Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Toll Brothers First Quarter Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I'd now like to turn the conference over to Douglas Yearley, CEO. Please go ahead.

Douglas Yearley

Thank you, Keith. morning. Good you us. thank for all and joining Welcome,

interest you Before statement earnings on I forward-looking ask I release call on read our you to caution inflation that assumptions on and results. factors website. our control forward-looking markets, our last many significantly and economy, I availability affect many of housing and world are night other statements based the events, this begin, of on that information in our labor could future the financial about rates, and materials, beyond

Connor, With are Senior Financial today Investor President VP Marketing me Parahus, Finance Gregg Treasurer. and of Operating Marty Relations; Cooper, Chief Fred and Officer; Chief Marlett, Senior Officer; Officer; Rob Wendy and Chief Ziegler, VP and

quarter this and first to we quarter In results. all uptick through January strong dollars the We guidance the compared fiscal in our in the of seen with continued revenue pleased metrics, weekend. demand up very key in a midpoint on and quarter, we billion, XXXX. homebuilding our $X.XX and have generated of first meaningful past X.X% started exceeded that has homes first X,XXX delivered of I'm

first savings margin from basis and quarter. XX.X% benefiting the past better basis or we've XX.X% guidance and quarter our revenues was year's are than homebuilding of year. guidance that we cost both XXX gross XX year's SG&A than implemented adjusted points Our last last was than at as better points first initiatives expense over better significantly

per quarter backlog homes. was first continue to X,XXX XX%, up SG&A further quarter. $XXX.X will respectively, diluted, $X.X and year's compared and on stood to earnings At XX% reduce was $X.XX forward, billion cost-saving Pretax to additional our first execute share and we end, at income plans last million, expense. Moving

orders ago. quarters. dollars past seen only unit X decline compared to year over is on a Backlog XX% in XX% X basis we've to down Although the XX%

results and of solid earnings reaffirming year, year this $X of margin diluted to to full fiscal $X result, guidance a expect XXXX XX% our are and and share. gross As continue we per of we adjusted an

sales the to environment. Turning

start we We our over of months. the the most season up we first in continued January, and seen country, seen have week markets demand including by normal are the the New encouraged improve picked Colorado Texas has typically has spring of past the Florida, Pennsylvania, in seasonality beyond what footprint at across Beginning the selling see Carolina, that South February. into X.X Southern and Atlanta, D.C. California. demand across Metro, Jersey, Charlotte, We've

weeks, the in Over Reno, Las we half signs that the the past few Vegas demand have second most struggled that in as such Boise, improving XXXX, also Austin. of seen Phoenix, and markets is

to as appears be a months attribute buyer We and demand to outlook improve stable overall ago. to increase sentiment inflation economic in receding it seems was few more the be the than

pause. trends their impact has new XXXX and rapidly when the as second It Over sharp buyers been the was driven not half many chronically when pandemic with increase in between supply was now million surge rates household up after prime lifestyles X and and Baby they the obvious their mortgage years. housing entering anywhere have obvious many of searches and the during prices less buyer prospective XX retire this And adopt millennials urgency migration million demand surged, in decade, and who a boomers put the past years. the buying by of rapid market homebuying new of Sunshine This they homes same X kept starts as that a Mountain the states. favored country. for result, the the in caused U.S. deficit have has homes on and have spiked exists increased. home million to homes. that underproduced At formations time, shown has been study Study

Now, however, and go season coming meaningful off fact buyers us that rates is upon back have back telling the or the the X.X% are real confidence sidelines. didn't these improving, consumer and sign to traditional to selling to even are come for that spring out. X.X% fundamentals with buyers The most

week, In fact, though this back have the seen we had past over month we most had a X.X%. moved rates even deposits in up

building 'XX, our is demand many the that inelastic large in outlined in our new elevated call. And times the taking Instead, with half were on we improvement extended of to and a approach price sales balanced believed The and chose chase focused moved into costs, what the not for all not December buyers we markets, concessions. a well to delivery is fiscal strategy spring patient with second In high-margin backlog that by playing while delivering down. we waiting be market better would season. selling and we on more demand

advantage increasing taking be are season, chains improving are of community cycle that spring into while to all and supply costs We appears selling count demand replenishing and the and now spec building of stabilizing, times rebounding. supply homes our

of the execute each backlog strategy, and and the of quality the of each incentives market size to detailed to our at a market. depth on community's demand, continue this price in of we landholdings local we communities based assessment and product As adjustments of make including our dynamics, on appropriate elasticity

