Toll Brothers (TOL) 22 May 182018 Q2 Earnings call transcript

Company Profile

Participants

Doug Yearley	CEO
Bob Toll	Executive Chairman
Rick Hartman	President & COO
Marty Connor	CFO
Gregg Ziegler	Senior VP & Treasurer
John Lovallo	Bank of America Merrill Lynch
Dan Oppenheim	UBS
Dennis McGill	Zellman & Associates
Stephen East	Wells Fargo
Susan Maklari	Credit Suisse
Michael Rehaut	JPMorgan
Megan McGrath	MKM Partners
Trey Morrish	Evercore ISI
Jack Micenko	SIG
Jay McCanless	Wedbush Securities
Matthew Bouley	Barclays
Ken Zener	KeyBanc
Alex Barron	Housing Research Center

Call transcript

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Operator

Good morning and welcome to the Toll Brothers' Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. I'd like to turn the conference call over to Doug Yearley, CEO. Sir. ahead, go Please

Doug Yearley

and VP Gregg Chief Sterling, Officer; Chief Relations; Welcome CEO. Senior you of VP Senior Bob With Hartman, Marty Chairman; Laura. I'm Toll, and joining Doug Mike Cooper, Don Investor Rick Chief Connor, TBI COO; and Yearley, me President Salmon, Company. Officer; Officer; President Snyder, and Kira Finance you, of Fred Planning Ziegler, Marketing for Treasurer; thank and us. Executive Financial Thank today are Mortgage

factors Before you on I our read forward-looking the that call to information affect can caution fiscal about could beyond world our events, April on and assumptions this many We to quarter housing control economy, on future I I and are the web begin, ask Those XX. on the forward-looking statements on other significantly listening in e-mail on questions XXXX's second completed statement today's website. rtoll@tollbrothers.com. based you release financial markets, year many results. that and

XX-year business. basis only is which still up at rate country, second not same-store the same X% our double-digit a the results per that in increase from XX negative contract contracts signed rise second the it quarter had XX% growth. a the mortgage for quarter XX% in rates and contracts in and since impact fixed spring XXXX. our second highest in reflects signed on season. highest were We market. The the year. backlog in revenues, On another about eighth on selling from appear a is had our up history, X.XX dollars teams of store community, quarter and past in X.XX%, rose was a This basis growth quarter units. our of last year does new home of around points mortgage sales contract quarter value our luxury the Based health on consecutive The of year-over-year the Our dollar solid feedback has

SALT. The have would the our and We sales, strong tax local be also deduction SALT where not state particularly was the to quarter. any this most changes from impact on felt seen California

in example, homes an interest continue XXX since has million. price since and In of one average market Boise, have homes ago three an opening and Crossing months sold $X.X Metro Fremont we In of half February Northern has I average to located to Irvine some sales. Altair, be Southern seen For XX price want sold California, highlight at $X.X that very at a in million. other well. sell we markets rate strong sensitive, as more may also perceived where California,

second For per homes community XXX we quarter the backlog. XX.X with ended the in contracts and took quarter

well markets continues the East. sell Our Homes Active to exceed in there acquisition such of Coleman adult and our Reno Vegas both Las to the as Western expectations. continues and in

down since this I the dollars with we and quarter to end planned contracts project end plan for XXXX in XXXX, compared February. of of highest considering community count and second up community XXXX. we With For 'XX Regency, reduced at XXX we our XXX land outside approximately this at to have XXX also control acquisitions guidance back homes on from February. the pipeline. enough Nonetheless, own Ranch mentioned potential project XX spring. year our last out year Oaks Jacksonville, quarter Regency that a quarter history. Glen giving at from at to At without community prior our February. company's at had And in Florida, second community the specific the the we fiscal the Kimberton yearend community and of at but East XX is in West fiscal quarter project up approximately year communities third more for at year we XXX have in in year XX% in XX XXX sold end, taken next of sold is example, new units Reno, located which our than contracts We we open fiscal new fiscal or from and proud already am growth communities this in third we community to we end. opening units XX as Philadelphia, year's performance be in quarter XX% I any value Coastal count plan since before XXXX, have last XXXX, the in quarter communities counts quarter, the comp master And dollar in had year. to fiscal In half agreements were count Monte last difficult XX%

believe financial backlog, breadth quality decade. on counts, will the community projected another past will year revenue significant this $X.XX Western XX% reflecting XX%, believe the XXXX of was of we up and the operations XXXX was a our increases we a year growth XX%, of of home North segments California Turning with The and largest our land total of quarter revenues. With company's and serve, produced to of was year revenues diversification brand saw in up the revenues, of XX% was up we every buyer, as demographic City South be increase billion strategic Atlantic fiscal be the rise and we the up the in was XX%, combined fiscal our this XX%. XX% region. over producing affluent nearly year XX% rose and portfolio, region mid Based region growth. the was of well. XX% so strength Living the up backlog, West total revenues, California the

Now, let me turn it over to Marty.

