Toll Brothers Reports FY 2023 2nd Quarter Results

Douglas C. Yearley, Jr., chairman and chief executive officer, stated: “We are very pleased with our second quarter results. As mortgage rates have stabilized and buyer confidence has improved, the increase in demand that began in January has continued through our second fiscal quarter and into the start of our third quarter. This improvement in demand, combined with our strategy of increasing our supply of spec homes into the spring selling season and our focus on operational efficiency, has resulted in second quarter performance that well exceeded our guidance.

“In our second quarter, we delivered 2,492 homes at an average price of approximately $1.0 million, generating home sales revenues of approximately $2.5 billion. We continued to benefit from cost reduction initiatives that have made our operations more efficient. We exceeded our adjusted gross margin guidance by 130 basis points and our SG&A expense, at 9.1% of home sales revenues, was 200 basis points lower than last year’s second quarter. As a result, we generated record second quarter net income of $320.2 million and earnings of $2.85 per share diluted, up 46% and 54%, respectively, compared to the second quarter of FY 2022. In light of these results and the healthier demand environment, we are raising our full year guidance for almost every metric.

“There continues to be a substantial shortage of homes for sale in the U.S., as housing starts have not kept up with population growth for at least the past 15 years. Now, the supply of homes for sale is being further limited by a historically tight resale market as homeowners are reluctant to give up their low-rate mortgages. We believe the resulting supply - demand imbalance will continue well into the future, adding to the long-term tailwinds that have supported the housing industry in recent years. These include favorable demographics, migration trends, and more flexible work arrangements.

“Importantly, with 71,300 lots owned or controlled, we continue to have sufficient land under control to increase community count in FY 2023 and beyond. Our financial position and liquidity remain very strong, and we expect to generate significant cash flow from operations in FY 2023. In the second quarter, we retired $400 million of senior notes, extended our term loan and revolving bank credit facilities out five years, repurchased $84 million of common stock and paid $23 million in dividends. At quarter end, our net debt to capital ratio was 23.5%. We expect to continue to invest in the growth of our business while reducing debt and returning cash to stockholders for years to come.”Third Quarter and FY 2023 Financial Guidance: Third Quarter Full Fiscal Year 2023Deliveries 2,350 - 2,450 units 8,900 - 9,500 units Average Delivered Price per Home $1,005,000 - $1,025,000 $975,000 - $995,000 Adjusted Home Sales Gross Margin 27.7% 27.8%SG&A, as a Percentage of Home Sales Revenues 9.7% 10.0%Period-End Community Count 360 385 Other Income, Income from Unconsolidated Entities, and Gross Margin from Land Sales and Other $25 million $125 million Tax Rate 26.0% 25.7% Financial Highlights for the three months ended April 30, 2023 and 2022 (unaudited): 2023 2022 Net Income $320.2 million, or $2.85 per share diluted $220.6 million, or $1.85 per share diluted Pre-Tax Income $430.6 million $295.8 million Pre-Tax Inventory Impairments included in Cost of Home Sales $11.1 million $2.2 million Home Sales Revenues $2.49 billion and 2,492 units $2.19 billion and 2,407 units Net Signed Contracts $2.28 billion and 2,333 units $3.09 billion and 2,874 units Net Signed Contracts per Community 7.0 units 9.0 units Quarter-End Backlog $8.38 billion and 7,574 units $11.71 billion and 11,768 units Average Price per Home in Backlog $1,105,900 $994,700 Home Sales Gross Margin 26.4% 24.1%Adjusted Home Sales Gross Margin 28.3% 26.1%Interest Included in Home Sales Cost of Revenues, as a percentage of Home Sales Revenues 1.5% 1.9%SG&A, as a percentage of Home Sales Revenues 9.1% 11.1%Income from Operations $425.7 million, or 17.0% of total revenues $281.7 million, or 12.4% of total revenues Other Income, Income from Unconsolidated Entities, and Gross Margin from Land Sales and Other $0.9 million $12.2 million Pre-Tax Land and Other Impairments included in Cost of Land Sales and Other $4.7 million $5.2 million Quarterly Cancellations as a Percentage of Beginning-Quarter Backlog 3.9% 1.0%Quarterly Cancellations as a Percentage of Signed Contracts in Quarter 11.5% 3.8% Financial Highlights for the six months ended April 30, 2023 and 2022 (unaudited) 2023 2022 Net Income $511.7 million, or $4.56 per share diluted $372.5 million, or $3.08 per share diluted Pre-Tax Income $684.4 million $496.6 million Pre-Tax Inventory Impairments included in Cost of Home Sales $19.1 million $4.4 million Home Sales Revenues $4.24 billion and 4,318 units $3.87 billion and 4,336 units Net Signed Contracts $3.73 billion and 3,794 units $6.08 billion and 5,803 units Home Sales Gross Margin 26.1% 23.9%Adjusted Home Sales Gross Margin 28.0% 25.9%Interest Included in Home Sales Cost of Revenues, as a percentage of Home Sales Revenues 1.5% 1.9%SG&A, as a percentage of Home Sales Revenues 10.4% 12.1%Income from Operations $651.0 million, or 15.2% of total revenues $456.7 million, or 11.2% of total revenues Other Income, Income from Unconsolidated Entities, and Land Sales Gross Profit $17.7 million $42.0 million Pre-Tax Land and Other Impairments included in Cost of Land Sales and Other $17.7 million $5.2 million        