The X% In sequential of of was due incentives our of in X/X in has the increased Historically, the was about market, to leading years. mix. the X%. a to strength Based sales in to incentive select contracts pull back our on average $XXX,XXX on new decline the average remaining quarter quarter, incentive Today's the incentive been is continue we XX about X/X attributable first to price expect to first about on incentives recent next home past X.X%. approximately over the communities. sold average

very homes and With the move for to been strong. their buyers mortgage demand type contract, their has and into more lock eager homes, and retail market quickly new spec

strategically were construction. Please ground. define at unsold Considering current home of least a stages any we X/X market but several is that markets, the spec have early starting past personalize be more finishes, as so enough to important will remember quarters, for orders opportunity the cycle sold which conditions, which are homes in a For their in sold still spec luxury foundation to the of select at most various in buyer have the our will construction we with approximately very we specs the our buyers.

totaled cancellations fourth from remained pleased also in Cancellations down quarter. in first XXX, are XXX our the cancellations the quarter we We the recorded have that low.

of our As a percentage average of approximately long-term cancellations X% versus were X.X%. backlog

deposits our invested they emotionally cancellation as and sizable buyers, speak Toll Our how the they they to rates make strength low financial their new become personalize of the homes.

the encouraged While we the overall remains buyers returning the the that unclear. economy, are that mortgage housing to recognize in rates are market direction we of market,

land growth light in through capital-efficient In this of we our disciplined we as uncertainty, and the of to invest business plan remain buying. prudent

have to us We existing under selective be our and as sufficient we 'XX assess in existing highly opportunities support land XXXX, land growth which new count community allows portfolio fiscal in to and both options. takedowns

ago. end end lots, first lots of quarter controlled owned XX,XXX through XX,XXX fourth At and approximately first were lots XX,XXX versus our options. the XXXX we X owned quarter our and XX% controlled of XXXX XX% year the lots quarter, at or our were of end

our lots Excluding were controlled total through backlog, options. of the loss and XX%

liquidity our excess cash in facilities. to intend to capital expect flow to and under XXXX, to have generate leverage to we substantial credit continue further We and cash our shareholders. We reduce return ample use

With that, it over turn I will to Marty.

Martin Connor

Doug. Thanks,

lines and with results. year. grew bottom pleased and operated top both our We first our compared to last quarter are more efficiently We

share diluted, million First quarter net per income per and up a to $X.XX ago. or respectively, year XX% was compared share XX%, and $XXX.X million diluted $X.XX $XXX.X

X,XXX X,XXX records. and $X.XX first generated of share billion. quarter, homebuilding of down XX% revenues the were agreements fiscal net the compared quarter the in average homes Our was delivered delivered earnings XXXX. net homes first year income We and The We to per $XXX,XXX. quarter in price both quarter of signed

However, progressed. the quarter demand month each improved as

January both net exceeded fact, December November agreements XXXX combined. and In our

contracts a past was in average earlier, to approximately basis. strength approximately X% signed mentioned Doug on sequential year-over-year down this quarter this the $XXX,XXX, continues XX% As through The price was February weekend. and of show

As decline of this Doug mix. simply was sequential mentioned, X/X

margin to exceeded of was in buy X,XXX our incentives basis the of first compared Our of gross quarter and million community costs Gross in margin points not XX.X% the and to balance gross totaled Approximately that Write-offs in $X million our in this the was state XXX quarter. guidance margin walkaway due sales first home less-than-expected the XX.X%, was to X control up adjusted decided deliveries. we to the Washington. XXXX. option in operating to quarter related our cost lots good $X related on

XX.X% expense. quarter $XX to was of first The SG&A always the was SG&A revenue that controls. first last from quarter leverage tighter compared Note in hits same year in expense revenues the It point first well percentage an XXX million compared ago. million This as year. benefits annual quarter. X margin XX.X% our that year-over-year accelerated reflects is includes the in quarter in from the in increased reduction only SG&A to basis stock as compensation cost this expense as quarter $XX a

expect by revenue QX full projected of Total year full the a SG&A points. of we quarter expense XXXX XX improved margin SG&A in declined We of as operating million With expense XXXX. homebuilding compared to our XX%. now are $XX the basis the lowering this efficiency, SG&A year percentage for