Marty Connor

Doug. Thanks

of during release. measures the the note to their discussion referenced in address I measures found a the reconciliation of today's back that can Before to of quarter, comparable want specifics do non-GAAP I today's this GAAP be

midpoint price bit and specific results. reasons. delivered margin average in our delivered, with exceeded and guidance came other than for pleased revenues, for main JV the our tax lower SG&A, second gross rate. we our and of the Adjusted a units are guidance guidance We three and We income for exceeded quarter our

we which into delayed we some margin shift closings, expect to third the First, had California high quarter.

labor units of in our the have the New wholly term better announced City. XX% third we but we inventory dollar cost on have was in Second, opportunities. is year we buildings the completed attributable of of cash impact inventory pressures, of meaningful of we material has our focused and to out the sold we sell some in initiative saw to short the and impact This of value remaining to inventory progress our projects strategy Related reason of generate date, some will in standing City. finished York in returns To condo initiative reducing the that previously condo can that, New some this owned made York our that a margins, significant fiscal approximately began reinvest XX% and in with.

full our XX.XX% XX.XX% labor adjusted the the we inflation. of with material at guidance revenues, gross reaffirm to margin and For cost year, acknowledge challenges but associated

California, margin In QX, of a a which deliveries. percentage other was hand, revenues. higher becoming the it XX% is of business, On is larger

and mid our years focus over is of have on few of grow on and to been improvement the show steadily sheet. last to with below own all return XXXXs that note the are It's years XX% balance the Consistent also to low reducing based driving margin now revenue. number the and to expect equity land regions of through of of in year product QX. to on It year that We shareholder we important value four projected the fiscal the QX types midpoint we deliveries. balance years projected on all

worth options we order on of to return increasing equity. the improve our beginning for of our full date, the our soft of since the we year stock related on We have through equity focus of will in and target $XXX the continue control to Also $XXX fiscal on year. repurchased reiterate to to million percentage land return million

to April X% share of from returns to increased our our quarterly the in price. yield approximately dividend per share. we Finally, dividend This $X.XX $X.XX

in apartment to Phoenix, fiscal now year operation beyond D.C. business the in offer Los Washington grow. Boston the forward We're control expanding Atlanta, guidance approximately teams approvals. Fran, to in continues San of and in normal units Our looking we pipeline under subject our Angeles, and the for Earning to and the Dallas, have or and projects now balance Metro third our following this the construction, caveats, statement guidance. a of base, completed, We XX,XXX development quarter

full year for are increasing and average between increase an $X,XXX $XX our and in year revenue guidance to XXXX price our to XXXX. deliveries the an full delivered is units We full year by delivery That million of XX guidance year expect approximately $XXX,XXX average now units We between fiscal price. midpoint midpoint be the full of $XXX,XXX. at

expect expected JV at and to revised the margin We for and $XX the of around of price $XXX of of third reaffirm adjusted deliveries XXXX rate and fiscal quarter revenues in to million our between to the of quarter. $XXX,XXX. the of to in million gross year, be For year SG&A We and XXXX down be expect fiscal to the the the quarter. between other $XXX guidance XX% for with revenues XX.XX% We third X.X% full quarter, million of with reaffirm guidance range guidance units an we XX.XX% year third $XXX,XXX estimated average our third our XX.X%. slightly fiscal income approximately this

XX% year income. expectation rate pretax third is Our guidance effective tax reaffirmed the the for for and XX.X% XX% our quarter of is to at

a earlier. earlier. from end approximately about increase year XXXX account our quarter project a projected quarter to end As end XXX What compared a slight Doug X% project account count in quarter down second community of is community fiscal noted, end. year XXX a compared we year third We to third community

over Now let to it turn me Bob.

Bob Toll

are Jobs are remains and while home constrained price market growth. buy look to share capital appreciation are with the wages rising Marty. increasing formation homes. positions in household plentiful. and through customers existing expand ownership a providing is for new rates Home gaining to is and to supply forward low, continue solidly very the equity Thanks Unemployment and

Doug. Now over to

Doug Yearley

Marty Thank questions. thank you you Laura, Bob, ready for we're

Operator

Thank you.

We will the from of John come Our today answer session. first will now of Lovallo Instructions] America Lynch. Merrill question and begin [Operator Bank question

John Lovallo

you question. thank Hey my guys, taking for

adjusted delayed target imply would mentioned. gross gross you third the California the about over year that margin is kind outside benefit margin drivers from of closings first maybe big points despite down some It XX.X%. XXX What labor? year of the are quarter basis that of of The those

Marty Connor

think are here. going mix John. mentioned QX is just driver of we've biggest QX over to the and function QX as improved But I a ‘XX of be

right in going the are things direction. So

John Lovallo

slightly different just of made, Okay. is base kind mean, increases of it on guys that like And of more availability I on the builders. labor, competition your do than then there? a most a lack you what's in of labor is it just the home what kind of comments local public And your maybe going or driving know, the utilize other seems you the workers you is labor guys. view in

Doug Yearley

John, first, trade than other I a the base different use we think don't builders.

an With one homes into the Brothers of, now XX% and it's about mentioned, you our labor in all finishing tight. of of XX% board the labor course we've significant higher are exception custom home. we finished a really of that of different a probably know, think a up in know, right really But talked that or you lumber across number I the trades and a little But some and versus demands. But standard maybe to industry our more pretty we're that the all builders. client don't this and which combination It's as the demand with is significantly. materials, this the we're all materials, the for Toll as there's and together other go say, as force capable primarily the I’d couple then difference is together. I labor balance being of is lumber

John Lovallo

guys. you Thank Okay.

