speaker Change #198: So in the end it all worked out and it's that mix between spec and build to order and I think we're getting really good at and we are very confident in that long term margin.

Speaker Change #198: And it's that mix between spec and build order that I think we're getting really good at.

Speaker Change #198: And we are very confident in that long-term margin.

Speaker Change #198: And there you have it.

Speaker Change #198: And there you haven't.

Speaker Change #199: The next question comes from Mike Dale with RBC Capital Markets.

Speaker Change #199: And the next question comes from Alan Ratner with Zelman and Associates.

Alan Ratner: People tend to take a pass on that version of the incentive and they take the five and a half percent average incentive we have in the company and have a lot of fun in our design studios with it and increase the finishes in the home. That goes to the absolute nature of our client, they're not rate dependent, they don't need that lower rate to qualify, they recognize rates will probably come down so they may be over pain because in a year or two they could probably re-fi and so they'd rather permanently improve their home to their lifestyle to the design studio with those in size dollars. Thanks Alan.

Speaker Change #199: The next question comes from Mike deal with RBC capital markets. Please go ahead.

Speaker Change #199: Please go ahead.

Speaker Change #199: Please go ahead.

Speaker Change #199: Hey, guys.

Speaker Change #199: I appreciate you taking my questions.

Speaker Change #199: Good morning, Thanks for taking my questions Mike.

Speaker Change #199: Good morning.

Speaker Change #199: Good morning, everyone.

Speaker Change #199: Mike.

Speaker Change #199: Okay.

Speaker Change #199: Nice quarter and thanks for all the helpful detail so far.

Speaker Change #199: Congrats on the quarter.

Speaker Change #199: Just.

Mike: Just to keep going on kind of the margin in the spec and all the mixed dynamics I guess when you think about the <unk> gross margin understanding that you took it up a little prior.

Speaker Change #199: Doug, you know, I'd love to drill in on pricing.

Speaker Change #199: Good morning.

Speaker Change #199: You know, your comments suggest pricing is pretty sladdish in the quarter, you know, plus or minus depending on the, community.

Speaker Change #199: Thanks, Mike.

Mike: Higher yes.

Speaker Change #199: I'm curious as you kind of sit here three weeks into August, you know, you sound pretty encouraged by the recent, activity.

Speaker Change #200: Youre talking about kind of running that promotion, which may have looked at incentives.

Speaker Change #199: Have you started to or have you seen any ability to begin either dialing back incentives now that rates are a bit lower, maybe pulling back on some of the rate buy-downs or even start to, you know, begin raising prices again?

Speaker Change #199: Or is it still premature to do that given the choppiness?

Speaker Change #200: At the same time Steve.

Speaker Change #201: Load up on your comments about efficiency, which does seem more sustainable.

Steve: Unclear why that would go away in the immediate term.

Michael Rehaut: And the next question comes from Michael Rehot with JP Morgan, please go ahead. I think I appreciate you taking my questions.

Speaker Change #199: Yeah, so it was a bit of a choppy quarter as we and other builders have talked about.

Speaker Change #199: I wanted to dial in a little bit about over the years now, I guess over the last year or two, over the years now, I guess over the last year or two, your shift towards spec being 50 percent and how that kind of fits in with your prior or still to some degree ongoing, you know, preference of price over pace.

Speaker Change #202: Can you just help us understand.

Speaker Change #199: You know, this quarter it was pretty interesting in that you probably had a relative to prior building's reporting a little bit more of a of a gap between at least our estimates of order growth and what you put out and probably one of the stronger gross margins relative to our estimates.

Speaker Change #199: You know, I went through the cadence.

Speaker Change #203: In terms of maybe just the incentive load that is projected to be in your fourth quarter deliveries.

Speaker Change #199: First, the beginning of May, pretty much up to our call.

Speaker Change #199: You know, things were looking pretty good.

Michael Rehaut: Good morning everyone, congrats on the corner. Thanks Mike. I wanted to dial in a little bit about year over the years now I guess over the last year or two your shift towards spec being 50% and how that kind of fits in with your prior or still to some degree ongoing preference of price over place. This quarter it was pretty interesting and that you probably had a relative to prior buildings reporting a little bit more of a gap between at least our estimates of order growth and what you put out and probably one of the stronger gross margins relative to our estimates.

Speaker Change #203: Versus your.

Speaker Change #203: Third quarter deliveries and then I know that you are back.

Speaker Change #204: Margins can vary quite a bit regionally as well so maybe if you could let us know kind of on a like for like basis.

Speaker Change #205: I think that stack versus eto margin is going to run that in your fourth quarter versus what it's been year to date.

Speaker Change #265: So I think we've hit a bit of a equilibrium point here on our up to 50% spec strategy.

Speaker Change #205: So our incentive.

Speaker Change #206: Uh huh.

Speaker Change #207: That five 5%.

Speaker Change #208: The delivered price of our homes that comes out to about 50 to $55000.

Speaker Change #208: Simple math on houses that are in the $9 50 range.

Speaker Change #265: Now that'll vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here.

Michael Rehaut: And I think that's generally consistent with how you operate in more temporary periods of softness where you know maybe volume or orders fall off a little bit more and you hold on to the margin. At the same time you're shifting in this you know more of a spec model or you know happier business spec. There are points where you're going to have to as you did in this quarter increase incentives if your specs broke up a little too much.

Speaker Change #209: That was Q3.

Speaker Change #209: And we believe that will be the same incentive in Q4, I don't think I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4 its mix related right and so.

Speaker Change #266: And it's important, I know we talked, I know Steve we talked about before as you know, but we, you know choice until brothers is still alive and well, it's still very important, not just on the build order business.

Speaker Change #199: And I think that's generally consistent with how you operate in more temporary periods of softness where, you know, maybe volume or orders fall off a little bit more and you hold on to the margin.

Speaker Change #210: Remember and we talked about.

Speaker Change #210: About how for Q4, we think we will have about 60% of our own spec.

Speaker Change #267: But we do hope that at least half of the spec buyers are buying early enough that they have enough time to pick some level of finishes.

Speaker Change #199: At the same time, you're shifting in this, you know, more of a spec model or, you know, half of your business spec.

Speaker Change #211: That doesn't mean.

Speaker Change #211: We incentivize the whole bunch to sell those and Thats whats hurting the margin.

Michael Rehaut: And so I'm wondering going forward, how investors should think about that balance and you know if there's going to be points where perhaps you are going to be a little more sensitive to pace. You know it softness is going to go past a quarter or two and if that would you know drive any greater degrees of variability in your gross margin relative to the past. So Mike I think it's fair to say that we may be a little bit more focused on price than pace compared to the other.

Speaker Change #199: There are points where you're going to have to, as you did in this quarter, increase incentives if your specs build up a little too much.

Speaker Change #211: We tend to build spec.

Speaker Change #211: On what I'll call the more average lot in our community we tend to save the very high premium lots the special lots overlooking the 18th Green with beautiful woods in the backyard with a beautiful link in the backyard.

Speaker Change #211: For the build to order business because that client is more affluent.

Speaker Change #211: Want to put a lot of upgrades into their dream home.

Don't that dream home on the best slot, we have and we let them run wild and the design studio and that margin tends to be higher.

Michael Rehaut: Builders that have more of a spec business, and they have product that they need to move. But to still align from my good friend Ryan Marshall Apolti, we are not margin proud. It is a balance. We are definitely focused on top line growth. We are also focused on this 27-28% growth margin that we believe is sustainable long-term. We are also focused on becoming more and more efficient, low arresting in a higher operating margin, long-term.

Speaker Change #199: And so I'm wondering going forward how investors should think about that balance.

Speaker Change #212: So when.

When you think about the spec.

Speaker Change #212: Margin you shouldnt be comparing it to the build to order margin.

Speaker Change #212: Need to recognize that the spec is generally built on a more average lot lower lot premium and that client generally even if it was a build to order home on that lot would not spend as much in the design studio and we know the design studio is margin accretive.

Speaker Change #212: While we may have to incentivize a little bit more to move.

Speaker Change #212: That spec home on that average lot if it gets towards the end and as unsold.

Michael Rehaut: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at. When we need to put it on the market, how we can make more margin if we sell it earlier. We have age-uniforms of all that spec. We focus on how far along it is if it gets too heavy on the back end, which it hasn't, because of this business model. Then yes, on occasion, we might have to be a bit more aggressive, but that is not something that I think you need to worry about.

Speaker Change #212: It is a small difference.

Speaker Change #212: Tween that margin and what the margin would be hadn't been a build to order.

Speaker Change #212: Alright.

Speaker Change #199: And, you know, if there's going to be points where perhaps you're going to be a little more sensitive to pace, you know, if softness is going to go past a quarter or two and if that would, you know, drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change #212: For the quarter was 28, 8%.

Speaker Change #212: Okay.

Those orders were above that.

Speaker Change #212: The specs were below that.

Speaker Change #199: So, Mike, I think it's fair to say that we may be a little bit more focused on price than pace compared to the other, builders that have more of a spec business and they have product that they need to move.

Speaker Change #199: But to steal a line from my good friend, Ryan Marshall at Pulte, we are not margin proud.

Speaker Change #212: We're probably 100 to 100 points below that average and to build orders were 100 to 200 points above that average.

Speaker Change #212: Okay.

Speaker Change #212: I was kind of triangulating back to make sure I would say pure mix dynamic versus something under the surface.

Michael Rehaut: The business is working and the spec strategy is maturing. We are just about at a point where we have hit the equilibrium of long-term 50% spec, 50% build-to-order. And the business plan is in place. But yes, there is a little more focus for us on price and margin, but we are not by any means margin proud. As we talked about, we ran a spec event in July, modest, modest increase in the incentive on the spec business, which allowed us to sell a few more.

Michael Rehaut: But it was at the same time when we could raise prices on the build-to-order. So in the end, it will work out. And it is that mix between spec and build-to-order that I think we are getting really good at. And we are very confident in that long-term margin.

Speaker Change #212: Incremental.

Speaker Change #213: Thank you for that.

Speaker Change #214: I couldn't have answered your question and just said mix.

Michael Rehaut: And there you have it.

Speaker Change #214: Sorry.

Sorry for that.

Speaker Change #214: <unk> minutes.

Speaker Change #214: That would be the color of that that we're looking for and then just thinking about seasonality here.

Speaker Change #199: And then the last week of May through all of June, definitely saw a slowdown. And we saw an accelerating pickup in July with the end of July being the best. And that has continued into August.

Typically.

Speaker Change #215: We'll keep seeing order pace of decline in the fourth quarter. Obviously, you just came through a weird and challenging third quarter and youre talking about potential acceleration in trends coming out of July.

Speaker Change #199: We did run a spec event in the month of July. So we increased incentives modestly in July in some communities on specs, particularly those specs that might have been further, along in construction.

Speaker Change #216: Any help you want to provide in terms of level setting I think typical year pace would be down kind of low double digits sequentially in <unk> versus <unk> should be should we be expecting kind of on on seasonal trends above below based on what youre seeing so far.

Speaker Change #217: So youre right.

Speaker Change #199: However, in July, we did raise prices on our build-to-order homes.

There are fourth quarter is typically.

Michael Rehaut: The next question comes from Mike Dale with RBC Capital Markets. Please go ahead. Good morning. Thanks for taking my questions. So just to keep going on kind of the margin and the spec and all the mixed dynamics. I guess when you think about the 4Q gross margin understanding that you took it up a little prior to your prior, you are talking about kind of running that promotion, which may have looked at incentives.

Orders are typically about 10% lower than Q3.

Speaker Change #218: And we're confident we're going to do better than that.

Speaker Change #199: So the overall effect was pretty much flat.

Speaker Change #218: We think we will.

Speaker Change #199: But as we sit here in the third week of August, traffic is up.

Speaker Change #219: Our best guess three weeks in is that we may be flat.

Speaker Change #219: Q3 versus down 10%.

Speaker Change #199: The quality of traffic has improved.

Speaker Change #219: And the next question comes from Trevor Allinson with Wolfe Research. Please go ahead.

Speaker Change #199: It is a balance.

Michael Rehaut: At the same time, Steve followed up on your comments about efficiency, which does seem more sustainable and unclear why that would go away in the immediate term. So can you just help us understand in terms of maybe just the incentive load that's projected to be in your fourth quarter deliveries versus your third quarter deliveries. And then I know that you're stuck. Mark, margins can vary quite a bit regionally as well, so maybe if you could let us know kind of on a like for like basis, what you think that spec versus BTO, margin is going to run out in your fourth quarter versus what it's been in your state.

Trevor Allinson: Morning.

Trevor Allinson: Hi, Good morning, Thank you for taking my questions.

Trevor Allinson: Thanks for taking my questions.

Trevor Allinson: Rates are now down. We're sitting on a 6 and 5.8 lowest rate in a year, 30-year no-point mortgage with a feeling that those rates are going to come down further.

Trevor Allinson: We are definitely focused on top line growth.

Trevor Allinson: So just to keep going on kind of the margin and the spec and all the mixed dynamics, I guess when you think about the 4Q gross margin, understanding that you took it up a little prior versus your prior, you know, you're talking about kind of running that promotion, which may have lifted incentives, At the same time, you know, these followed up on your comments about efficiency, which does seem more sustainable, and, you know, unclear why that would go away in the immediate term.

Trevor Allinson: First one just wanted to touch on geography, you guys laid out some of the better performing markets. I don't believe you mentioned any markets in Florida, or Texas does have clearly gotten a lot of attention.

Trevor Allinson: We are also focused on this 27 to 28% gross margin, that we believe is sustainable long term.

Trevor Allinson: So can you just help us understand, you know, in terms of maybe just the incentive load that's projected to be in your fourth quarter deliveries, versus your third quarter deliveries, and then I know that your spec, Regionally, as well.

Michael Rehaut: So our incentive is about five and a half percent of the delivered price of our own that comes out to about $50 to $55,000, simple math on houses that are in the 950 range, that was Q3 and we believe that will be the same incentive in Q4, I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4, it's mixed related. And so remember, and we talked about how for Q4, we think we'll have about 60 percent of our own spec.

Speaker Change #220: Over the last few months can you comment on how demand in those markets has trended relative to your business overall.

Trevor Allinson: So we are seeing a bit more pricing power right now.

Speaker Change #220: Sure.

Trevor Allinson: We are being careful because mid-August is not normally the time to aggressively raise prices.

Trevor Allinson: Those families are just closing down summer houses and getting kids into school and taking a deep breath.

Trevor Allinson: But in the fall, we generally do see an improvement in activity. And with how things are lined up with where the rates we think will go and where we currently have higher-quality traffic, we are encouraged, that we think we will have more pricing power as we head into the fall.

Speaker Change #221: Texas has had a good August good ended July and good August.

Trevor Allinson: The other thing to note, Alan, is that these buy-downs are part of our incentive offerings.

Trevor Allinson: They are less expensive for us to accomplish now in the lower-rate environment.

Trevor Allinson: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show. Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show.

Trevor Allinson: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host, of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.

Trevor Allinson: Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC.

Trevor Allinson: Member NYSENDT, a Fidelity Investments company.

Trevor Allinson: His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered, Member NYSENDT, a Fidelity Investments company.

Speaker Change #222: Different stories in different markets in Texas Austin.

Trevor Allinson: His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered, at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel.

Trevor Allinson: Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC.

Speaker Change #224: So maybe if you could let us know kind of on a like for like basis, what you think that spec versus BTO margin is going to run out in your fourth quarter versus what it's been years.

Speaker Change #223: Uh huh.

Speaker Change #224: So our incentive, is about five and a half percent.

Speaker Change #224: The delivered price of our homes that comes out to about $50,000 to $55,000.

Speaker Change #224: <unk> had some elevated inventory.

Speaker Change #224: Not feeling it directly but theres a bit of an overhang in that market as there is conversation around inventory.

Speaker Change #224: In Dallas and Houston.

Speaker Change #224: There are not inventory issues I think there was just a lot of price increases over the last few years and so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause.

Speaker Change #224: So, Mike, I think it's fair to say that we may be a little bit more focused on price, than pace compared to the other builders that have more of a spec business and they have product that they need to move.

Speaker Change #224: But that seems to be working itself out.

Speaker Change #224: But to steal a line from my good friend Ryan Marshall at Pulte, we are not margin proud.

Speaker Change #224: It is a balance.

