Q4 2024 Toll Brothers Inc Earnings Call

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Speaker Change: <unk> hundred 30, when the market opens during the Q&A. Please limit yourself to one question and one follow up. Please note. This event is being recorded I would now like to turn the conference over to Douglas yearly CEO. Please go ahead.

Douglas Yearly: Thank you drew good morning, welcome and thank you all 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 head of Investor relation.

Speaker Change: <unk>.

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.

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Speaker Change: Please read our statement on forward looking information in our earnings release last night and on our website to better understand the risks associated with our forward looking statements.

Speaker Change: I am incredibly proud of our company's performance in fiscal 2024.

We ended the year on a high note with a very strong fourth quarter.

Speaker Change: In the quarter, we delivered 3431 homes and generated $3 $3 billion of home sales revenues up 25% in units and 10% in dollars compared to the fourth quarter of 2023.

Speaker Change: Our adjusted gross margin of 27, 9%.

Speaker Change: Beating our guidance by 40 basis points and our SG&A was eight 3% of home sales revenues or 30 basis points better than guidance.

Speaker Change: Both topline and margin outperformance contributed to earnings of $475 million or $4 63 per diluted share up 7% and 13% respectively compared to last year's fourth quarter.

Speaker Change: In addition contracts were up over 30% in both dollars and units in the quarter.

Speaker Change: For the full year, we generated a record 10 $6 billion of home sales revenue.

Speaker Change: Over $2 billion of pre tax income and over one $5 billion of net income, resulting in record earnings of $15 <unk>.

Speaker Change: Per diluted share and a return on beginning equity of 23, 1% the third year in a row, we've generated returns above 20%.

Speaker Change: We delivered 10813 homes at an average price of approximately $977000.

Speaker Change: And with an adjusted gross margin of 28, 4%.

Speaker Change: Our SG&A expense was nine 3% of home sales revenues and our operating margin was 18, 8%.

Speaker Change: In addition, we grew contracts by 27% in both units and dollars and increased community count by 10% to 408 communities at year end.

Speaker Change: These are exceptional full year and quarterly results demonstrating the power of our luxury brand and the financial strength of our more affluent buyers.

Speaker Change: Our strategy of increasing our spec production widening our geographies price points and product lines.

Speaker Change: And focusing on operational and capital efficiency are working.

Speaker Change: As I mentioned, we finished the year strong with fourth quarter contracts up over 30% in both dollars and units. We achieved this in the face of election uncertainty and mortgage rates that increased by nearly 100 basis points from mid September to mid November.

Speaker Change: Since the start of the first quarter of our fiscal 2025 six weeks ago, we have seen strong demand.

Speaker Change: With the uncertainty of the election behind us and mortgage rates trending in the right direction. We are encouraged by our traffic deposits and agreements and are optimistic for the start of the spring selling season in mid January.

Speaker Change: Our positive outlook reflects the long term fundamentals that continue to support the market for new homes generally and toll brothers in particular.

Speaker Change: These include 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: And baby Boomers, who are moving in retirement.

Speaker Change: Due primarily to the well known affordability issues in this country the average age and wealth of a homebuyer has increased.

According to data published by the National Association of Realtors last month. The median age of a first time homebuyer is at an all time high of 38 years old and the median age of all buyers in the market is now 56 years old.

In addition, first time buyers comprise just 24% of the market over the past year, the lowest level in over 40 years.

Speaker Change: This means the vast majority of buyers in the market or move up or move down.

Speaker Change: These trends play right into our wheelhouse approximately 28% of our business is selling to older more affluent first time buyers and the balance is catering to move up and move down buyers, who are financially secure and have significant equity in their existing homes.

Speaker Change: In fact, according to the federal reserve data, 73% of the value of existing homes today is equity.

Speaker Change: In addition, the resale market our primary competition continues to be locked up by persistently high rates with over half of outstanding mortgages under 4%.

Speaker Change: With limited inventory driving resale prices higher.

Our SG&A expense was nine 3% of home sales revenues and our operating margin was 18, 8%.

Speaker Change: The new home premiums, which averaged 3%. This year is the lowest premium premium it has been in decades.

In addition, we grew contracts by 27% in both units and dollars and increased community count by 10% to 408 communities at year end.

Speaker Change: New homes are available and a great deal compared to resales.

Speaker Change: The median age of an existing home in the U S is now over 40 years old.

Speaker Change: With well over half of them built before 1980, making new homes very attractive.

These are exceptional full year and quarterly results demonstrating the power of our luxury brand and the financial strength of our more affluent buyers.

Speaker Change: They are built better require less maintenance or less expensive to insure are more energy efficient and most importantly, our designed architecturally to appeal to today's buyer.

Our strategies of increasing our spec production widening our geographies price points and product lines.

Speaker Change: Many are also part of communities that have sought after amenities.

And focusing on operational and capital efficiency are working.

Speaker Change: It is simply impossible or prohibitively expensive to remodel most existing homes with today's new home features making the value proposition for buying new even more compelling.

As I.

And we finished the year strong with fourth quarter contracts up over 30% in both dollars and units. We achieved this in the face of election uncertainty and mortgage rates that increased by nearly 100 basis points from mid September to mid November.

Speaker Change: While we recognize that affordability is a broad market issue or.

Speaker Change: Our more affluent buyer is less impacted by it.

Since the start of the first quarter of our fiscal 2025 six weeks ago, we have seen strong demand.

Speaker Change: In our fourth quarter, approximately 28% of our buyers paid all cash.

With the uncertainty of the election behind us and mortgage rates trending in the right direction. We are encouraged by our traffic deposits and agreements and are optimistic for the start of the spring selling season in mid January.

Speaker Change: Consistent with the trend over recent quarters and significantly above our long term average of approximately 20%.

Speaker Change: The loan to value ratio for our buyers who took a mortgage in the fourth quarter remained at approximately 69%.

Our positive outlook reflects the long term fundamentals that continue to support the market for new homes generally and toll brothers in particular.

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

These include favorable demographics, driven by millennials, many of whom are buying their first home later in life.

Speaker Change: Our cancellation rate as a percentage of backlog remained low at two 5% in the fourth quarter.

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 at our design studios.

They have higher incomes and accumulated wealth.

And baby Boomers, who are moving in retirement.

Due primarily to the well known affordability issues in this country the average age and wealth of a homebuyer has increased.

Speaker Change: In the fourth quarter structural options design studio finishes and lot premiums averaged $203000 or 25% of the average base sales price for.

According to data published by the National Association of Realtors last month. The median age of a first time homebuyer is at an all time high of 30 years old.

The median age of all buyers in the market is now 56 years old.

Speaker Change: For the year, our design studios generated over $1 billion in sales and provided a great source of accretive high margin revenue for us.

In addition, first time buyers comprise just 24% of the market over the past year, the lowest level in over 40 years.

Speaker Change: Each of these metrics are high proportion of all cash buyers.

This means the vast majority of buyers in the market or move up or move down.

Speaker Change: Low LTV ratios low cancellation rates and a substantial amount that our buyers spend a lot premiums and upgrades at our design studios highlight the financial strength of our customer base.

These trends play right into our wheelhouse approximately 28% of our business is selling to older more affluent first time buyers and the balance is catering to move up and move down buyers, who are financially secure and have significant equity in their existing homes.

Speaker Change: Also point out that we are benefiting from the greatest generational wealth transfer and history. As many parents are looking to help their kids with down payments.

In fact, according to the federal reserve data, 73% of the value of existing homes today is equity.

Turning back to our fourth quarter. Despite the sharp increase in rates in the second half of the quarter, we maintained a steady cadence of orders from month to month.

In addition, the resale market our primary competition continues to be locked up by persistently high rates with over half of outstanding mortgages under 4%.

Speaker Change: Approximately 30% of sales occurred in August with 35% of sales in each of September and October.

Speaker Change: On a per community basis, we sold at a pace of two two homes per month up.

With limited inventory driving resale prices higher the new home premiums, which averaged just 3%. This year is the lowest premium premium than it has been in decades.

Speaker Change: Fully from the one nine pace, we sold in last year's fourth quarter.

With our business now split roughly roughly 50 50 between build to order and spec homes, we are more focused than ever on Roe.

New homes are available and a great deal compared to retail.

The median age of an existing home in the U S is now over 40 years old.

Speaker Change: Turning inventory and appropriately balancing pace and price.

With well over half of them built before 1980.

Speaker Change: As a result, when the market softened a bit in September and October in response to the spike in mortgage rates and the uncertainty leading up to the election, we modestly lowered net price through incentive increases by an average of $12000 as a result, our incentives in the fourth quarter.

Making new homes very attractive.

They were built better require less maintenance or less expensive to ensure a more energy efficient and most importantly, our designed architecturally to appeal to today's buyer.

Many are also part of communities that have sought after amenities.

Speaker Change: There were approximately six 7%.

It is simply impossible or prohibitively expensive to remodel most existing homes with today's new home features making the value proposition for buying new even more compelling.

Speaker Change: The average sales price slightly above our recent averages of between five and 6%.

Speaker Change: The small increase was primarily on finished spec homes, many of which are expected to be delivered in our first quarter.

While we recognize that affordability is a broad market issue.

Speaker Change: With the market improving we have recently begun to decrease incentives and we are optimistic that we will be able to further reduce incentives and also increased base prices with the start of the spring season in January.

Our more affluent buyer is less impacted by it.

In our fourth quarter, approximately 28% of our buyers paid all cash.

<unk> with the trend over recent quarters and significantly above our long term average of approximately 20%.

We are very comfortable with our inventory of spec homes per community and the gross margin spread between our spec and build to order homes.

The loan to value ratio for our buyers who took a mortgage in the fourth quarter remained at approximately 69%.

Our spec strategy has allowed us to grow EPS faster increase our Roe.

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

Speaker Change: And increase our operating margin by leveraging overhead.

Speaker Change: We believe this is the right strategy to continue driving attractive returns well into the future.

Our cancellation rate as a percentage of backlog remained low at two 5% in the fourth quarter.

Turning to land at fiscal year end, we owned or controlled approximately 74700 lots, 55% of which were options.

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 at our design studios.

Speaker Change: Excluding the 5996 slots committed to homebuyers in our backlog.

In the fourth quarter structural options design studio finishes and lot premiums averaged $203000 or 25% of the average base sales price for.

Speaker Change: Our option land represented 60% of lots.

Speaker Change: We continue to target, an overall mix, including backlog of 60% optioned at 40% owned over the longer term we.

For the year, our design studios generated over $1 billion in sales and provided a great source of accretive high margin revenue for us.

Speaker Change: We are pleased to have made solid progress towards this goal.

Speaker Change: In this quarter.

Speaker Change: We are selective and disciplined in our approach to buying land.

Each of these metrics are high proportion of all cash buyers.

Speaker Change: We assess all land deals whether they involve new land opportunities or take downs under existing options.

L T V ratios.

Low cancellation rates and a substantial amount that our buyers spend a lot premiums and upgrades at our design studios highlight the financial strength of our customer base.

Speaker Change: Using underwriting standards focused on both margins and returns.

Speaker Change: This approach and our overall focus on capital efficiency has helped drive our ROE over 20%.

I also point out that we are benefiting from the greatest generational wealth transfer in history. As many parents are looking to help their kids with down payments.

Speaker Change: For the past three years.

In the fourth quarter, we purchased $201 million of our common stock.

Bringing our full year repurchases to $628 million at an average price of $127.79 per share.

Turning back to our fourth quarter. Despite the sharp increase in rates in the second half of the quarter, we maintained a steady cadence of orders a month to month.

Speaker Change: During fiscal 2024, we repurchased nearly 5% of our shares outstanding at the beginning of the year.

Approximately 30% of sales occurred in August with 35% of sales in each of September and October.

Speaker Change: We have now bought back half the company since 2016.

On a per community basis, we sold at a pace of two two homes per month.

Speaker Change: We also paid $93 million in dividends.

Meaningfully from the one nine pace, we sold in last year's fourth quarter.

Buybacks and dividends will remain an important part of our capital allocation priorities well into the future.

With our business now split roughly roughly 50 50 between build to order and spec homes, we are more focused than ever on our Roe.

Speaker Change: For fiscal 2025, we have budgeted and another $500 million of share repurchases.

Speaker Change: Which we expect will be weighted to the back end of the year consistent with our greater cash flow generation.

Turning inventory and appropriately balancing pace and price.

As a result, when the markets softened a bit in September and October in response to the spike in mortgage rates and the uncertainty leading up to election, we modestly lowered net price through incentive increases by an average of $12000 as a result, our incentives in the fourth quarter.

Speaker Change: With that I'll turn it over to Marty.

Marty Connor: Thanks, Doug.

Marty Connor: As Doug mentioned, we are very pleased with our fourth quarter and full year results.

Our revenue net income and earnings per share were all full year records.

Marty Connor: In fiscal year 2020 for fourth quarter, we delivered 3400, 31 homes and generated home sales revenues of $3 $2 6 billion.

There were approximately six 7% of the average sales price slightly above our recent averages of between five and 6%.

Marty Connor: Up 24, 5% in homes and 10, 4% in dollars from one year ago.

The small increase was primarily on finished spec homes, many of which are expected to be delivered in our first quarter.

Marty Connor: The average price of homes delivered was down 11, 3% to approximately $950000. These.

With the market improving we have recently begun to decrease incentives and we are optimistic that we will be able to further reduce incentives and also increase base prices with the start of the spring season in January.

Marty Connor: These results are consistent with our multi year strategy of widening widening our geographies and price points, expanding our product lines and increasing our supply of spec homes.

We are very comfortable with our inventory of spec homes per community and the gross margin spread between our spec and build to order homes.

Marty Connor: Fourth quarter net income was $475 4 million.

Marty Connor: Or $4 63 per.

Marty Connor: Per diluted share compared to 445 million and a half million excuse me $1.

Our spec strategy has allowed us to grow EPS faster increase our our way and increase our operating margin by leveraging overhead.

Marty Connor: And $4 11 per diluted share one year ago.

We believe this is the right strategy to continue driving attractive returns well into the future.

Marty Connor: For the full year, we delivered 10813 homes. The most in our history and generated record home sales revenues of $10 6 billion.

Turning to land at fiscal year end, we owned or controlled approximately 74700 lots, 55% of which were options.

Full year net income was $1 $5 7 billion and $15.01 per diluted share.

Excluding the 5996 slots committed to homebuyers in our backlog our option land represented 60% of lives.

Marty Connor: As a reminder, net income includes approximately $124 million.

Speaker Change: We're a $1 19 per share of gains related to a parcel of land that we sold in the second quarter.

We continue to target, an overall mix, including backlog of 60% optioned at 40% owned over the longer term.

Speaker Change: Excluding this gain net income would have been $145 billion or $13 82.

We are pleased to have made solid progress towards this goal.

Speaker Change: We signed 2600 58 net contracts in the fourth quarter for $2 7 billion.

In this quarter.

We are selective and disciplined in our approach to buying land.

Speaker Change: Approximately 30% in units and 32% in dollars.

We assess all land deals whether they involve new land opportunities or take downs under existing options.