Doug Yearley

welcome. You’re

Operator

will question next UBS. from of Dan Oppenheim The come

Dan Oppenheim

much. very Thanks

talked you the Just year. wanted get that, the conversion it about of just overall revenue later quarter might delays, in in that persist seems more mix about terms And delays in to on color of to the the mean you're XXs for the getting there? the of little how that bit a trying percentage about just into though the thinking that ask bit you little longer. guess and third backlog I so terms a California

Doug Yearley

don't are think delays some there've out I anything the construction due labor issues. ordinary. of to the Yeah. the we’re been delays It's some seeing typical,

delay. some buyers requests We have that the

doing something causes price our on. very bigger But, It's we're It's situation is that something the I'm point and very confident and that in houses focused we're alarm. nothing is know and are And great going delays you problem the alarmed this more into but going time complicated me bucket houses managing. big or as to categories, mentioned. And continue Our the of not higher, California, some can have our this saw. it, the we're and improve. just which been all are to it's I best options. increase We've would we normal that will means manage just extent long which to to a these we be I do

Marty Connor

XX those margin and that on much of X% price point X% of have fact average. the our their is margin talking homes than that of and impact We're they to because our an higher homes the

Dan Oppenheim

we the to to half was a continue quarter? then and conversion should second lower backlog for expect ‘XX so it the of ‘XX half what as to or it but, that of at guess, I And the was similar level relative the year, for in be Right. second second

Marty Connor

I guidance taken the second think the quarter. of volume we in we've California in and situation here business the outlined, encountered the into just in consideration we've

you're looking at of conversion the XX% for So I backlog quarter. next think a

Dan Oppenheim

much. very Thanks Okay.

Doug Yearley

You're welcome.

Operator

comes question McGill Dennis from of & Associates. Zellman next The

Dennis McGill

Hi, good morning guys.

order that the related gross margin doing more First mean on three to items far up you making that the fact the or what clear to discounting that to that you're that the as New might've can holding does you're thought question full for before? maybe of that that City you year, lower the versus impactful? had, you're as the in Marty else inventory, comments then mentioned for And was which York with magnitude sliding just you somewhere end you're guidance of you the segment

Marty Connor

in respect York our offsetting City California think, success with is our that in I strategy. success to New

from making that perspective it. you for I up we're say So, think could

XX three As delays, cost success equally and weighted it around relates New clearance California to to the they materials. labor were and were City second from quarter York XX inventory, they components, issues and each, points creep in

Dennis McGill

anticipate off from then you're open, to would more to And community getting second to you're absorptions the as and the you're today, you go great. either and strong you product? mix Okay, that seeing how forward the question, that count with communities going there's price absorptions trade success between guiding or respect or with from any

Doug Yearley

No.

Dennis McGill

All right, appreciate it guys. Thanks.

Doug Yearley

you. Thank Welcome.

Operator

of question Wells a from have we Next Paul Rubelzki [ph] Fargo.

Stephen East

margin is but Hey broke term Quick guys. quarter, I this that's Steven. the XX% below gross Actually know question, this long temporary, down. it's come

a things, and term. guess one I couple long different term one So short

Your where over Doug, guidance XQ it's when to from the as have that inflection point at then meaningfully for term looking year be look comparisons? as going as and year term, short up up down historically And Is year. far year longer you we're all you're been. you implies over

product of lot changed. a that's got geography You mix and mix

think versus XX, about maybe you to etcetera. all years gross you about us help XX, guess how more perspective? a could business XX land from the it, ago I margin pushing thought your You're options, just if out you But today

Marty Connor

margins little for be reference benefits to large Steven, That will I'm quarter. a quarter becoming I'm the increasingly for it our total - percentage margin from ‘XX an for your our point I point an year, deliveries of confused inflection in the guess this high of by -- yet. fourth sorry this California as obviously

Stephen East

year maybe up. including that Yeah, through the over quarters numbers, first quarter will was year about it know, you down basis, and it I'm the I you just looks as like, capitalized fourth be are on three where sorry. interest talking looks potentially like a Marty, go

gross wondered of the if margin? all just in decline the you anniversaried that was, if So

Marty Connor

certainly give that's and a case we'll fourth a margin I for later date. think XX the at quarter guidance the

Stephen East

Okay. Fair enough.