$X.X first $X.X our during even liquidity, to land down billion compared first We fiscal million Joint exceeded and million fair ended a credit venture, income was land approximately with $XX.X after cash billion $X guidance value. year mark We of $XX in to of first million sales revolving $XXX approximately bank to quarter the facility. to quarter million the availability by including of sell impairment we of $XX.X and other intend our the its under 'XX. quarter million

Last week, $X.XXX up X of years billion bank XX facility February to we revolving credit our XXXX. extended

of 'XX 'XX. term November November $XXX.X of XXXX. loan will We mature of also our $XXX million $XXX.X the of part loan our maturity remaining out extended term in February million of million The in to and of

Importantly, million are been has our $XXX November swaps that $XXX fixed hedged of approximately loan through interest term with rate million X.X%. XXXX at of

they Our of come X plan We senior our notes we notes, ratio down further first due no these long-term from of fiscal in will of at maturities net repay until our XXXX. year million when $XXX debt have ago. end, XX.X% After XX.X% repaying by XXXX. April debt we significant debt-to-capital to quarter reduce was

per value to dividends. Our shareholders and $XX sheet. end through XXXX, fiscal I'll book balance was our returned at million we In of share we on that quarter and intangibles $XX.XX, repurchases the you first almost no have share quarter remind

million target annual $XXX a quarterly share of and pay repurchases, to to per continue $X.XX continue We of we dividend share.

was $XXX was selling at $XXX end quarter from almost communities due variance at entirely The compared to our count guide we XX our faster community than Our guide million. to anticipated. out

plan. Our generally our openings met

the said, forward caveats end remainder guidance information. usual forward-looking year. gives homes of X,XXX Our for quarter the in the regarding That visibility subject the first being backlog to good at the us is

of with second to of XXXX fiscal between and delivered projecting average X,XXX are quarter million. We price an deliveries approximately $X homes X,XXX $XXX,XXX

X,XXX maintaining XXXX, fiscal with are guidance project between $XXX,XXX. price homes and X,XXX average we an For and our $XXX,XXX and year deliveries between of

We adjusted year year in fiscal the approximately margin XXXX and XX%. quarter be the for to expect second of our gross full

$XXX interest be in in represent expense quarter full quarter sales as sales year. We year-over-year the sales second income of approximately cost second income, would We I XX.X%. XX.X%. revenues year, And and project the expected our we decline. full full for approximately of in a be land year. for percentage to of from gross We be cost approximately expect leverage a This as for to now breakeven quarter the profit the to and interest second and X SG&A X.X%, is point to entities be XX-basis and unconsolidated Other in the it reduction continues mentioned, as to home sales expect million

in Living various of other department of sales our by in venture second Brothers partners. developed projected income from full is certain half Much year stabilized joint Toll interest communities with Apartment this

rental due unpredictable is in While of the the markets. capital these volatility market stabilized the properties for sale to

joint approximately strong Our year. we tax second and ventures end quarter these of the of occupancies tax year do fiscal rate rate our sell and project expect by at currently the to interest XX% a XX.X%. We the remain full at in X

$XXX million for million XXX million Our second count for stock be we This and share targeted quarter average is shares sorry, for XXX million to $XXX XXX expected common the XXXX the second approximately weighted full shares I'm fiscal quarter the for year. the of repurchased -- and a assumes year.

year-end to $X move Putting full together, which share book at that fiscal year between the above and for all be $XX works value our would this out $X per XXXX.

of we continue Doug off to the count cash grow end on new Lastly, own we community cautious we land that on XXXX. XXX But the mentioned, base year the expect fiscal in continue expect of be control, we started currently strong year XX% by generating and as flow This to spend. remain XXXX the would to based with. communities by land we or

control also community We fiscal land XXXX. enough count year to grow in

let Doug. turn me to Now it back

Douglas Yearley

Toll brand our World's like very Fortune our I'm customers. thank Thank achieving members this and team and I demonstrate They honor. this time is our Marty. And Most of company. month, proud to Magazine our #X I'm that, you, our Admired of Homebuilding to This Earlier to received dedication the for so tremendous Brothers recognition. us Company. of this eighth grateful. team for would we continue their named the all have to

to open With that, Keith, let's it questions. up

Operator

the [Operator Kim Stephen Instructions] question comes And with first ISI. from Evercore