For the last month, we've seen.

Speaker Change #224: We are definitely focused on top line growth. We are also focused on this 27 to 28% gross margin that we believe is sustainable long, term.

Speaker Change #224: Pretty significant improvement in our action in the state of Texas.

Speaker Change #224: Florida.

Speaker Change #224: And by the way the Texas margin, even when we saw things that were a bit slower.

Speaker Change #224: Last quarter that margin held up.

Speaker Change #224: And was above our company average.

Michael Rehaut: That doesn't mean we incentivize the whole bunch to sell those and that's what's hurting the margin. We tend to build spec on what I'll call the more average lot in a community. We tend to save the very high premium lots, the special lots, overlooking the 18th green with beautiful woods in the backyard, with a beautiful link in the backyard for the build or order business because that client is more affluent, they want to put a lot of upgrades into their dream home, they want that dream home on the best lot we have and we let them run wild in the design studio and that margin tends to be higher.

Speaker Change #224: Florida.

Speaker Change #224: Sits at our company average margin.

Michael Rehaut: So when you think about the spec margin, you shouldn't be comparing it to the build or margin, you need to recognize that the spec is generally built on a more average lot, lower lot premium and that client generally, even if it was a build or order home on that lot, would not spend as much in the design studio and we know the design studio is margin of creative. So while we may have to incentivize a little bit more to move that spec home on that average lot, if it gets towards the end and is unsold, it is a small difference between that margin and what the margin would be, how to fit a build or order.

Speaker Change #225: It has been a bit softer.

Speaker Change #225: There have been some elevated inventory levels.

Speaker Change #268: If you buy it very early, you can hit that design studio and truly customize the inside of your home. If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops.

Speaker Change #225: In Florida, West, which is very small for us which is called southwest.

Speaker Change #225: And in the Tampa market.

Speaker Change #225: The East Coast, Jacksonville, Orlando, and then for us down in the <unk>.

Speaker Change #225: In the Jupiter Palm Beach, Boca Raton area.

Speaker Change #225: Has done a bit better.

Speaker Change #225: It's really hard to gauge, Florida in the summer months.

Speaker Change #225: We'll have to see how we do as the market comes back in October.

Speaker Change #225: <unk>.

Speaker Change #225: In November, but Florida is okay. We're selling houses were at company average margin.

Speaker Change #268: And then of course there are some as we described that get to the end can be delivered quickly for that buyer that wants a faster move in.

Speaker Change #225: Actually at company average agreements per community as well right, but I think thats down from where Florida had been performing for the few years before that well said, we just opened last weekend, our first community in the Panhandle.

Speaker Change #225: A simple math on houses that are in the $9.50 range.

Speaker Change #226: And we killed it.

Speaker Change #226: We took.

10 sales our first weekend.

Speaker Change #268: So, you know, we do define the spec as a foundation in the ground without a buyer and we market accordingly so that choice is still, you know, a big part of that business model.

Speaker Change #226: In August.

Speaker Change #228: That was Q3, and we believe that will be the same incentive, in Q4.

Speaker Change #228: So that's exciting so feeling.

Speaker Change #228: Feeling a lot better about Texas, and feeling a bit better of that Florida is the best way to describe it.

Speaker Change #229: Okay. Thank you for that that's definitely encouraging sounds like things are definitely trending in the right direction. There and then a question on SG&A.

Speaker Change #269: That also drives a little bit more margin because as you know, the upgrades to the design studio tend to be a creative to the company margin.

Michael Rehaut: Our average margin for the quarter was 28.8%. Build orders were above that, the specs were below that, 100 to 200 points below that average and the build orders were 100 to 200 points above that average. Yeah, I was kind of trying you waiting back to make sure it was that pure mixed dynamic versus something under the surface that's, you know, instrumental back, so thank you for that. I could have answered your question and just said, mix, sorry, sorry for four minutes. That was the color that we were looking for.

Speaker Change #230: You've talked about that moving down to 9% longer term due to some tech initiatives.

Speaker Change #269: Yeah, absolutely.

Speaker Change #231: By 2025 or is that more of a longer term type of.

Speaker Change #232: SG&A level, and then for <unk>, specifically looks like you've got it stepping down nicely sequentially should we think of that as just being leverage or is there anything else driving that.

Speaker Change #232: I don't think that I don't think the margin differential is going to be very incentive sensitive, between Q3 and Q4.

Speaker Change #269: And the level of finish specs your per community is very encouraging.

Speaker Change #232: It's mixed related.

Speaker Change #232: Okay.

Speaker Change #232: We are also focused on becoming more and more efficient, lower SG&A, higher operating margin, long term.

Speaker Change #232: We are also focused on becoming more and more efficient, lower SG&A, higher operating margin long term.

Speaker Change #232: We also, as I've talked about, are very aware of our spec inventory, what stage of construction, it is at, when we need to put it on the market, how we can make more margin if we sell it earlier.

Speaker Change #232: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at, when we need to put it on the market, how we can make more margin if we sell it earlier.

Speaker Change #233: We're growing this company without adding people.

Speaker Change #270: I would say below to per community that's not at all an unusually high number.

Speaker Change #233: We're becoming more efficient we changed our operations in the field, we moved away from our legacy project manager system.

Speaker Change #270: So it's very clear that your process is working.

Speaker Change #233: Two where we have stack leads that run land land land acquisition land development construction sales et cetera.

Speaker Change #270: So great.

Michael Rehaut: I'm just thinking about seasonality. Typically, you'd still keep seeing order pace decline in the fourth quarter. Obviously, you just came through a weird and challenging third quarter, and you're talking about potential acceleration and trends coming out of July. Any help you want to provide in terms of level setting, I think typically your pace would be down. And a low double digits sequentially in 4Q versus 3Q should be, should we be expecting kind of on seasonal trends above below based on what you're seeing so far.

Speaker Change #270: Well, appreciate all the color.

Speaker Change #233: The openings and.

Speaker Change #233: That organizational structure is allowing us to grow much more efficiently and so on the G&A front, we're very confident we can do more without spending more dollars.

Speaker Change #270: Thanks very much.

Speaker Change #232: And so, you know, we have agent reports of all that spec.

Speaker Change #232: And so, you know, we have agent reports of all that spec.

Speaker Change #232: We focus on how far along it is, if it gets too heavy on the back end, which it hasn't, because of this business model, then yes, on occasion, we might have to be a bit more aggressive.

Speaker Change #232: We focus on how far along it is.

Speaker Change #232: If it gets too heavy on the back end, which it hasn't because of this business model, then yes, on occasion, we might have to be a bit more aggressive.

Speaker Change #232: But that is not something that I think you need to worry about.

Speaker Change #232: But that is not something that I think you need to worry about.

Speaker Change #270: Thank you.

Speaker Change #233: On the <unk> side.

Speaker Change #233: <unk> has actually been up a little bit, but thats variable, we're paying our inside sales agents a little bit more.

Speaker Change #270: And the next question comes from John Lovalo with UBS.

Speaker Change #232: The business is working, the spec strategy is maturing. We are just about at a point where we've hit the equilibrium of long term 50% spec, 50% build to order, and the business plan is in place.

Speaker Change #232: The business is working, the spec strategy is maturing. We are just about at a point, where we've hit the equilibrium of long term, 50% spec, 50% bill to order.

Speaker Change #232: But yes, there's a little more focus for us on price and margin, but we are not by, any means margin proud.

Speaker Change #232: And the business plan is in place.

Speaker Change #232: But yes, there's a little more focus for us on price and margin, but we are not by any means margin proud.

Speaker Change #233: We have 65%.

Speaker Change #233: Our sales involve a third party reorder.

Speaker Change #232: And as we talked about, you know, we ran a spec event in July, modest, modest increase, in the incentive on the spec business, which allowed us to sell a few more.

Speaker Change #232: And as we talked about, you know, we ran a spec event in July, modest, modest increase in the incentive on the spec business, which allowed us to sell a few more.

Speaker Change #232: But it was at the same time when we could raise prices on the build to order.

Speaker Change #232: But it was at the same time, when we could raise prices on the bill to order.

Speaker Change #271: Please go ahead.

Michael Rehaut: So you're right. Good work there. Our fourth quarter is typically orders are typically about 10% lower than Q3. And we're confident we're going to do better than that. We think we'll, you know, our best guess three weeks in is that we may be flat to Q3 versus down 10%.

Speaker Change #233: We're spending a little bit more money on.

Speaker Change #272: All right, guys, thanks for taking my questions as well.

Speaker Change #233: On marketing and advertising.

Speaker Change #233: But overall.

Speaker Change #233: There is leverage as we grow on flat.

Speaker Change #233: G&A.

Speaker Change #234: And yes, we'll just move with sales.

Speaker Change #234: And we will just see how that goes, particularly with the new rules around broker commissions.

Speaker Change #234: I think we're going to be.

Trevor Allinson: And the next question comes from Trevor Allinson with Wolf Research. Please go ahead. Hi, good morning. Thank you for taking my questions. First one just wanted to touch on geography. You guys laid out some of the better performing markets. I don't believe you mentioned any markets in Florida or Texas. Those have clearly gotten a lot of attention over the last few months. Can you comment on how demanded in those markets has trended relative to your business overall?

Speaker Change #234: Essentially flat in terms of G&A dollars spent in 2024 versus 2023.

Speaker Change #273: Maybe just following up on hey, how are you?

Speaker Change #274: Maybe just following up on Steve's question.

Speaker Change #275: You know, your backlog has continued to kind of get worked down over the past few years.

Speaker Change #234: And deliver roughly 10% to 12% more homes.

Speaker Change #276: I mean, how confident are you that improve cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025?

Speaker Change #276: We're very confident.

Speaker Change #234: And had 10% 11% more communities, so we're pretty proud of that.

Speaker Change #277: We're doing it right now.

S side is showing the variable nature of the commissions.

Speaker Change #277: And, you know, the more, as we talked about it, we can keep this spec at about 50-50.

Speaker Change #234: And staffing out at the job sites for the.

The communities for the.

Speaker Change #234: Sales teams.

Speaker Change #278: Those houses are being built faster. You know, we're able to deliver them quicker.

Speaker Change #279: The conversion rate on our backlog has come down and will continue to come down as this, excuse me, will continue to go up.

Trevor Allinson: Sure. Texas has had a good August. Good end is July and good August. Different stories in different markets in Texas, Austin has, has some elevated inventory. We're not feeling it directly, but you know there's a bit of an overhang in that market as there's conversation around inventory and Dallas and Houston. There are not inventory issues. I think there was just a lot of pricing creases over the last few years. And so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause.

Speaker Change #234: And it's also showing a little bit more expenditures for marketing.

Speaker Change #279: My apologies.

Speaker Change #279: We will turn houses faster.

Ralph <unk>: The next question comes from Ralph <unk> with Bank of America go ahead. Please.

Ralph <unk>: Hi, Good morning, it's Rafe thanks for taking my questions.

Speaker Change #280: You know what I meant.

Rafe: Only follow up on some earlier.

Rafe: Questions on sort of the deliveries for the first orders going forward. If you have had three straight years of deliveries.

Speaker Change #280: And, you know, as the spec business continues to mature, we get better at it.

Speaker Change #280: We turn these houses faster.

Speaker Change #236: <unk> above above orders and that's partly been because of the increase.

Speaker Change #280: You're going to can see an improvement in that conversion.

Speaker Change #237: <unk> and spec how do we think about deliveries relative to orders.

Speaker Change #280: Makes sense.

Trevor Allinson: But that seems to be working itself out. As for the last month, we've seen, you know, pretty significant improvement in our action in the state of Texas. Of Florida and by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average.

Speaker Change #237: Going forward here.

Mike: Mike would you anticipate suspect to outgrowth Bcf bto business.

Mike: In terms of deliveries as we go into 2025.

Mike: Okay.

Mike: I don't think so I think.

Mike: <unk>.

Speaker Change #238: The nuance maybe that we haven't really looked at this.

Speaker Change #239: The nuance, maybe the build to orders generally concentrate more in the luxury more in the bigger homes of a few months longer build cycle.

Douglas Yearley: Florida sits at our company average margin. It has been a bit softer. There have been some elevated inventory levels in Florida west, which is very small for us, which is I call Southwest and in the tamper market. The East Coast Jacksonville, Orlando and then for us down in the Jupiter Palm Beach, Bogey-Retan area, has on a bit better. It's really hard to gauge Florida in the summer months. We'll have to see how we do as the market comes back in October and November, but Florida is okay. We're selling houses, we're at company average margin. Actually, at company average agreements per community as well. But I think that's down from where Florida had been performing for the few years before the pandemic.

Speaker Change #238: <unk>.

And the spec homes.

Speaker Change #238: Short of build cycle.

Speaker Change #238: So when we start one for one like we have been there is a potential for.

Speaker Change #238: Sure.

Speaker Change #238: Build to orders to fall below 50% long term.

But probably not from a revenue perspective.

Speaker Change #238: Okay.

Speaker Change #240: Got it okay.

Speaker Change #238: That's helpful and then.

Speaker Change #241: Like do you think deliveries can continue to outpace the quarters going forward.

Speaker Change #242: They will they'll reach equilibrium pretty soon here.

Speaker Change #241: Okay.

Speaker Change #243: And then the second question just.

Speaker Change #244: You increased the buyback guidance for the year.

Speaker Change #244: Can you talk about kind of what drove that decision and Doug I think you said.

Speaker Change #245: Programmatic capital return, which I don't think you've sort of said in the past. So has there been any change here or how should we think about capital return and buybacks going forward.

Douglas Yearley: Well said, we just opened last weekend our first community in the panhandle and we killed it. We took 10 sales our first weekend in August. So that's exciting. So feel a lot better about Texas and feel a bit better about Florida as the best way to describe it.

Doug: So we expect.

Speaker Change #246: Free cash flow of 800 millions of $1 billion.

Speaker Change #247: That's up a little bit because of our strong performance.

And we want to continue to.

Speaker Change #247: Reward our shareholders return capital to our shareholders.

Trevor Allinson: Okay, thank you for that. That's definitely encouraging sounds like things are definitely trending in the right direction there.

Speaker Change #247: We are very focused on return on equity.

Speaker Change #247: One of the main levers of keeping return on equity is having a robust programmatic stock buyback programs.

Speaker Change #281: And then, you know, moving on to the fourth quarter gross margin, what would drive the expected 140 basis points sequential decline from the third quarter? I mean, is this the reverse of the positive mixed impact in the third quarter?

Trevor Allinson: And then a question on S-GNA. You talked about that moving down to 9% longer term due to some tech initiatives by 2025, or is that more of a longer term type of S-GNA level. And then for 4Q specifically, looks like you've got it stepping down nicely sequentially. Should we think of that as just being leverage or is there anything else driving that? Thank you. You know, we're growing this company without adding people.

Speaker Change #282: And what specifically was that mixed impact? Was it geographic, was it product, respect versus BTO?

Speaker Change #247: In addition of course to how quickly we can build in turn houses and how efficiently we can buy land.

Speaker Change #282: Thank you.

Speaker Change #247: And so.

Speaker Change #247: It seemed like a great time to take the 500 up to 600 because of our performance.

Speaker Change #283: So, let's remember, we raised guidance for Q4 gross margin.

Speaker Change #284: Yes, when you compare it to the blowout gross margin of Q3, the gap there is bigger. Q3, as we mentioned, was 110 basis points better than guide because of mix. We had more high margin homes delivering in the Pacific and the South. And we had less spec homes delivering than we had anticipated.

Speaker Change #247: The additional free cash flow that we have going forward you will continue as we talked about going back to 2016, you'll continue to see us.

Speaker Change #285: That reverses a bit in the fourth quarter where we will have less high margin homes delivering from the South and the Pacific.

Speaker Change #286: And by the way, the entire South and Pacific is not necessarily high margin. It is certain communities within the South and the Pacific that have this higher margin where we had more of those deliver Q3 and less of those in Q4 and we will have about 60% of our deliveries in the fourth quarter be spec.

Trevor Allinson: Becoming more efficient. We changed our operations in the field. We moved away from our legacy project manager system to where we have stack leads that run land land acquisition, land development, construction sales, etc. Community openings and that organizational structure is allowing us to grow much more efficiently. And so on the GNA front, we're very confident we can do more without spending more dollars. On the S side, the S has actually been up a little bit, but that's variable.