Doug Yearley

gross to at no. And, and Steven, to business with XX ago. about and the look answer compared respect The or differently your question to XX is today broader we whether ROE other respect with metrics years margin

are our among proud of industry. highest very the They in We are margins. the

off We very ROE. results the last you on improve the are years in ROE worked the proud I'm hard have couple to of very also, of that paying as and know,

that continue opportunities very know, is can. more best Marty also you buyback that we're, we're most right And as an is land, on continue buy raised you'll think the option to more creative to stock to land move see on the buying, we will I ROE issue balance sheet work price off power, course dividends. of land shareholder focused. hard making that be we through, but when we focused driving do things which focused are move enhancing earnings sure land appropriate, we're, the and where mentioned, improving continue to and But has we now significant sensitive we that most, pricing improve to through we And ROE. value California have. we're we the

different So prior in prior cycles. balance. for it's there was a us no did pricing from Obviously It power. recoveries more is in what we

ROEs those different, rewarded been there power. land not a pricing different a recovery we're much and has has this naturally bit with as improving So were because where been

And so, to we more ROE. more ROE. we and continue to pull levers improve see balance must But on with that focused you margin will other us have the

Stephen East

can Thanks helpful. low or at at But to you. inventory district see that start business, of that rise, you have you we multifamily, you've really in been us and there? to away the inventory markets, view etcetera. don't know, then thing. with will. rise, see, we a move that's about much from of central on as little what's lot all a What's going more, as we all And of business look a me mid towers, type accelerating And you that Got you if started more just Doug. I really guess, happening? give you on To

looking all to business expect and that trying how are at going you it? just understand forward from what you So

Doug Yearley

XX,XXX Steven, development in of we're lease as stated by entitlement today, as we our various very excited we, stabilization. over or or we have stages apartment business units up

We Boston. a infill and business in east, but markets beyond now our have that entered. country. teams a DC just rise, newer to the garden, It cities is to and applies core that not in that high we've major the the blend market We have expanded midrise city suburban apartment, mentioned Washington of we've around of the

Our team is performing very well.

on strategy a has sheet. we We strategy this and of stabilize. three off we every for generally of have a equity, build return a and have all doing return It high very on balance investment,

We two, term that's to we longer and will our about a shareholders of will will I building sell a portfolio. return more grows, business obviously headed. and think threes, excited And one and we earnings that earnings but there's it. we be see also out really that hold balance you're think we a, coming And business sell to good And the as so more we're so going one there's terrific is a strong where growth regularly.

Stephen East

on look over comfortable be I would you at years can where you something out, as that, this Doug, maybe ask XX,XXX what the that, taking know, all you you quickly you're like or three now business?

Doug Yearley

It’s four only the five in it's about years us old. stages or right now, early for

So I this comfortable doubling. would with business be very

Gregg, be this markets many up. to year now construction Hold opportunities are there enter in so year. to will This be properties is that this new haven't that markets. year? going XXX that are how look units plenty eight year this the or that we We even alone on? how nine Average properties I plus to have construction XXX, even begun size will many think that in call alone we begun under or have XXXX many, in We're more of plus at.

Marty Connor

a has refinancing the remember the process. that can so And down you build next money the through recycle capital business tendency last or sell building to building with Steven, from this

maybe So billion for we our projects capital $X.XX right in this the a partners maybe haven't million. investment yet. now, is $XXX that's found approximately dozen with And a

money we XX%. buy down go the when would get to that partners So

we're we're, this business. excited So efficiency really capital the of about

Stephen East

helpful. hugely is Thanks lot. That a right. All

Operator

And Maklari the of Credit question from comes next Susan Suisse.

Unidentified Analyst

that pretty constraints in taking account XXXX some pushed our like significant for location actually the out on any year. the of labor there better looks you're can us seeing Thanks And these of overall in up the is of we're those questions. there? and this community a an you like Susan. communities? Hi, profile half in Is for give back given It sense just back of expecting communities, risk ramp Chris the a

Doug Yearley

Sure. the whole part I'll are Pennsylvania. spread around the then bunch, in New really a answer second we the of XX country. But have Jersey. communities in the five got an XX for We've

have those total. numbers Southern a X in a adds third Boise. to in gave California, Nevada, in XX the I We of But you five probably again, up

a time. give is the team it to know terms land markets county approval. everyone to bit there's being labor. opened. So final coming August almost There the lead it's comes we've development you district to It's whether may will get land community getting we or there's from need the which in in get It's good and given it a community conservation more But in most because really associated historically communities be believe a and hedged crews it. all can labor process some nationwide. complicated. is July we be ready open go projections, of risk permits permit you to because to And soil at think XX June risk pushed our with We've may our we're in, have of green certainly not. pushed light that can XX, of full in the We always out. in, our the to that community respect the being of widespread most get, pushed the the out. of permitting, takes With tedious, is permitting cases, not the a of in and markets about all If the roads it's out,

I comfortable think am I the in guidance given So and good we've with we're shape.

Unidentified Analyst

Got for it. that. Thanks

there more driving seeing state? the that that strength talk California? on the could any acquisition in Are think, and, land you approaching, are in pace regional there you of are the how you're areas guys just specific I differences

Doug Yearley

LA are and very of, everything With land of very very we're best So put last in seen we and sub and competitive. continue are quarter. locations but out the Francisco, up exciting are very based have in active. markets Northern sub two those out respect the call you'll the of on there, to San do am then markets acquisition, say I Cal what cities some strong best South. best We've the seen, is in performing the I'll interesting think the good Southern more North in the both locations Bay, and obviously results that around west County market very, South Orange I'd the Land they both It's very see deal well. strong. California. thought Bay, a We but we deals is lot and expensive activity into diligence in California. Down East we I flow out in to Cal growth

Unidentified Analyst

very That's helpful. Thanks.