Stephen Kim

Thanks color for all the demand Obviously, the here. tone your of seems has like strong. stayed it great

external that, customer I'm for is can acquisition so as over next a was customers fees what the and over ask what about SG&A of years been encouraging. is your us about This sense of costs. things others us But to, like increased acquisition environment but give very you curious of normalizing, I say, we've pre-pandemic, been has look for like likely give So costs going will, probably Internet a through relative with was couple potentially I'm your couple you forward not your incremental sense broker living last to to that use attract thinking look years? maybe a the customer to market unusual. like let's the to trend it margin it's where

Douglas Yearley

on question, we've gotten spend in means. digital Brothers website. on and of paper or Toll and great target through The the We're more Sunday digital the at more clients money the Stephen. a as It's today how and our very -- we TV, Sure. find won't efficient is you become it's better we proud radio better

homes compliments that's they do. to internal of website clients we that they We web their all try the have an on team, And find navigate want. ability get our our from on to lots to

it the with and the coming and so think realtor dollar is today of and involvement about have to is order we digital comforted with running to real the see had a ago down The to marketing, client I is And become of our X, continue sales happy so biggest will us. and we important the which more more efficient as when you were know, we to course, spend comes expense, realtors brokers, Back engagement down. around is years XX% number that XX%. XX been

were more But on number You very allocation, of we their clients that we're argue line were because market, had for when up in that the you real order in waiting ago be year they for and just lined in clients around coming encouraged opportunity. were today's that XX%, to had sort down could a we without

and And comfortable being they without the we're from learn can moving where that with they are markets their on resale everything hearing go faster able learn tight, buy exclusively and client they to they're to need our on the new confident the website homes own or to and they broker. are

come business. a [indiscernible] to us. it expense, So it's time down. quarters down permanent been to XX% need know a and that last support the We're at to community. longer-term it is is them, going community we have there's few you but think couple if see range the a it the wait quarters, We change We that important a significant But wouldn't be at of for would to when to pretty down. has

we get that, on encouraged, and the we're to S for going think efficient So SG&A. I are and more of more the

Stephen Kim

about luxury ask or let's in to it, traditional versus wanted I afflux helpful. That's customer. customer you. your your affordable luxury difference Got you're seeing also call the your, more

had the incentives comments obviously to incentive better. lower in running things not would low today the have in wanted affordable due actually mortgage think about As traditional the not just versus your And I to the because to getting which the reduction significant the relates has at that past not that luxury difference you end, prevailing imply versus actually buydown it end to I there -- in Or luxury the between you're much is costing incentives, part trend market on X% down? that understand, is what come rate the rate actions, proactive to quarter, incentives. -- talked about your that as primarily X.X% that seeing offer at incentive actions to not but are is is end. fact you a due

Douglas Yearley

Sure.

So XX% let's and between we it what start mentioned, virtually call empty of active adult, as first same. we down affordable were quarter, with the cadence was We for was [indiscernible] nester sales. each the and is The identical. segments which sales luxury, those luxury

performing quite it all and comes on restricted butter. affordable luxury, the than it lower same. [indiscernible] they're the and the age the significantly When our on higher it to is it luxury, bread about true the on So is slightly is

impacted by for many, advantage we've a to And affordable They years. luxury a a So number that ran think had The luxury rate. X-ish the we've it's -- about just go and market. about a X% luxury many we range. pick in that client of They're to volatile as wealthier. talked let's is less quarter. about ran buyer -- just rate the in different around Age-targeted, back age-restricted in ran X% the to percent first fourth X.X%,