Speaker Change #287: So, you know, with our business running from, you know, we now have homes from the mid-300s to over $5 million.

Speaker Change #288: We have gross margins that have a very large range. You know, we have, we have a few communities with 10% gross margins and we have communities with 50% gross margin.

Programmatically regularly.

Speaker Change #247: And consistently and predictably by our company stock back I.

Speaker Change #248: I think our use of the term programmatic probably goes back a year or two at this point.

Speaker Change #247: We're not going to do.

Speaker Change #289: And so, when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin. And so, there is a little bit more variety there as you just saw in the third quarter and as we have got it to in Q4.

Speaker Change #247: Eliminate the opportunity to be opportunistic right. We just hope we don't have it.

Speaker Change #247: [laughter].

Speaker Change #290: But overall, you know, that is 20 to 27 to 28% long term margin, while there could be some modest variation quarter to quarter, we are very comfortable with where this business is headed.

Speaker Change #247: The next question comes from Sam Reed with Wells Fargo. Please go ahead.

Speaker Change #290: And the next question comes from Alan Ratner with Zellman and Associates.

Sam Reed: Awesome. Thanks, guys. Appreciate the color you gave on order cadence into the fourth quarter I just wanted to piggyback off of some of those questions.

Speaker Change #291: Please go ahead.

Trevor Allinson: We're paying our inside sales agents a little bit more. We have 65% of our sales involved a third party realtor. We're spending a little bit more money on on marketing and advertising. But overall, there is leverage as we grow on flat GNA and the S will just move with sales. And we'll see how that goes, particularly with the new rules around broker commissions. I think Trevor, we're going to be essentially flat in terms of GNA dollars spent in 2024 versus 2023 and deliver roughly 10 to 12% more homes and have 10% 11% more communities.

Speaker Change #292: Hey guys, good morning.

Sam Reed: Are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter.

Alan Ratner: Nice quarter and thanks for all the helpful detail so far.

Speaker Change #249: In addition to the benefits you might be seeing from selling more specs than just lower overall rates.

Alan Ratner: Doug, I'd love to drill in on pricing. Your comment suggests pricing is pretty flatish in the quarter, plus or minus depending on the community.

Sam Reed: Yes.

Speaker Change #250: No we always run sales event summer local summer regional summer National.

Speaker Change #250: They are on the calendar already they're no different than prior years, we do.

Speaker Change #293: I'm curious as you come to sit here three weeks into August.

Speaker Change #250: Traditionally have a national sales event in the month of September that's occurred for many years that will occur again.

Speaker Change #294: You sound pretty encouraged by the recent activity.

Speaker Change #250: But beyond that there is nothing.

Speaker Change #250: Out of the ordinary and I do caution you know, we don't like to guide on sales.

Speaker Change #250: Remember, and we talked about how for Q4, we think we'll have about 60% of our homes spec.

Speaker Change #250: And so when I said, we think we will be better than down 10%.

Speaker Change #250: That doesn't mean, We incentivize the whole bunch to sell those and that's what's hurting the margins.

Speaker Change #250: We tend to build specs, on what I'll call the more average lot in a community.

Speaker Change #250: We're thinking more consistent with what we did in Q3.

Speaker Change #250: We tend to save the very high premium lot.

Speaker Change #295: Have you started to or have you seen any ability to begin either dialing back incentives?

Trevor Allinson: So we're pretty proud of that. The S side is showing the variable nature of the commissions, and stamping out at the job sites at the communities for the sales teams. And it's also showing a little bit more expenditures for marketing.

Speaker Change #250: The Special Lots, Overlooking the 18th Green, with beautiful woods in the backyard, with a beautiful lake in the backyard.

Speaker Change #250: They want to put a lot of upgrades into their dream home.

Speaker Change #250: They want that dream home on the best lot we have.

Speaker Change #250: And we let them run wild in the design studio, and that margin tends to be higher.

Speaker Change #250: That's not a limiter to me I'm hopeful as rates come down the market improves we continue to open new communities that we could have a roaring fall I'm not predicting that but I don't want you to think we're giving some guidance right now on on sales because we don't do that.

Speaker Change #250: So the, when you think about the spec.

Speaker Change #250: Margin.

Speaker Change #250: You shouldn't be comparing it to the bill to order margin.

Speaker Change #250: You need to recognize that the spec is generally built on a more average lot, lower lot premium, and that client generally, even if it was a bill to order home on that lot, would not spend as much in the design studio.

Speaker Change #250: And we know the design studio is margin accretive.

Speaker Change #250: So while we may have to incentivize a little bit more to move that spec home on that average lot if it gets towards the end and is unsold.

Speaker Change #250: It is it is a small difference, between that margin and what the margin would be had it been a bill to order.

Speaker Change #250: Our average margin for the quarter was 28.8%.

Speaker Change #250: Those orders were above that?

Speaker Change #250: Specs were below that.

Speaker Change #250: The effects were probably 100 to 200 points below that average, and the billed orders were 100 to 200 points above that average.

Speaker Change #250: Yeah, I was kind of triangulating back to make sure it was that pure mixed dynamic versus something under the surface, you know, incremental.

Speaker Change #250: So thank you for that.

Speaker Change #250: I could have answered your question and just said met.

Speaker Change #250: Sorry.

Speaker Change #250: Sorry for four minutes.

Speaker Change #250: That was the color that we were looking for.

Speaker Change #250: And then just thinking about seasonality, if you're, you know, typically you'd still keep seeing order pace decline in the fourth quarter.

Speaker Change #250: You know, obviously you just came through a weird and challenging third quarter and you're talking about potential, https://www.youtube.com or the link in the description below.

Speaker Change #250: So you're right.

Speaker Change #296: Is now that rates are a bit lower, maybe pulling back on some of the rate buy downs, or even start to begin raising prices again, or is it still premature to do that given the choppiness? Yeah, so it was a bit of a choppy quarter as we and other builders have talked about.

Rafe Jadrosich: The next question comes from Rafe Jadrosich with Bank of America. Go ahead, please. Hi, good morning and three. Thanks for taking my question. I will follow up on some earlier questions and sort of the deliveries. Resorters going forward. You've had three straight years of deliveries tracking above orders and that's partially been because the increase in spec. How do we think about deliveries relative to orders going forward here? Like, would you anticipate spec to outgrow the BTO business in terms of deliveries as we go into 2025?

Speaker Change #250: Good work there.

Speaker Change #250: And.

Speaker Change #250: Let's get a good market, let's get this thing cooking and lets blowout sales that's how I approach this business and want to see where it is but where we are three weeks in with the communities. We have opened with those we know that our opening with the quality of traffic.

Speaker Change #296: I went through the cadence.

Speaker Change #297: First, the beginning of May, pretty much up to our call, you know, things were looking pretty good, and then the last week of May through all of June, definitely saw a slow down. And we saw an accelerating pickup in July with the end of July being the best, and that has continued into August.

Speaker Change #250: Our fourth quarter is typically, orders are typically about 10% lower than Q3, and we're confident we're going to do better than that.

Speaker Change #250: I just wanted to suggest that the normal number of down 10% doesn't feel right. It feels like it should be at or in my hope better than Q3.

Speaker Change #298: We did run a spec event in the month of July, so we increase incentives modestly in July in some communities on specs, particularly those specs that might have been further along in construction. However, in July, we did raise prices on our build order homes.

Speaker Change #250: Our best guess three weeks in is that we may be flat.

Speaker Change #250: No. That's certainly helps Dave maybe this is the whole ambitious here, but want to quickly talk 25, just from a very high level standpoint, you've got some good visibility into your land pipeline and the types of communities youre going to be delivering.

Speaker Change #298: So the overall effect was pretty much flat, but as we sit here in the third week of August, traffic is up.

Speaker Change #250: Q3 versus down 10% And the next question comes from Trevor Allinson with Wolf Research.

Speaker Change #250: Please go ahead.

Speaker Change #250: Hi, good morning.

Speaker Change #298: The quality of traffic is improved.

Speaker Change #250: Thank you for taking my question.

Speaker Change #250: First one, just wanted to touch on geography.

Speaker Change #250: You guys laid out some of the better-performing markets.

Speaker Change #250: I don't believe you mentioned any markets in Florida or Texas.

Speaker Change #250: Those have clearly gotten a lot of attention over the last few months.

Speaker Change #250: Can you comment on how demand in those markets has trended relative to your business overall?

Speaker Change #250: Sure.

To that end do you have any sense as to what kind of community count growth.

Speaker Change #250: I'm, Texas has had a good August, a good end of July and good August.

Speaker Change #250: I'm, different stories in different markets in Texas, Austin, We're not feeling it directly, but you know, there's a bit of an overhang in that market as there's conversation around inventory, and Dallas and Houston.

Speaker Change #251: There are not inventory issues. I think there was just a lot of price increases over the last few years And so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause, of Florida.

Speaker Change #251: And by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average, of Florida.

Speaker Change #251: I'm at our company average margin.

Speaker Change #298: Rates are now down.

Rafe Jadrosich: I don't think so. I think, you know, the new odds may be that we haven't really looked at this. The new odds may be that the build to orders generally concentrate more in the luxury, more in the bigger homes. These have a few month longer build cycle. And the spec columns have a shorter build cycle. And so when we start one for one, like we have been, there is a potential for the build to orders to fall below 50% long term. But probably not from a revenue perspective.

Speaker Change #251: It has been a bit softer. There have been some elevated inventory levels, in Florida West, which is very small for us, which I call Southwest, and in the Tampa market, on the East Coast, Jacksonville, Orlando, and then for us down in the in the Jupiter, Palm Beach, Boca Raton area had done a bit better.

Speaker Change #251: Beyond track to see.

Speaker Change #252: It's really hard to gauge Florida in the summer months.

Speaker Change #252: Um, we'll have to see how we do as the market comes back in October and, and November.

Speaker Change #252: But Florida's okay.

Speaker Change #252: Actually if you look to potentially grow 5% to 10% over the long term.

Speaker Change #252: We're selling houses, we're at company average margin.

Speaker Change #252: Actually, at company average agreements per community as well.

Dave: Right.

Dave: But I think that's down from where Florida had been performing for the few years before that.

Dave: Well said.

Dave: I like that number.

Dave: We just opened last weekend our first community in the panhandle, and we killed it.

Dave: We took...

Dave: 10 sales our first weekend, in August.

Dave: I'm with you five to 10.

Dave: So that's exciting.

Dave: So I'm feeling a lot better about Texas and feeling a bit better about Florida is the best way to describe it.

Dave: Okay, thank you for that.

Dave: So in the end, it all worked out.

Dave: So in the end, it all worked out.

Dave: More to come in December.

Dave: That's definitely encouraging.

Dave: And it's that mix between spec and build to order that I think we're getting really good, at.

Dave: And it's that mix between spec and bill to order, that I think we're getting really good at.

Dave: Sounds like things are definitely trending in the right direction.

Dave: And we are very confident in that long term margin.

Dave: And we are very confident in that long term margin.

Dave: And then a question on SG&A, you've talked about that moving down to 9% longer term due to some tech initiatives, by 2025, or is that more of a longer term type of SG&A level?

Dave: Yeah.

Dave: And there you have it.

Dave: And there you have it.

Dave: The next question comes from Mike Dale with RBC Capital Markets.

Dave: The next question comes from Mike Dale with RBC Capital Markets.

Speaker Change #254: And then for 4Q specifically, looks like you've got it stepping down nicely sequentially.

Speaker Change #254: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Speaker Change #254: Should we think of that as just being leverage, or is there anything else?

Speaker Change #254: Um, you know, we're growing this company without adding people, becoming more efficient, we changed our operations in the field.

Speaker Change #254: We moved away from our legacy project manager system, to where we have stack leads that run land acquisition, land development, construction sales, etc., community openings. And that organizational structure is allowing us to grow much more efficiently.

Speaker Change #254: And so on the G&A front, we're very confident. We can do more without spending more dollars.

Speaker Change #255: On the yes side.

Speaker Change #255: Please go ahead.

Speaker Change #255: Please go ahead.

Speaker Change #255: The S has actually been up a little bit, but that's variable, you know, we're paying our inside sales agents a little bit more We have 65% of our sales involve a third party realtor.

Speaker Change #255: Thanks for taking my question.

Speaker Change #255: Morning.

Speaker Change #255: Morning.

Speaker Change #255: We're spending a little bit more money on marketing and advertising.

Speaker Change #255: I want to follow up on some earlier questions on sort of the deliveries versus orders going forward.

Speaker Change #255: Thank you very much you are terrific.

Speaker Change #255: But overall, there is leverage as we grow on flat, on GNA and you know, the S will just move with sales.

Speaker Change #255: You've had three straight years of deliveries, tracking above above orders. Partially because of the increase in spec.

Speaker Change #255: And we'll just see how that goes, particularly with, you know, the new rules around broker commission.

Speaker Change #255: How do we think about deliveries relative to orders going forward here?

Speaker Change #255: Thanks, guys.

Speaker Change #255: I think, Trevor, we're going to be, essentially flat in terms of GNA dollars spent in 2024 versus 2023, and deliver roughly 10 to 12% more homes, and have 10%, 11% more communities.

Speaker Change #255: Would you anticipate spec to outgrow the BTO business?

Speaker Change #255: Thanks for taking my questions.

Speaker Change #255: Thanks for taking my questions.

Speaker Change #255: Thanks to everyone for your interest and support have a wonderful end of your summer. We are here always to answer any questions you may have and.

Speaker Change #255: Appreciate the color you gave on order cadence into the fourth quarter.

Speaker Change #255: So we're pretty proud of that.

Speaker Change #255: in terms of deliveries as we go into 2025.

Speaker Change #255: Hi, Mike.

Speaker Change #255: Hi, Mike.

Speaker Change #255: Just want to piggyback off of some of those questions.

Speaker Change #255: The S side is showing the variable nature of the commissions, and staffing out at the job sites for the at the communities for the sales teams.

Speaker Change #255: I don't think so.

Speaker Change #255: Hi.

Speaker Change #255: So just to keep going on kind of the margin and the spec, and all the mixed dynamics, I guess when you think about the 4Q gross margin, understanding that you took it up a little prior, the first year prior, you know, you're talking about kind of running that promotion, which may have lifted incentives.

Speaker Change #255: You know, are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter?

Speaker Change #255: And it's also showing a little bit more expenditures for market.

Speaker Change #255: I think, you know, the nuance may be that, and we haven't really looked at this, the nuance may be that the bill to orders, generally concentrate more in the luxury, more in the bigger home, have a few month longer build cycle.

Speaker Change #255: So just to keep going on kind of the margin and the spec and all the mix dynamics, I guess, when you think about the 4Q gross margin, understanding that you took it up a little prior versus your prior, you know, you're talking about kind of running that promotion, which may have lifted incentives at the same time, you know, Steve followed up on your comments about efficiency, which does seem more sustainable and, you know, unclear why that would go away in the immediate term.

Speaker Change #255: At the same time, you know, Steve followed up, on your comments about efficiency, which does seem more sustainable.

Speaker Change #255: In addition to the benefits you might be seeing from selling more specs and just lower overall rates?

Speaker Change #255: The next question comes from Rafe Jadrosich with Bank of America.

Speaker Change #255: And the spec columns have a shorter build cycle.

Speaker Change #255: So can you just help us understand, you know, in terms of maybe just the incentive load, that's projected to be in your fourth quarter deliveries versus your third quarter deliveries?

Speaker Change #255: And, you know, unclear why that would go away, in the immediate term.

Speaker Change #255: No, you know, we always run sales events. Some are local, some are regional, some are national.

Speaker Change #255: We are here always to answer any questions you may have.

Speaker Change #255: Go ahead.

Speaker Change #255: And so when we start one for one, like we have been, there is a potential for the build to orders to fall below 50% long-term.

Speaker Change #255: margins can vary quite a bit regionally as well.

Speaker Change #255: So can you just help us understand, you know, in terms of maybe just the incentive load that's projected to be in your fourth quarter deliveries versus your third quarter deliveries?

Speaker Change #255: They're on the calendar already.

Speaker Change #255: Hi, good morning.

Speaker Change #255: Um, but probably not from a revenue perspective.

Speaker Change #255: So maybe if you could let us know kind of on a like-for-like basis what you think that spec versus BTO margin is going to run at in your fourth quarter versus what it's been here today.