Operator

Rehaut Michael comes JPMorgan. of question next from The

Michael Rehaut

morning Thanks. everyone. Good

labor to big don't one dead on, here. First margins to beat results little question, a think materials a Marty, the bit today. horse, the gross as highlighted a you the I mean the focus the it's downside being just little of and but drivers bit, Understanding

through also offset at most but perhaps other source continued materials minimum inflation, a ability pressures, those labor an think cited to have I of builders is price. with

the one, was Just of and versus that pace price. you've balance there's had curious always it solid pace a given

fully have being SALT. and to continue able demand right or rates you're now, you areas to it? that by of impacted very strong Obviously point highlighted talked this at you that most California to your offset not feel you If

materials just So around thoughts ability offset to forward? going labor your

Marty Connor

we region and in in of it product Well, I third think, Mike, I the focus we've already and total of of that, improvement gross in California the margins line because every becoming impactful fourth and most high the business. The larger a is margin question. a appreciate percent every its regions said of the expect quarter. in And those

not others own price some So, at are increases. the every quarter it's fourth and able be on done. we're looking in we the cost overall, that offset margins community to improved quarter. In increases able stands But to its for and the achieve third

Bob Toll

not be tied and course, get The pricing we that that should but and can is feel to neither other get in on the cost, to as We as units we and we builder. try tied of it market. our any not based for the try demand much

when because of you feature going is the see we up these offset prices demand. have there have the greater in prices increase not So really

Michael Rehaut

I just , prior understand. kind of of the compare pricing that you mean, prices that were the or terms I made sense rough that. on past and to I that this able have amount a might it following of power, you in how quarter appreciate raw raise to of communities do quarter? percent percent the there's rough and

Doug Yearley

I that have do not Mike.

Michael Rehaut

Okay.

over large have the ventured hoping we to percentage that that build income of build was few three further of and, you one to this one. see your it growth could five pretax see get over next recap to relative out potentially see you to looking well? one to over a next core we business. business that apartment, a Just kind mean, question another, standpoint apartment I your brief that's competitors along of from options back just over as years? I how think apartment returns a Coming core -- this some getting with And, a looking of to years. I business you're to a refocus It last other its of time is homebuilding on doubling the the seems you said business into at in the there. could Doug, operation. to the on like time ancillary of - looking kind businesses the bigger And

Doug Yearley

of projects the size themselves from that gains to with to year our of business expect that teens, upper lot $XX returns. to bottom impacted And interests. year on downs million and A add promote this With contribution achieve. by the this or of business, we last dispositions of low the expectations we hope percentage With an pretax returns And sell double. to Mike. XXs Sure to our five respect had income, underwritten amount pace in points is maybe are the to we line. its respect contributed our and around what to to our

expect have of a but And routine they the now. right are at baked little more we this than what intending not XXXX, to so, buildings for that business fully point we grow such get bit we this are sales

Marty Connor

there And to may make happy very then that proud proud be that decision. because property or will be own And teams, the teams, managers it teams. not at think its all focused the own get how I overlap suitable I'm And with land we own Occasionally the Mike can and how multifamily could team and don't running. that opportunities don't management that very Apartment It either. Group in here and multifamily a its Living And and have efficiently may And has acquisition But, are both believe distracted build businesses runs is are bouncing independently. construction for running. longer add has term we I homebuilding We has it effectively. on continue its sale. I land we I'm between they is to of the leasing business? core team for

Michael Rehaut

Thanks lot. Great. a

Operator

from comes question MKM Megan Partners. McGrath next our And of

Megan McGrath

can results growth per to order but to it where all us back community here some Obviously paced was down an account circle declines to any from wanted through I growth you perspective, in on declines? the mixed talk morning, Good quarter. region the or Thanks. due absorption year perspective net

Doug Yearley

community down an store per the would the sales count On divisions down. the quarter, reason only up. be number a of its the Megan, basis for community because were area same on maybe

Megan McGrath

your contributing you. of on Thank growth, talked and acquisition a follow a so land, to margin revenue longer bit little term And about you I the think maybe Great. about up that gross about, if California, given it's a bit pipeline. much

there some look representation? represent at much months say in it community plans, holdings short of or land more will is let's or XX view are peak you count now your kind and now and your in California seeing of term your we sort to the it If as next, XX in the

Doug Yearley

day selling ‘XX communities - year ‘XX. We fiscal the let's Hold Gregg Well is the fiscal putting day, Gregg. in XX the you have yearend me started that number on, front get one one in numbers I throughout community ‘XX. end on later. of is year. count for with

with XX fiscal ended ‘XX we one. with we plus and So XX project California fiscal of selling communities end in ‘XX the