a and -- it incentivize now they us look significant they sense and we're elastic went raising and more were out boss the buyer when is so to by the become with increase our more what urgency no little is some And coming was and or may bottom. sounds the demand that, absorbed it January incentives, sentiment rate The and to the we prepared able mentioned miss demand sure could we in they And yes, traffic. I back increase back salespeople partially raising incentives. as opportunity by There's they about it, hearing saying, to people market, I this in to like we incentives the we seasonality results. the this driven or talk realized on February, think client boy, market in they increasing as buy. like doing when oh, into is to see they resale more in came started with Brothers they it to prices rate don't by tight. wanted us driven of dropping off But we're Toll though, [indiscernible] respect want good and it there by drop absorb higher out, in incentives, I the With saw comments, opportunity some some even sounds be the became higher, maybe the

urgency that And real. created, and it's was

incentives. dropping are We

selectively. that go we which continue down. one think back my -- explained in throughout surgically, going comments was to why in We happening incentive the but the it it is December, country, that's and are of the raising it prices. than prepared reasons doing We're less today's We're is to doing it's I

I I market you. hope that's So our environment. helped breakdown the between product mix. That's the

Operator

next question Rehaut comes from the Michael with JPMorgan. And

Michael Rehaut

I discussion. know of there's a lot

question saying this things strongest that alluded obviously the confidence have sharply a just And marketplace. app is, rates. some pretty February for morning. sometimes interest and buyer far. of obviously, You that weekend little kind in versus so bit it's after to index the a this into been sales you're past has very time I tumultuous to pretty a the was interesting purchase The NBA its rates impact obviously, it of takes around, move guess down

this encouraging months, But into get weeks of as most volatility concerns to might last kind the recent in does traffic make this how few create you've you take, it's most X the rates lot over or month. And move pretty X your terms any over view obviously, last of how the obviously, recent put So volatility, over that past move, seen a point saw X do this a the months, as data quarters? context X it anything X, just over the over you wanted concerned you weekend. and of or past you in past

Douglas Yearley

Sure.

from to Mike, when you'd I so you, I going have So these yes, that's X.XX, X.XX don't told in. don't I would I don't know. -- ask -- if buyers me if to And X.XX, think worried. the tell in truth. And that do? not rolling goes they not rate back be the be are a X-week honestly know then it's if enough. to Doug, I'm I X.XX period time of asked when go And worried. you me, I'd to from that you did. the going REITs what's

better only week. we've X good it's had right, this the week and the rates of now You're go being with weeks, for X had X. weeks up last We've X

Now prior Super as the -- quite was which is Bowl week in. week isn't historically week strong Super now which isn't we're the what a Bowl, as following the

that very Web a X.XX frame really time even X.XX. But ago take didn't still too is early out. with is a That old short It to of out good. lot at It high get that. So back the I certainly be buyers is take very X.X. It activity was that they're encouraging good encouraging around point X. old came and running X.XX days more take it the really as a good. year that Xs. X.XX. here it's move those it's with -- didn't from to of didn't of data rates Traffic encouraging, really

to sales incentives. the dropping we in have center urgency We are because create continued

buyers raising out. We are are prices and the

coming job, the doing here economy. tell few last the looking to we're until but sit yet. haven't understand of The down. is volatility stock be weeks the have cleared that better going clouds over seems to you markets woods. the not We their their all I'm and They It's inflation out Fed that performed But rates. well. the We to understand

for less we've reasons to Our the total impacted by ago. I it from rates to the about we're all top you, about XX talk happening used buyers But it's to the spread back XX encouraged plus are recent -- XX-year years by been the years, activity. XXX the tell the XX-year the best points. can and That's environment. that rate the Remember in talking the

it be Historically, does in mentality norms, that rate to So in more for to the the we're XX locked runs [XXXs] high happens going shape. time. spread And historical X.X good if of this a tighten years. I'm buyer all Refi into doesn't the have

$X,XXX, they sophisticated. also jump Our $X,XXX saying They and lives. before. our rates life. refied want that impact important, have buyers the into I'm urgency, with a rate, some are aren't they not They thing. Most a them mentality. to affordability, for and there's But months and business owned have in are on for back. their of model, rate of they of can move is out all get they're took off. a their higher low them now not They now seeing #X homes And Almost do. X and don't They're $X,XXX, it

Michael Rehaut

I certainly, to just of being mortgage the more I no. the was that the comments, incentives refi and buydowns those on appreciate incentive by Doug. wanted prior outright average the right missed driven from of guess, sure in a make No, less makes sense, expensive lot from cost secondly, it question. or rate -- just reductions I currently Right. And broadly particularly heard decline X.X. no, actual sorry? going the to it X I side.