Speaker Change #255: And then I know that your spec.

Speaker Change #255: They're no different than prior years.

Speaker Change #255: It's Rafe.

Speaker Change #255: Got it.

Speaker Change #255: So our incentive is about five and a half percent of the delivered price of, our homes that comes out to about fifty to fifty five thousand dollars.

Speaker Change #255: Speck margins can vary quite a bit regionally as well, so maybe if you could let us know, kind of on a like-for-like basis what you think that Speck versus BTO margin is going to run at in your fourth quarter versus what it's been here to date.

Speaker Change #255: We do...

Speaker Change #255: Okay, that's helpful.

Speaker Change #255: Simple math on houses that are in the 950 range.

Speaker Change #255: So our incentive is about 5.5% of the delivered price of our homes. That comes out to about $50,000 to $55,000.

Speaker Change #255: Traditionally have a national sales event in the month of September that's occurred for many years that will occur again but beyond that there's nothing, Out of the Ordinary.

Speaker Change #255: Then the like, do you think deliveries can continue to outpace orders going forward?

Speaker Change #255: And we look forward to seeing all of you soon.

Speaker Change #255: That was Q3 and we believe that will be the same incentive in Q4.

Speaker Change #255: Simple math on houses that are in the $950,000 range.

Speaker Change #255: And I do caution, you know, we don't like to guide on sales.

Speaker Change #255: No, they will they will reach equilibrium pretty soon here.

Speaker Change #255: And we look forward to seeing all of you soon thanks take care.

Speaker Change #255: Thanks.

Speaker Change #255: I don't think that I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4.

Speaker Change #255: That was Q3, and we believe that will be the same incentive in Q4.

Speaker Change #255: So when I said, you know, we, we think we'll be better than down 10%.

Speaker Change #255: Okay.

Speaker Change #255: Take care.

Speaker Change #255: It's mix related.

Speaker Change #255: I don't think the margin differential is going to be very incentive-sensitive between Q3, and Q4. It's mix-related.

Speaker Change #256: You know, we're thinking more consistent with what we did in Q3.

Speaker Change #256: And then the second question just on, you know, you increase the buyback guidance for the year.

Rafe Jadrosich: Okay, that's helpful. Then the like, do you think deliveries can continue to outpace orders going forward? No, they will reach equal everyone pretty soon here. Okay.

Speaker Change #256: The conference is now concluded.

Speaker Change #256: Right and so remember and we talked about how for Q4 we think, we'll have about 60% of our homes spec.

Speaker Change #256: And so remember, and we talked about how for Q4, we think we'll have about 60% of our homes, Speck.

Speaker Change #256: That's not a limiter to me.

Speaker Change #256: Can you talk about kind of what drove that decision?

Speaker Change #256: That doesn't mean we incentivize the whole bunch to sell those and that's what's hurting the margin.

Speaker Change #256: That doesn't mean we incentivize the whole bunch to sell those and that's what's hurting, the margin.

Speaker Change #256: You know, I'm hopeful as rates come down, the market improves, we continue to open new communities that, you know, we could have a roaring fall.

Speaker Change #256: And Doug, I think you said, programmatic capital return, which I don't think you've sort of said in the past.

Speaker Change #256: The next question comes from Raph Jadrosich with Bank of America.

Speaker Change #256: The next question comes from Raph Jadrosich with Bank of America.

Speaker Change #256: Thank you for attending today's presentation.

Speaker Change #256: We tend to build spec on what I'll call the more average lot in a community.

Speaker Change #256: We tend to build Speck on what I'll call the more average lot in a community.

Speaker Change #256: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change #256: I'm not predicting that.

Speaker Change #256: So has there been any any change here?

Speaker Change #256: You may now disconnect.

Speaker Change #256: We tend to save the very high premium lots, the special lots overlooking the 18th green with beautiful woods in the backyard with a beautiful lake in the backyard for the build-to-order business because that client is more affluent. They want to put a lot of upgrades into their dream home. They want that dream home on the best lot we have and we let them run wild in the design studio and that margin tends to be higher.

Speaker Change #256: We tend to save the very high-premium lots, the special lots, overlooking the 18th Green, with beautiful woods in the backyard, with a beautiful lake in the backyard for the build-to-order business because that client is more affluent. They want to put a lot of upgrades into their dream home. They want that dream home on the best lot we have, and we let them run wild in the design, studio, and that margin tends to be higher.

Speaker Change #256: But I don't want you to think we're giving some guidance right now on, you know, on sales, because we don't do that.

Speaker Change #256: Or how should we think about capital return and buyback going, So we expect...

Speaker Change #256: Untertitel der Amara.org-Community Good morning, and welcome to the Toll Brothers third quarter fiscal year 2024 conference call.

Speaker Change #256: So when you think about the spec margin you shouldn't be comparing it to the build-to-order margin.

Speaker Change #256: So when you think about the Speck margin, you shouldn't be comparing it to the build-to-order, margin.

Speaker Change #256: And let's get a good market.

Speaker Change #256: Free cash flow of $800 million to $1 billion. That's up a little bit because of our strong performance, and we want to continue to reward our shareholders. Return capital to our shareholders.

Speaker Change #256: 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.

Speaker Change #256: You need to recognize that the spec is generally built on a more average lot, lower lot premium and that client generally even if it was a build-to-order home on that lot would not spend as much in the design studio and we know the design studio is margin accretive.

Speaker Change #256: You need to recognize that the Speck is generally built on a more average lot, lower lot premium, and that client generally, even if it was a build-to-order home on that lot, would not spend as much in the design studio, and we know the design studio is margin accretive.

Speaker Change #256: Let's get this thing cooking.

Speaker Change #256: We are very focused on return on equity.

Speaker Change #256: After today's presentation, there will be an opportunity to ask questions.

Speaker Change #256: So while we may have to incentivize a little bit more to move that spec home on that average lot if it gets towards the end and is unsold it is it is a small difference between that margin and what the margin would be had it been a build-to-order.

Speaker Change #256: So while we may have to incentivize a little bit more to move that Speck home on that average, lot if it gets towards the end and is unsold, it is a small difference between that margin and what the margin would be had it been a build-to-order.

Speaker Change #256: You may now disconnect.

Speaker Change #256: And let's blow out sales.

Speaker Change #256: In addition, of course, to how quickly we can build and turn houses and how efficiently we can buy land.

Speaker Change #256: To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Speaker Change #256: Our average margin for the quarter was 28.8%.

Speaker Change #256: Our average margin for the quarter was 28.8%. The build-to-orders were above that.

Speaker Change #256: That's how I approach this business.

Speaker Change #256: And so, seemed like a great time to take the 500 up to the 600 because of our performance, and the additional free cash flow that we have.

Speaker Change #256: The company is planning to end the call at 9.30 when the market opens.

Speaker Change #256: The build-to-orders were above that, the specs were below that.

Speaker Change #256: The Specks were below that.

Speaker Change #256: And we'll have to see where it is.

Speaker Change #256: Going forward, you will continue, as we talked about going back to 2016, you will continue to see us, programmatically, regularly, and consistently and predictably, buy our company's stock back.

Speaker Change #256: During the Q&A, please limit yourself to one question and one follow-up.

Speaker Change #256: The specs were probably 100 to 200 points below that average and the build-to-orders were 100 to 200 points above that average.

Speaker Change #256: The Specks were probably 100 to 200 points below that average, and the build-to-orders, were 100 to 200 points above that average.

Speaker Change #256: But where we are three weeks in, with the communities we have open with those we know that are opening with the quality of traffic.

Speaker Change #256: Yeah, I think our use of the term programmatic probably goes back a year or two at this point.

Speaker Change #256: Please note this event is being recorded.

Speaker Change #256: Yeah I was kind of triangulating back to make sure it was that pure mix dynamic versus something under the surface that's you know incremental.

Speaker Change #256: Yeah, I was kind of triangulating back to make sure it was that pure mix dynamic versus, something under the surface that's, you know, incremental on a Speck, so thank you for that.

Speaker Change #256: I just wanted to suggest that the normal number of down 10% doesn't feel right, feels like it should be at, or in my hope, better than Q3.

Speaker Change #256: But we're not going to eliminate the opportunity to be opportunistic, right?

Speaker Change #256: Thank you, Dave.

Speaker Change #256: So thank you for that.

Speaker Change #256: I could have answered your question and just said mix.

Speaker Change #256: Yeah, that certainly helps.

Speaker Change #256: We just hope we don't have it.

Speaker Change #256: Good morning.

Speaker Change #256: I could have answered your question and just said mix.

Speaker Change #256: Sorry.

Speaker Change #256: And maybe this is a little ambitious here, but want to quickly talk 25.

Speaker Change #256: The next question comes from CM Reid with Wells Fargo.

Speaker Change #256: Welcome and thank you for joining us.

Speaker Change #256: That was the color that we were looking for.

Speaker Change #256: Sorry for wasting four minutes.

Speaker Change #256: Just from a very high level standpoint, you know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering.

Speaker Change #256: Please go ahead.

Speaker Change #256: With me today are Marty Connor, Chief Financial Officer, Rob Perrahaus, President and Chief Operating Officer, Wendy Marlette, Chief Marketing Officer, and Greg Ziegler, Senior VP Treasurer and our Head of Investor Relations.

Speaker Change #256: And then just thinking about seasonality, typically you'd still keep seeing order pace decline in the fourth quarter.

Speaker Change #256: That was the color that we were looking for.

Rafe Jadrosich: And then the second question just on, you know, you increase the buyback guidance for the year. Can you talk about kind of what drove that decision? And dog, I think you said programmatic capital return, which I don't think you sort of said in the past. So has there been any, any change here? How should we think about capital return and buyback going forward? So we expect free cash flow of 800 million to $1 billion.

Speaker Change #256: So to that end, you know, do you have any sense as to what kind of community count growth, you know, we might be on track to see, you know, especially as you look to potentially grow five to 10% over the long term?

Speaker Change #256: Awesome.

Speaker Change #256: 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.

Speaker Change #256: Obviously, you just came through a weird and challenging third quarter, and you're talking about potential acceleration in trends coming out of July.

Speaker Change #256: And then just thinking about seasonality, you know, typically you'd still keep seeing order pace decline in the fourth quarter.

Speaker Change #256: I like that number.

Speaker Change #256: 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 statement.

Speaker Change #256: Any help you want to provide in terms of level setting, I think typically your pace would be down kind of low double digits sequentially in 4Q versus 3Q.

Speaker Change #256: Obviously, you just came through a weird and challenging third quarter, and you're talking about potential acceleration in trends coming out of July.

Speaker Change #256: I'm with you, 5 to 10.

Speaker Change #256: We had another terrific quarter and are very pleased with our fiscal third quarter results. We deliver 2,814 homes at an average price of $968,000, generating record third quarter home sale revenues of $2.72 billion. Our adjusted gross margin of 28.8%, exceeded guidance by 110 basis points, primarily due to greater efficiencies in our home building operations, as well as favorable net. Our SG&A expense was 9.0% of home sale revenues, or 20 basis points better than guidance.

Speaker Change #256: Should we be expecting kind of on seasonal trends above, below, based on what you're seeing so far?

Speaker Change #256: Any help you want to provide in terms of level setting, and I think typically your pace would be down, kind of low double digits sequentially in 4Q versus 3Q?

Speaker Change #256: More to come in December.

Speaker Change #256: Outperformance in both the top line and in our margin drove earnings of $3.60, per diluted share.

Speaker Change #256: So you're right.

Speaker Change #256: Should we be expecting kind of on seasonal trends above, below, based on what you're seeing so far?

Speaker Change #256: This concludes our question and answer session.

Speaker Change #256: Keeping us on track to deliver another great year for Toll Brothers. In the third quarter, we signed 2,490 net contracts for $2.4 billion, up approximately 11% in both units and dollars compared to last year's third quarter.

Speaker Change #256: Good work there.

Speaker Change #256: So you're right.

Speaker Change #256: I would like to turn the conference back over to management for any closing remarks.

Speaker Change #256: On a per-community basis, we sold at a pace of 2.1 homes per month, down slightly versus the 2.2 pace we sold in last year's third quarter.

Speaker Change #256: Our fourth quarter is typically orders are typically about 10% lower than Q3, and we're confident we're going to do better than that.

Speaker Change #256: Good work there.

Speaker Change #256: Dave, thank you very much.

Speaker Change #256: Demand in our third quarter was uneven. May started out strong, but slowed into and through June. July was the strongest month in the quarter, especially in the latter half of the month. We have seen this strength continue into the first three weeks of August, with mortgage rates at their lowest point in a year and trending lower, and continued imbalance in the supply and demand of homes for sale.

Speaker Change #256: We think we'll – our best guess three weeks in is that we may be flat to Q3 versus down 10%.

Speaker Change #256: Our fourth quarter is typically orders are typically about 10% lower than Q3, and we're confident we're going to do better than that.

Speaker Change #256: You were terrific.

Speaker Change #256: We are optimistic that demand for new homes will remain solid through the end of fiscal 24 and into 2025. We are encouraged by demand trends we are seeing across the country, and also across our buyer segment.

Speaker Change #256: And the next question comes from Trevor Allinson with Wolf Research.

Speaker Change #256: We think we'll – our best guess three weeks in is that we may be flat to Q3 versus down 10%.

Speaker Change #256: Thanks, everyone, for your interest and support.

Speaker Change #256: Demand where we, excuse me, markets where we saw particular strength in the quarter included New Jersey, Pennsylvania, Metro DC, South Carolina, Atlanta, Boise, Las Vegas, and all of California. Price adjustments in the quarter were community and market dependent. We raised prices in some communities and lowered it in others.

Speaker Change #256: Please go ahead.

Speaker Change #256: And the next question comes from Trevor Allinson with Wolf Research.

Speaker Change #256: Have a wonderful end of your summer.

Speaker Change #256: Overall, pricing was flat compared to the second quarter, and incentives continued to run approximately 5.5%, of our average sales price.

Speaker Change #256: Hi.

Speaker Change #256: Please go ahead.

Speaker Change #256: As I noted earlier, we are optimistic that market conditions will remain positive for homebuilders into the foreseeable future. The underlying drivers of demand remain firmly in place, including favorable demographics driven by millennials, many of whom are buying their first home later in life when they have higher incomes and accumulated wealth. Older millennials are now hitting their 40s, which should provide a tailwind, for our luxury move up business over the next decade.

Speaker Change #256: Good morning.

Speaker Change #256: Hi, good morning.

Speaker Change #256: In addition, baby boomers are moving into new homes as they retire and adjust their lifestyles. There also continues to be an underbuilt and aging stock of homes for sale, with the undersupply exacerbated by the lock-in effect of higher rates, which is keeping resale inventory at historically low level. But even as interest rates move lower, we believe the supply of homes will remain challenged. Due to nearly 15 years of underproduction.

Speaker Change #256: Thank you for taking my questions.

Speaker Change #256: Thank you for taking my questions.

Speaker Change #256: Lower rates alone will not fully address...

Speaker Change #256: First one, just wanted to touch on geography.

Speaker Change #256: First one, just wanted to touch on geography.

Speaker Change #256: Chronic Undersupply of Hazardous Materials, The past several years have proven how impactful these fundamentals are, with demand for new homes remaining solid in the face of a sharp rise in mortgage rates and a prolonged period in which rates have remained elevated.

Speaker Change #256: You guys laid out some of the better performing markets.

Speaker Change #256: You guys laid out some of the better performing markets.

Speaker Change #256: As a large, well-capitalized home builder, we have benefited from and performed very well in this environment, with sales up 25% year-to-date. We would clearly welcome lower rates and are excited by the prospect of a normalizing housing market. Our strategy of widening our geographies and price points to include more affordable homes, and increasing our supply of spec homes has helped us meet demand while becoming a more efficient home builder, as we have expanded and come down in price.

Speaker Change #256: I don't believe you mentioned any markets in Florida or Texas.

Speaker Change #256: I don't believe you mentioned any markets in Florida or Texas.

Speaker Change #256: We now have the widest variety of product and the widest range of price of any of the builders, presents us with a great opportunity to grow our core home building business in our 60 markets across the country. Our spec homes represented approximately 54% of orders and 49% of deliveries in the third quarter. We continue to target about 50% of our business as spec, with continued strong demand from buyers who are looking for quicker movement.