Megan McGrath

and like are would is this contribution at you dead of so out, be your get question comfortable much which And, revenue this contributing California? point be from further you would Would is I Okay. I -- to mean to with that of there it really base? a Is uncomfortable kind level my how bigger? like looking guess you

Doug Yearley

should location, we you general my except So started going what call to specifics have community community on seen? comment. not continue controlled land owned the We're the see for in to that pipeline in ‘XX right place grow flow deal and or count deals that and course now in that, we we count is give When to have add that. have before to of community we and the

Marty Connor

bit little Angeles, different five right. And have Cal in and a San Diego Springs. We in San Northern Southern and Cal, California, markets in Palm Francisco Los Sacramento,

Doug Yearley

in are Sacramento Yes Springs very, small. Palm very on

is we size and based in that see I'm that on San I I'm at now driven this our it right San level. that the Francisco LA Diego. side northern on, Our hopeful California the we're deal land and can of working comfortable sustain the business with flow by

Megan McGrath

you. Thank Great.

Operator

Bank. And of the from question comes Nishu next Sood Deutsche

Unidentified Analyst

Hey, thanks. Nishu. for Tim Daily This on actually is [ph]

seem in outlook is of and plan it second year the seem was the community community growth of like this count up. went year. in early like question of expectations It the lowered half really on openings with the gross first for actually delays doesn't line with driver, the volumes outs close kind your number it doesn't So, as came

moving if super revision, that'd So be, that'd helpful? behind the could the be help reconcile us pieces just you

Doug Yearley

sales part Sure. out. communities more is sell sold and had it We've so excellent of A small out anticipated. a than we faster few have

to it. QX. So half, communities now of part in that may and that the the because pushed certainly they will opening QX some they're be of that is in thought second being we is XX And open

timing out. month community we bit ran I mentioned end loaded get not pushed found if three, as is lose we because of predictable. it And much earlier, can new the is not or have always entitlements, a or a back land, two so and because a but out perfectly we the So

really what, is that's So it. driving what

Unidentified Analyst

Appreciate the color there.

and we're about there the if put seems intensity in I standing the well, guess changes projects might've close thinking of trajectory the it a on been kind question the outs like second So, as community then, counts bit of condo some, the more the inventory and New in York.

kind was of impressive. anticipating? expectations operating the for kind we're Obviously about if level ‘XX what you guys just are very cash thinking flow the year, So of

you just understand help I could us, that? guess So if

Marty Connor

Sure.

and pay purchases of figures in So, land any are and after debt debt improvements these not excess reflecting downs. raises and

it's So $XXX $XXX a million. to between we somewhere think million

Unidentified Analyst

the you questions. Thank for Great.

Operator

Next, we of from Steven ISI. have a Evercore Kim question

Trey Morrish

Steve. guys, on a Hey for it's tray actually

you The New of year a could to your those did on bit And you much expectations how the those units ‘XX? York generally the do is, for you're trying be first cut to expect do question or that think you push apartments, they linger touching through? end margin by this through City into

Doug Yearley

potential So I not next the is linger them year is to because reduction into there of for appetite our unlimited. some a margin think -- for I'm

we the at XXs. beginning expectations in the set for of to mid the year upper So, margins

year. came for quarter comfortable still the a below bit in that amount we're with but that, full This

Marty Connor

the building talked mention and I in last $X,XXX well. we very building we over construction for And, is number strong the seeing actively At about where talking is build City of that sales -- the now don't doing very fourth Jersey We're the in not sales. a about a also we've are will market under the and City. year seeing locations a have Square quarter. issue, where buildings York will been we in New this Provost very are inventory selling that We're that foot begin healthy. and in that delivering We strong the

been sold. unit that out we, in very And there in issues. work only of So those the hoping one it's of expensive small market And talked moved large the remaining in the with required are discount remaining have six some focus that more units those for there's we're more months. few because occupied, where had example, has the are we to the and buildings a have a a we that upper this New and call of thankfully unit more units expensive couple large has that the, units second lingering that quarter units end the is York are been and the through next of units discounting And that larger, be to completed and to on we we over about New York very expensive.

Trey Morrish

kind some labor Okay, to And that's maximize second, a issue, TIS systems bit to talk do wondering you help what at but labor you're doing those said it's I'm And which have bit of then you also helpful. you could if turning integrated challenges. a to back that of offset guys have? labor, an the you total about access

Doug Yearley

Yeah.