Speaker Change: The average price of contracts signed in the quarter was approximately $1 million, which was roughly flat to last year's fourth quarter.

Using underwriting standards focused on both margins and returns.

This approach and our overall focus on capital efficiency has helped drive our or are we over 20%.

Speaker Change: At year end.

Speaker Change: Backlog stood at $6 5 billion.

Speaker Change: And nearly 6000 homes.

For the past three years.

In the fourth quarter, we purchased $201 million of our common stock bring.

Speaker Change: As Doug mentioned, our cancellation rate as a percentage of backlog was just two 5% in the fourth quarter.

Bringing our full year repurchases to $628 million at an average price of $127.79 per share.

Speaker Change: Consistent with our long term average of two 3%.

Speaker Change: Our fourth quarter adjusted gross margin and 27, 9% was 40 basis points better than guidance, which was due primarily to mix and cost control.

During fiscal 2024, we repurchased nearly 5% of our shares outstanding at the beginning of the year.

Speaker Change: We also benefited from reduced cycle times, and greater stability in our building costs, which have been impacted by the high inflation of recent years.

We have now bought back half the company since 2016.

We also paid $93 million in dividends buybacks.

And dividends will remain an important part of our capital allocation priorities well into the future.

Speaker Change: This past year, we were generally able to keep these building cost flat.

For fiscal 2025, we have budgeted another $500 million of share repurchases.

Speaker Change: SG&A as a percentage of home sales revenues was eight 3% in the quarter.

Speaker Change: It was essentially flat compared to eight 2% in the same quarter one year ago.

Which we expect will be weighted to the back end of the year consistent with our greater cash flow generation.

Speaker Change: The Miss was 30 basis points better than we had projected.

Marty: With that I'll turn it over to Marty.

Speaker Change: The outperformance relative to guidance was primarily due to greater fixed cost leverage from higher than projected revenue.

Marty: Thanks, Doug.

Marty: As Doug mentioned, we are very pleased with our fourth quarter and full year results.

Marty: Our revenue net income and earnings per share were all full year records.

Speaker Change: As we continue to focus on ways to become more efficient we are seeing the benefits flow through our results in.

Marty: In fiscal year 2020 for fourth quarter, we delivered 3400, 31 homes and generated home sales revenues of 3.26 billion up 24, 5% homes and 10, 4% in dollars from one year ago.

Speaker Change: In fact, our G&A dollars spin grew only one 7% year over year.

Speaker Change: Despite inflation, 10% community count growth and double digit percentage growth in both deliveries and contracts.

Speaker Change: Joint venture land sales and other income was $44 million in the fourth quarter compared to $36 million in the fourth quarter of fiscal year two.

Marty: The average price of homes delivered was down 11, 3% to approximately $950000. These.

Marty: These results are consistent with our multi year strategy of Whiting widening our geographies and price points, expanding our product lines and increasing our supply of spec homes.

Speaker Change: 2023, and our guidance of $47 million.

Speaker Change: Joint venture land sales and other income in Q4, 2024, primarily related to land sale gains as well as contributions from our title and mortgage business and.

Marty: Fourth quarter net income was $475 4 million or $4 63 per.

Speaker Change: And included $6 $6 million of write offs related to apartment living joint ventures, and another two point to associated with abandoned projects.

Marty: Our diluted share compared to 445 million and a half million excuse me dollars and $4 11 per diluted share one year ago.

Speaker Change: Write offs included home sales cost of revenues totaled $24 1 million in the quarter compared to $8 3 million in the prior year period.

Marty: For the full year, we delivered 10813 homes. The most in our history and generated record home sales revenues of $10 $6 billion.

There were no land sale write offs in the fourth quarter of 2024 versus $12 9 million in Q4 2023.

Marty: Full year net income was $1 $5 $7 billion and $15.01 per diluted share.

Speaker Change: We continued to generate strong cash flow in fiscal 2024 with approximately $1 billion of cash flow from operations.

Marty: As a reminder, net income includes approximately $124 million or $1 19 per share gains related to a parcel of land that we sold in the second quarter.

Speaker Change: We expect to generate a similar amount this year.

Speaker Change: We ended the fiscal year with over $3 $1 billion of liquidity, including $1 3 billion of cash and $1 8 billion available under our revolving bank credit facility.

Marty: Excluding this gain net income would have been $145 billion or $13.82.

Speaker Change: In fiscal year 2024, we invested $2 8 billion in land acquisition and development. We also returned $716 million to shareholders through share repos and dividends.

Marty: We signed 2600 58 net contracts in the fourth quarter for $2 7 billion.

Marty: Approximately 30% in units and 32% in dollars.

Marty: The average price of contracts signed in the quarter was approximately $1 million, which was roughly flat to last year's fourth quarter.

Speaker Change: Our net debt to capital ratio was approximately 15% at fiscal year end and we have no significant debt maturities until early fiscal 2026.

Marty: At year end, our backlog stood at six $5 billion and.

Excuse me our balance sheet is in great shape.

Marty: And nearly 6000 homes.

Speaker Change: Turning to our guidance.

Marty: As Doug mentioned, our cancellation rate as a percentage of backlog was just two 5% in the fourth quarter.

Speaker Change: We are projecting first quarter deliveries of 19 to 2100 homes with an average price between 925940 $5000.

Marty: Consistent with our long term average of two 3%.

Speaker Change: Insistent with normal seasonal patterns first quarter deliveries are expected to be the low point of the year with deliveries for the full fiscal year weighted to the second half.

Marty: Our fourth quarter adjusted gross margin at 27, 9%.

Marty: Was 40 basis points better than guidance, which was due primarily to mix and cost control.

Speaker Change: For full year 2025, we are projecting new home deliveries of between 11000 211600 homes with an average price between 945000 in.

Marty: We also benefited from reduced cycle times, and greater stability in our building costs, which have been impacted by the high inflation of recent years.

Speaker Change: $965000.

Marty: This past year, we were generally able to keep these building cost flat.

Speaker Change: We expect our adjusted gross margin in the first quarter of fiscal 2025, 26, 25% of home sales revenues and for the full year to be approximately $27 two 5%.

Marty: SG&A as a percentage of home sales revenues was eight 3% in the quarter.

Marty: Which was essentially flat compared to eight 2% in the same quarter, one year ago and.

Speaker Change: Our projected gross margin for Q1, primarily.

Marty: And this was 30 basis points better than we had projected.

The outperformance relative to guidance was primarily due to greater fixed cost leverage from higher than projected revenue.

Speaker Change: Really reflects the impact of mix and the increased incentives offered in our fourth quarter to move finished spec inventory and to counter softness in the market, resulting from election uncertainty and the spike in mortgage rates.

Marty: As we continue to focus on ways to become more efficient we are seeing the benefits flow through our results.

Speaker Change: We view our Q1 adjusted gross margin is a bit of an anomaly from both the mix and incentives perspectives and fully expect it will be the low point of the year.

Marty: In fact, our G&A dollars spin grew only one 7% year over year, despite inflation, 10% community count growth and double digit percentage growth in both deliveries and contracts.

Speaker Change: I wouldn't read too much into it.

Speaker Change: We are very comfortable with our full year guide of 27, 25%.

Marty: Yeah.

Joint venture land sales and other income was $44 million in the fourth quarter compared to $36 million in the fourth quarter of fiscal year two.

Speaker Change: Flying approximately 27, 5% for the balance of the year.

We expect interest in cost of sales to be approximately one 2% of home sales revenues in the first quarter and for the full year.

Marty: 2023, and our guidance of $47 million.

Marty: Joint venture land sales and other income in Q4, 2024, primarily related to land sale gains as well as contributions from our title and mortgage business.

Speaker Change: We project first quarter SG&A as a percentage of home sales revenues to be approximately 12, 7%, reflecting lower fixed cost leverage as the first quarter tends to be our lowest revenue quarter.

Marty: And included $6 $6 million of write offs related to apartment living joint ventures, and another two point to associated with abandoned projects.

Speaker Change: Also included in the first quarter SG&A is about $15 million of our annual accelerated stock compensation expense that does not recur in the remainder of the year.

Marty: Write offs, including home sales cost of revenues totaled $24 1 million in the quarter compared to $8 $3 million in the prior year period.

Speaker Change: For the full year, we project SG&A as a percentage of home sales revenues to be generally consistent with 2024 and in the range of nine 4% to nine 5%.

Marty: There were no land sale write offs in the fourth quarter of 2024 versus $12 $9 million in Q4 2023.

Speaker Change: Other income income from unconsolidated unconsolidated entities and land sales gross profit is expected to be $33 million in the first quarter and $110 million for the full year.

Marty: We continued to generate strong cash flow in fiscal 2024 with approximately $1 billion of cash flow from operations.

Marty: We expect to generate a similar amount this year.

Speaker Change: And includes the projected sale of several stabilized apartment communities.

Marty: We ended the fiscal year with over $3 $1 billion of liquidity, including $1 $3 billion of cash and $1 8 billion available under our revolving bank credit facility.

Speaker Change: We project, the first quarter and full year tax rate of approximately 22% and 25, 5% respectively.

Speaker Change: We expect our first quarter tax rate.

Marty: Yeah.

Marty: In fiscal year 2024, we invested $2 $8 billion in land acquisition and development. We also returned $716 million to shareholders through share repos and dividends.

Speaker Change: The benefit from higher deductions related to previously granted equity awards that we do not project to recur the balance of the year.

Our weighted average share count is expected to be approximately $102 million for the first quarter and $100 5 million for the full year.

Marty: Our net debt to capital ratio was approximately 15% at fiscal year end and we have no significant debt maturities until early fiscal 2026.

Speaker Change: This assumes we repurchased with targeted $500 million of common stock for the year with most of that occurring later in the year aligned with our anticipated higher cash flows.

Marty: Excuse me our balance sheet is in great shape.

Speaker Change: Based on land, we currently own or control, we expect to grow community count by 8% to 10% by the end of fiscal 2025 and are targeting 440 to 450 communities.

Marty: Turning to our guidance we.

Marty: We are projecting first quarter deliveries of 1900 to 'twenty 100 homes with an average price between 925000 and $945000.

Doug: With that I'll turn it back to Doug.

Consistent with normal seasonal pattern.

Douglas Yearly: Thank you Marty before we open it up to questions I'd like to thank the entire toll brothers team for.

Marty: First quarter deliveries are expected to be the low point of the year with deliveries for the full fiscal year weighted to the second half.

Douglas Yearly: We're staying focused on our customers and consistently executing on our core strategies.

Marty: For full year 2025, we are projecting new home deliveries of between 11200 11600 homes with an average price between 945960 $5000.

Most importantly, you have helped position the company for continued success in 2025 and beyond.

Douglas Yearly: For that I am truly grateful.

Douglas Yearly: Drew let's open it up for questions.

Marty: Yeah.

Marty: We expect our adjusted gross margin in the first quarter of fiscal 2025.

Speaker Change: Thank you we will now begin the question and answer session.

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.

Marty: $26, two 5% of home sales revenues and for the full year to be approximately $27 two 5%.

Marty: Our projected gross margin for Q1.

Speaker Change: To ask a question you May press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Marty: Primarily reflects the impact of mix and the increased incentives offered in our fourth quarter to move finished spec inventory and to counter softness in the market, resulting from election uncertainty and the spike in mortgage rates.

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

Marty: We view our Q1 adjusted gross margin is a bit of an anomaly from both the mix and incentives perspectives and fully expect it will be the low point of the year.

Stephen Kim: Yes, thanks, very much guys I appreciate all the color.

Speaker Change: Certainly I think the results in the quarter was strong screen on the order front. Your ASP was also very strong.

Speaker Change: I wouldn't read too much into it.

Speaker Change: We are very comfortable with our full year guide of $27 two 5%.

Speaker Change: You've talked about the guidance for the first quarter, though and for the full year that are a little lower than.

Speaker Change: Flying approximately 27, 5% for the balance of the year.

We expect interest and cost of sales to be approximately one 2% of home sales revenues in the first quarter and for the full year.

Speaker Change: I think we and many others were expecting for the.

Speaker Change: The full year as well as the quarter.

Speaker Change: I wanted to talk about the operating margin. If you just kind of cut through the growth and this is Sharon.

Speaker Change: We project first quarter SG&A as a percentage of home sales revenues to be <unk>, 12, 7%, reflecting lower fixed cost leverage as the first quarter tends to be our lowest revenue quarter.

Speaker Change: And just talk about the operating margin it seems like you're guiding to something in the neighborhood of like sub 17, you've done 18 in each of the last two years basically.

Speaker Change: I'm curious I'm curious if you can talk about what's what sort of exogenous factors or factors that are out of your control are you embedding in your assumptions for 2025 in terms of the market outlook I'm thinking things like can you give us a sense for what youre looking for for mortgage rates can you give us a sense for if you're anticipating any disruptions from let's say.

Speaker Change: Also included in first quarter SG&A is about $15 million of our annual accelerated stock compensation expense. It does not recur in the remainder of the year.

Speaker Change: For the full year, we project SG&A as a percentage of home sales revenues to be generally consistent with 2024 and in the range of $9 four to nine 5%.

Speaker Change: Trump's immigration policies and things like that.

Speaker Change: Thanks, Stephen Thats, a big one a lot of a lot of parts to that question.

Speaker Change: Other income income from unconsolidated in unconsolidated entities and land sales gross profit is expected to be $33 million in the first quarter and $110 million for the full year.

Speaker Change: <unk>.

Speaker Change: Word.

Speaker Change: We're pleased and mortgage rates have begun to stabilize and even come down modestly.

Speaker Change: It includes the projected sale of several stabilized apartment communities.

We in the industry. We're obviously disappointed that from mid September through mid November rates went up as.

We project, the first quarter and full year tax rate of approximately 22% and 25, 5% respectively.

Speaker Change: As the fed was lower in short term rates.

Speaker Change: We expect our first quarter tax rate.

Speaker Change: But I think we are hopeful and have some good reason to be hopeful.

Speaker Change: The benefit from higher deductions related to previously granted equity awards that we do not project to recur the balance of the year.

Speaker Change: That rates will be.

Speaker Change: Either stay where they are or more likely moderate a bit.

Speaker Change: Our weighted average share count is expected to be approximately $102 million for the first quarter and $100 5 million for the full year.

Speaker Change: They have been stubbornly high we have sold wells as we talked about in the fourth quarter. When the rates were elevated and that really goes to all the stats. We gave you about the percentage of cash buyers in the end.

Speaker Change: This assumes we repurchased with targeted $500 million of common stock for the year with most of that occurring later in the year.

Speaker Change: The LTV ratios in the affluent makeup of our of our buyer group.

Speaker Change: Aligned with our anticipated higher in cash flows.

Speaker Change: Based on land, we currently own or control, we expect to grow community count by 8% to 10% by the end of fiscal 2025 and are targeting $440 to 450 communities.

Speaker Change: We don't need lower rates to have success at this company. We just proved it in the last quarter, but we are optimistic.

Speaker Change: That 2025 will be a year, where like I said rates will either stay where they are or come down somewhat.