Speaker Change #256: Those have clearly gotten a lot of attention over the last few months.

Speaker Change #256: Those have clearly gotten a lot of attention over the last few months.

Speaker Change #256: As a reminder, we define a SPAC as any home without a buyer that has a foundation port.

Speaker Change #256: Can you comment on how demand in those markets has trended relative to your business overall?

Speaker Change #256: Can you comment on how demand in those markets has trended relative to your business overall?

Speaker Change #256: We sell our specs at various stages of construction, which provides many of our buyers the opportunity to personalize their homes at one of our 40 design studios nationwide.

Speaker Change #256: Sure.

Speaker Change #256: Sure.

Speaker Change #256: This offers our spec buyers a degree of choice, is a key pillar in the Toll Brothers buying experience, while providing us with a faster and more efficient, At third quarter end, our backlog stood at $7.1 billion and 6,769 homes.

Speaker Change #256: Texas has had a good August, a good end of July and good August.

Speaker Change #256: Texas has had a good August, a good end of July and good August.

Speaker Change #256: Our cancellation rate as a percentage of backlog. 2.4% in the third quarter, down from 2.8% in our second quarter and consistent with our long-term average of 2.3%. Our industry low cancellation rate is due to the significant upfront down payments our buyers make, as well as the emotional attachment they form as they personalize their homes with us. Our buyers also tend to be more affluent.

Speaker Change #256: Different stories in different markets in Texas.

Speaker Change #256: Different stories in different markets in Texas.

Speaker Change #256: Approximately 28% of our buyers paid all cash in the third quarter, consistent with our second quarter and significantly above our long-term average of approximately twenty percent. The loan to value ratio for buyers who took a mortgage, Approximately 69% So, for the 72% of our buyers who took a mortgage, on average they put down 31%.

Speaker Change #256: Austin has some elevated inventory.

Speaker Change #256: Austin has some elevated inventory.

Speaker Change #256: These metrics highlight the financial strength and affluence of our entire customer base.

Speaker Change #256: We're not feeling it directly, but, you know, there's a bit of an overhang in that market as there's conversation around inventory.

Speaker Change #256: We're not feeling it directly, but, you know, there's a bit of an overhang in that market as there's conversation around inventory.

Speaker Change #256: We continue to see modest improvement in our construction cycle times consistent with our focus on product and process optimization and our increase in faster turn, We remain hyper-focused on continuing to improve our construction times as we move forward, which should further benefit our already strong cash flow.

Speaker Change #256: In Dallas and Houston, there are not inventory issues. I think there was just a lot of price increases over the last few years, and so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause. But that seems to be working itself out.

Speaker Change #256: And Dallas and Houston, there are not inventory issues.

Speaker Change #256: We are on target to reach our goal of operating from 410 communities by fiscal year end, would represent 11% growth, compared to the 370 communities we are operating from at the start of the year. We plan to continue growing community count next year, and we have sufficient land under control to do it. At quarter end, we owned or controlled 72,700 lots, half of which were controlled and the other half owned.

Speaker Change #256: As for the last month, we've seen, you know, pretty significant improvement in our action in the state of Texas.

Speaker Change #256: I think there was just a lot of price increases over the last few years, and so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause. But that seems to be working itself out.

Speaker Change #256: Excluding the 6,769 lots in our backlog, our controlled land represents 55%, of our lot. This land position provides us with sufficient lots needed for growth in fiscal 2025 and beyond, and allows us to continue to be selective, disciplined and focused on efficiency, when we assess new land opportunities.

Speaker Change #256: Florida, and by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average.

Speaker Change #256: As for the last month, we've seen, you know, pretty significant improvement in our action in the state of Texas.

Speaker Change #256: Our underwriting standards for new land continues to incorporate stringent thresholds for both margins and returns, and we continue to seek out land acquisition and development opportunities that allow us to be more capital efficient. Including through increased use of option arrangements, land banks, joint ventures, and similar structures, that allow us to defer payments and lot tape.

Speaker Change #256: Florida sits at our company average margin.

Speaker Change #256: Florida – and by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average.

Speaker Change #256: This focus on capital efficiency and returns extends beyond our land and other operations. It also includes our efforts to more programmatically return capital to our stockholders. Since the start of our third quarter, we've repurchased $246 million of our common stock, bringing our year-to-date repurchases to $427 million at an average price of approximately $119 per share.

Speaker Change #256: It has been a bit softer.

Speaker Change #256: Florida sits at our company average margin.

Speaker Change #256: We also paid over $70 million in dividends year-to-date.

Speaker Change #256: There have been some elevated inventory levels in Florida West, which is very small for us, which I call Southwest, and in the Tampa market.

Speaker Change #256: It has been a bit softer.

Speaker Change #256: So far this year, we've repurchased approximately 3% of our year-end diluted share count, and since 2016...

Speaker Change #256: The East Coast, Jacksonville, Orlando, and then for us down in the Jupiter, Palm Beach, Boca Raton area has done a bit better.

Speaker Change #256: There have been some elevated inventory levels in Florida West, which is very small for us, which I call Southwest, and in the Tampa market.

Speaker Change #256: We bought back approximately one half of the company.

Speaker Change #256: It's really hard to gauge Florida in the summer months, We'll have to see how we do as the market comes back in October and And November, But Florida is okay.

Speaker Change #256: The East Coast, Jacksonville, Orlando, and then for us down in the Jupiter, Palm Beach, Boca Raton area, has done a bit better.

Speaker Change #256: Given our outstanding year-to-date financial performance, Including strong operating cash flows. We are raising our buyback expectations for the full year. $500 to $600 million. Dividends and buybacks will continue to be an important part of our capital allocation strategy and a key factor in maintaining an attractive return on equity. We now expect our return on beginning equity to be approximately 22.5% this year. This will be the third year in a row that we generate an ROE over 20%.

Speaker Change #256: We're selling houses.

Speaker Change #256: It is really hard to gauge Florida in the summer months.

Speaker Change #256: With that, I will turn it over to Marty.

Speaker Change #256: We're at company average margin Actually at company average, Agreements per community as well, right?

Speaker Change #256: We will have to see how we, do as the market comes back in October and November.

Speaker Change #256: Thanks, Doug.

Speaker Change #256: But I think that's down from where Florida had been performing for the few years before that well said we just opened, last weekend our first community in the panhandle And we killed it, we took then ten sales our first weekend in August So that's exciting so, Feel a lot better about Texas and feeling a bit better about Florida is the best way to describe it Okay, thank you for that that's definitely encouraging sounds like things are definitely trending in the right direction there and then a question on, SG&A He's talked about that moving down to nine percent longer term due to some tech initiatives, You By 2025 or is that more of a longer-term type of, SG&A level and then for 4q specifically looks like you've got it stepping down nicely sequentially Should we think of that as just being leverage or is there anything else driving that?

Speaker Change #256: But Florida is okay.

Rafe Jadrosich: That's up a little bit because of our strong performance. And we want to continue to reward our shareholders, return capital to our shareholders. We are very focused on return on equity. We know one of the main levers of keeping return on equity high is having a robust programmatic stock buyback program. In addition, of course, to how quickly we can build and turn houses and how efficiently we can buy land. And so it seemed like a great time to take the 500 up to 600 because of our performance and the additional free cash flow that we have.

Speaker Change #256: Good morning, everyone.

Speaker Change #256: Thanks, You know, we're growing this company without adding people Becoming more efficient.

Speaker Change #256: We are selling houses.

Speaker Change #256: Thanks for being with us.

Speaker Change #256: We changed our operations in the field, We moved away from our legacy project manager system To where we have stack leads that run land land land acquisition land development construction sales, etc, community openings and that That organizational structure is allowing us to grow much more efficiently.

Speaker Change #256: We are at company average margin.

Speaker Change #256: It was a great quarter. We earned $504 million before taxes. $375 million, or $3.60 of earnings per diluted share, well above the earnings we guided to last quarter. Home sale revenues were $2.72 billion in the quarter, third quarter record and an increase of 2% compared to one year ago. We delivered 2,814 homes in the quarter, up 11.5% year over year.

Speaker Change #256: And so on the G&A front, we're very confident, We can do more without spending more dollars on The F side, The S has actually been up a little bit, but that's variable, you know, we're paying our inside sales agents a little bit more we have 65% of our sales involve a third-party realtor, We're spending a little bit more money on on marketing and advertising but overall There is leverage as we grow on, flat G&A and you know, the S will just move with sales, And we'll just see how that goes particularly with you know, the new rules around broker commissions I Think Trevor we're going to be, Essentially flat in terms of G&A dollars spent in 2024 versus, 2023 and Deliver roughly 10 to 12 percent more homes and have 10 percent 11 percent more community, So we're pretty proud of that The S side is showing the variable nature of the commissions, and staffing out at the job sites for the at the communities for the sales teams and it's also showing a little bit more expenditures for marketing.

Speaker Change #256: Actually, at company average agreements per community as well.

Speaker Change #256: This unit growth is a direct outcome of our strategies of broadening our price point, and increasing our supply of, Based on our third quarter results and our expectations for the fourth quarter. We are raising our full-year deliveries, guys. We now expect to deliver between 10,650 and 10,750 homes, an increase of 100 homes at the midpoint of our previous guidance. We are also increasing our guidance for full year average delivered price by $10,000, to $975,000. This translates to a home building revenue projection of between $10.4 and $10.5 billion for the full year, or over $200 million of additional revenue compared to the midpoint of our previous guidance.

Speaker Change #256: Right.

Speaker Change #256: We signed 2,490 net contracts in the third quarter for $2.4 billion, of approximately 11% in dollars and units. The average price of contracts signed in the quarter was approximately $967,000, which was about flat compared to both the third quarter of last year and the second quarter of this year.

Speaker Change #256: But I think that is down from where Florida had been performing for the few years before that.

Speaker Change #256: Our third quarter adjusted gross margin. 28.8% compared to 29.3% in the third quarter of 2023. And this was 110 basis points better than we had projected. The outperformance to guide was due primarily to greater efficiency in our home building operation, as well as Favorable Mix. With the outperformance in our third quarter, we are raising our full year adjusted gross margin guidance from 28.0% 28.3%.

Speaker Change #256: Well said.

Speaker Change #256: We are now projecting a fourth quarter adjusted gross margin, of 27.5%. 10 basis point increase compared to our previous implied guidance. SG&A as a percentage of revenue was 9.0% in the third quarter compared to 8.6% in the third quarter of last year. And this was 20 basis points better than we had projected for this quarter.

Speaker Change #256: We just opened last weekend our first community in the Panhandle and we killed it. We took ten sales our first weekend in August. So that is exciting.

Speaker Change #256: Year over year, we modestly reduced G&A expenses in terms of total dollars, but this reduction was offset by higher selling expenses due in part to increased community output.

Speaker Change #256: So I am feeling a lot better about Texas and feeling a bit better about, Florida is the best way to describe it.

Speaker Change #256: As we've pointed out before, we've been very focused on becoming more efficient. And we are seeing the benefits of that efficiency continue to flow through our results.

Speaker Change #256: Okay.

Speaker Change #256: For the fourth quarter, we expect SG&A expense to be 8.6% of home sales revenue. For the full year, we now expect it to be 9.4. This represents a 20 basis point improvement over our previous guide.

Speaker Change #256: Thank you for that.

Speaker Change #256: Third quarter joint venture land sales and other income was $1 million, which was consistent with our breakeven guidance. We continue to expect our full year joint venture land sales and other income to be approximately $260 million, implying approximately $47 million in the fourth quarter.

Speaker Change #256: That is definitely encouraging.

Speaker Change #256: Tax rate in the quarter was 25.6%. We expect our fourth quarter tax rate to be 26%, which would bring the full year rate to approximately 25.4%. We expect interest and cost of sales to be approximately 1.3% in the fourth quarter and for the full year as we continue to benefit from our reduced leverage.

Speaker Change #256: It sounds like things are definitely trending in the right direction there.

Speaker Change #256: As Doug mentioned, we are maintaining our community count guidance of approximately 410 communities, open for sale by fiscal year-end. This would represent approximately 11% growth from the 370 communities we began the year with.

Speaker Change #256: And then a question, on SG&A.

Speaker Change #256: We plan to continue growing community count in fiscal year 2025 and have the land to do it.

Speaker Change #256: You have talked about that moving down to 9% longer term due to some tech initiatives by 2025?

Speaker Change #256: Turning to the balance sheet, we finished the quarter with a net debt to capital ratio of 19.6%. $893 million in cash and equivalents and $1.8 billion available under our $1.96 billion revolving bank credit. We have no significant bank or senior debt maturities until November 2025. All of this provides us with ample flexibility to both grow our business and return capitalist stockholders as we continue to focus on generating attractive returns.

Speaker Change #256: Or is that more of a longer term type of SG&A level?

Speaker Change #256: Our weighted average share count is expected to be approximately $104.75 million for the full year and $102.5 million for the fourth quarter. As Doug noted, we've increased our share repurchase guidance to approximately $600 million of repurchases this year, implying approximately $175 million of buybacks in the fourth.

Speaker Change #256: And then for 4Q specifically, it looks like you have got it stepping down nicely sequentially.

Speaker Change #256: Putting this all together.

Speaker Change #256: Should we think of that as just being leverage or is there anything else driving that?

Speaker Change #256: We now expect to earn between $14.50 and $14.75 per diluted share in fiscal 2024.

Speaker Change #256: Thanks.

Speaker Change #256: We expect to achieve a full year return on beginning equity of approximately 22.5%.

Speaker Change #256: You know, we are growing this company without adding people.

Speaker Change #256: We expect our book value at year end to be over $76.50.

Speaker Change #256: We are becoming more efficient.

Speaker Change #256: This would cap off another great year for Toll Brothers.

Speaker Change #256: We changed our operations in the field.

Speaker Change #256: Now let me turn it back to Doug.

Speaker Change #256: We moved away from our legacy project manager system, to where we have stack leads that run land acquisition, land development, construction sales, et cetera, community openings. And that organizational structure is allowing us to grow much more efficiently.

Speaker Change #256: Thank you, Marty.

Speaker Change #256: And so on the G&A front, we are very confident we can do more without spending more dollars.

Speaker Change #256: Before I open it up for questions, I'd like to recognize the hard work of all of our toll employees, is their passion for our business.

Speaker Change #256: On the S side, the S has actually been up a little bit, but that is variable.

Speaker Change #256: Dedication to our luxury brand and commitment to our customers that will ensure our continued success.

Speaker Change #256: We are paying our inside sales agents a little bit more.

Speaker Change #256: Dave, let's open it up to questions.

Speaker Change #256: We have 65% of our sales involve a third party realtor. We are spending a little bit more money on marketing and advertising.

Speaker Change #256: We will now begin the question and answer session.

Speaker Change #256: But overall, there is leverage as we grow on flat G&A.

Speaker Change #256: As a reminder, the company is planning to end the call at 930 when the market opens.

Speaker Change #256: And the S will just move with sales, and we will just see how that goes, particularly with the new rules around broker commissions.

Speaker Change #256: During the Q&A, please limit yourself to one question and one follow up.

Speaker Change #256: I think, Trevor, we are going to be essentially flat in terms of G&A dollars spent in 2024 versus 2023 and deliver roughly 10% to 12% more homes and have 10%, 11% more communities.

Speaker Change #256: To ask a question, you may press star, then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the.

Speaker Change #256: So we are pretty proud of that.

Speaker Change #256: To withdraw your question, please press star then two.

Speaker Change #256: The S side is showing the variable nature of the commissions, and staffing out at the job sites for the at the communities for the sales teams and it's also showing a little bit more expenditures for marketing.

Speaker Change #256: Our first question comes from Stephen Kim with Evercore ISI.

Speaker Change #256: Please go ahead.

Speaker Change #256: Yeah thanks very much guys appreciate all the color so far and good job in the quarter.

Speaker Change #256: I wanted to ask you about profitability, and I was intrigued by your comment about greater efficiency in the home building operations.

Speaker Change #256: I wanted to just sort of get a sense of if you could elaborate there.

Speaker Change #256: And that seems to imply that there's a degree of sustainability to the strength that we're seeing in your margins.

Speaker Change #256: And so I know you haven't given guidance here for 2025, but it would be helpful for, I think, us to hear you comment on the 17.5% operating margin you're generating this year.