TIS So our trust, and panel operation.

four is of framers that just and we the instead plants for panel the Northeast, secure. We panels us have of And certainly solid have lot mentioned in a trust two a trust our it because and us It's obviously And and has Mid a panels because helped serve get for years because in markets they many onsite with arrive Atlantic are labor and those our weeks force trusses roof have in solves week plants half those when that been erected. and plants. and Midwest. I built and you the labor and factories wall

Operator

Micenko Our of question next come will SIG. from Jack

Jack Micenko

JV. looks the just of all couple the if, to that between Last trying -- flows Is driver are a back a or morning. a then, couple guidance basis openings conservatism? your lot the G&A is to company not lot this is leverage as parked community there's, SG&A that that. reaching if in a hundred the apartment personnel years beyond on less year of velocity and And half? and understand openings? of obviously more figure there's out terminal if community XQ opening points it to team the just That's it like Is the Good I'm through event, communities. I XQ trying levered I'm believe on go

Doug Yearley

room think, I basis that our XX we future that and So get as from reiterated in this point into Jack. is point, think guidance improvement G&A there's the the on we're at we well. to leverage the year going not But prior a

Jack Micenko

buyback, And Okay. on at Marty the I she it liked guess XX. then

soft is I or question, at guess million focus? of ROE is love a target You'll growth it the $XXX XX. that How at the and soft higher level bigger

Marty Connor

pipeline. what's the what's pipeline, and on what's the in that So it, it's tough M&A and to land in pipeline answer opportunities a maturity pipeline, equation all the what's in, the in focus without debt

million to you and on or So, of $XXX ironically I per price all it equity the commentary out bit. target $XX equity. think, the share our you it soft meaningful not dollar we the a helps of gave is is that whether If in divide million earnings return But a $XXX the $XX. equity, of stock little by

Jack Micenko

Okay, fair Thank you. enough.

Operator

from of And Rahmani our Jade KBW. question comes next

Unidentified Analyst

Thomas that Ryan Jade. is actually Good morning on for and

either the demand, Just rising in of strong HP and seen? noticeable we've seeing are segments personally you declining from any from your buyer rates the impact terms are affordability or

Doug Yearley

We and have around had prepared have business. remarks our quarter country, at results, to our about – my rates. don't nothing In say teams the not started, sales the talked they look impacted I I we issues. Yeah. no have when had second

side, XX a the mentioned still X.XX% So is rate rate, from as points on basis ago. and only up low rate year I a is

right more home, up it price houses. up, generally, move now looking issues to and in except have equity So home business value our our more their and out which not means people to sell to interested there. to comfortable we're very with move factor more we move existing no A be also appear been up a has appreciation, homes

Unidentified Analyst

of just did the drove any And York about? the Okay, thanks that spoke detail the to in relate that you any on us what for in terms quarter, that? And of condos you the, color. can then impairments some more New of give city

Doug Yearley

Mike. ahead, Go not. did It

Mike Snyder

recoup that There sales of It right particular had is our of we soon bit slowly been the is was approximately accelerate a strategy. now that change for $XX in was in that the million. course in as one We Connecticut and investment majority of drove working to of community focused, impairment returns action as through this years, number possible. acknowledged but a the

go can proceeds the So elsewhere.

Unidentified Analyst

Thanks. Great.

Operator

we have Jay next question of Wedbush McCanless Securities. And a from

Jay McCanless

Thanks Good morning. my for questions. taking

that's enough people biggest rest this sounds it guidance. like is through of on The Do as headwind, done had entitlement, first the move in the don't timely? to you comes reduction question your community is foresee the municipalities getting the Or still have it I the I the growth mean, we just when it permitting get better year? the to

Doug Yearley

going it's of of of just to county think tough main It don't and complication necessarily don't our in The changed the get It's permitting a or a towns time We are right much, the lot generally it and markets best lot places. difficult not so think and I about we're hasn't we corner get places it. there's we build and of occasionally takes in of to main is, better. of of or middle it's good on, at going we're in to time. I That a busy it's Most slippage. the worse. hit permits. but have And the build little and it municipality the how a state bit

fight day. fight And so, every the we

have said, because going we that forward flow, deal And we will of you I'm have we this open, historic year know to to I and count have As we have we will. it that every we teams for most secured, us but land, continue our the community our grow. very not, on data number hedged community will that have based will the confident tell

Jay McCanless

it at was to and continued impact soft the weather the Was And in XX% the looking quarter there or X% then then community mid driven? Thanks. the first second West quarter. segments. question, this almost the the And any slowdown from in results in Atlantic quarter all order north the this negative growth

Doug Yearley

decline the community west. was weather count It not in related. was It

Jay McCanless

north, the it's Mid In the in Atlantic, similar?

Doug Yearley

correct. That's

Jay McCanless

questions. my taking for Thanks Right.

Doug Yearley

you. Thank welcome. You're

Operator

Matthew Barclays. of Bouley will next The come from question

Matthew Bouley

to California my taking the, for margins thanks Hi, there. the of just I the longer on trajectory up questions. kind wanted gross on term follow and

this for calling improvement you're year. the sequential You're,

XXXX. called you year year had decline out year of an for think a California I full on for the in in expectation past the

next rest the is of beyond question the gross sustainability California premium those that the margins, kind how or just So are versus the quarter of you. business, of Thank two? thinking about you the that

Marty Connor

California margins benefited a year appreciating this environment. prior in by rapidly to were So,

cycle. And the very time at in some early land purchases a

to at right And the compared point year forward. been power looking in as QX. we XXXX relates and to fiscal the now margin our encouraged of low we've end and are We what see by have it California QX there we pricing out

Matthew Bouley

the on two in that. beyond clearing on thinking you for Thank also you're the living New up inventory beyond the quarters. city And Understood. here making Okay. of next following gross side, then York, efforts margin and kind also really