Doug: With that I'll turn it back to Doug.

Doug: Thank you Marty before we open it up to questions I'd like to thank the entire toll brothers team.

<unk>.

As I mentioned, we've already begun to cut back on the incentives that were a little bit elevated in the fourth quarter and as we traditionally do as we opened this spring season, we tend to have a nationwide price increase base price increase of the price sheet.

Doug: We're staying focused on our customers and consistently executing on our core strategies.

Doug: Most importantly, it has helped position the company for continued success in 2025 and beyond.

Doug: For that I am truly grateful.

Speaker Change: And so when you combine that with.

Speaker Change: A reduction in incentives, we and we think that business plan is in place.

Doug: Drew let's open it up for questions.

Speaker Change: Thank you we will now begin the question and answer session.

Speaker Change: Have optimism for.

Speaker Change: For next year as to your question about disruptions, we are not anticipating disruptions. Obviously, we're keeping a close eye on policy. We are encouraged by a lot of the new policy that we think will be coming our way.

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.

Speaker Change: To ask a question you May press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Speaker Change: And so it's business as usual we are built to succeed in this type of a market.

Speaker Change: Our geographic mix, our product diversity, our price range, our spec business and most importantly, the affluent nature of our client.

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

Speaker Change: Gotcha I appreciate that color.

Speaker Change: Okay.

Speaker Change: Yeah. Thanks, very much guys I appreciate all the color.

Speaker Change: I didn't catch a cash flow guide for 2025 I was wondering if you could give us that and is it also.

Speaker Change: Certainly I think the results in the in the quarter was strong, particularly on the order front. Your E. S. P was also very strong.

You've talked about the guidance for the first quarter, though and for the full year that are a little lower than I think we and many others were expecting for the.

Would you I think I asked you. This question, maybe a quarter or two ago about what you think the long term sustainable operating margin range might be.

Speaker Change: The full year as well as the quarter.

Speaker Change: And I think at that time, you had mentioned something in the neighborhood of 17, 18% or 17 appetite is that something that you still believe that general range.

Speaker Change: I wanted to talk about the operating margin. If you just kind of cut through the gross and the SCO in and just talk about the operating margin. It seems like you're guiding to something in the neighborhood of like sub 17, you've done 18 in each of the last two years basically.

Speaker Change: Is.

Speaker Change: Where you could.

Speaker Change: Sustain your operating margin longer term you think.

Speaker Change: I'm curious and I'm curious if you can talk about what's what sort of exogenous factors or factors that are out of your control are you embedding in your assumptions for 2025 in terms of the market outlook I'm thinking things like you know can you give us a sense for what youre looking for for mortgage rates can you give us a sense for if you're anticipating any disruptions from let's say.

Speaker Change: Stephen we are comfortable with the 17% to 18% range of our operating margin and as it relates to the cash flow. We did $1 billion approximately in 2024, we project a similar amount in 2025.

Speaker Change: The next question comes from Jon <unk> with UBS. Please go ahead.

Speaker Change: Trump's immigration policies and things like that.

Speaker Change: Hey, good morning, guys. Thanks for taking my questions I'm going to dovetail off of Steve here for a moment with the cash flow projected to be about the same year over year.

Speaker Change: Yeah.

Stephen Kim: Thanks, Stephen that's a that's a big one a lot of a lot of parts to that question.

Speaker Change: What why is the intent to buyback less stock of $500 million versus 628 that you guys did in fiscal year 'twenty four.

Stephen Kim: The word.

Stephen Kim: We're pleased and mortgage rates have begun to stabilize and even come down modestly.

Speaker Change: Budd.

John It's a guy in the last year, we started the year 400 million guide.

We in the industry. We're obviously disappointed that from mid September through mid November rates went up.

Speaker Change: Actually bought over $600 million.

Stephen Kim: As the fed was lower in short term rates.

Speaker Change: But as we enter the year and we look at the growth of our business and the land revised on the roads were putting in and the cash flow. We're generating at this moment in time, we are comfortable at that number.

Stephen Kim: But I think we are hopeful and have some good reason to be hopeful.

Stephen Kim: That rates will be.

Stephen Kim: Either stay where they are or more likely moderate a bit.

Speaker Change: If history repeats itself, we're going to do more but we're not we're not at this point in time prepared to guide to what we did last year, but as I think we've proven to you that opportunity may be out there and we would take advantage of it.

Stephen Kim: They have been stubbornly high we have sold wells as we talked about in the fourth quarter. When the rates were elevated and that really goes to all the stats. We gave you about the percentage of cash buyers in the and the LTV ratios in the affluent makeup of our of our buyer group.

Speaker Change: Yes that makes a lot of sense and then on the first quarter gross margin I think you guys explained that pretty well with mix and higher incentives on finished specs that are going to deliver in the first quarter, but I guess the question is the 27 and a half that we would need through the remainder of the year is there a cadence that we should think about for that and does it.

Stephen Kim: We don't need lower rates to have success at this company. We just proved it in the last quarter, but we are optimistic.

Stephen Kim: That 2025 will be a year, where like I said rates will either stay where they are or come down somewhat.

Speaker Change: Assume that interest rates actually come down from here or could you achieve it at rates that are at the same level of potentially a tad higher if thats the way things went.

Stephen Kim:

Stephen Kim: As I mentioned, we've already begun to cut back on the incentives were a little bit elevated in the fourth quarter and as we traditionally do as we opened this spring season, we tend to have a nationwide price increase based price increase of the price sheet.

Speaker Change: So I'll start and Marty I'll finish it does not assume rates come down it does not assume an improving market.

Speaker Change: I think we set up for you in our prepared comments the opportunity in an improving market to do better but it is not our company style to build that into guidance.

Stephen Kim: And so when you combine that with.

Stephen Kim: A reduction in incentives, we and we think that business plan is in place.

Speaker Change: And so.

That's how we approach the year.

Speaker Change: And as it relates to the margin cadence I think 27 and a half on average through the last quarter without much deviation from the last three quarters without much deviation from that is a good set of assumptions to use.

Stephen Kim: Optimism for.

Stephen Kim: For next year as to your question about disruptions, we are not anticipating disruptions. Obviously, we're keeping a close eye on policy. We are encouraged by a lot of the new policy that we think will be coming our way.

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

And so it's business as usual we are built to succeed in this type of a market.

Speaker Change: Hey, good morning. Thank you for taking my questions first question I wanted to visit some of your positive demand commentary you mentioned demand over the last six weeks has been pretty strong can you provide any additional color around that now that we're post election, perhaps on traffic rates or absorption paces and then any differences that you guys are seeing between your different.

Stephen Kim: Our geographic mix, our product diversity, our price range, our spec business and most importantly, the affluent nature of our client.

Stephen Kim: Yeah.

Speaker Change: Got you appreciate.

Speaker Change: Appreciate that color.

Speaker Change: I Didnt catch a cash flow guide for 2025 I was wondering if you could give us that and is it also.

Speaker Change: <unk> segments.

Speaker Change: Sure. So traditionally if you look back in time with toll brothers.

Speaker Change: First quarter is.

Speaker Change: On average down about 10% from fourth quarter in terms of sales.

Speaker Change: Would you I think I asked you. This question, maybe a quarter or two ago about what you think the long term sustainable operating margin range might be.

And we are trending better than that we are projecting now halfway through the quarter.

Speaker Change: And I think at that time, you had mentioned something in the neighborhood of 17, 18% or 17 appetite is that something that you still.

Speaker Change: Two contracts per community per month.

Speaker Change: So if you do the math off of that.

Speaker Change: Believe that general range is.

Speaker Change: Youll be able to figure it out.

Speaker Change: Where you could sustain.

Speaker Change: Sustain your operating margin longer term you think.

Speaker Change: Actually the guys are going to do it for me right now so it's going to it's in the 24 100 2500 range. When you take turbines two per community.

Stephen Kim: Stephen we are comfortable with the 17% to 18% range of our operating margin and as it relates to the cash flow. We did $1 billion approximately in 2024, we project a similar amount in 2025.

Speaker Change: The 480 months funds of 400 400, alright.

Speaker Change: Plus or minus community. So there you have it and that is better than traditional trends of how Q1 compares to Q4s.

Speaker Change: The next question comes from Jon <unk> with UBS. Please go ahead.

Speaker Change: Okay. Thank you that's helpful and very encouraging and then the second question is on your lot supply you mentioned in your release, having all the lots you need to grow in 2026 as we look at your lot supply currently on our foreign year supply basis. It seems like it's down a bit from where its been the last few years. So the <unk>.

Speaker Change: Hey, good morning, guys. Thanks for taking my questions I'm going to dovetail off of steep here for a moment with the cash flow projected to be about the same year over year.

Speaker Change: What why is the intent to buy back less stock of $500 million versus 628 that you guys did in fiscal year 'twenty four.

Speaker Change: Hi.

Speaker Change: <unk> as you stand here today, given your outlook for 2025 demand is still healthy for your product do you need to accelerate the lots you have under control from here. Thanks.

Speaker Change: John It's a guy in the last year, we started the year at 400 million guide.

Speaker Change: Actually bought over $600 million.

Speaker Change: But as we entered the year and we look at the growth of our business and the land, we're buying and the roads were putting in and the cash flow. We're generating at this moment in time, we are comfortable at that number.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: I'm very proud of our land buying.

Speaker Change: Very happy with the.

Speaker Change: The option versus owned.

Speaker Change: If history repeats itself, we're going to do more but we're not we're not at this point in time prepared to guide to what we did last year, but as I think we've proven to you that opportunity may be out there and we would take advantage of it.

Momentum.

Speaker Change: That is taking place to be more capital efficient, we have become more creative and how we buy land.

Speaker Change: Tie it up now pay for it later.

Speaker Change: Big deals do joint ventures, with other builder friends or with Wall Street money.

Yes that makes a lot of sense and then on the first quarter of gross margin I think you guys explained that pretty well with mix and higher incentives on finished specs that are going to deliver in the first quarter, but I guess the question is the 27 and a half that we would need through the remainder of the year is there a cadence that we should think about for that and does it.

Speaker Change: More and more land banking.

Our goal is to have one and a half to two years Max owned land.

Speaker Change: And net net.

Speaker Change: Net of net of backlog. Thank you Greg.

Assume that interest rates actually come down from here or could you achieve it at rates that are at the same level of potentially a tad higher if that's the way things went.

Speaker Change: And we're making progress we're not there yet, but we're going to continue to move in that direction. So.

Our deal flow is strong our underwriting is very conservative.

Speaker Change: So I'll start and Marty I'll finish it does not assume rates come down it does not assume an improving market.

Speaker Change: We demand high margin, we demand high returns, we miss deals that get too skinny and we're okay with that we have a great finance group that is very creative about how we can structure deals to come.

Speaker Change: We set up for you in our prepared comments the opportunity in an improving market to do better, but you know, it's not our company style to build that into guidance.

Speaker Change: Keep them.

Speaker Change: Trolled longer owned for a shorter period of time and so the land business is in great shape, and I'm very comfortable and I'm really proud that we can grow this company with 10% community count the last two years.

Speaker Change: And so.

Speaker Change: That's how we approach the year.

Speaker Change: And as it relates to the margin cadence I think 27 and a half on average the last quarter without much deviation from the last three quarters without much deviation from that is a good set of assumptions to use.

Speaker Change: In the market we're in so we're in great shape.

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

Yes.

Speaker Change: And one one additional advertisement here remember with the geographies. We're in 24 States 60 markets with how we have widened the price points.

Hey, good morning. Thank you for taking my questions first question I wanted to visit some of your positive demand commentary you mentioned demand over the last six weeks has been pretty strong can provide any additional color around that now that we're post election, perhaps on traffic rates or absorption paces and then any differences that you guys are seeing between your different.

Speaker Change: 300000 to over 5 million, how we have widened our product lines.

Speaker Change: A third first time and the banner left 30% first time and the balance move up and move down.

Speaker Change: <unk> segments.

Speaker Change: We have the widest of everything in the industry and therefore, the most opportunity to grow and by the way at our price point that affluent buyer can absorb some of these bumps we've seen with higher rates with a little bit of consumer sentiment being off now and again.

Sure. So traditionally if you look back in time with toll brothers.

Speaker Change: First quarter is.

Speaker Change: On average down about 10% from fourth quarter in terms of sales.

Speaker Change: And we are trending better than that we are projecting now halfway through the quarter.

Speaker Change: And so the business model is in great shape, and I'm very excited about where we're at it.

Speaker Change: Two contracts per community per month.

Speaker Change: So if you do the math off of that.

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

Speaker Change: You'll be able to figure it out.

Speaker Change: Actually the guys are going to do it for me right now so it's kind of it's in the 2400 to 2500 range. When you take turbulent two per community.

Speaker Change: Okay.

It's actually Chris Kalata on for Mike.

Just going back to your incentive comments.

Speaker Change: You guys saw a step up in incentives this quarter youre expecting that to moderate down modestly could you just help quantify what youre expecting in San Francisco to settle out as we enter the new year and then.

Speaker Change: The 403 months or 400 400, plus.

Speaker Change: Plus or minus community. So there you have it.

Speaker Change: And that is better than traditional trends of how Q1 compares to Q4s.

Speaker Change: Given your expectation of kind.

Speaker Change: Of a nationwide price increase and more moderate incentive load I mean.

Speaker Change: Okay. Thank you that's helpful and very encouraging and then the second question is on your lot supply you mentioned in your release, having all the lots you need to grow in 2026 as we look at your lot supply currently on a four year supply basis. It seems like it's down a bit from where its been the last few years. So the question.

Speaker Change: What's your confidence that year, we also maintain that.

Speaker Change: Per month absorption trend that you guys called out into <unk> and then.

Speaker Change: Rest of this year.

Speaker Change: Yes, we think we're going to be settling in in the 55000.

Speaker Change: <unk> as you stand here today, given your outlook for 2025 demand is still healthy for your product do you need to accelerate the lots you have under control from here. Thanks.

Speaker Change: Range.

Speaker Change: As the spring season approaches.

Speaker Change: <unk>.

Speaker Change: That's 5% to 6% in selling price.

Speaker Change: Which is where we've been in.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: I'm very proud of our land buying.

Speaker Change: We've already claw back as I said a bit of the modest increases we saw in the fall so.

I'm very happy with the.

Speaker Change: The option versus owned.

Speaker Change: Momentum.

Speaker Change: That's where it is.

Speaker Change: I was taking place to be more capital efficient, we have become more creative and how we buy land.

Speaker Change: Okay, and then you just plan to operate at that level for the remainder of the year correct at this time.

Speaker Change: Tie it up now pay for it later.

Speaker Change: Well I think the market will dictate where incentives are great. We will continue to lower incentives. If the market continues to permit us to do that.

Speaker Change: Big deals do joint ventures, with other builder friends or with Wall Street money.

Speaker Change: More and more land banking.

Speaker Change: And don't forget.

Speaker Change: Our goal is to have one and a half to two years Max owned land and net net.

Speaker Change: Price increases.

Speaker Change: Nothing makes us happier or the backlog.

Speaker Change: When they see the price sheet go up so it is a combination.