Additional Information:

(1) See “Reconciliation of Non-GAAP Measures” below for more information on the calculation of the Company’s net debt-to-capital ratio.

Toll Brothers will be broadcasting live via the Investor Relations section of its website, investors.TollBrothers.com, a conference call hosted by chairman and chief executive officer Douglas C. Yearley, Jr. at 8:30 a.m. (ET) Wednesday, May 24, 2023, to discuss these results and its outlook for the third quarter and FY 2023. To access the call, enter the Toll Brothers website, click on the Investor Relations page, and select “Events & Presentations.” Participants are encouraged to log on at least fifteen minutes prior to the start of the presentation to register and download any necessary software.

The call can be heard live with an online replay which will follow.

ABOUT TOLL BROTHERS
Toll Brothers, Inc., a Fortune 500 Company, is the nation's leading builder of luxury homes. The Company was founded 56 years ago in 1967 and became a public company in 1986. Its common stock is listed on the New York Stock Exchange under the symbol “TOL.” The Company serves first-time, move-up, empty-nester, active-adult, and second-home buyers, as well as urban and suburban renters. Toll Brothers builds in over 60 markets in 24 states: Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, and Washington, as well as in the District of Columbia. The Company operates its own architectural, engineering, mortgage, title, land development, insurance, smart home technology, and landscape subsidiaries. The Company also develops master-planned and golf course communities as well as operates its own lumber distribution, house component assembly, and manufacturing operations.

Toll Brothers was named the #1 Home Builder in Fortune magazine’s 2023 survey of the World’s Most Admired Companies®, the eighth year it has been so honored. Toll Brothers has also been named Builder of the Year by Builder magazine and is the first two-time recipient of Builder of the Year from Professional Builder magazine. For more information visit TollBrothers.com.

Toll Brothers discloses information about its business and financial performance and other matters, and provides links to its securities filings, notices of investor events, and earnings and other news releases, on the Investor Relations section of its website (investors.TollBrothers.com).

©2023 Fortune Media IP Limited. All rights reserved. Used under license. Fortune and Fortune Media IP Limited are not affiliated with, and do not endorse the products or services of, Toll Brothers.

FORWARD-LOOKING STATEMENTS

Information presented herein for the second quarter ended April 30, 2023 is subject to finalization of the Company's regulatory filings, related financial and accounting reporting procedures and external auditor procedures.

This release contains or may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. One can identify these statements by the fact that they do not relate to matters of a strictly historical or factual nature and generally discuss or relate to future events. These statements contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might,” “should,” “likely,” “will,” and other words or phrases of similar meaning. Such statements may include, but are not limited to, information and statements regarding: expectations regarding inflation and interest rates; the markets in which we operate or may operate; our strategic priorities; our land acquisition, land development and capital allocation priorities; market conditions; demand for our homes; anticipated operating results and guidance; home deliveries; financial resources and condition; changes in revenues; changes in profitability; changes in margins; changes in accounting treatment; cost of revenues, including expected labor and material costs; selling, general, and administrative expenses; interest expense; inventory write-downs; home warranty and construction defect claims; unrecognized tax benefits; anticipated tax refunds; sales paces and prices; effects of home buyer cancellations; growth and expansion; joint ventures in which we are involved; anticipated results from our investments in unconsolidated entities; our ability to acquire or dispose of land and pursue real estate opportunities; our ability to gain approvals and open new communities; our ability to market, construct and sell homes and properties; our ability to deliver homes from backlog; our ability to secure materials and subcontractors; our ability to produce the liquidity and capital necessary to conduct normal business operations or to expand and take advantage of opportunities; and the outcome of legal proceedings, investigations, and claims.