So you you. at more normalized what business? kind a if Thank the think Living gross City this of could where on you look in point, comment what margin, will like

Doug Yearley

year Jersey the XXs buildings we first the on and higher mid quarters coming a will of on a this next of the building hitting fourth quarter City York in dominant side that is the the volume a to -- those delivering that, those sheet be piece we little and in ‘XX lower We, balance through three Jersey New have And in little gross year. pretty that a maybe Manhattan out and over margin, for a side. in much underwrite a

Matthew Bouley

it. Got

you Thank much. Okay. very

Operator

KeyBanc. from of The next Zener question come Ken will

Ken Zener

all. morning Good

that? SG&A you the to you. Given specifically where cadence of that to of fixed Thank that obviously counts you you higher the just that bit? are but closing the I'm ramp. impact component kind I'm a a are wondering absorption, talked look? obviously community could little talk and How I guess of might fixed if cost back could half on

Doug Yearley

Sure.

the than for better guidance margin QX QX, is an So, gross despite increase…

Ken Zener

specifically. SG&A For

Doug Yearley

sorry. I'm

Ken Zener

For SG&A…

Doug Yearley

Sorry, me. excuse

again, SG&A a expect create account we openings. efficiencies community a more with G&A to associated little volume a revenue For despite

future even we and years down for the XX% the to more guidance would fourth that year. quarter. leverage this So continue trend below in in We it should third set quarter in the G&A

Ken Zener

you about I Okay, good. And not I'm guidance. asking margin then gross hear,

a those explored kind longer might costs know more a, How been have build example? builds enough. you guys for reprice days. changes you, I'm address because process for builders distributors you've you. to of builders? costs think and build time. Is you than end starter I Thank your I might controlling think the trade way be lumber, of there the how front with just about some the with other those that interested home, you've kind differently those larger, XX every longer longer time,

Doug Yearley

buy also able that Traditionally and the plan, lumber we've our a and some TIS in bit benefit advance. bulk through get in in from to from volume with perspective particular, a of by been going

benefit. there's So some

Marty Connor

the The Atlantic Midwest plants. Mid and are that benefited by Northeast,

don't And our the can different what lumber that's I buy other hitting framers have, able All lumber, is our warehousing the much lumber we out because to beyond we even on advance that is certainly longer build, to We're if I situation to goal. to for. in have ourselves don't our have do where best can are by operation of or months lines. out month think, bring three, rail buy of a we may can. home. a manage our buying And get a We we able a plants so And or maybe lumberyard rail cars two, we're added do length be the homes of which most that think two we In we markets, than the on as possibly our builders. little to though that. bit out the would finished the think we strive as take in other I side, by four

Ken Zener

Thank you.

Operator

come last Center. question will our Housing of Alex today Research from And Barron

Alex Barron

Yeah, thank you.

or points you affordable? an And price how make rising to size give Vegas actually you for Given other can one. thinking question number your of you? whether homes question is is the or more shifting doing environment, my us guys if anything your or are on rate my update homes That's

Doug Yearley

Alex greatest the as talked have about, with mix diversity of in to industry. a we've think respect the I the mix, and variety

homes X the like we're $XXX,XXX places California in et So and and Boise Jacksonville, cetera. million plus houses homes in the building the $XXX,XXX in

is naturally of rates. lower last have bit happening by not That we fill a So point. And mortgage been to years. couple the over that has price shifting been driven in the

easier have put more it's up In when ratings. down remember our higher and go that money little tapped generally to bit. much a They fact, credit rates not a get mortgage for because clients them they're out

strategy the strategy it's company, for the the diversified upon being the smart and demographic us based growth company buying just I driven of trends but millennials So the be the rate of by more a this is, more environment. to geographic homes, diversity not have think

Marty Connor

approximately we we're to XX% our in down And rate to seeing, go it buyers having only of and last compares see X% cash of that around XX% trended gone instead three an steadily around that If an And adjustable pay which quarter would quarters. most affordability issue recent buyers all up over up this of was mortgage. a this our historical take of has average quarter. the XX%, pretty XX%

Doug Yearley

average And is XX%. those mortgage, LTV get that a the

So they're not maxing out their mortgage.

Bob Toll

business component of one is housing. in a One mortgage. It is, adult the very large is active our average

Doug Yearley

our are XX% total. of they about and cash pay buyers those of half About

Second question Vegas good. pretty market doing the feels how about market is concerned the

Our quarter. community the recent has declined in most

Marty Connor

is store in XX in and in we terms end. now but project the We Yeah, at of same good. XX, still year started nine Right to communities Las Vegas year Vegas. with business at we're very be a

Alex Barron

so Okay, great. Thanks much.

Marty Connor

You're welcome.

Operator

our concludes for remarks. question session. the And over I to turn Douglas this back to Yearley conference and answer like any would closing

Doug Yearley

listening day, in wonderful for and and weekend a summer. Laura. you, everyone Thank you. memorial have Thanks Thank

Operator

now Thank you The concluded. for conference today's presentation. is attending

You now may disconnect.

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