Net of net of backlog. Thank you Greg.

Speaker Change: As you are bringing incentives down.

You know when we're making progress we're not there yet, but we're going to continue to move in that direction. So.

Speaker Change: Usually have the ability to also take the price of the home App.

Speaker Change: Our deal flow is strong our underwriting is very conservative.

It's a combined impact.

Speaker Change: We demand high margin, we demand high returns, we miss deals that get too skinny and we're okay with that we have a green finance group that is very creative about how we can structure deals to come.

Speaker Change: The next question comes from Michael Rehaut with Jpmorgan. Please go ahead.

Speaker Change: Okay.

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

Speaker Change: No.

Speaker Change: Keep them controlled longer owned for a shorter period of time and so the land business is in great shape, and I'm very comfortable and I'm really proud that we can grow this company with 10% community count the last two years.

Speaker Change: Great.

Speaker Change: Hey, Doug.

Speaker Change: First on the.

Speaker Change: First quarter.

Speaker Change: <unk>.

Speaker Change: I'm, sorry fourth quarter description about I'm, sorry, first quarter description about the <unk>.

Speaker Change: Gross margin being the low point due to a combination of mix.

Speaker Change: You know in the market we're in so we're in great shape.

Speaker Change: Ed.

Ed: I was wanted to get perhaps a rough breakout of how much of that.

Speaker Change: Okay.

Speaker Change: And one one additional advertisement here remember with the geographies. We're in 24 States 60 markets with how we have widened the price points.

Ed: Difference in the first quarter versus the rest of the year is due to mix versus incentives.

Ed: More broadly when you think about your spec strategy, obviously, you kind of highlighted the higher level of incentives.

Speaker Change: 300000 to over 5 million, how we have widened our product lines.

Speaker Change: With a third first time and the band or less 30% first time and the balance move up and move down.

Ed: That you applied to the.

Ed: Finished spec.

Ed: Sure.

Ed: You had in the fourth quarter.

Ed: The market continues to be a little more volatile there is a little bit more let's say looseness in inventory or whatnot.

Speaker Change: We have the widest of everything in the industry and therefore, the most opportunity to grow and by the way at our price point that affluent buyer can absorb some of these bumps we've seen with higher rates.

Speaker Change: With that caused you to shift a little bit away from specs, maybe versus how you've approached the market in the last couple of years.

A little bit of consumer sentiment being off now and again and so the business model is in great shape and I'm very excited about where we're at it.

Speaker Change: So Mike about 80%.

Speaker Change: Of the lower margin of Q1 is mix.

Speaker Change: We have less coming out of the Pacific region.

The next question comes from Mike Dahl with RBC capital markets. Please go ahead.

Speaker Change: And we have less coming out of the mid Atlantic.

Speaker Change: In Q1.

Speaker Change: Okay.

Actually Chris Kalata on for Mike.

That reverses itself and gets back to a more normal mix.

Just going back to your incentive comments.

Speaker Change: For the balance of the year. The other 20% is what we described which is.

Speaker Change: You guys saw a step up in incentives this quarter youre expecting that to.

Speaker Change: Moderate down modestly could you just help quantify what youre expecting in San Francisco to settle out as we enter the new year and then.

Through September and October.

Speaker Change: Rates jumped.

Speaker Change: Buyers hit the sidelines as the election was approaching.

Speaker Change: Given your expectation of kind of.

Speaker Change: A nationwide price increase and more moderate incentive load.

Speaker Change: And most particularly with our finished inventory homes, which are the ones that will be delivering in Q1, we.

Speaker Change: What's your confidence that you'll be able to maintain that.

Speaker Change: Per month absorption trend that you guys called out until <unk> and then.

Speaker Change: We bumped the incentive a bit to move them.

Speaker Change: And as we've mentioned we've seen a lot of that already reversed with the election behind us.

Speaker Change: The rest of this year.

Speaker Change: Yeah, we think we're going to be settling in in the 55000.

Speaker Change: With rates now stabilizing or even modestly dropping.

Speaker Change: Range.

Speaker Change: As we.

Speaker Change: As the spring season approaches.

Speaker Change: Get closer and closer to that mid January launch of the spring season.

Speaker Change: <unk>.

Speaker Change: That's 5% to 6% and selling prices right.

Speaker Change: Mark do you want to take the rest of that I think I'd like to take the opportunity to iterate how returns focused Wheeler.

Which is where we've been in.

Speaker Change: We've already claw back as I said a bit of the modest increases we saw.

And with respect to any change to our spec strategy.

Speaker Change: In the fall.

Speaker Change: So.

Speaker Change: That's where it is.

I think thats unlikely based on what it's allowed us to do with returns and so we will continue to be.

Speaker Change: Okay, and then you just plan to operate at that level for the remainder of the year correct at this time.

Speaker Change: Mindful of the specs we have.

Speaker Change: Well I think the market will dictate where incentives are right. We will continue to lower incentives if the market <unk>.

Speaker Change: Particularly as market softness might occur, which we don't anticipate right now.

Speaker Change: <unk> to permit us to do that and don't forget.

Speaker Change: But I think.

We want to reiterate our focus on returns and what we've been able to accomplish with return on equity through the combination of elevated gross margins high gross margins good operating margin.

Price increases.

Speaker Change: Nothing makes us happier or the backlog.

Speaker Change: When they see the price sheet go up so it is a combination.

Speaker Change: As you are bringing incentives down you usually have the ability to also take the price of the home App.

Speaker Change: And.

Speaker Change: Capital redeployment through dividends and repurchase.

Speaker Change: Yes, I think it's important.

Speaker Change: It's a combined impact.

Speaker Change: So once again as quickly explain this new strategy that is now fully in place.

Speaker Change: The next question comes from Michael Rehaut with Jpmorgan. Please go ahead.

Speaker Change: When we were building, 5% of our communities with spec.

Speaker Change: Okay.

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

In todays market, you would be driving a higher margin because the build to order business at the luxury luxury end of the business, which is what bill toll brothers.

Speaker Change:

Speaker Change: Hey, Doug.

Speaker Change: First on the.

Speaker Change: First quarter.

Speaker Change: Had a higher margin.

Oh, I'm, sorry fourth quarter description about I'm, sorry, first quarter description about the.

We would be a much smaller company and we wouldn't be able to drive the same row.

Speaker Change: Because that land is very expensive it takes much longer to build the houses and it's much harder to turn the money.

Speaker Change: Gross margin being the low point due to a combination of mix will pan out.

Speaker Change: I was wondering to get perhaps a rough breakout of how much of that.

Speaker Change: So we are very happy with our blend that may be a little bit below that build to order margin because we recognize the spec margin. It's at a lower price point. It turns at times to have to be incentivized, a little bit more but when you put it all together, it's still a great margin.

Speaker Change: Difference in the first quarter versus the rest of the year is due to mix versus incentives.

Speaker Change: And more broadly when you think about your spec strategy, obviously, you kind of highlighted the higher level of incentives that you applied to the.

Speaker Change: Finished spec in your you know that you had in the fourth quarter.

We're a much bigger company more revenue more Etfs and we are much more capital efficient.

Speaker Change: The market continues to be a little more volatile there is a little bit more let's say looseness in inventory or whatnot with.

Speaker Change: And so as we move forward.

Speaker Change: This mix, we think is perfect for the business that we are achieving.

Speaker Change: With that caused you to shift a little bit away from specs, maybe versus how you've approached the market in the last couple of years.

Speaker Change: Great I appreciate that perspective, as well I think it's helpful.

Speaker Change: Yes.

Speaker Change: So Mike about 80%.

Speaker Change: Secondly.

Speaker Change: Of the lower margin of Q1 is mix.

I'd love to just revisit your comments around.

Speaker Change: We have less coming out of the Pacific region.

Speaker Change: The strong start to the first quarter.

Speaker Change: And we have less coming out of the mid Atlantic.

Speaker Change: And just trying to understand a little bit better what you think are the drivers behind that.

Speaker Change: In Q1.

Speaker Change: That reverses itself and gets back to a more normal mix.

Speaker Change: Other words is it some of the election uncertainty that's.

Speaker Change: For the balance of the year. The other 20% is what we described which is.

Speaker Change: Maybe gone away.

Speaker Change: Is it.

Speaker Change: Perhaps stabilizing.

Speaker Change: And also the kind of delve into just the broader market.

Speaker Change: Through September and October.

Speaker Change: Rates jumped.

Speaker Change: Friends I'd love to get your sense.

Speaker Change: Buyers hit the sidelines as the election was approaching.

Speaker Change: Our inventory is trending in your view across your key markets.

Speaker Change: And.

Speaker Change: Most particularly with our finished inventory homes, which are the ones that will be delivering in Q1, we.

Speaker Change: Markets, where you've seen the inventory pick up.

Speaker Change: Yes.

Speaker Change: We bumped the incentive a bit to move them.

How that might be playing into market dynamics as well.

Speaker Change: And as we've mentioned we've seen a lot of that already reversed with the election behind us.

Speaker Change: Sure so.

Speaker Change: Why did the market get better in November.

Speaker Change: With rates now stabilizing or even modestly dropping.

Speaker Change: Number one the election was behind us.

Speaker Change: As you know.

Speaker Change: Get closer and closer to that mid January launch of the spring season.

Speaker Change: Number one.

Speaker Change: That was on the sidelines came back out.

Speaker Change: Number two.

Speaker Change: Mark do you want to take the rest of that I think I'd like to take the opportunity to iterate how returns focused we are.

Speaker Change: A good to great economy.

Speaker Change: Number three rates.

Speaker Change: And with respect to any change to our spec strategy.

Speaker Change: Stabilizing coming down a bit.

Speaker Change: And being digested and accepted by the client.

Speaker Change: I think thats unlikely based on what it's allowed us to do with returns and so we will continue to be.

Speaker Change: We talked about it earlier the significant equity.

Speaker Change: Three quarters of our buyers because three quarters of our business is move up and move down.

Speaker Change: Mindful of the specs we have.

Speaker Change: Particularly as market softness.

Speaker Change: <unk> equity they have in their houses and therefore their ability.

Speaker Change: A car, which we don't anticipate right now.

To trade up and maybe pay all our more cash.

Speaker Change: But I think.

Speaker Change: We want to.

Speaker Change: We reiterate our focus on returns and what we've been able to accomplish with return on equity through the combination of elevated gross margins high gross margins good operating margin.

By using that equity and not being as tied to the affordability issues of the higher rates.

Speaker Change: Affluent buyers.

Speaker Change: It's not just those that have equity in their house.

Speaker Change: And capital redeployment through dividends and repurchase.

Speaker Change: This affluent buyers with good investments in the market that have done well and good jobs, we have a stock market that has been performing very well now some of that you will say well that that occurred in October that's why I started with post election, because I think all of those other components, while many of them had been in place pre election.

Speaker Change: Yes, I think it's important.

Speaker Change: But once again just quickly explain this new strategy that is now fully in place.

When we were building, 5% of our communities with spec.

Speaker Change: In todays market, you would be driving a higher margin because the build to order business at the luxury luxury end of the business, which is what bill toll brothers.

Speaker Change: The election being behind it us freed it up.

Speaker Change: And so and the wealth transfer I didn't even mention which as we said in our prepared comments incredible amount of money being passed down from mom and dad to their kids. So they can.

Speaker Change: <unk> had a higher margin.

Speaker Change: We would be a much smaller company and we wouldn't be able to drive the same row.

Because that land is very expensive it takes much longer to build the houses and it's much harder to turn the money.

Speaker Change: So they can.

Speaker Change: By their home usually their first home so.

Speaker Change: So I think that is the driver.

Speaker Change: So we are very happy with our blend that may be a little bit below that build to order margin because we recognize the spec margin. It's at a lower price point. It turns at times to have to be incentivized, a little bit more but when you put it all together, it's still a great margin.

Speaker Change: And we're excited we're excited for January.

Speaker Change: Okay.

Speaker Change: The next question comes from.

Speaker Change: <unk>.

Speaker Change: Jed Rosa with Bank of America. Please go ahead.

Speaker Change: We're a much bigger company more revenue more Etfs and we are much more capital efficient.

Speaker Change: Hi, good morning. Thanks, Thanks for taking my question.

Speaker Change: Morning.

Following up on the first quarter gross margin guidance and then the improvement in that segment through the second.

Speaker Change: So as we move forward this mix.

Speaker Change: We think it's perfect for the business that we are achieving.

<unk> fourth quarter.

Speaker Change: Can you just talk about maybe what youre assuming for spec margins.

Speaker Change: Great I appreciate that perspective, as well I think it's helpful.

Speaker Change: So it's a little bit different for you. If you have different levels of spec, whether it's sold for dry wall or is finished spec. So what are you assuming for spec margins.

Speaker Change: Secondly.

Speaker Change: I'd love to just revisit your comments around you.

Speaker Change: In the first quarter and then for the for the rest of the year.

Speaker Change: The strong start to the first quarter.

Speaker Change: Okay.

Speaker Change: And I'm, just trying to understand a little bit better. What you think are the drivers behind that in other words is it some of the election uncertainty that's.

Speaker Change: So.

Speaker Change: Our spec margin runs.

Speaker Change: <unk> 200 basis points below.

Speaker Change: The average gross margin so we.

Speaker Change: We've been guiding to $27 25 for the year, you can do that math and our build to order margin is about 200 basis points above.

Speaker Change: Maybe gone away is it.

Rates, perhaps stabilizing.

Speaker Change: And also you know the kind of delve into just the broader market.

Speaker Change: Average gross margin.

Speaker Change: Friends I'd love to get your sense.

Speaker Change: In the first quarter, because we incentivized a little bit more as we talked about on finished spec.

Our inventory is trending in your view across your key markets global.

Speaker Change: Global markets, where you've seen inventory pick up.

Speaker Change: That is delivering in the first quarter that 200 basis point.

Speaker Change: And then how that might be playing into market dynamics as well.

Speaker Change: Spread is a little bit more.

Speaker Change: Sure so.

Speaker Change: Why did the market get better in November <unk>.

Speaker Change: And then assuming it goes back to normal for the normal spread.

Speaker Change: Number one the election was behind us.

Speaker Change: Remainder of the year.

That is our assumption that's right.

Speaker Change: Number one.

Speaker Change: It was on the sidelines came back out.

Speaker Change: That's helpful and then I think.

Speaker Change: Number two.

Douglas Yearly: Doug in the past you've spoken about some.

Speaker Change: A good to great economy.

Speaker Change: Either regional or core market differences when you look at the fiscal fourth quarter and heading into the fiscal first quarter, where you're seeing relative pockets of strength and then where are there any specific markets, where you've had to be eloquent.

Speaker Change: Number three rates.

Speaker Change: Stabilizing coming down a bit.

Speaker Change: And being digested and accepted by the client.

Speaker Change: We talked about it earlier the significant equity.

Speaker Change: Aggressive on the incentive side are there specific regional trends or is it by price point can you just talk about the relative differences.

Speaker Change: Three quarters of our buyers because three quarters of our business is move up and move down.

Speaker Change: <unk> equity they have in their houses and therefore their ability.