Any or all of the forward-looking statements included in this release are not guarantees of future performance and may turn out to be inaccurate. This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties. The major risks and uncertainties – and assumptions that are made – that affect our business and may cause actual results to differ from these forward-looking statements include, but are not limited to:

Many of the factors mentioned above or in other reports or public statements made by us will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

For a further discussion of factors that we believe could cause actual results to differ materially from expected and historical results, see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K filed with the SEC and in subsequent reports filed with the SEC. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) April 30,
2023 October 31,
2022 (Unaudited) ASSETS Cash and cash equivalents $761,945 $1,346,754 Inventory 9,107,878 8,733,326 Property, construction and office equipment, net 298,168 287,827 Receivables, prepaid expenses and other assets 697,612 747,228 Mortgage loans held for sale 112,603 185,150 Customer deposits held in escrow 123,627 136,115 Investments in unconsolidated entities 887,643 852,314 $11,989,476 $12,288,714 LIABILITIES AND EQUITY Liabilities: Loans payable $1,136,235 $1,185,275 Senior notes 1,595,727 1,995,271 Mortgage company loan facility 102,489 148,863 Customer deposits 662,559 680,588 Accounts payable 550,900 619,411 Accrued expenses 1,334,197 1,345,987 Income taxes payable 171,643 291,479 Total liabilities 5,553,750 6,266,874 Equity: Stockholders’ Equity Common stock 1,279 1,279 Additional paid-in capital 697,583 716,786 Retained earnings 6,632,502 6,166,732 Treasury stock, at cost (945,019) (916,327)Accumulated other comprehensive income 33,875 37,618 Total stockholders' equity 6,420,220 6,006,088 Noncontrolling interest 15,506 15,752 Total equity 6,435,726 6,021,840 $11,989,476 $12,288,714 

TOLL BROTHERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data and percentages)
(Unaudited) Three Months Ended
April 30, Six Months Ended
April 30, 2023 2022 2023 2022 $% $% $% $%Revenues: Home sales $2,490,098 $2,186,529 $4,239,520 $3,873,881 Land sales and other 16,881 91,012 47,628 194,741 2,506,979 2,277,541 4,287,148 4,068,622 Cost of revenues: Home sales 1,832,878 73.6% 1,659,265 75.9% 3,133,801 73.9% 2,948,792 76.1%Land sales and other 20,850 123.5% 92,981 102.2% 63,285 132.9% 192,598 98.9% 1,853,728 1,752,246 3,197,086 3,141,390 Gross margin - home sales 657,220 26.4% 527,264 24.1% 1,105,719 26.1% 925,089 23.9%Gross margin - land sales and other (3,969)(23.5)% (1,969)(2.2)% (15,657)(32.9)% 2,143 1.1% Selling, general and administrative expenses 227,537 9.1% 243,637 11.1% 439,034 10.4% 470,507 12.1%Income from operations 425,714 281,658 651,028 456,725 Other: (Loss) income from unconsolidated entities (5,302) 2,933 (9,735) 24,970 Other income - net 10,180 11,224 43,095 14,936 Income before income taxes 430,592 295,815 684,388 496,631 Income tax provision 110,376 75,222 172,642 124,134 Net income $320,216 $220,593 $511,746 $372,497 Per share: Basic earnings $2.88 $1.87 $4.60 $3.12 Diluted earnings $2.85 $1.85 $4.56 $3.08 Cash dividend declared $0.21 $0.20 $0.41 $0.37 Weighted-average number of shares: Basic 111,214 117,839 111,306 119,418 Diluted 112,184 118,925 112,260 120,891 Effective tax rate 25.6% 25.4% 25.2% 25.0% 