Douglas Yearley

It's incentives. It's buydown a not difference rate.

Michael Rehaut

less full that due margin, you in though, cost on even down more guidance gross and the the margin X% though took the the have curious or you to lower I'm well. some that Well, at X.X% could looking Okay. question if upside year? of I the The the was on average some as was to was to based progress due guidance, SG&A quarter ultimately first gross drive saves. heart if incentive upside said your think you potentially for that incentives in continue the

Martin Connor

Thanks Marty. Yes, for Mike, it's questions. your

what and gross feel in in the the We get be we we to sold puts consistent we've year. takes for There's and the year that expect the in balance But given through of backlog our settled estimates the and respect be we've guidance in interim. may to like that accounted to the relatively margin for with that, XX% obviously, what's the you. showed to

Douglas Yearley

Mike, to is how part rate budget close. been that that with have little the as with need to had that, them But of to backlog there that with in And pleased that we've and a very spend guidance place of part work to occasional get of for some can is low how we backlog.

Operator

comes And of the from question Jadrosich next Bank from America. Rafe

Rafe Jadrosich

It's Rafe.

about talk going to a chain supply and of bit debt with cash. improvement, the the then And kind to net thinking is right the first, a you're your Just going generate little cap at already market Can here level just forward? you about of improving the of low end lot you're historical range.

spend about think land you forward? do versus how Just buybacks going

Martin Connor

particularly of the we much years are while flow of cap, those numbers Right thresholds, in in we'll number a off in little respect And a level little those fortunate deal pipeline the plenty to threshold those. based to are stock the on little we capital on land rating million and may for With has higher less agencies. there it's in those our deals ago, relates the of debt hit -- to and of land a our consistent here, level do all back. to that's bit a as to bit timing we debt to and in meet maturities. underwriting stock with that second a execute now, and fluctuate buy bit gross the And discussions those. has repurchases the that financial net our I been balance. were we quarter delicate be new of and the flexibility debt have continue with allocation, it underwritten paydowns net high $XXX comfortable land to mid-XXs paying respect with continue buy to around that think the a XXs, It and With we're

Douglas Yearley

you've we ago that lots. get I our from risk we've more it's XX,XXX walkaway X to from they weren't had few as environment, painless costs that And in the years a quarters, to point last lots out those land. option away working. over pretty option and been strategy would more less by efficient have of away to because in our was quarters, seen those the Part X landholdings modest over have today's walk walked And capital

the also be shows will and we of selective away capital-efficient think efficient it payoff very walk strategies. But that how that with of it's at price that painlessly. we've from buying been number I right and capital can options replenished land Now in being the

Rafe Jadrosich

cost come type it you the of then how have would And down? we that the anticipate the guidance, helpful. perspective today, assumptions For just you're of underlying talk gross about what construction margin you started seeing similar to started sort example, And that a can you or here? in what you from about X there? going construction terms what's can That's talk in maybe ago? margin expect versus can months Like house for a costs forward see

Douglas Yearley

for improving chain is material significantly. except time cost, as Supply down more is so stabilized, come The improving. is have Sure. And -- start. biggest which have capacity. costs contractors has let's Cycle lumber, our

for materials now, a that other there year costs, is But nice that both out X costs lumber, down. pretty believe, before do right month We or lumber. So week. will that, will as it It's there's last maybe. flattened the the rapidly was be be weeks stabilized, in very and down labor nice every are coming tailwind and except tailwind. But coming a so, with which progresses

So the year. for balance stay the of tuned

We capacity have is didn't I've That normal trades to conversation trade is comes X are use the says, got that that concession. actively "Hey, the extra opening to talking an get now work." crew some the price a and framing or could

And is so seeing down. beginning costs the come the that process of of

Operator

question next comes from the UBS. And with John Lovallo

John Lovallo

with? But what base. are plans you a back just I year-over-year you guys things $XX of other been is one first million broker The cost-saving structural commissions and on talked revenue a SG&A, successful have some more done. on similar that the few down going about And to know

Douglas Yearley

Headcount. to people. We're We're firm. less how trimming the be efficient more with learning

another days. initiatives within, cuts in have from replacing difficult, round efficient it's We've but headcount. last a in we -- more the to for primarily we other thoughtful We're some become needing person. a within, we're -- have As the from without and headcount gone retirements, plan through XX firm, with very of promoting even we're

John Lovallo

up here there Got those you're impact if reductions? to if that. on just headcount to negatively a things could follow it. risk Maybe given up pick going Is I that growth were

Douglas Yearley

No.