Speaker Change: Sure we have broad based strength around the country.

Speaker Change: The trade up.

Speaker Change: And maybe pay all our more cash.

Speaker Change: The Boston to Washington D C market.

Speaker Change: By using that equity and not being as tied to the affordability issues are the higher rates.

Speaker Change: Which was a bit forgotten through the covered years when everybody was running away is incredibly strong.

Speaker Change: Texas.

Speaker Change: Affluent buyers.

Speaker Change: A lot of chatter about Texas, I would take Dallas and Houston out of that conversation right now we're seeing strength in those markets. Those are by far our biggest two Texas markets and they are back.

Speaker Change: It's not just those that have equity in their house.

Speaker Change: Affluent buyers with good investments in the market that have done well and good jobs, we have a stock market that has been performing very well now some of that you'll say well that that occurred in October that's why I started with post election, because I think all of those other components, while many of them had been in place pre election.

Speaker Change: There is still some softness in Austin that is driven by affordability because.

Speaker Change: Austin prices ran and ran and ran through Covid and so theres a bit more affordability pressure there with the higher prices and in San Antonio, which is a very small market for US has also been a bit softer.

Speaker Change: The election being behind it.

Freed it up.

Speaker Change: And so you know in the wealth transfer I didn't even mention which as we said in our prepared comments incredible amount of money being passed down from mom and dad to their kids. So they can.

Speaker Change: Out west.

Speaker Change: All good the only market that we have a little bit of caution out honest Phoenix.

Speaker Change: Our inventories are up a little bit and while it is good it is certainly I wouldn't call it great.

Speaker Change: So they can.

Speaker Change: By their home usually their first home.

Speaker Change: So I think that is the driver.

Speaker Change: And then the one eye and savings for Alaska is Florida.

Speaker Change:

Speaker Change: The good news in Florida is Jacksonville has been very strong, but the other markets in Florida have seen some elevated inventory levels.

Speaker Change: And we're excited we're excited for January.

Speaker Change: Okay.

Speaker Change: The next question comes from.

Speaker Change: They also add significant price increases to COVID-19 that outpaced the company is excuse me the country's average and therefore, there's a bit more of an affordability issue down there because prices are up and so we're keeping an eye on Florida.

Speaker Change: <unk>.

Speaker Change: Jed Rosa with Bank of America. Please go ahead.

Jed Rosa: Hi, good morning, Thanks for thanks for taking my question.

Speaker Change: Morning.

Speaker Change: Football, calling up on the first quarter gross margin guidance and then the improvement in that segment through the second through fourth quarter.

Speaker Change: The winter season is just beginning as the snowbirds are arriving.

Speaker Change: But that's probably our most cautionary market in the country.

Can you just talk about maybe what youre assuming for spec margins.

Speaker Change: As it relates to product type.

Speaker Change: So it's a little bit different for you because you have different levels of spec, whether it's sold pretty dry wall or is finished spec. So what are you assuming for spec margins.

Speaker Change: Luxury is our best performer.

Speaker Change: Affordable luxury comes in second.

Speaker Change: And then the third would be our.

Speaker Change: In the first quarter and then for the for the rest of the year.

Speaker Change: Age restricted active adult which is really not quite as strong simply because of a very tough comp the year before.

Speaker Change: Okay.

Speaker Change: So.

Speaker Change: Our spec margin runs.

Speaker Change: Okay.

Speaker Change: 200 basis points below.

Speaker Change: I think that market is good because there's a lot of boomers and they're paying a lot of cash because of that equity in their house.

Speaker Change: The average gross margin so.

Speaker Change: We've been guiding to 20 725 for the year, you can do that math and our build to order margin is about 200 basis points above.

Speaker Change: But.

Speaker Change: On paper it doesn't look as good right now, but thats really the comp to last year.

More than the.

Speaker Change: Sure.

Speaker Change: Average gross margin.

Quality of that business today.

Speaker Change: In the first quarter, because we incentivized a little bit more as we talked about on finished spec.

The next question comes from Alan <unk>.

Speaker Change: <unk> <unk> with Zelman and associates. Please go ahead.

Speaker Change: That is delivering in the first quarter that 200 basis points.

Speaker Change: Hey, guys. Good morning, Thanks for all the great color so far.

Speaker Change: Most of most of my questions have been answered here, but I've got a few.

Speaker Change: Spread is a little bit more.

First on the potential for tariffs I'm curious if you guys have done any internal analysis of your supply chain to try to figure out what potential exposure might be there either from China, Canada, Mexico, and if you've done any work to try to kind of expand your supplier base to kind of avoid some of those risks.

And then assuming it goes back to normal for the normal spread in the remainder of the year.

That is our assumption that's right.

Speaker Change: That's helpful and then.

Doug: Doug in the past you've spoken about some.

Speaker Change: Either regional or a core market differences when you look at the fiscal fourth quarter and heading into the fiscal first quarter, where you're seeing relative pockets of strength and then where are there any specific markets, where you've had to be all of it.

Speaker Change: While we've certainly done some analysis.

Speaker Change: We've had a lot of good conversations with with our suppliers.

Speaker Change: We went through supply chain issues.

More aggressive on the incentive side are there specific regional trends or is it by price point can you just talk about the relative differences.

Speaker Change: In a big way through the Covid years that wasn't tariff driven.

It was availability driven.

Speaker Change: Sure we have broad based strength around the country.

Speaker Change: So this industry and toll brothers have some experience on how to navigate through some supply chain challenges.

Speaker Change: The Boston to Washington D C market.

Which was a bit forgotten through the covered years when everybody was running away is incredibly strong.

Speaker Change: Overall, we are comfortable that it will be de minimis, but we have to wait and see.

Speaker Change: Texas.

Speaker Change: And there's a lot of chatter about Texas, I would take Dallas and Houston out of that conversation right now we're seeing strength in those markets. Those are by far our biggest two Texas markets and they are back.

Speaker Change: I don't think its clear to anybody yet exactly.

Speaker Change: Where and when and to what extent.

Speaker Change: The tariffs hit.

There is still some softness in Austin that is driven by affordability because.

Speaker Change: I think most of our suppliers are.

Studying it theyre prepared a lot of them moved.

Speaker Change: Austin prices ran and ran and ran through Covid and so theres a bit more affordability pressure there with the higher prices and in San Antonio, which is a very small market for us.

Not to the U S. They moved closer to the U S.

Speaker Change: And a lot of their manufacturing.

Speaker Change: Over the last five to 10 years.

Speaker Change: <unk> also been a bit softer.

Speaker Change: So this is a wait and see we're prepared for it.

Speaker Change: At West.

Speaker Change: All good the only market that we have a little bit of caution out honest Phoenix.

Speaker Change: And.

Speaker Change: I don't personally think its going to be.

Speaker Change: A big issue.

Speaker Change: Our inventories are up a little bit and while it is good it is certainly I wouldn't call it great.

Speaker Change: But we're not prepared to try to quantify it at this point, we'll just FSA.

Speaker Change: And then the one eye and savings for Alaska is Florida.

Douglas Yearly: Great appreciate the thoughts there Doug.

Speaker Change: The good news in Florida is Jacksonville has been very strong, but the other markets in Florida have seen some elevated inventory levels.

Speaker Change: One might be for Marty, but obviously, a huge focus on ROE across the company and its pretty visible the steps youre, taking there to keep that Roe.

Speaker Change: They also had significant price increases to COVID-19 that outpaced the company is excuse me the country's average and therefore, there is a bit more of an affordability issue down there because prices are up and so we're keeping an eye on Florida.

Speaker Change: I wanted to just touch quickly on the joint venture line on the balance sheet, you've got about $1 billion invested there.

Speaker Change: Look back historically, the joint venture line on the P&L.

Speaker Change: Traditionally been a pretty solid contributor of earnings this past year, it wasn't and I know the composition of your intuitive changed I think historically it might've been a bit more city living projects and now maybe at some land JV. So.

Speaker Change: The winter season is just beginning as the snowbirds are arriving.

Speaker Change: But that's probably our most cautionary market in the country.

Speaker Change: I was hoping you could just give a little bit more color on what's embedded in that investment and how we should expect to see that flow through the P&L and the returns going forward.

Speaker Change: As it relates to product type.

Speaker Change: Luxury is our best performer.

Speaker Change: Affordable luxury comes in second.

Speaker Change: Yes.

Speaker Change: And then the third would be our.

Speaker Change: JV line.

Speaker Change: Age restricted active adult which is really not quite as strong simply because it's a very tough comp the year before.

Speaker Change: Includes an investment in <unk>.

Couple of city living buildings.

Speaker Change: Relatively small.

Speaker Change: Okay.

Speaker Change: It includes investment in our apartment projects that are <unk>.

Speaker Change: I think that market is good because there's a lot of boomers and they're paying a lot of cash because of that equity in their house.

Speaker Change: Stabilized or.

Speaker Change: Sure.

Speaker Change: But.

Speaker Change: In development.

On paper it doesn't look as good right now, but thats really the comp to last year.

Speaker Change: Generally we absorb a bit of a operating loss during the development period of time, and then show a gain on sale. So that's a bit lumpy through the income statement and then a lot of our JV is what I'm going to call it breakeven.

Speaker Change: More than the.

Speaker Change: Sure.

Quality of that business today.

Speaker Change: The next question comes from Alan <unk>.

Speaker Change: Retina with Zelman and associates. Please go ahead.

Speaker Change: Land development joint ventures, with other builders, where its designed.

Speaker Change: Hey, guys. Good morning, Thanks for all the great color so far.

Speaker Change: To hold the land off balance sheet feed the land to each of the builders at cost.

Speaker Change: Most of most of my questions have been answered here, but I've got a few.

Speaker Change: And.

Speaker Change: First on the potential for tariffs I'm curious if you guys have done any internal analysis of your supply chain to try to figure out what potential exposure might be there either from China, Canada and Mexico.

Speaker Change: Generate higher gross margins on balance sheet on the income statement.

Speaker Change: The next question comes from Sam Reed with Wells Fargo. Please go ahead.

Speaker Change: Done any work to try to kind of expand your supplier base to kind of avoid some of those risks.

Speaker Change: While we've certainly done some analysis.

Speaker Change: Mr. Mr. Read your line is open.

Speaker Change: We've got a lot of good conversations with with our suppliers.

Speaker Change: Is it muted accidently.

Speaker Change: We went through supply chain issues.

Speaker Change: Okay. We will go to the next questioner in that case.

Speaker Change: In a big way through the Covid years that wasn't tariff driven.

Speaker Change: Which will be Alex Barron with the housing Research Center. Please go ahead.

Speaker Change: It was availability driven.

Speaker Change: So you know this industry and toll brothers has some experience on how to navigate through some supply chain challenges.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes, I wanted to ask about the.

Speaker Change: Price cuts that you've mentioned I think I heard $12000 or something like that.

Speaker Change: Overall, we are comfortable.

Speaker Change:

Speaker Change: That it will be de Minimis, but we have to wait and see.

Speaker Change: I mean, it doesn't seem like that level of price cut wood.

Speaker Change: Don't think its clear to anybody yet exactly.

Make a big difference in the affordability of people buying your homes.

Speaker Change: Where and when and to what extent.

Speaker Change: So I'm just wondering if that's working.

Speaker Change: The tariffs hit.

Speaker Change: What is it just more of a.

Speaker Change: I think most of our suppliers are.

Speaker Change: Emotional thing that gets people over the fence to buy because of that is there any offsetting.

Speaker Change: Studying it theyre prepared a lot of them moved.

Speaker Change: If not to the U S. They moved closer to the U S.

Speaker Change: Thank you guys are doing say on closing costs or something else or like can you just elaborate a little bit on.

Speaker Change: And there's a lot of their manufacturing.

Speaker Change: Over the last five to 10 years.

Speaker Change: On that how is it moving the needle.

Speaker Change: So this is a wait and see we're prepared for it.

Speaker Change: Great question Alex.

Speaker Change: And.

Speaker Change: I don't personally think its going to be.

Speaker Change: Is it working.

Speaker Change: We had 30% order growth so yes, it's working in a tough market.

Speaker Change: A big issue.

But we're not prepared to try to quantify it at this point, we'll just have to see.

Speaker Change:

Speaker Change: Is it <unk>.

Speaker Change: Emotional absolutely.

Doug: Great appreciate the thoughts there Doug.

So those stats of 28% all cash.

Speaker Change: This one might be for Marty, but obviously, a huge focus on ROE across the company and its pretty visible the steps, we're taking there to keep that Roe.

Speaker Change: 69% LTV ratio.

Speaker Change: <unk> brand isn't necessary to qualify our buyer.

Speaker Change: I wanted to just touch quickly on the joint venture line on the balance sheet, you've got about $1 billion invested there and if I look back historically you know the joint venture line on the P&L.

It helps them feel like and what they know is a bit of a softer market because they read about it.

Speaker Change: They know.

Speaker Change: Traditionally been a pretty solid contributor of earnings this past year, it wasn't and I know the composition of your intuitive changed I think historically it might've been a bit more city living projects and now maybe it's some land JV. So.

Speaker Change: On the <unk> sidelines with an election coming up they know rates have jumped up some.

Speaker Change: Sometimes it just gives them a little bit that is necessary to make them feel like I.

Speaker Change: I squeezed a couple Bucks Anatol I got a deal and I'm ready to go.

Speaker Change: Was hoping you could just give a little bit more color on what's embedded in that investment and how we should expect to see that flow through the P&L and the returns going forward.

Speaker Change: Now of course, I always challenge my guys why did we give it away because I bet you still could have gotten them. If you didn't give them the extra money, but I usually lose that argument.

Speaker Change: And so our JV line.

Includes an investment in.

Speaker Change: But yes, I think you've nailed it it's not we're buying mortgages down so the buyer can qualify for a mortgage at the lower rate because they can't qualify at the market rate.

Speaker Change: A couple of city living buildings.

Speaker Change: Relatively small.

Speaker Change: It includes investment in our apartment projects that are.

Speaker Change: Stabilized or.

Speaker Change: This is much more emotional.

Speaker Change: <unk>.

Speaker Change: In development.

Speaker Change: As we are absorbing sort of the headlines and the softening market, it's how the business rolls.

Speaker Change: Generally we absorb a bit of a operating loss during the development period of time, and then show a gain on sale. So that's a bit lumpy through the income statement and then a lot of our JV is what I'm going to call it breakeven.

Speaker Change: It is very subjective it's very soft.

Speaker Change: We reverse it as quickly as we can.

Speaker Change: Land development joint ventures, with other builders, where its designed.

Speaker Change: We're all about driving price, making that backlog feel great.

Speaker Change: To hold the land off balance sheet feed the land to each of the builders at cost.

Speaker Change: And.

Speaker Change: But during that period of time.

Speaker Change: We drove orders up 30% five plan around a little bit with the incentive in making our customers feel good.

Speaker Change: And.

Speaker Change: <unk> generated higher gross margins on balance sheet on the income statement.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Speaker Change: The next question comes from Sam Reed with Wells Fargo. Please go ahead.