Speaker Change #256: How sustainable do you think that is generally?

Speaker Change #256: Is that a number that you think is inflated by any particular variables?

Speaker Change #256: Or is that a level that you sort of, as you look forward across your business over the next several years, is that a level that you sort of feel is a reasonable level to use as kind of a base?

Speaker Change #256: Thanks, Steve.

Speaker Change #256: Great question.

Speaker Change #256: The quick answer is yes, we believe that operating margin you referenced is sustainable.

Speaker Change #256: We are targeting long term with this new business model, of a very wide price point, a very wide geography, about 50% spec.

Speaker Change #256: More and more affordable luxury communities.

Speaker Change #256: A longer-term gross margin in the 27 to 28 percent range, and as we become more efficient on the SG&A line, which you've seen over the last couple of years, we think that operating margin long-term is definitely sustainable.

Speaker Change #256: Well, that's super clear.

Rafe Jadrosich: Going forward, you will continue as we talked about going back to 2016, you will continue to see us. Yes, programmatically, regularly, and consistently and predictably, fire company Stalkback. I think our use of the term programmatic probably goes back a year or two at this point, but we're not going to eliminate the opportunity to be opportunistic. Right. We just hope we don't have it.

Speaker Change #256: So appreciate that.

Speaker Change #256: And that's obviously very encouraging.

Speaker Change #256: Was wondering if you could talk a little bit about yours a little bit more about your spec model.

Speaker Change #256: What was the actual number of specs both finished and in total specs that you had in the quarter?

Speaker Change #256: And then I had a follow up regarding what that about that level.

Speaker Change #256: At the end of the quarter, Steve, we had around 3,400 specs, around 750 of those were at CO or beyond or 1.8 per community.

Speaker Change #256: That's interesting.

Speaker Change #256: Okay, so you had, yet about eight and a half per community total, but finish was you said, you know, below two.

Speaker Change #256: That level of those levels of specs, is that a number that we are those numbers per community?

Speaker Change #256: What we can also expect going forward?

Speaker Change #256: Or is that or do you see this, this changing, like growing perhaps, as we go forward?

Speaker Change #256: Do you remember?

Speaker Change #256: We're starting a spec essentially for every home we sell.

Speaker Change #256: So the starts and specs, starts include one BTO, one spec, kind of 50-50.

Speaker Change #256: BTO is billed to order. Yep.

Speaker Change #256: And I think we've hit a bit of a... Not Bachman-Turner over here, for the older people on the call.

Speaker Change #256: Well, we are taking care of business here, Doug.

Speaker Change #256: So I think we've hit a bit of an equilibrium point here on our up to 50% spec strategy.

Speaker Change #256: Now that'll vary a little bit in terms of settlements or sales quarter to quarter, but strategically we've kind of hit our equilibrium point here.

Speaker Change #256: You know, choice at Toll Brothers is still alive and well.

Speaker Change #256: It's still very important, not just on the bill-to-order business, time to pick some level of finishes.

Speaker Change #256: If you buy it very early, you can hit that design studio and truly customize the inside of your home. If you buy it a little bit later, you have some opportunity for flooring, for kitchen cabinets, for countertops.

Speaker Change #256: And then, of course, there are some, as we described, that get to the end, can be delivered quickly for that buyer that wants a faster move-in.

Speaker Change #256: So, you know, we do define the spec as a foundation in the ground without a buyer.

Speaker Change #256: And we market accordingly.

Speaker Change #256: So that choice is still, you know, a big part of that business model.

Speaker Change #256: That also drives a little bit more margin because, as you know, the upgrades to the design studio tend to be accretive to the company margin.

Speaker Change #256: Yeah, absolutely.

Speaker Change #256: And the level of finished specs here per community is very encouraging, I would say below two per community.

Speaker Change #256: That's not at all an unusually high number.

Speaker Change #256: So it's very clear that your your process is working.

Speaker Change #256: So great.

Sam Reid: The next question comes from Sam Reid with Wells Fargo. Please go ahead. Awesome. Thanks, guys. Appreciate the color you gave on order paid and into the fourth quarter. I just want to piggyback off of some of those questions.

Speaker Change #256: Well, appreciate all the color.

Speaker Change #256: Thanks very much.

Speaker Change #256: Thank you.

Speaker Change #256: And the next question comes from John Lovallo with UBS.

Speaker Change #256: Please go ahead.

Speaker Change #256: Morning, guys.

Speaker Change #256: Thanks for taking my questions as well.

Speaker Change #256: Maybe just following up on, hey, hi, how are you?

Speaker Change #256: Maybe just following up on on Steve's question.

Speaker Change #256: You know, your backlog has continued to kind of get worked down over the past few years.

Speaker Change #256: I mean, how confident are you that improved cycle times and this increased spec level can continue to drive drive delivery growth as we move into 2025?

Speaker Change #256: We're very confident.

Speaker Change #256: We're doing it right now.

Speaker Change #256: And, you know, the more, as we've talked about it, we can keep this spec at about 50-50.

Speaker Change #256: Those houses are being built faster. You know, we're able to deliver them quicker.

Sam Reid: Are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter, in addition to the benefits you might be seeing from selling more specs and just lower overall rates? No, we always run sales events, some are local, some are regional, some are national. They're on the calendar already. They're no different than prior years. We do traditionally have a national sales event in the month of September. That's occurred for many years. That will occur again. But beyond that, there's nothing out of the ordinary.

Speaker Change #256: The conversion rate on our backlog has come down and will continue to come down as this, excuse me, will continue to go up.

Speaker Change #256: My apologies.

Speaker Change #256: We will turn houses faster.

Speaker Change #256: You know what I meant.

Speaker Change #256: And, you know, as the spec business continues to mature, we get better at it.

Speaker Change #256: We turn these houses faster.

Speaker Change #256: You're going to see an improvement in that conversion, makes sense.

Speaker Change #256: And then, you know, moving on to the to the, you know, the the fourth quarter, gross margin, you know, what would drive the expected 140 basis points to Clint sequential decline from the third quarter?

Speaker Change #256: I mean, is this the reverse of the positive mixed impact in the third quarter?

Speaker Change #256: And what specifically was that mixed impact?

Speaker Change #256: Was it geographic?

Speaker Change #256: Was it product respect versus BTO?

Speaker Change #256: Thank you.

Speaker Change #256: So let's remember, we raised guidance for Q4 gross margins. Yes, when you compare it to the blowout gross margin of Q3.

Speaker Change #256: The gap there is bigger.

Speaker Change #256: Q3, as we mentioned, was 110 basis points better than guide because of mix. We had more high margin homes delivering in the Pacific and the South, and we had less spec homes delivering than we had anticipated.

Speaker Change #256: That reverses a bit in the fourth quarter, where we will have less.

Speaker Change #256: High Margin, homes delivering from the South and the Pacific. And by the way, the entire South and Pacific is not necessarily high margin, it is certain communities within the South and the Pacific that have this higher margin where we had more of those deliver Q3 and less of those in Q4.

Speaker Change #256: And we will have about 60% of our deliveries in the fourth quarter be spent.

Speaker Change #256: So, you know, with our business running from, you know, we now have homes from the mid 300s to over $5 million.

Speaker Change #256: We have gross margins that have a very large range.

Speaker Change #256: You know, we have a few communities with 10% gross margin and we have communities with 50% gross margin.

Speaker Change #256: And so when you look at our business, quarter to quarter, there may be a little bit more variation naturally than some of the other builders that have a much tighter range of price point and margin.

Speaker Change #256: And so there's a little bit more variety there, as you just saw in the third quarter, and as we've guided to in Q4. But overall, you know, that 27 to 28% long-term margin, while there could be some modest variation quarter to quarter, we're very comfortable with where this business is headed.

Speaker Change #256: And the next question comes from Alan Ratner with Zelman and Associates.

Speaker Change #256: Please go ahead.

Speaker Change #256: Hey, guys.

Speaker Change #256: Good morning.

Speaker Change #256: Nice quarter, and thanks for all the helpful detail so far.

Speaker Change #256: Doug, you know, I'd love to drill in on pricing.

Speaker Change #256: You know, your comments suggest pricing is pretty sladdish in the quarter, you know, plus or minus, depending on the community.

Speaker Change #256: I'm curious, as you kind of sit here three weeks into August, you know, you sound pretty encouraged by the recent activity.

Speaker Change #256: Have you started to, or have you seen any ability to begin either dialing back incentives now that rates are a bit lower, maybe pulling back on some of the rate buy downs or even start to, you know, begin raising prices again?

Speaker Change #256: Or is it still premature to do that given the choppiness?

Speaker Change #256: Yeah, so it was a, It was a bit of a choppy quarter as we and other builders have talked about, you know, I went through the cadence.

Speaker Change #256: First, the beginning of May, pretty much up to our call, you know, things were looking pretty good. The last week of May through all of June, definitely saw a slowdown, and we saw an accelerating pickup in July, with the end of July being the best, and that has continued into August. We did run a spec event in the month of July, so we increased incentives modestly in July in some communities on specs, particularly those specs that might have been further along in construction.

Speaker Change #256: However, in July, we did raise prices on our build-to-order homes.

Speaker Change #256: So the overall effect was pretty much flat, but as we sit here in the third week of August, traffic is up. The quality of traffic has improved, rates are now down, we're sitting on a 6-5-8, lowest rate in a year, 30-year no-point mortgage, with a feeling that those rates are going to come down further. So we are seeing a bit more pricing power right now.

Speaker Change #256: We are being careful because mid-August is not normally the time to aggressively raise prices as families are just closing down summer houses and getting kids into school and taking a deep breath.

Speaker Change #256: But in the fall, we generally do see an improvement in activity and with how things are lined up with where the rates we think will go and where we currently have higher quality traffic, we are encouraged that we think we will have more pricing power as we head into the fall.

Speaker Change #256: The other thing to note, Alan, is that these buy-downs are part of our incentive offerings.

Speaker Change #256: They are less expensive for us to accomplish now in the lower rate environment.

Speaker Change #256: Yeah, I was gonna follow up on that, Marty.

Douglas Yearley: And I do caution. We don't like to guide on sales. And so when I said, we think we'll be better than down 10 percent. We're thinking more consistent with what we did in Q3. That's not a limit or to me. I'm hopeful as rates come down, the market improves. We continue to open new communities that we could have a worrying fall.

Speaker Change #256: So thank you for adding that.

Speaker Change #256: So when you say less expensive, are you buying down the rate a lesser magnitude because you don't need to solve for a lower rate?

Speaker Change #256: Or is it actually, you know, to buy down that same whatever it is, 50 basis points, 100 basis points, is it actually costing you less?

Speaker Change #256: And if so, can you quantify that?

Speaker Change #256: It's costing less.

Speaker Change #256: So our typical buy down deal around the country is to buy your rate down to four and three.

Speaker Change #256: That's the number we picked.

Speaker Change #256: And so when you when you buy from seven to four and three eighths, it's more expensive than when you buy from six and five eighths to four and three eighths.

Speaker Change #256: Morning, the amount of that, Not to put you on the spot, but he did ask the question.

Speaker Change #256: It's around 5-6% of the mortgage amount, to buy it down.

Speaker Change #256: Remember that four and three-eighths is a one-year, it reverts to five and three-eighths for the balance of the 29 years.

Speaker Change #256: And as we've spoken before, It's a great marketing gag.

Speaker Change #256: It drives traffic, but we don't actually sell a lot of it.

Speaker Change #256: People tend to, Take a pass on that version of the incentive and they take the 5.5% average incentive we have in the company and have a lot of fun in our design studios with it, and increase the finishes in the home.

Speaker Change #256: That goes to the affluent nature of our client.

Speaker Change #256: They're not rate dependent.

Speaker Change #299: We're sitting on a 6 and 5, 8 lowest rate in a year, 30 year, no point mortgage with a feeling that those rates are going to come down further.

Speaker Change #256: They don't need that lower rate to qualify.

Speaker Change #256: They recognize rates will probably come down. So they may be overpaying because in a year or two, they could probably refi.

Speaker Change #256: And so they'd rather permanently improve their home through their lifestyle, through the design studio with those incentive dollars.

Speaker Change #299: So we are seeing a bit more pricing power right now.

Speaker Change #256: Thanks, Alan.

Speaker Change #256: And the next question comes from Michael Rehaut with JP Morgan.

Speaker Change #256: Please go ahead.

Speaker Change #256: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel.

Speaker Change #256: Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC.

Speaker Change #300: We are being careful because mid-August is not normally the time to aggressively raise prices. As families are just closing down summer houses and getting kids into school and taking a deep breath, but in the fall, we generally do see an improvement in activity.

Douglas Yearley: I'm not predicting that, but I don't want you to think we're giving some guidance right now on sales, because we don't do that, and let's get a good market, let's get this thing cooking, and let's blow out sales. That's how I approach this business and a lot to see where it is. But where we are three-week in, with the communities we have open, with those we know that are opening, with the quality of traffic, I just wanted to suggest that the normal number of down 10 percent doesn't feel right. It feels like it should be at, or in my hope, better than Q3.

Speaker Change #256: Member NYSE & SIPC, a Fidelity Investments company.

Speaker Change #256: His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or can be ordered at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel.

Speaker Change #256: Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA.

Speaker Change #256: Thanks, Mike.

Speaker Change #256: I wanted to dial in a little bit about your, over the years now, I guess over the last year or two, your shift towards spec being 50% and how that kind of fits in with your prior or still, to some degree, ongoing, you know, preference of price over pace.

Speaker Change #256: You know, this quarter, it was pretty interesting in that you probably had a relative to prior builders reporting a little bit more of a gap between at least our estimates of order growth and what you put out and probably one of the stronger gross margins relative to our estimates.

Speaker Change #256: And I think that's generally consistent with how you operate in more temporary periods of softness where, you know, maybe volume or orders fall off a little bit more and you hold on to the margin.

Speaker Change #256: At the same time, you're shifting in this, you know, more of a spec model or, you know, happier business spec.

Speaker Change #256: There are points where you're going to have to, as you did in this quarter, increase incentives if your specs build up a little too much.

Speaker Change #256: And so I'm wondering going forward how investors should think about that balance.

Speaker Change #256: And, you know, if there's going to be points where perhaps you're going to be a little more sensitive to pace, you know, if softness is going to go past a quarter or two, and if that would, you know, drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change #256: So, Mike, I think it's fair to say that we may be, A little bit more focused on price than pace compared to the other builders that have more of a spec business and they have product that they need to move, but steal a line from my good friend Ryan Marshall at Pulte, we are not.

Speaker Change #256: Margin Prep. It is a balance.

Speaker Change #256: We are definitely focused on top line growth.

Speaker Change #256: We are also focused on this 27-28% gross margin that we believe is sustainable long term. We are also focused on becoming more and more efficient.

Speaker Change #256: Lower-Ref CNA, higher operating margin long-term.

Speaker Change #256: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at, when we need to put it on the market, how we can make more margin if we sell it earlier.

Speaker Change #256: And so, you know, we have agent reports of all that spec, we focus on how far along it is, if it gets too heavy on the back end, which it hasn't, because of this business model, then yes, on occasion, we might have to be a bit more aggressive, but that is not, something that I think you need to worry about.

Speaker Change #301: And with how things are lined up with where the rates we think will go and where we currently have higher quality traffic, we are encouraged that we think we will have more pricing powers we had into the fall.

Speaker Change #256: The business is working, the spec strategy is maturing. We are just about at a point where we've hit the equilibrium of long-term 50% spec, 50% bill to order, and the business plan is in place. But yes, there's a little more focus for us on price and margin, but we are not by any means margin proud.

Speaker Change #256: And as we talked about, you know, we ran a spec Unknown Speaker, event in July. Modest, modest increase in the incentive on the spec business, which allowed us to sell a few more.

Speaker Change #256: But it was at the same time when we could raise prices on the bill to order.

Speaker Change #256: So in the end, it all worked out.

Speaker Change #256: And it's that mix between spec and build order that I think we're getting really good at.

Speaker Change #256: And we are very confident in that long-term margin.

Speaker Change #256: And there you have it.

Speaker Change #256: The next question comes from Mike Dale with RBC Capital Markets.

Speaker Change #256: Please go ahead.

Speaker Change #256: Morning.

Speaker Change #256: Thanks for taking my questions.