John Lovallo

Okay.

buyers in you're as psych least Great. second more maybe cash a is percentage. is digging there here, missing in then at like mean, slight a mentality out, accustomed to was confidence. looks hearing, I some of Okay. just And quarter-over-quarter, And higher you which you buyer general, into are But mentioned getting rates? step-up from interesting. think folks fear what interest and do question pretty just it more

Douglas Yearley

Yes.

the happened mid-XXXXs, to we adjust write exactly buyers rate thought, was market, it common the But buyers do you It for at expected. many think I check. what plus which we're I and would our happened. of great took there to And and mortgage the been we higher to And went have it that's primary mid-XXs through since the rate take there, to fundamentals. It's the I check, believe, the we've -- environment. years that's a I time time. XX% been sense, up, them environment. back were some now back some know we from big balance for the write supply migration you good tight this country. too can went X% a rates It's pent-up XX% to as has demand As the been X cash resale for in million a to that X homes that So few boomers, demand, if afford demographics in million right? with go there market, and millennials trends, decade. we and the

the it higher what And buyer back coming X rate appears All they're and absorbed the of we've a that can't as over be seen the last out. That's weeks. took pause ignored.

Operator

from comes Susan Goldman question Sachs. next with the And Maklari

Susan Maklari

commentary specs Can is detail supply question adding the gave more as of the you give thinking given looking you're construction number and on you about of move-in first a you quick around increasing are the for just go spring? bit My into we spec have that that how your homes. further

Douglas Yearley

Sure.

we your Susan, finishes. we specs the beyond. again, pick those to And our about have of now X,XXX lot define we model foundation to as are for left answer -- And these a right question. or spec So client enough -- a sell time with

and we our up fancy other So flooring some design things get studios. they that the and and show in can countertops of cabinets kitchen

be a homes to model which to we spec will more be XX% means without starting now business Our about buyer. right is XX%

at holding So when I'm because dynamics, comforted mix. the that really And model but market. framing the the market-dependent, what business between dependent are it's those at we that's X,XXX off are is and based and break specs a permit that all we're and and upon It's community local moment. very we targeting. foundation obviously them down, look spread not complete where I and good they But finishes

they client So they may it. in, days, may nicely spread. in very to really some have and XX we well months we when fix house It's in want very they it. well want a the finishes, X comes If want have

specs to a to place, this So of get And very that cadence the the sell about year. talking detailed continue in we we have. is we in what the XX% have starts as of plan about fill to we're it should what but new

Martin Connor

Doug very just in. what many this what as and how on hinted to process think start it’s -- at it's I of units are you specs based carefully Susan, managed other to construction but sold, stage

by sophisticated of ways by pace looking we've by so at sales. market, community, some of construction pretty stage developed this And by

Susan Maklari

to it guide realizing those margin the not the getting than core commentary, fair different is you're given that what is assume specs And materially you're the that product? on and on the

Douglas Yearley

be was faster So of the built specs specs a get now a a the COVID, getting lower buyers through From generated to on premium lot home as we a be because a because than summer people were specs to market softer than to quickly. the trimming margin year, paying the were were through And end the into on built. incentives the are margin sideline. the higher

and And we're between built yet, direction. long but margin the this has spec if to bit to going not a be it to for in that's to that continues, back be think having today, narrowed. And answer say, higher, margin a so to specs spec is trend the get we yes, demand there beginning but we're

Operator

And Wolfe from Truman the Patterson next question of Research. comes

Truman Patterson

of incentives you number pricing orders a to into just ago, I order think clean sometimes perhaps cuts, I'm cetera. there that price the have an hoping accounting ASP. couple because on First, turn understand can issue was get incentives recently, quarters mix a et but and in base reduced And

to understand down in base what might and core be between I'm cuts peak incentives? just trying from So all price pricing

Martin Connor

Well, address price we quarter incentives. difference our X/X this versus quarter with was tried that of to the that last in comment associated

call $XX,XXX. So to that $XX,XXX

Douglas Yearley

all also is base bucket. Which drops. X price It's

Truman Patterson

Okay. Got it.