Speaker Change: Great. Thank you.

Speaker Change: Great.

Thanks, everyone for all your support all your interest.

Mr. <unk> Mr. Read your line is open.

Speaker Change: We're always here for you to answer any questions offline you may have.

Speaker Change: Is it muted accidentally.

Have a wonderful wonderful holiday season.

And thank you again.

Speaker Change: Okay. We'll go to the next questioner in that case.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Which will be Alex Barron with the housing Research Center. Please go ahead.

Speaker Change: Yes.

Speaker Change: Yes, I wanted to ask about the.

Speaker Change: Price cuts that you've mentioned I think I heard $12000 or something like that.

Speaker Change:

Speaker Change: I mean, it doesn't seem like that level of price cut wood.

Speaker Change: Make a big difference in the affordability of people buying your homes.

Speaker Change: So I'm just wondering if that's working.

Speaker Change: What is it just more of a.

Speaker Change: Emotional thing that gets people over the fence to buy because of that is there any offsetting.

Speaker Change: The thing you guys are doing say on closing costs or something else or like can you just elaborate a little bit on.

Speaker Change: On that.

Speaker Change: How is it moving the needle.

Speaker Change: Great question Alex.

Speaker Change: Is it working.

Speaker Change: We had 30% order growth so yes, it's working in a tough market.

Speaker Change:

Speaker Change: Is it <unk>.

Speaker Change: Emotional absolutely.

So those stats of 28% all cash.

Speaker Change: 69% LTV ratio.

Speaker Change: <unk> Grand isn't necessary to qualify our buyer.

Speaker Change: But it helps them feel like and what they know is a bit of a softer market.

Speaker Change: Because they read about it.

Speaker Change: They know.

On the SaaS sidelines with an election coming up they know rates have jumped up.

Speaker Change: Sometimes it just gives them a little bit that is necessary to make them feel like.

Speaker Change: I squeezed a couple Bucks Anatol I got a deal and I'm ready to go.

Speaker Change: Now of course, I always challenge my guys why did we give it away because I bet you still could have gotten them. If you didn't give them the extra money, but I usually lose that argument.

Speaker Change: But yes, I think you've nailed it it's not we're buying mortgages down so the buyer can qualify for a mortgage at the lower rate because they can't qualify at the market rate.

Speaker Change: This is much more emotional.

Speaker Change: As we are absorbing sort of the headlines and.

Speaker Change: This softening market, it's how the business rolls.

Speaker Change: It is very subjective it's very soft we reverse it as quickly as we can.

Speaker Change: We're all about driving price, making that backlog feel great and.

But during that period of time.

Speaker Change: We drove orders up 30% five plan around a little bit with the incentive in making our customers feel good.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Drew thank you.

Speaker Change: Great.

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

Speaker Change: We're always here for you to answer any questions offline you may have.

Speaker Change: Have a wonderful wonderful holiday season.

Speaker Change: And thank you again.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Okay.

Yes.

Speaker Change: [music].

Speaker Change: [music].

Speaker Change: Good morning, and welcome to the toll brothers fourth quarter fiscal year 'twenty 'twenty four conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions to ask.

Speaker Change: The question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two the company's 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.

Speaker Change: Please note. This event is being recorded I would now like to turn the conference over to Douglas yearly CEO. Please go ahead.

Douglas Yearly: Thank you drew.

Douglas Yearly: Good morning.

Speaker Change: And thank you all for joining US with me today are Marty Connor Chief Financial Officer.

Speaker Change: Rob powerhouse, President and Chief operating Officer, Wendy Marlett, Chief Marketing Officer, and Gregg Ziegler Senior VP Treasurer, and head of Investor Relations.

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.

Yes.

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: I am incredibly proud of our company's performance in fiscal 2024.

Speaker Change: We ended the year on a high note with a very strong fourth quarter.

Speaker Change: In the quarter, we delivered 3431 homes and generated $3 $3 billion of home sales revenues up 25% in units and 10% in dollars compared to the fourth quarter of 2023.

Speaker Change: Our adjusted gross margin of 27, 9%.

Speaker Change: Beating our guidance by 40 basis points and our SG&A was eight 3% of home sales revenues or 30 basis points better than guidance.

Both topline and margin outperformance contributed to earnings of $475 million or $4 63.

Speaker Change: Our diluted share up, 7% and 13%, respectively compared to last year's fourth quarter.

Speaker Change: In addition contracts were up over 30% in both dollars and units in the quarter.

Speaker Change: For the full year, we generated a record 10 $6 billion of home sales revenue.

Speaker Change: Over $2 billion of.

Speaker Change: Pre tax income and over one $5 billion of net income, resulting in record earnings of $15 <unk> per diluted share and a return on beginning equity of 23, 1% the third year in a row, we've generated returns above.

Speaker Change: 20%.

Speaker Change: We delivered 10813 homes at an average price of approximately $977000.

Speaker Change: And with an adjusted gross margin of 28, 4%.

Speaker Change: Our SG&A expense was nine 3% of home sales revenues and our operating margin was 18, 8%.

Speaker Change: In addition, we grew contracts by 27% in both units and dollars and increased community count by 10% to 408 communities at year end.

Speaker Change: These are exceptional full year and quarterly results demonstrating the power of our luxury brand and the financial strength of our more affluent buyers.

Speaker Change: Our strategies of increasing our spec production widening our geographies price points and product lines and focusing on operational and capital efficiency are working.

Speaker Change: As I mentioned, we finished the year strong with fourth quarter contracts up over 30% in both dollars and units we.

Speaker Change: Keep this in the face of election uncertainty and mortgage rates that increased by nearly 100 basis points from mid September to mid.

Speaker Change: November.

Speaker Change: Since the start of the first quarter of our fiscal 2025 six weeks ago.

Speaker Change: We have seen strong demand.

Speaker Change: With the uncertainty of the election behind us and mortgage rates trending in the right direction. We are encouraged by our traffic deposits and agreements and are optimistic for the start of the spring selling season in mid January.

Speaker Change: Our positive outlook reflects the long term fundamentals that continue to support the market for new homes generally and toll brothers in particular.

Speaker Change: These include 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: And baby Boomers, who are moving in retirement.

Due primarily to the well known affordability issues in this country the average age and wealth of a homebuyer has increased.

According to data published by the National Association of Realtors last month. The median age of a first time homebuyer is at an all time high of 38 years old and the median age of all buyers in the market is now 56 years old.

In addition, first time buyers comprise just 24% of the market over the past year, the lowest level in over 40 years.

This means the vast majority of buyers in the market or move up or move down.

Speaker Change: These trends play right into our wheelhouse approximately 28% of our business is selling to older more affluent first time buyers and the balance is catering to move up and move down buyers, who are financially secure and have significant equity in their existing homes.

Speaker Change: In fact, according to the federal reserve data, 73% of the value of existing homes today is equity.

Speaker Change: In addition, the resale market our primary competition continues to be locked up by persistently high rates with over half of outstanding mortgages under 4%.

Speaker Change: With limited inventory driving resale prices higher the new home premiums, which averaged 3% this year.

Is the lowest premier premium it has been in decades, new homes are available and a great deal compared to re sales.

Speaker Change: The median age of an existing home in the U S is now over 40 years old.

With well over half of them built before 1980, making new homes very attractive.

Speaker Change: <unk> built better require less maintenance or less expensive to ensure are more energy efficient and most importantly, our designed architecturally to appeal to today's buyer.

Many are also part of communities that have sought after amenities.

Speaker Change: It is simply impossible or prohibitively expensive to remodel most existing homes with today's new home features making the value proposition for buying new.

Speaker Change: Even more compelling.

Speaker Change: While we recognize that affordability is a broad market issue.

Speaker Change: Our more affluent buyer is less impacted by it.

Speaker Change: In our fourth quarter, approximately 28% of our buyers paid all cash.

Speaker Change: <unk> with the trend over recent quarters and significantly above our long term average of approximately 20%.

Speaker Change: The loan to value ratio for our buyers who took a mortgage in the fourth quarter remained at approximately 69%.

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

Speaker Change: Our cancellation rate as a percentage of backlog remained low at two 5% in the fourth quarter.

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 at our design studios.

Speaker Change: In the fourth quarter structural options design studio finishes and lot premiums averaged $203000 or 25% of the average base sales price for.

For the year, our design studios generated over $1 billion in sales and provided a great source of accretive high margin revenue for us.

Speaker Change: Each of these metrics are high proportion of all cash buyers.

Speaker Change: Low LTV ratios low cancellation rates and a substantial amount that our buyers spend a lot premiums and upgrades at our design studios highlight the financial strength of our customer base.

Speaker Change: Also point out that we are benefiting from the greatest generational wealth transfer and history. As many parents are looking to help their kids with down payments.

Turning back to our fourth quarter. Despite the sharp increase in rates in the second half of the quarter, we maintained a steady cadence of orders from month to month.

Speaker Change: Approximately 30% of sales occurred in August with 35% of sales in each of September and October.

On a per community basis, we sold at a pace of two two homes per month up meaningfully from the one nine pace, we sold in last year's fourth quarter.

Speaker Change: With our business now split roughly roughly 50 50 between build to order and spec homes, we are more focused than ever on Roe.

Speaker Change: Turning inventory and appropriately balancing pace and price.

As a result, when the market softened a bit in September and October in response to the spike in mortgage rates and the uncertainty leading up to the election, we modestly lowered net price through incentive increases by an average of $12000 as a result, our incentives in the fourth quarter.

Speaker Change: There were approximately six 7% of the average sales price.

Speaker Change: Slightly above our recent averages of between five and 6%.

Speaker Change: The small increase was primarily on finished spec homes, many of which are expected to be delivered in our first quarter.

Speaker Change: With the market improving we have recently begun to decrease incentives and we are optimistic that we will be able to further reduce incentives and also increased based prices with the start of the spring season in January.

We are very comfortable with our inventory of spec homes per community and the gross margin spread between our spec and build to order homes.

Speaker Change: Our spec strategy has allowed us to grow EPS faster increase our Roe.

Speaker Change: And increase our operating margin by leveraging overhead.

Speaker Change: We believe this is the right strategy to continue driving attractive returns well into the future.

Speaker Change: Turning to land at fiscal year end, we owned or controlled approximately 74700 lots, 55% of which were options.

Speaker Change: Excluding the 5996 slots committed to homebuyers in our backlog.

Speaker Change: Our option land represented 60% of lots.

Speaker Change: We continue to target, an overall mix, including backlog of 60% optioned at 40% owned over the longer term.

Speaker Change: We are pleased to have made solid progress towards this goal.

Speaker Change: In this quarter.

Speaker Change: We are selective and disciplined in our approach to buying land.

Speaker Change: We assess all land deals whether they involve new land opportunities or take downs under existing options.

Speaker Change: Using underwriting standards focused on both margins and returns.

This approach and our overall focus on capital efficiency has helped drive our are we over 20%.

Speaker Change: For the past three years.

Speaker Change: In the fourth quarter, we purchased $201 million of our common stock.

Speaker Change: Bringing our full year repurchases to $628 million at an average price of $127.79 per share.

Speaker Change: During fiscal 2024, we repurchased nearly 5% of our shares outstanding at the beginning of the year.

Speaker Change: We have now bought back half the company since 2016.

Speaker Change: We also paid $93 million in dividends.

Speaker Change: Buybacks and dividends will remain an important part of our capital allocation priorities well into the future.

Speaker Change: For fiscal 2025, we have budgeted and another $500 million of share repurchases.

Speaker Change: Which we expect will be weighted to the back end of the year consistent with our greater cash flow generation.

Marty Connor: With that I'll turn it over to Marty.

Marty Connor: Thanks, Doug.

Marty Connor: As Doug mentioned, we are very pleased with our fourth quarter and full year results.

Marty Connor: Our revenue net income and earnings per share were all full year records.

In fiscal year 2020 for fourth quarter, we delivered 3400, 31 homes and generated home sales revenues of $3 $2 6 billion.

Marty Connor: Up 24, 5% homes and 10, 4% in dollars from one year ago.

Marty Connor: The average price of homes delivered was down 11, 3% to approximately $950000. These.

Marty Connor: These results are consistent with our multi year strategy of Whiting widening our geographies and price points, expanding our product lines and increasing our supply of spec homes.

Marty Connor: Fourth quarter net income was $475 4 million or $4 63 per.

Marty Connor: Per diluted share compared to 445 million and a half million excuse me $1.

Marty Connor: And $4 11 per diluted share one year ago.

For the full year, we delivered 10813 homes. The most in our history and generated record home sales revenues of $10 6 billion.

Marty Connor: Full year net income was $1 $5 7 billion and $15 <unk> per diluted share.

Marty Connor: As a reminder, net income includes approximately $124 million.

Marty Connor: Or $1 19 per share of gains related to a parcel of land that we sold in the second quarter.

Marty Connor: Excluding this gain net income would have been $145 billion or $13 82.

Marty Connor: We signed 2600 58 net contracts in the fourth quarter for $2 7 billion of <unk>.

Marty Connor: Ultimately, 30% units and 32% in dollars.

Marty Connor: Average price of contracts signed in the quarter was approximately $1 million, which was roughly flat to last year's fourth quarter.

Marty Connor: At year end.

Marty Connor: Backlog stood at $6 5 billion.

Marty Connor: And nearly 6000 homes.

Speaker Change: As Doug mentioned, our cancellation rate as a percentage of backlog was just two 5% in the fourth quarter.

Insistent with our long term average of two 3%.

Speaker Change: Our fourth quarter adjusted gross margin at 27, 9%.

Speaker Change: Was 40 basis points better than guidance, which was due primarily to mix and cost control.

Speaker Change: We also benefited from reduced cycle times, and greater stability in our building costs, which have been impacted by the high inflation of recent years.

Speaker Change: This past year, we were generally able to keep these building cost flat.

Speaker Change: SG&A as a percentage of home sales revenues was eight 3% in the quarter.

Speaker Change: Which was essentially flat compared to eight 2% in the same quarter one year ago.

Speaker Change: And this was 30 basis points better than we had projected.

Speaker Change: The outperformance relative to guidance was primarily due to greater fixed cost leverage from higher than projected revenue.

Speaker Change: As we continue to focus on ways to become more efficient we are seeing the benefits flow through our results.

Speaker Change: In fact, our G&A dollars spin grew only one 7% year over year, despite inflation, 10% community count growth and double digit percentage growth in both deliveries and contracts.

Speaker Change: Yes.

Joint venture land sales and other income was $44 million in.

Speaker Change: In the fourth quarter compared to $36 million in the fourth quarter of fiscal year, 2023, and our guidance of $47 million.

Speaker Change: Joint venture land sales and other income in Q4, 2024, primarily related to land sale gains as well as contributions from our title and mortgage business.

Speaker Change: And included $6 $6 million of write offs related to apartment living joint ventures, and another 2.2 associated with abandoned projects.

Speaker Change: Write offs included in home sales cost of revenues totaled $24 $1 million in the quarter compared to $8 3 million in the prior year period.

Speaker Change: There were no land sale write offs in the fourth quarter of 2024 versus $12 9 million in Q4 2023.