Speaker Change #256: So just to keep going on kind of the margin and the spec and all the mixed dynamics, I guess when you think about the 4Q gross margin, understanding that you took it up a little prior versus your prior, you're talking about kind of running that promotion, which may have lifted incentives.

Speaker Change #256: At the same time, you know, Steve, Followed up on your comments about efficiency, which does seem more sustainable, and you know, unclear why that would go away in the immediate term.

Speaker Change #301: The other thing to note now is that the extent buy downs are part of our incentive offerings.

Speaker Change #256: So can you just help us understand, you know, in terms of maybe just the incentive load that's projected to be in your fourth quarter deliveries, versus your third quarter deliveries, and then I know that your spec margins can vary quite a bit regionally as well.

Speaker Change #256: So maybe if you could let us know kind of on a like for like basis, what you think that back versus BTO margin is going to run out in your fourth quarter versus what it's been used.

Speaker Change #256: So our incentive, is about five and a half percent.

Speaker Change #256: The delivered price of our homes, that comes out to about $50,000 to $55,000.

Speaker Change #256: A simple math on houses that are in the $9.50 range.

Speaker Change #256: That was Q3, and we believe that will be the same incentive, in Q4.

Speaker Change #256: I don't think that I don't think the margin differential is going to be very incentive sensitive.

Speaker Change #301: They are less expensive for us to accomplish now in the lower rate environment.

Sam Reid: Now, that certainly helps, and maybe this is a little ambitious here, but I want to quickly talk 25, just from a very high-level standpoint. You know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering. So to that end, do you have any sense as to what kind of community count grows? You know, we might be on track to see, you know, especially if you look to potentially grow 5 to 10 percent over the long term. I like that number, I'm with you, 5 to 10, more in a common December.

Speaker Change #256: Q3 and Q4.

Speaker Change #256: It's mixed related.

Speaker Change #256: Remember, and we talked about how for Q4, we think we'll have about 60% of our homes spec.

Speaker Change #256: That doesn't mean...

Speaker Change #256: We incentivize the whole bunch to sell those and that's what's hurting the margin.

Speaker Change #256: We tend to build spectrum, on what I'll call the more average lot in a community.

Speaker Change #256: We tend to save the very high premium lot.

Speaker Change #256: The Special Ops.

Speaker Change #256: Overlooking the 18th Green, with beautiful woods in the backyard, with a beautiful lake in the backyard, for the bill to order business because that client is more affluent. They want to put a lot of upgrades into their dream home.

Speaker Change #256: They want that dream home on the best lot we have.

Speaker Change #301: Yeah, I was going to follow up on MRT.

Unknown Executive: This concludes our question and answer session.

Speaker Change #256: And we let them run wild in the design studio.

Speaker Change #256: And that margin tends to be higher.

Speaker Change #256: So the, when you think about the spec.

Speaker Change #256: Margin, you shouldn't be comparing it to the bill to order margin, you need to recognize that the spec is generally built on a more average lot, lower lot premium.

Speaker Change #256: And that client generally, even if it was a bill to order home on that lot, would not spend as much in the design studio.

Speaker Change #302: So thank you for breading that.

Speaker Change #256: And we know the design studio is margin accretive.

Speaker Change #256: So while we may have to incentivize a little bit more to move that spec home on that average lot if it gets towards the end and is unsold.

Speaker Change #256: It is a small difference, between that margin and what the margin would be had it been a bill to order.

Speaker Change #256: Our average margin for the quarter was 28.8%.

Speaker Change #256: Those orders were above that?

Speaker Change #303: So when you say less expensive, are you buying down the rate a lesser magnitude because you don't need to solve for a lower rate?

Speaker Change #256: Specs were below that.

Speaker Change #256: The specs were probably 100 to 200 points below that average, and the billed orders were 100 to 200 points above that average.

Speaker Change #256: Yeah, I was kind of triangulating that to make sure it was that pure mix dynamic versus something under the surface, you know, incremental.

Speaker Change #256: So thank you for that.

Speaker Change #256: I could have answered your question and just said met.

Speaker Change #256: Sorry.

Speaker Change #256: Sorry for four minutes.

Speaker Change #256: That was the color that we were looking for.

Speaker Change #256: And then just thinking about seasonality, if you're, you know, typically, you'd still keep seeing order pace decline in the fourth quarter.

Speaker Change #304: Or is it actually, you know, to buy down that same, whatever it is, 50 basis point, 100 basis point because it's actually costing you less than it's so can you quantify that?

Speaker Change #256: You know, obviously, you just came through a weird and challenging third quarter, and you're talking about potential acceleration and trends coming out of July.

Speaker Change #256: Any help you want to provide in terms of level setting, I think typically your pace would be down kind of low double digits sequentially in 4Q versus 3Q.

Speaker Change #256: Should we be expecting kind of on seasonal trends above, below, based on what you're seeing so far?

Speaker Change #256: So you're right.

Speaker Change #256: Good work there.

Speaker Change #256: Our fourth quarter is typically, orders are typically about 10% lower than Q3, and we're confident we're going to do better than that.

Speaker Change #256: Our best guess three weeks in is that we may be flat.

Speaker Change #256: Q3 versus down 10% And the next question comes from Trevor Allinson with Wolf Research.

Speaker Change #256: Please go ahead.

Speaker Change #256: Hi, good morning.

Speaker Change #256: Thank you for taking my question.

Speaker Change #256: First one, just wanted to touch on geography.

Speaker Change #304: So it's costing less.

Speaker Change #256: You guys laid out some of the better performing markets.

Speaker Change #305: So our typical buy down deal around the country is to buy your rate down to four and three.

Speaker Change #256: I don't believe you mentioned any markets in Florida or Texas, those have clearly gotten a lot of attention over the last few months.

Speaker Change #306: That's the number we picked and so when you when you buy from seven to four and three eighths it's more expensive than when you buy from six and five eighths to four and three eighths and before it's a great marketing gag, it drives traffic but we don't actually sell a lot of it.

Unknown Executive: I would like to turn the conference back over to management for any closing remarks. Dave, thank you very much, you are terrific. Thanks everyone for your interest and support.

Speaker Change #256: Can you comment on how demand in those markets has trended relative to your business overall?

Speaker Change #256: Sure, um, Texas has had a good August, good end of July and good August.

Speaker Change #256: I'm, different stories in different markets in Texas, Austin, Thank you for tuning in today.

Speaker Change #256: There are not inventory issues, I think there was just a lot of price increases over the last few years and so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause. But that seems to be working itself out.

Speaker Change #256: As for the last month, we've seen, you know, pretty significant improvement in our action in the state of Texas, of Florida.

Speaker Change #307: People tend to take a pass on that version of the incentive and they take the five and a half percent average incentive we have in the company and have a lot of fun in our design studios with it and increase the finishes in the home.

Speaker Change #256: And by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average, of Florida.

Speaker Change #308: That goes to the absolute nature of our client, they're not rate dependent, they don't need that lower rate to qualify, they recognize rates will probably come down so they may be over pain because in a year or two they could probably re-fi and so they'd rather permanently improve their home to their lifestyle to the design studio with those in size dollars.

Speaker Change #256: Um, sits at our company average margin.

Speaker Change #256: Um, it has been a bit softer.

Speaker Change #308: Thanks Alan.

Speaker Change #256: Uh, there have been some elevated inventory levels, in Florida West, which is very small for us, which is called Southwest, and in the Tampa market, on the East Coast, Jacksonville, Orlando, and then for us down in the in the Jupiter-Palm Beach-Pocahontas area had sun a bit better.

Speaker Change #256: It's really hard to gauge Florida in the summer months.

Unknown Executive: Have a wonderful end of your summer. We are here always to answer any questions you may have. And we look forward to seeing all of you since. Thanks, take care.

Speaker Change #256: We'll have to see how we do as the market comes back in October, and November.

Speaker Change #256: But Florida's okay.

Speaker Change #256: We're selling houses, we're at company average margin.

Speaker Change #256: Actually, at company average agreements per community as well.

Speaker Change #256: Right.

Speaker Change #256: But I think that's down from where Florida had been performing for the few years before that.

Speaker Change #256: Well said.

Speaker Change #256: We just opened last weekend our first community in the panhandle, and we killed it.

Speaker Change #256: We took...

Speaker Change #256: 10 sales our first weekend, in August.

Speaker Change #256: So that's exciting.

Speaker Change #256: So feeling a lot better about Texas and feeling a bit better about Florida is the best way to describe it.

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.

Speaker Change #256: Okay, thank you for that.

Speaker Change #256: That's definitely encouraging.

Speaker Change #308: And the next question comes from Michael Rehot with JP Morgan, please go ahead.

Unknown Executive: You may now disconnect. Thank you very much.

Speaker Change #256: Sounds like things are definitely trending in the right direction.

Speaker Change #256: And then a question on SG&A.

Speaker Change #256: We've talked about that moving down to 9% longer term due to some tech initiatives, by 2025, or is that more of a longer term type of SG&A level?

Speaker Change #309: I think I appreciate you taking my questions.

Speaker Change #256: And then for 4Q specifically, looks like you've got it stepping down nicely, sequentially.

Speaker Change #310: Good morning everyone, congrats on the corner.

Speaker Change #256: Should we think of that as just being leverage, or is there anything else?

Michael Rehot: Thanks Mike.

Speaker Change #256: Um, you know, we're growing this company without adding people, becoming more efficient, we changed our operations in the field.

Michael Rehot: I wanted to dial in a little bit about year over the years now I guess over the last year or two your shift towards spec being 50% and how that kind of fits in with your prior or still to some degree ongoing preference of price over place.

Speaker Change #256: We moved away from our legacy project manager system, to where we have stack leads that run land acquisition, land development, construction sales, etc., community openings. And that organizational structure is allowing us to grow much more efficiently.

Speaker Change #312: This quarter it was pretty interesting and that you probably had a relative to prior buildings reporting a little bit more of a gap between at least our estimates of order growth and what you put out and probably one of the stronger gross margins relative to our estimates.

Speaker Change #256: And so on the G&A front, we're very confident. We can do more without spending more dollars.

Speaker Change #313: And I think that's generally consistent with how you operate in more temporary periods of softness where you know maybe volume or orders fall off a little bit more and you hold on to the margin.

Speaker Change #256: On the yes side.

Speaker Change #314: At the same time you're shifting in this you know more of a spec model or you know happier business spec.

Speaker Change #256: The S has actually been up a little bit, but that's variable.

Speaker Change #315: There are points where you're going to have to as you did in this quarter increase incentives if your specs broke up a little too much.

Speaker Change #256: You know, we're paying our inside sales agents a little bit more.

Speaker Change #316: And so I'm wondering going forward, how investors should think about that balance and you know if there's going to be points where perhaps you are going to be a little more sensitive to pace.

Speaker Change #256: We have 65%, of our sales involve a third party realtor.

Speaker Change #316: You know it softness is going to go past a quarter or two and if that would you know drive any greater degrees of variability in your gross margin relative to the past.

Speaker Change #256: Spending a little bit more money on marketing and advertising.

Speaker Change #317: So Mike I think it's fair to say that we may be a little bit more focused on price than pace compared to the other. Builders that have more of a spec business, and they have product that they need to move.

Speaker Change #256: But overall, there is leverage as we grow on flat, on GNA and, you know, the S will just move with sales.

Speaker Change #318: But to still align from my good friend Ryan Marshall Apolti, we are not margin proud.

Speaker Change #256: And we'll just see how that goes, particularly with, you know, the new rules around broker commission.

Speaker Change #319: It is a balance.

Speaker Change #256: I think, Trevor, we're going to be, essentially flat in terms of GNA dollars spent in 2024 versus 2023, and deliver roughly 10 to 12% more homes, and have 10%, 11% more communities.

Speaker Change #320: We are definitely focused on top line growth. We are also focused on this 27-28% growth margin that we believe is sustainable long-term.

Speaker Change #256: So we're pretty proud of that.

Speaker Change #321: We are also focused on becoming more and more efficient, low arresting in a higher operating margin, long-term.

Speaker Change #256: The S side is showing the variable nature of the commissions, and staffing out at the job sites for the at the communities for the sales teams.

Speaker Change #322: We also, as I've talked about, are very aware of our spec inventory, what stage of construction it is at.

Speaker Change #256: And it's also showing a little bit more expenditures for market.

Speaker Change #323: When we need to put it on the market, how we can make more margin if we sell it earlier.

Speaker Change #256: The next question comes from Rafe Jadrosich with Bank of America.

Speaker Change #323: We have age-uniforms of all that spec.

Speaker Change #256: Go ahead.

Speaker Change #323: We focus on how far along it is if it gets too heavy on the back end, which it hasn't, because of this business model.

Speaker Change #256: Hi, good morning.

Speaker Change #323: Then yes, on occasion, we might have to be a bit more aggressive, but that is not something that I think you need to worry about.

Speaker Change #256: It's Rafe.

Speaker Change #323: The business is working and the spec strategy is maturing. We are just about at a point where we have hit the equilibrium of long-term 50% spec, 50% build-to-order.

Speaker Change #256: Thanks for taking my question.

Speaker Change #323: And the business plan is in place.

Speaker Change #256: I want to follow up on some earlier questions on sort of the deliveries versus orders going forward.

Speaker Change #324: But yes, there is a little more focus for us on price and margin, but we are not by any means margin proud.

Speaker Change #256: You've had three straight years of deliveries, tracking above above orders. Partially because of the increase in spec.

Speaker Change #325: As we talked about, we ran a spec event in July, modest, modest increase in the incentive on the spec business, which allowed us to sell a few more. But it was at the same time when we could raise prices on the build-to-order.

Speaker Change #256: How do we think about deliveries relative to orders going forward here?

Speaker Change #325: So in the end, it will work out.

Speaker Change #256: Would you anticipate spec to outgrow the BTO business?

Speaker Change #325: And it is that mix between spec and build-to-order that I think we are getting really good at.

Speaker Change #256: in terms of deliveries as we go into 2025.

Speaker Change #325: And we are very confident in that long-term margin.

Speaker Change #256: I don't think so.

Speaker Change #325: And there you have it.

Speaker Change #256: I think, you know, the nuance may be that, and we haven't really looked at this, the nuance may be that the bill to orders, generally concentrate more in the luxury, more in the bigger home, have a few month longer build cycle.

Speaker Change #325: The next question comes from Mike Dale with RBC Capital Markets.

Speaker Change #256: And the spec columns have a shorter build cycle.

Speaker Change #326: Please go ahead.

Speaker Change #256: And so when we start one for one, like we have been, there is a potential for the build to orders to fall below 50% long-term.

Speaker Change #327: Good morning.

Speaker Change #256: But probably not from a revenue perspective.

Speaker Change #328: Thanks for taking my questions.

Speaker Change #256: Got it.

Speaker Change #329: So just to keep going on kind of the margin and the spec and all the mixed dynamics.

Speaker Change #256: Okay, that's helpful.

Speaker Change #330: I guess when you think about the 4Q gross margin understanding that you took it up a little prior to your prior, you are talking about kind of running that promotion, which may have looked at incentives.

Speaker Change #256: Then the like, do you think deliveries can continue to outpace orders going forward?

Speaker Change #331: At the same time, Steve followed up on your comments about efficiency, which does seem more sustainable and unclear why that would go away in the immediate term.

Speaker Change #256: No, they will they will reach equilibrium pretty soon here.

Speaker Change #332: So can you just help us understand in terms of maybe just the incentive load that's projected to be in your fourth quarter deliveries versus your third quarter deliveries.

Speaker Change #256: Okay.

Speaker Change #332: And then I know that you're stuck.

Speaker Change #256: And then the second question just on, you know, you increase the buyback guidance for the year.

Speaker Change #332: Mark, margins can vary quite a bit regionally as well, so maybe if you could let us know kind of on a like for like basis, what you think that spec versus BTO, margin is going to run out in your fourth quarter versus what it's been in your state.

Speaker Change #256: Can you talk about kind of what drove that decision?

Speaker Change #333: So our incentive is about five and a half percent of the delivered price of our own that comes out to about $50 to $55,000, simple math on houses that are in the 950 range, that was Q3 and we believe that will be the same incentive in Q4, I don't think the margin differential is going to be very incentive sensitive between Q3 and Q4, it's mixed related.