Okay.

nice expansion that's west gave areas of that market, mid-Atlantic, the in the number to we've pretty that any years? from gone opportunities over find just that all-in I'm all might an so, that you're perfect. have trying or understand, areas through, out geographical cetera. So land kind to past there to decade you or targeting coming some and expand are et Northeast, all geographical south, then you the had you given the the some And in recession softness

Douglas Yearley

Antonio. We bit Oregon. or X We've and Portland, Salt We We've gone to Lake Colleen. City. went gone went a X quite went expanded last San We into years. Tampa. the to to in Spokane We've into

at the just -- Long so in are going Truman, to moment, We we're opened there Long Island. And Island.

the our always along core tell no going before -- getting We're I hot So get existing really focused, are we're that number where machine really bigger market operating we're startups think in the think because that to at years inefficient that the eyes help we these We're leveraging pretty we on well. some you were looking. of also on a SG&A far there's most diversified of the more new markets market That's however, you going. have and moment, smaller enough to for we're going.

growth years, and think less I over core more markets. the so next you'll market of expansion of And our couple tertiary secondary in the see

Fred Cooper

The we and X market didn't don't you have do open have Nashville is mention expense yet. communities to we any where

Operator

Mike And comes next the from Dahl RBC Markets. Capital with question

Mike Dahl

greater follow-up a January helpful orders the the terms November, being combined. in environment, than was of December Just color on on it

can And to And be orders, the a XXX, you some point but trends? January could December, give So on through us quantification deposits. compared talk be least November, I you monthly had guess not around orders February walk sense at high-level math improvement, would take. to about or you help XXX just the if then just us on give finer when put of

Douglas Yearley

got All right. here. right I it

January the year-over-year. year-over-year. was sales So down November as was year-over-year. XX% same down of down is were highest the XXXX, was December February XX% XX% January since pre-January January XXXX January.

Mike Dahl

a Okay. That's you helpful. unit percent or change? terms when same Fred, very say in

Fred Cooper

Units.

Douglas Yearley

Units.

Mike Dahl

the I up guys question, side. My your bit. underwriting a obviously Okay. on quite you tightened land mean, follow-up just

and now? you're stand those margin Have shifted some given at up you you based threshold? maintained of metrics in Have in IRR that terms seeing? similar all down How high-level combined You've do thresholds where what the or the -- past. threshold on

Douglas Yearley

to is IRR XX% used margin We've be it combined buy we went XX%. it's XX%, -- to the to That kept now same, gross which ground.

So a going you're have need to if XX% IRR. XX% gross you're a margin, going to

XX% you're we'll going to It's deals. a you margin, tight. to XX% hard It's If give IRR. have find gross a

happening, very now have We deal very it's underwriting. high that flow, we disciplined combined in are being but right

Martin Connor

happened months the matter. We kind see And years, you we X weeks, had we’re what And XX-month of XX front months. weeks using should pace last full current the that’s pace might X that of that XX paces. say we In annualize don’t to us. a over should, what in because need not put other have

Douglas Yearley

Right.

plug current that, come comes as in down, down, off but to sales costs come conditions pace. they too, current to are market the sales of it times for price some when building cycle to conditions and work as Now allowed team have

frustrated some land And there, but we teams So out we They’re deals. celebrate that’s have hubs. good.

just We’re doing It’s is deals make sure everybody treasury we that and knows the tight. open.

Operator

for management over to like I concludes any comments. turn this would the closing to question-and-answer back our conference And session.

Douglas Yearley

everyone, Thank appreciate We interest very very you support. your and Thanks, much. much. for

what is Take spring so We’re individual care. may have. today, is questions coming. so always it much. to here answer Xpm any in Thanks you Philly – And

Operator

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

your You may now lines. disconnect

Toll Brothers (TOL) 22 Feb 232023 Q1 Earnings call transcript