Speaker Change: We continued to generate strong cash flow in fiscal 2024 with approximately $1 billion of cash flow from operations.

Speaker Change: We expect to generate a similar amount this year.

Speaker Change: We ended the fiscal year with over $3 $1 billion of liquidity, including $1 3 billion of cash and $1 8 billion available under our revolving bank credit facility.

Speaker Change: In fiscal year 2024, we invested $2 $8 billion in land acquisition and development. We also returned $716 million to shareholders through share repos and dividends.

Speaker Change: Our net debt to capital ratio was approximately 15% at fiscal year end and we have no significant debt maturities until early fiscal 2026.

Speaker Change: Excuse me our balance sheet is in great shape.

Speaker Change: Turning to our guidance we.

Speaker Change: We are projecting first quarter deliveries of 19 to 2100 homes with an average price between 925000 and $945 <unk>.

Speaker Change: Consistent with normal seasonal patterns first quarter deliveries are expected to be the low point of the year with deliveries for the full fiscal year weighted to the second half.

Speaker Change: For full year 2025, we are projecting new home deliveries of between 11200 11600 homes with an average price between 945 and.

$965000.

Speaker Change: We expect our adjusted gross margin in the first quarter of fiscal 2025 to $26 two 5% of home sales revenues and for the full year to be approximately $27 two 5%.

Our projected gross margin for Q1, primarily.

Really reflects the impact of mix and the increased incentives offered in our fourth quarter to move finished spec inventory and to counter softness in the market, resulting from election uncertainty and the spike in mortgage rates.

Speaker Change: We view our Q1 adjusted gross margin is a bit of an anomaly from both the mix and incentives perspectives and fully expect it will be the low point of the year.

Speaker Change: I wouldn't read too much into it.

Speaker Change: We are very comfortable with our full year guide of $27 two 5%.

Speaker Change: Flying approximately 27, 5% for the balance of the year.

Speaker Change: We expect interest in cost of sales to be approximately one 2% of home sales revenues in the first quarter and for the full year.

Speaker Change: We project first quarter SG&A as a percentage of home sales revenues to be approximately 12, 7%, reflecting lower fixed cost leverage as the first quarter tends to be our lowest revenue quarter.

Speaker Change: Also included in first quarter SG&A is about $15 million of our annual accelerated stock compensation expense that does not recur in the remainder of the year.

Speaker Change: For the full year, we project SG&A as a percentage of home sales revenues to be generally consistent with 2024 and in the range of nine 4% to nine 5%.

Speaker Change: Other income income from unconsolidated unconsolidated entities and land sales gross profit is expected to be $33 million in the first quarter and $110 million for the full year.

Speaker Change: And includes the projected sale of several stabilized apartment communities.

Speaker Change: We project, the first quarter and full year tax rate of approximately 22% and 25, 5% respectively.

We expect our first quarter tax rate.

Speaker Change: The benefit from higher deductions related to previously granted equity awards that we do not project to recur the balance of the year.

Speaker Change: Our weighted average share count is expected to be approximately $102 million for the first quarter and $100 5 million for the full year.

Speaker Change: This assumes we repurchased with targeted $500 million of common stock for the year with most of that occurring later in the year aligned with our anticipated higher cash flows.

Based on land, we currently own or control, we expect to grow community count by 8% to 10% by the end of fiscal 2025 and are targeting $440 to 450 communities.

Douglas Yearly: With that I'll turn it back to Doug.

Douglas Yearly: Thank you Marty before we open it up to questions I'd like to thank the entire toll brothers team.

Douglas Yearly: <unk> focused on our customers and consistently executing on our core strategies.

Douglas Yearly: Most importantly, you have helped position the company for continued success in 2025 and beyond.

Douglas Yearly: For that I am truly grateful.

Douglas Yearly: Drew let's open it up for questions.

Speaker Change: Thank you we will now begin the question and answer session.

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.

Speaker Change: To ask a question you May press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

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

Stephen Kim: Yes, thanks, very much guys I appreciate all the color.

Speaker Change: Certainly I think the results in the quarter was strong, particularly on the order front. Your ASP was also very strong.

Speaker Change: You've talked about the guidance for the first quarter, though and for the full year they were a little lower than.

I think we and many others were expecting for the.

The full year as well as the quarter.

I wanted to talk about the operating margin. If you just kind of cut through the gross and the SCO and just talk about the operating margin. It seems like you're guiding to something in the neighborhood of like sub 17, you've done 18 in each of the last two years basically.

Speaker Change: I'm curious and I'm curious if you can talk about what's what sort of exogenous factors or factors that are out of your control are you embedding in your assumptions for 2025 in terms of the market outlook I'm thinking things like can you give us a sense for what youre looking for mortgage rates can you give us a sense for if you're anticipating any disruptions from let's say.

Speaker Change: Trump's immigration policies and things like that.

Speaker Change: Thanks Steven.

Speaker Change: That's a big one a lot of a lot of parts to that question.

Speaker Change: Sure.

Speaker Change: Word.

Speaker Change: We're pleased that mortgage rates have begun to stabilize and even come down modestly.

We in the industry. We're obviously disappointed that from mid September through mid November rates went up as.

Speaker Change: As the fed was lower in short term rates.

Speaker Change: But I think we are hopeful and have some good reason to be hopeful that.

Rates will.

Speaker Change: Either stay where they are or more likely moderate a bit.

They have been stubbornly high we have sold wells as we've talked about in the fourth quarter. When the rates were elevated and that really goes to all the stats. We gave you about the percentage of cash buyers in the.

Speaker Change: And the LTV ratios in the affluent makeup of our of our buyer group.

Speaker Change: We don't need lower rates to have success at this company. We just proved it in the last quarter, but we are optimistic.

Speaker Change: That 2025 will be a year, where like I said rates will either stay where they are or come down somewhat.

Speaker Change:

Speaker Change: As I mentioned, we've already begun to cut back on the incentives that were a little bit elevated in the fourth quarter and as we traditionally do as we opened this spring season, we tend to have a nationwide price increase based price increase off the price sheet.

Speaker Change: And so when you combine that with.

Speaker Change: A reduction in incentives, we and we think that business plan is in place.

Speaker Change: Have optimism for.

For next year as to your question about disruptions, we are not anticipating disruptions. Obviously, we're keeping a close eye on policy. We are encouraged by a lot of the new policy that we think will be coming our way.

Speaker Change: And so it's business as usual we are built to succeed in this type of a market.

Speaker Change: Our geographic mix, our product diversity, our price range, our spec business and most importantly, the affluent nature of our client.

Speaker Change: Yeah.

Speaker Change: Got you appreciate.

Speaker Change: Appreciate that color.

Speaker Change: I didn't catch a cash flow guide for 2025 I was wondering if you could give us that and is it also.

Speaker Change: Would you I think.

Speaker Change: Can I ask you. This question, maybe a quarter or two ago about what you think the long term sustainable operating margin range might be.

Speaker Change: And I think at that time, you had mentioned something in the neighborhood of 17, 18% or 17 appetite is that something that you still.

Speaker Change: Believe that general range is.

Speaker Change: Where you could sustain.

Speaker Change: Sustained your operating margin longer term you think.

Speaker Change: Stephen we are comfortable with the 17% to 18% range of our operating margin and as it relates to the cash flow. We did $1 billion approximately in 2024, and we project a similar amount in 2025.

Speaker Change: The next question comes from Jon <unk> with UBS. Please go ahead.

Speaker Change: Hey, good morning, guys. Thanks for taking my questions I'm going to dovetail off of Steve here for a moment with the cash flow projected to be about the same year over year.

Speaker Change: What why is the intent to buy back less stock of $500 million versus 628 that you guys did in fiscal year 'twenty four.

Speaker Change: But.

Speaker Change: Todd It's a guy in the last year, we started the year at 400 million guide.

Speaker Change: Actually bought over $600 million.

Speaker Change: But as we entered the year and we look at the growth of our business and the land we're buying on the roads were putting in and the cash flow. We're generating at this moment in time, we are comfortable at that number.

Speaker Change: If history repeats itself, we're going to do more but we're not we're not at this point in time prepared to guide to what we did last year, but as I think we've proven to you that opportunity may be out there and we would take advantage of it.

Speaker Change: Yes that makes a lot of sense and then on the first quarter of gross margin I think you guys explained that pretty well with mix and higher incentives on finished specs that are going to deliver in the first quarter, but I guess the question is the 27 and a half that we would need through the remainder of the year is there a cadence that we should think about for that and does it.

Assume that interest rates actually come down from here or could you achieve it at rates that are at the same level or potentially a tad higher if that's the way things went.

Speaker Change: So I'll start and Marty I'll finish it does not assume rates come down it does not assume an improving market.

Speaker Change: I think we set up for you in our prepared comments the opportunity in an improving market to do better but it is not our company style to build that into guidance.

Speaker Change: So that's how we approach the year.

And as it relates to the margin cadence I think 27 and a half on average through the last quarter without much deviation from the last three quarters without much deviation from that is a good set of assumptions to use.

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

Speaker Change: Hey, good morning. Thank you for taking my questions first question I wanted to visit some of your positive demand commentary you mentioned demand over the last six weeks has been pretty strong can you provide any additional color around that now that we're post election, perhaps on traffic rates or absorption paces and then any differences that you guys are seeing between your different.

Tumor segments.

Speaker Change: Sure. So traditionally if you look back in time with toll brothers.

Speaker Change: The first quarter.

Speaker Change: On average down about 10% from fourth quarter in terms of sales.

Speaker Change: And we are trending better than that we are projecting now halfway through the quarter about two contracts per community per month.

Speaker Change: So if you do the math off of that.

Speaker Change: Youll be able to figure it out.

Speaker Change: Actually the guys are going to do it for me right now so it's going to it's in the 2400 to 2500 range. When you take turbulent two per community times.

Speaker Change: 400 months funds of 400 400.

Speaker Change: Plus or minus community. So there you have it.

Speaker Change: And that is better than traditional trends of how Q1 compares to Q4s.

Speaker Change: Okay. Thank you that's helpful and very encouraging and then the second question is on your lot supply you mentioned in your release, having all the lots you need to grow in 2026 as we look at your lot supply currently on a four year supply basis. It seems like it's down a bit from where it's been in the last few years. So the question.

Speaker Change: <unk> as you stand here today, given your outlook for 2025 demand is still healthy for your product do you need to accelerate the lots you have under control from here. Thanks.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: Im very proud of our land buying.

Speaker Change: Very happy with the.

Speaker Change: The option versus owned.

Speaker Change: The momentum that.

Speaker Change: That is taking place to be more capital efficient, we have become more creative and how we buy land.

Speaker Change: <unk> now paid for it later.

Speaker Change: Big deals do joint ventures, with other builder friends or with Wall Street money.

Speaker Change: More and more land banking.

Speaker Change: Our goal is to have one and a half to two years Max owned land.

Speaker Change: And out of backlog.

Speaker Change: Net of net of backlog. Thank you Greg.

Speaker Change: And we're making progress we're not there yet, but we're going to continue to move in that direction. So.

Speaker Change: Our deal flow is strong our underwriting is very conservative.

Speaker Change: We demand high margin, we demand high returns, we miss deals that get too skinny and we're okay with that we have a great finance group that is very creative about how we can structure deals to keep them controlled longer owned for a shorter period of time and so the land.

Speaker Change: Business is in great shape, and I'm very comfortable and I'm really proud that we can grow this company with 10% community count the last two years.

Speaker Change: In the market we're in so we're in great shape.

Speaker Change: Yes.

Speaker Change: And one one additional advertisement here remember with the geographies. We're in 24 States 60 markets with how we have widened the price points.

Speaker Change: From 300000 to over 5 million, how we have widened our product lines.

Speaker Change: With a third first time and the batter left 30% first time and the balance move up and move down.

Speaker Change: We have the widest of everything in the industry and therefore, the most opportunity to grow and by the way at our price point that affluent buyer can absorb some of these bumps we've seen with higher rates.

Speaker Change: A little bit of consumer sentiment being off now and again and so the business model is in great shape and I am very excited about where we're at it.

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

Speaker Change: Okay.

Speaker Change: It's actually Chris Kalata on for Mike.

Speaker Change: Just going back to your incentive comments.

Speaker Change: You guys saw a step up in incentives this quarter youre expecting that to.

Speaker Change: Moderate down modestly could you just help quantify what youre expecting incentives as kind of settle out.

Speaker Change: The new year and then.

Speaker Change: Given your expectation of kind.

Speaker Change: Of a nationwide price increase and more moderate incentive load.

Speaker Change: What's your confidence that you'll be able to maintain that.

Speaker Change: Yes per month absorption trend that you guys called out into <unk> and then.

Speaker Change: So this year.

Speaker Change: Yes, we think we're going to be settling in in the 55000.

Speaker Change: Range.

As the spring season approaches.

Speaker Change: <unk>.

Speaker Change: That's 5% to 6% in selling price.

Speaker Change: Which is where we've been in.

We've already claw back as I said a bit of the modest increases we saw in the fall so.

Speaker Change: That's where it is.

Speaker Change: Alright, and then you just plan to operate at that level for the remainder of the year correct at this time.

Well I think the market will dictate where incentives are great. We will continue to lower incentives. If the market continues to permit us to do that.

Speaker Change: And don't forget.

Speaker Change: Price increases.

Speaker Change: Nothing makes us happier or the backlog.

Speaker Change: When they see the price sheet go up so it is a combination.

Speaker Change: As you are bringing incentives down.

Speaker Change: Usually have the ability to also take the price of the home App.

Speaker Change: It's a combined impact.

Speaker Change: The next question comes from Michael Rehaut with Jpmorgan. Please go ahead.

Speaker Change: Okay.

Speaker Change #100: Hi, Thanks, Good morning, everyone. Thanks for taking my questions.

Hum.

Speaker Change #100: Sure.

Speaker Change #100: Hey, Doug.

Speaker Change #100: First on the.

Speaker Change #100: First quarter.

Speaker Change #100: <unk>.

Speaker Change #101: Oh, I'm, sorry fourth quarter description about I'm, sorry, first quarter description about the <unk>.

Speaker Change #101: Gross margin being the low point due to a combination of mix.

Speaker Change #101: Ed.

Speaker Change #102: I was wanted to get perhaps a rough breakout of how much of that.

Speaker Change #102: Difference in the <unk>.

Speaker Change #102: First quarter versus the rest of the year is due to mix versus incentives.

Speaker Change #102: And more broadly when you think about your spec strategy, obviously, you kind of highlighted the higher level of incentives that you applied to the.

Speaker Change #102: Finished spec in your debt.

Speaker Change #102: You had in the fourth quarter.

Speaker Change #102: The market continues to be a little more volatile there is a little bit more let's say looseness in inventory or whatnot.

Speaker Change #102: With that caused you to shift a little bit away from specs, maybe versus how you've approached the market in the last couple of years.

Speaker Change #103: So Mike about 80%.

Speaker Change #103: Of the lower margin of Q1 is mix.

Speaker Change #104: We have less coming out of the Pacific region.