Speaker Change #256: And Doug, I think you said, programmatic capital return, which I don't think you've sort of said in the past.

Speaker Change #333: And so remember, and we talked about how for Q4, we think we'll have about 60 percent of our own spec.

Speaker Change #256: So has there been any any change here?

Speaker Change #334: That doesn't mean we incentivize the whole bunch to sell those and that's what's hurting the margin.

Speaker Change #256: Or how should we think about capital return and buyback going, We expect... Free cash flow of $800 million to $1 billion. That's up a little bit because of our strong performance, and we want to continue to reward our shareholders. Return capital to our shareholders.

Speaker Change #335: We tend to build spec on what I'll call the more average lot in a community. We tend to save the very high premium lots, the special lots, overlooking the 18th green with beautiful woods in the backyard, with a beautiful link in the backyard for the build or order business because that client is more affluent, they want to put a lot of upgrades into their dream home, they want that dream home on the best lot we have and we let them run wild in the design studio and that margin tends to be higher.

Speaker Change #256: We are very focused on return on equity. You know, one of the main levers of keeping return on equity high is having a robust, programmatic stock buyback program.

Speaker Change #336: So when you think about the spec margin, you shouldn't be comparing it to the build or margin, you need to recognize that the spec is generally built on a more average lot, lower lot premium and that client generally, even if it was a build or order home on that lot, would not spend as much in the design studio and we know the design studio is margin of creative.

Speaker Change #256: In addition, of course, to how quickly we can build and turn houses and how efficiently we can buy land.

Speaker Change #337: So while we may have to incentivize a little bit more to move that spec home on that average lot, if it gets towards the end and is unsold, it is a small difference between that margin and what the margin would be, how to fit a build or order.

Speaker Change #256: And so, seemed like a great time to take the 500 up to the 600 because of our performance, and the additional free cash flow that we have.

Speaker Change #337: Our average margin for the quarter was 28.8%.

Speaker Change #256: Going forward, you will continue, as we talked about going back to 2016, you will continue to see us, and Consistently and Predictably by our company, StockMac.

Speaker Change #337: Build orders were above that, the specs were below that, 100 to 200 points below that average and the build orders were 100 to 200 points above that average.

Speaker Change #256: Yeah, I think our use of the term programmatic probably goes back a year or two at this point, but we're not going to eliminate the opportunity to be opportunistic.

Speaker Change #338: Yeah, I was kind of trying you waiting back to make sure it was that pure mixed dynamic versus something under the surface that's, you know, instrumental back, so thank you for that.

Speaker Change #256: Right.

Speaker Change #339: I could have answered your question and just said, mix, sorry, sorry for four minutes.

Speaker Change #256: We just hope we don't have it.

Speaker Change #339: That was the color that we were looking for.

Speaker Change #256: The next question comes from Sam Reid with Wells Fargo.

Speaker Change #339: I'm just thinking about seasonality.

Speaker Change #256: Please go ahead.

Speaker Change #339: Typically, you'd still keep seeing order pace decline in the fourth quarter.

Speaker Change #256: Awesome.

Speaker Change #340: Obviously, you just came through a weird and challenging third quarter, and you're talking about potential acceleration and trends coming out of July.

Speaker Change #256: Thanks, guys.

Speaker Change #341: Any help you want to provide in terms of level setting, I think typically your pace would be down.

Speaker Change #256: Appreciate the color you gave on order cadence into the fourth quarter.

Speaker Change #342: And a low double digits sequentially in 4Q versus 3Q should be, should we be expecting kind of on seasonal trends above below based on what you're seeing so far.

Speaker Change #256: Just want to piggyback off of some of those questions.

Speaker Change #343: So you're right.

Speaker Change #256: You know, are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter?

Speaker Change #343: Good work there.

Speaker Change #256: In addition to the benefits you might be seeing from selling more specs and just lower overall rates?

Speaker Change #344: Our fourth quarter is typically orders are typically about 10% lower than Q3. And we're confident we're going to do better than that.

Speaker Change #256: No, you know we always run sales events, some are local, some are regional, some are national.

Speaker Change #345: We think we'll, you know, our best guess three weeks in is that we may be flat to Q3 versus down 10%.

Speaker Change #256: They're on the calendar already.

Speaker Change #346: And the next question comes from Trevor Allinson with Wolf Research.

Speaker Change #256: They're no different than prior years. We do, Traditionally have a national sales event in the month of September that's occurred for many years that will occur again but beyond that there's nothing, Out of the Ordinary.

Speaker Change #346: Please go ahead.

Speaker Change #256: And I do caution, you know, we don't like to guide on sales.

Speaker Change #346: Hi, good morning.

Speaker Change #256: So when I said, you know, we think we'll be better than down 10%.

Speaker Change #347: Thank you for taking my questions.

Speaker Change #256: You know, we're thinking more consistent with what we did in Q3.

Speaker Change #348: First one just wanted to touch on geography.

Speaker Change #256: That's not a limiter to me.

Speaker Change #349: You guys laid out some of the better performing markets.

Speaker Change #256: You know, I'm hopeful as rates come down, the market improves, we continue to open new communities that, you know, we could have a roaring fall.

Speaker Change #350: I don't believe you mentioned any markets in Florida or Texas.

Speaker Change #256: I'm not predicting that, but I don't want you to think we're giving some guidance right now on, you know, on sales because we don't do that.

Speaker Change #350: Those have clearly gotten a lot of attention over the last few months.

Speaker Change #256: And let's get a good market.

Speaker Change #350: Can you comment on how demanded in those markets has trended relative to your business overall?

Speaker Change #256: Let's get this thing cooking and let's blow out sales.

Speaker Change #350: Sure.

Speaker Change #256: That's how I approach this business and we'll have to see where it is.

Speaker Change #350: Texas has had a good August.

Speaker Change #256: But where we are three weeks in, with the communities we have open, with those we know that are opening, with the quality of traffic.

Speaker Change #350: Good end is July and good August.

Speaker Change #256: I just wanted to suggest that the normal number of down 10% doesn't feel right, feels like it should be at, or in my hope, better than QC.

Speaker Change #350: Different stories in different markets in Texas, Austin has, has some elevated inventory.

Speaker Change #256: Now that certainly helps.

Speaker Change #351: We're not feeling it directly, but you know there's a bit of an overhang in that market as there's conversation around inventory and Dallas and Houston.

Speaker Change #256: And maybe this is a little ambitious here, but I want to quickly talk 25, just from a very high level standpoint, you know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering.

Speaker Change #352: There are not inventory issues. I think there was just a lot of pricing creases over the last few years. And so there was a little bit of sticker shock and maybe some buyers taking a little bit of a pause.

Speaker Change #256: So to that end, you know, do you have any sense as to what kind of community count growth, you know, we might be on track to see, you know, especially as you look to potentially grow 5 to 10% over the long term?

Speaker Change #352: But that seems to be working itself out.

Speaker Change #256: I like that number.

Speaker Change #353: As for the last month, we've seen, you know, pretty significant improvement in our action in the state of Texas.

Speaker Change #256: I'm with you, 5 to 10.

Speaker Change #354: Of Florida and by the way, the Texas margin, even when we saw things that were a bit slower, you know, last quarter, that margin held up and was above our company's average.

Speaker Change #256: More to come in December.

Speaker Change #354: Florida sits at our company average margin.

Speaker Change #256: This concludes our question and answer session.

Speaker Change #354: It has been a bit softer.

Speaker Change #256: I would like to turn the conference back over to management for any closing remarks.

Speaker Change #355: There have been some elevated inventory levels in Florida west, which is very small for us, which is I call Southwest and in the tamper market.

Speaker Change #256: Dave, thank you very much.

Speaker Change #356: The East Coast Jacksonville, Orlando and then for us down in the Jupiter Palm Beach, Bogey-Retan area, has on a bit better.

Speaker Change #256: You were terrific.

Speaker Change #356: It's really hard to gauge Florida in the summer months.

Speaker Change #256: Thanks everyone for your interest and support, have a wonderful end of your summer.

Speaker Change #356: We'll have to see how we do as the market comes back in October and November, but Florida is okay.

Speaker Change #256: We are here always to answer any questions you may have.

Speaker Change #357: We're selling houses, we're at company average margin.

Speaker Change #256: And we look forward to seeing all of you soon.

Speaker Change #357: Actually, at company average agreements per community as well.

Speaker Change #256: Thanks.

Speaker Change #357: But I think that's down from where Florida had been performing for the few years before the pandemic.

Speaker Change #256: Take care.

Speaker Change #358: Well said, we just opened last weekend our first community in the panhandle and we killed it.

Speaker Change #256: The conference has now concluded.

Speaker Change #359: We took 10 sales our first weekend in August.

Speaker Change #256: Thank you for attending today's presentation.

Speaker Change #359: So that's exciting.

Speaker Change #360: So feel a lot better about Texas and feel a bit better about Florida as the best way to describe it.

Speaker Change #360: Okay, thank you for that.

Speaker Change #360: That's definitely encouraging sounds like things are definitely trending in the right direction there.

Speaker Change #360: And then a question on S-GNA.

Speaker Change #360: You talked about that moving down to 9% longer term due to some tech initiatives by 2025, or is that more of a longer term type of S-GNA level.

Speaker Change #360: And then for 4Q specifically, looks like you've got it stepping down nicely sequentially.

Speaker Change #361: Should we think of that as just being leverage or is there anything else driving that?

Speaker Change #361: Thank you.

Speaker Change #361: You know, we're growing this company without adding people.

Speaker Change #361: Becoming more efficient.

Speaker Change #362: We changed our operations in the field.

Speaker Change #363: We moved away from our legacy project manager system to where we have stack leads that run land land acquisition, land development, construction sales, etc. Community openings and that organizational structure is allowing us to grow much more efficiently.

Speaker Change #363: And so on the GNA front, we're very confident we can do more without spending more dollars.

Speaker Change #363: On the S side, the S has actually been up a little bit, but that's variable.

Speaker Change #363: We're paying our inside sales agents a little bit more.

Speaker Change #363: We have 65% of our sales involved a third party realtor.

Speaker Change #363: We're spending a little bit more money on on marketing and advertising.

Speaker Change #363: But overall, there is leverage as we grow on flat GNA and the S will just move with sales.

Speaker Change #363: And we'll see how that goes, particularly with the new rules around broker commissions.

Speaker Change #364: I think Trevor, we're going to be essentially flat in terms of GNA dollars spent in 2024 versus 2023 and deliver roughly 10 to 12% more homes and have 10% 11% more communities.

Speaker Change #365: So we're pretty proud of that.

Speaker Change #366: The S side is showing the variable nature of the commissions, and stamping out at the job sites at the communities for the sales teams.

Speaker Change #367: And it's also showing a little bit more expenditures for marketing.

Speaker Change #367: The next question comes from Rafe Jadrosich with Bank of America.

Speaker Change #368: Go ahead, please.

Speaker Change #369: Hi, good morning and three.

Speaker Change #370: Thanks for taking my question.

Speaker Change #371: I will follow up on some earlier questions and sort of the deliveries.

Speaker Change #371: Resorters going forward.

Speaker Change #371: You've had three straight years of deliveries tracking above orders and that's partially been because the increase in spec.

Speaker Change #371: How do we think about deliveries relative to orders going forward here?

Speaker Change #371: Like, would you anticipate spec to outgrow the BTO business in terms of deliveries as we go into 2025?

Speaker Change #371: I don't think so.

Speaker Change #371: I think, you know, the new odds may be that we haven't really looked at this.

Speaker Change #371: The new odds may be that the build to orders generally concentrate more in the luxury, more in the bigger homes. These have a few month longer build cycle.

Speaker Change #372: And the spec columns have a shorter build cycle.

Speaker Change #372: And so when we start one for one, like we have been, there is a potential for the build to orders to fall below 50% long term.

Speaker Change #372: But probably not from a revenue perspective.

Speaker Change #372: Okay, that's helpful.

Speaker Change #372: Then the like, do you think deliveries can continue to outpace orders going forward?

Speaker Change #373: No, they will reach equal everyone pretty soon here.

Speaker Change #373: Okay.

Speaker Change #373: And then the second question just on, you know, you increase the buyback guidance for the year.

Speaker Change #373: Can you talk about kind of what drove that decision?

Speaker Change #374: And dog, I think you said programmatic capital return, which I don't think you sort of said in the past.

Speaker Change #374: So has there been any, any change here?

Speaker Change #374: How should we think about capital return and buyback going forward?

Speaker Change #374: So we expect free cash flow of 800 million to $1 billion. That's up a little bit because of our strong performance.

Speaker Change #375: And we want to continue to reward our shareholders, return capital to our shareholders.

Speaker Change #376: We are very focused on return on equity. We know one of the main levers of keeping return on equity high is having a robust programmatic stock buyback program.

Speaker Change #377: In addition, of course, to how quickly we can build and turn houses and how efficiently we can buy land.

Speaker Change #378: And so it seemed like a great time to take the 500 up to 600 because of our performance and the additional free cash flow that we have.

Speaker Change #378: Going forward, you will continue as we talked about going back to 2016, you will continue to see us.

Speaker Change #378: Yes, programmatically, regularly, and consistently and predictably, fire company Stalkback.

Speaker Change #379: I think our use of the term programmatic probably goes back a year or two at this point, but we're not going to eliminate the opportunity to be opportunistic.

Speaker Change #379: Right.

Speaker Change #379: We just hope we don't have it.

Speaker Change #380: The next question comes from Sam Reid with Wells Fargo.

Speaker Change #381: Please go ahead.

Speaker Change #381: Awesome.

Speaker Change #382: Thanks, guys.

Sam Reid: Appreciate the color you gave on order paid and into the fourth quarter.

Speaker Change #383: I just want to piggyback off of some of those questions.

Speaker Change #384: Are you looking to run any targeted promos in the fourth quarter that might be helping that better versus seasonal trend relative to the third quarter, in addition to the benefits you might be seeing from selling more specs and just lower overall rates?

Speaker Change #385: No, we always run sales events, some are local, some are regional, some are national.

Speaker Change #386: They're on the calendar already.

Speaker Change #387: They're no different than prior years. We do traditionally have a national sales event in the month of September. That's occurred for many years. That will occur again. But beyond that, there's nothing out of the ordinary.

Speaker Change #387: And I do caution.

Speaker Change #388: We don't like to guide on sales.

Speaker Change #388: And so when I said, we think we'll be better than down 10 percent.

Speaker Change #388: We're thinking more consistent with what we did in Q3.

Speaker Change #388: That's not a limit or to me.

Speaker Change #388: I'm hopeful as rates come down, the market improves.

Speaker Change #389: We continue to open new communities that we could have a worrying fall.

Speaker Change #390: I'm not predicting that, but I don't want you to think we're giving some guidance right now on sales, because we don't do that, and let's get a good market, let's get this thing cooking, and let's blow out sales.

Speaker Change #390: That's how I approach this business and a lot to see where it is.

Speaker Change #391: But where we are three-week in, with the communities we have open, with those we know that are opening, with the quality of traffic, I just wanted to suggest that the normal number of down 10 percent doesn't feel right.

Speaker Change #392: It feels like it should be at, or in my hope, better than Q3.

Speaker Change #392: Now, that certainly helps, and maybe this is a little ambitious here, but I want to quickly talk 25, just from a very high-level standpoint.

Speaker Change #393: You know, you've got some good visibility into your land pipeline and the types of communities you're going to be delivering.

Speaker Change #394: So to that end, do you have any sense as to what kind of community count grows?

Speaker Change #395: You know, we might be on track to see, you know, especially if you look to potentially grow 5 to 10 percent over the long term.

Speaker Change #396: I like that number, I'm with you, 5 to 10, more in a common December.

Speaker Change #396: This concludes our question and answer session.

Speaker Change #397: I would like to turn the conference back over to management for any closing remarks.

Speaker Change #398: Dave, thank you very much, you are terrific.

Speaker Change #399: Thanks everyone for your interest and support.

Speaker Change #400: Have a wonderful end of your summer.

Speaker Change #401: We are here always to answer any questions you may have.

Speaker Change #402: And we look forward to seeing all of you since.

Speaker Change #403: Thanks, take care.

Speaker Change #403: The conference has now concluded.

Speaker Change #403: Thank you for attending today's presentation.

Speaker Change #404: You may now disconnect.

Speaker Change #405: Thank you very much.