Speaker Change #104: And we have less coming out of the mid Atlantic.

Speaker Change #104: In Q1.

Speaker Change #104: That reverses itself and gets back to a more normal mix.

Speaker Change #104: For the balance of the year. The other 20% is what we described which is.

Speaker Change #104: Through September and October.

Speaker Change #105: Rates jumped.

Speaker Change #105: Buyers hit the sidelines as the election was approaching.

Speaker Change #105: And most particularly with our finished inventory homes, which are the ones that we will be delivering in Q1, we.

Speaker Change #105: We bumped the incentive a bit to move them.

Speaker Change #105: And as we've mentioned we've seen a lot of that already reversed with the election behind us and with rates now stabilizing or even modestly dropping.

Speaker Change #105: As we.

Ill get closer and closer to that mid January launch of the spring season.

Speaker Change #106: Mark do you want to take the retina I think I'd like to take the opportunity to iterate how returns focused we are.

Speaker Change #107: And with respect to any change to our spec strategy.

Speaker Change #107: I think thats unlikely based on what it's allowed us to do with returns and so we will continue to be.

Speaker Change #107: Mindful of the specs we have.

Speaker Change #107: Particularly as market softness.

Speaker Change #107: Occur, which we don't anticipate right now.

Speaker Change #107: But I think.

Speaker Change #107: We want to reiterate our focus on returns and what we've been able to accomplish with return on equity through the combination of elevated gross margins high gross margins good operating margin and <unk>.

Speaker Change #107: Capital redeployment through dividends and repurchases.

Speaker Change #108: Yes, I think it's important.

Speaker Change #109: Once again just quickly explain this new strategy that is now fully in place.

Speaker Change #109: When we were building, 5% of our communities with spec.

Speaker Change #109: In todays market, you would be driving a higher margin because the build to order business.

Speaker Change #109: At the luxury luxury end of the business, which is what bill toll brothers.

Speaker Change #109: Had a higher margin.

Speaker Change #109: We would be a much smaller company and we wouldn't be able to drive the same row.

Speaker Change #109: Because that land is very expensive it takes much longer to build the houses and it's much harder to turn the money.

Speaker Change #109: So we are very happy with our blend that may be a little bit below that build the order margin because we recognize the spec margin. It's at a lower price point. It turns at times to have to be incentivized, a little bit more but when you put it all together, it's still a great margin.

Speaker Change #109: We're a much bigger company more revenue more Etfs and we are much more capital efficient.

Speaker Change #109: So as we move forward.

Speaker Change #109: This mix, we think is perfect for the business that we are achieving.

Speaker Change #109: Great.

Speaker Change #110: I hate that.

Speaker Change #110: Thank you as well I think it's helpful.

Speaker Change #110: Secondly.

Speaker Change #110: I'd love to just revisit your comments around.

Speaker Change #110: The strong start to the first quarter.

Speaker Change #110: And just trying to understand a little bit better.

Speaker Change #111: What do you think are the drivers behind that in other words is it some of the election uncertainty that's.

Speaker Change #111: Maybe gone away.

Speaker Change #111: Rates, perhaps stabilizing.

Speaker Change #111: And also the kind of delve into just the broader market.

Speaker Change #112: Friends I'd love to get your sense.

Speaker Change #112: Our inventory is trending in your view across your key markets.

Speaker Change #112: Global markets, where you've seen inventory pick up.

Speaker Change #112: And then how that might be playing in key market dynamics as well.

Speaker Change #113: Sure so.

Speaker Change #114: Why did the market get better in November.

Speaker Change #115: Number one the election was behind us.

Speaker Change #114: Number one.

Speaker Change #114: So it was on the sidelines came back out.

Speaker Change #114: Number two.

Speaker Change #114: A good to great economy.

Speaker Change #114: Number three rates.

Speaker Change #114: Stabilizing coming down a bit and being digested and accepted by the client.

We talked about it earlier the significant equity.

Speaker Change #114: <unk>.

Speaker Change #114: Three quarters of our buyers because three quarters of our business is move up and move down.

Speaker Change #114: Significant equity they have in their houses and therefore their ability.

Speaker Change #114: To trade up.

Speaker Change #114: And maybe pay all our more cash.

Speaker Change #114: By using that equity and not being as tied to the affordability issues of the higher rates.

Speaker Change #116: Affluent buyers.

Speaker Change #116: It's not just those that have equity in their house.

Speaker Change #116: This affluent buyers with good investments in the market that have done well and good jobs, we have a stock market that has been performing very well now some of that you'll say well that that occurred in October that's why I started with post election, because I think all of those other components, while many of them had been in place pre election.

Speaker Change #116: The election being behind it.

Speaker Change #116: Freed it up.

Speaker Change #116: And so and the wealth transfer I didn't even mention which as we said in our prepared comments incredible amount of money being passed down from mom and dad to their kids. So they can so.

Speaker Change #116: So they can.

Speaker Change #116: By their own usually their first home.

Speaker Change #116: So I think that is the driver.

Speaker Change #116:

Speaker Change #116: And we're excited we're excited for January.

Speaker Change #116: Okay.

Speaker Change #116: The next question comes from.

Speaker Change #116: <unk>.

Speaker Change #116: Jed Rosa with Bank of America. Please go ahead.

Hi, good morning. Thanks, Thanks for taking my question.

Speaker Change #117: Good morning.

Speaker Change #117: Following up on the first quarter gross margin guidance and then the improvement in that segment through the second quarter.

Speaker Change #118: The fourth quarter.

Speaker Change #119: Can you just talk about maybe what youre assuming for spec margins.

Speaker Change #119: I know, it's a little bit different for you because you have different levels of spec, whether it's sold pretty dry wall or is finished spec. So what are you assuming for spec margins.

Speaker Change #119: In the first quarter and then for the rest of the year.

Speaker Change #119: Okay.

Speaker Change #119: So.

Speaker Change #119: Our spec margin runs.

Speaker Change #119: 200 basis points below.

Speaker Change #119: The average gross margin so we.

Speaker Change #119: We've been guiding to $27 25 for the year, you can do that math and our build to order margin is about 200 basis points.

Speaker Change #119: <unk>.

Speaker Change #119: Average gross margin.

Speaker Change #119: In the first quarter, because we incentivized a little bit more as we talked about on finished spec.

That is delivering in the first quarter that 200 basis point.

Speaker Change #119: Spread is a little bit more.

Speaker Change #119: And then assuming it goes back to normal for the normal spread in the remainder of the year.

Speaker Change #120: That is our assumption that's right.

Speaker Change #121: That's helpful and then I think.

Douglas Yearly: Doug in the past you've spoken about some.

Either regional or a core market differences when you look at the fiscal fourth quarter and heading into the fiscal first quarter, where you're seeing relative pockets of strength and then where are there any specific markets, where you've had to be eloquent.

Speaker Change #122: More aggressive on the incentive side are there specific regional trends or is it by price point can you just talk about the relative differences.

Sure we have broad based strength around the country.

Speaker Change #122: The Boston to Washington D C market.

Speaker Change #122: Which was a bit forgotten through the covered years when everybody was running away is incredibly strong.

Speaker Change #122: Texas.

Speaker Change #122: And there's a lot of chatter about Texas, I would take Dallas and Houston out of that conversation right now we're seeing strength in those markets. Those are by far our biggest two Texas markets and they are back.

Speaker Change #122: There is still some softness in Austin that is driven by affordability because.

Boston prices ran and ran and ran through Covid and so theres a bit more affordability pressure there with the higher prices and then San Antonio which is a very small market for US has also been a bit softer.

Speaker Change #122: At West.

Speaker Change #122: All good the only market that we have a little bit of caution out honest Phoenix.

Speaker Change #122: Our inventories are up a little bit and while it is good it is certainly I wouldn't call it great.

Speaker Change #123: And then the one eye and savings for Alaska is Florida.

Speaker Change #123: Good news in Florida is Jacksonville has been very strong, but the other markets in Florida have seen some elevated inventory levels.

Speaker Change #123: They also add significant price increases to COVID-19.

Speaker Change #123: That outpaced the company is excuse me the country's average and therefore, there's a bit more of an affordability issue down there because prices are up.

Speaker Change #123: So we're keeping an eye on Florida.

Speaker Change #123: The winter season is just beginning as the snowbirds are arriving.

Speaker Change #123: But that's probably our most cautionary market in the country.

Speaker Change #123: As it relates to product type.

Speaker Change #123: Luxury is our best performer.

Speaker Change #123: Affordable luxury comes in second.

And then the third would be our.

Speaker Change #123: Age restricted active adult which is really not quite as strong simply because of a very tough comp the year before.

Speaker Change #123: Okay.

Speaker Change #123: I think that market is good because there's a lot of boomers and they're paying a lot of cash because of that equity in their house.

But.

Speaker Change #123: On paper it doesn't look as good right now, but thats really the comp to last year.

Speaker Change #123: More than the.

Sure.

Speaker Change #123: Quality of that business today.

Speaker Change #123: The next question comes from Alan <unk>.

Speaker Change #124: <unk> <unk> with Zelman and associates. Please go ahead.

Hey, guys. Good morning, Thanks for all the great color so far.

Speaker Change #125: Most of most of my questions have been answered here, but I've got a few.

Speaker Change #125: First on the potential for tariffs I'm curious if you guys have done any internal analysis of your supply chain to try to figure out what potential exposure might be there either from China, Canada, Mexico, and if you've done any work to try to kind of expand your.

Speaker Change #125: Supplier base to kind of avoid some of those risks.

Speaker Change #126: While we've certainly done some analysis.

Speaker Change #126: We've had a lot of good conversations with with our suppliers.

Speaker Change #126: We went through supply chain issues.

Speaker Change #126: In a big way through the co over the years.

Speaker Change #126: That wasn't tariff driven.

Speaker Change #126: There was availability driven.

Speaker Change #126: So this industry and toll brothers has some experience on how to navigate through some supply chain challenges.

Speaker Change #126: Overall, we are comfortable.

Speaker Change #126: It will be de Minimis, but we have to wait and see I don't think its clear to anybody yet exactly.

Speaker Change #126: Where and when and to what extent.

Speaker Change #126: The tariffs hit.

Speaker Change #126: I think most of our suppliers are studying it theyre prepared a lot of them moved.

Speaker Change #126: If not to the U S. They moved closer to the U S.

And a lot of their manufacturing.

Over the last five to 10 years.

Speaker Change #126: <unk>.

Speaker Change #126: So this is a wait and see we're prepared for it.

Speaker Change #126: <unk>.

Speaker Change #126: I don't personally think its going to be.

Speaker Change #126: A big issue, but we're not prepared to try to quantify it at this point, we'll just have to see.

Speaker Change #127: Great appreciate the thoughts there Doug.

Speaker Change #127: This one might be for Marty, but obviously, a huge focus on ROE across the company.

Speaker Change #128: Pretty visible the steps, we're taking there to keep that Roe.

Speaker Change #128: Hi.

I wanted to just touch quickly on the joint venture line on the balance sheet, you've got about $1 billion invested there.

Speaker Change #128: If I look back historically, the joint venture line on the P&L has.

Speaker Change #128: <unk> traditionally been a pretty solid contributor of earnings this past year. It wasn't and I know the composition of your intuitive changed I think historically it might've been a bit more city living projects went down maybe at some land JV. So.

Speaker Change #129: I was hoping you could just give a little bit more color on what's embedded in that investment and how we should expect to see that flow through the P&L and the returns going forward.

Speaker Change #129: Yes.

Speaker Change #129: JV line.

It includes an investment in <unk>.

Speaker Change #129: Couple of city living buildings.

Relatively small.

Speaker Change #129: It includes investment in our apartment projects that are <unk>.

Speaker Change #129: Stabilized or.

Sure.

Speaker Change #129: In development.

Speaker Change #129: Generally we absorb a bit of a operating loss during the development period of time, and then show a gain on sale. So that's a bit lumpy through the income statement and then a lot of our JV is what I'm going to call it breakeven.

Speaker Change #129: Land development joint ventures, with other builders, where its designed.

Speaker Change #129: To hold the land off balance sheet feed the land to each of the builders at cost.

Speaker Change #129: And.

Speaker Change #129: Generate higher gross margins on balance sheet on the income statement.

Speaker Change #130: The next question comes from Sam Reed with Wells Fargo. Please go ahead.

Speaker Change #131: Mr. Mr. Read your line is open.

Speaker Change #132: Is it muted accidentally.

Speaker Change #133: Okay. We will go to the next questioner in that case.

Which will be Alex Barron with the housing Research Center. Please go ahead.

Yes.

Yes, I wanted to ask about the.

Speaker Change #133: Price cuts that you've mentioned I think I heard $12000 or something like that.

Speaker Change #133: I mean, it doesn't seem like that level of price cut wood.

Speaker Change #133: Make a big difference in the affordability of people buying your homes.

Speaker Change #133: So I'm just wondering if that's working.

Speaker Change #134: What is it just more of a.

Speaker Change #134: Emotional thing that gets people over the fence to buy because of that is there any offsetting.

Speaker Change #134: Thank you guys are doing say on closing cost or something else or like can you just elaborate a little bit on.

Speaker Change #135: On that.

Speaker Change #135: How is it moving the needle.

Speaker Change #135: Great question Alex.

Speaker Change #135: Is it working.

Speaker Change #136: We had 30% order growth so yes, it's working in a tough market.

Speaker Change #137: Is it.

Speaker Change #137: Emotional absolutely.

Speaker Change #137: So those stats of 28% all cash.

69% LTV ratio.

Speaker Change #137: That's well brand isn't necessary to qualify our buyer.

Speaker Change #137: It helps them feel like and what they know is a bit of a softer market because they read about it.

They know.

Speaker Change #137: On the <unk> sidelines with an election coming up they know rates have jumped up some.

Speaker Change #137: Sometimes it just gives them a little bit that is necessary to make them feel like.

Speaker Change #137: We used a couple of Bucks Anatol I got a deal and I'm ready to go.

Speaker Change #137: Now of course, I always challenge my guys why did we give it away because I bet, you still could have gotten them.

Speaker Change #137: Didn't given the extra money, but I, usually lose that argument.

Speaker Change #137: But yes, I think you've nailed it it's not <unk>.

Speaker Change #137: Mortgages down so the buyer can qualify for a mortgage at the lower rate because they can't qualify at the market rate.

Speaker Change #137: This is much more emotional.

Speaker Change #137: As we are absorbing sort of the headlines and the softening market, it's how the business rolls.

Speaker Change #137: It is very subjective it's very soft we reverse it as quickly as we can.

Speaker Change #137: We're all about driving price, making that backlog feel great and.

Speaker Change #137: But during that period of time.

Speaker Change #137: We drove orders up 30% five plan around a little bit with the incentive in making our customers feel good.

Speaker Change #138: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.

Speaker Change #139: Great. Thank you.

Speaker Change #139: Great.

Speaker Change #139: Thanks, everyone for all your support all your interest.

Speaker Change #139: We're always here for you to answer any questions offline you may have.

Speaker Change #139: Have a wonderful wonderful holiday season.

Thank you again.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.