TOLL BROTHERS, INC. AND SUBSIDIARIES
SUPPLEMENTAL DATA
(Amounts in thousands)
(unaudited) Three Months Ended
April 30, Six Months Ended
April 30, 2023 2022 2023 2022Inventory impairments and write-offs included in home sales cost of revenues: Pre-development costs and option write offs $5,844 $2,192 $8,448 $2,985Land owned for future communities 325 — 325 1,440Land owned for operating communities 4,900 — 10,300 — $11,069 $2,192 $19,073 $4,425 Land and other impairments included in land sales and other cost of revenues $4,700 $5,200 $17,700 $5,200 Depreciation and amortization $18,611 $18,857 $34,093 $33,536Interest incurred $33,581 $31,981 $66,628 $63,260Interest expense: Charged to home sales cost of revenues $37,558 $40,822 $62,638 $73,259Charged to land sales and other cost of revenues 1,350 219 4,827 3,628 $38,908 $41,041 $67,465 $76,887 Home sites controlled: April 30,
2023 April 30,
2022Owned 36,348 40,704Optioned 34,947 45,136 71,295 85,840 

Inventory at April 30, 2023 and October 31, 2022 consisted of the following (amounts in thousands): April 30,
2023 October 31,
2022Land and land development costs $2,191,082 $2,164,121Construction in progress 6,004,267 5,716,565Model homes 351,165 285,749Land deposits and costs of future development 561,364 566,891 $9,107,878 $8,733,326

Toll Brothers operates in following five geographic segments, with current operations generally located in the states listed below:

At October 31, 2022, the Company concluded that its City Living operations no longer met the definition of an operating segment, primarily due to the change in structure and a shift in strategy for its operations. Amounts reported in prior periods have been reclassified to conform to the fiscal 2023 presentation. The realignment did not have any impact on the Company’s consolidated financial position, results of operations, earnings per share or cash flows for the periods presented. Three Months Ended
April 30, Units $ (Millions) Average Price Per Unit $ 2023 2022 2023 2022 2023 2022REVENUES North 408 494 $381.3 $398.9 $934,600 $807,500Mid-Atlantic 274 276 309.6 268.2 $1,129,900 $971,900South 659 447 519.4 326.4 $788,100 $730,100Mountain 767 814 674.2 653.5 $879,100 $802,900Pacific 384 376 605.9 541.5 $1,577,800 $1,440,100Home Building 2,492 2,407 2,490.4 2,188.5 $999,300 $909,200Corporate and other (0.3) (2.0) Total home sales 2,492 2,407 2,490.1 2,186.5 $999,200 $908,400Land sales and other 16.9 91.0 Total Consolidated $2,507.0 $2,277.5 CONTRACTS North 396 479 $366.1 $457.9 $924,400 $955,800Mid-Atlantic 316 254 325.4 286.6 $1,029,700 $1,128,400South 749 616 590.9 573.7 $789,000 $931,300Mountain 529 1,002 449.4 943.3 $849,500 $941,400Pacific 343 523 543.5 828.8 $1,584,600 $1,584,700Total Consolidated 2,333 2,874 $2,275.3 $3,090.3 $975,300 $1,075,200 BACKLOG North 1,081 1,788 $1,097.6 $1,637.2 $1,015,300 $915,700Mid-Atlantic 969 1,120 1,052.3 1,140.0 $1,085,900 $1,017,900South 2,539 3,029 2,362.4 2,581.0 $930,400 $852,100Mountain 2,037 3,982 2,161.1 3,607.7 $1,060,900 $906,000Pacific 948 1,849 1,702.9 2,740.3 $1,796,300 $1,482,000Total Consolidated 7,574 11,768 $8,376.3 $11,706.2 $1,105,900 $994,700 Six Months Ended
April 30, Units $ (Millions) Average Price Per Unit $ 2023 2022 2023 2022 2023 2022REVENUES North 765 912 $704.1 $754.0 $920,400 $826,800Mid-Atlantic 440 552 498.7 511.1 $1,133,400 $925,900South 1,148 794 912.3 569.9 $794,700 $717,800Mountain 1,315 1,417 1,154.4 1,115.9 $877,900 $787,500Pacific 650 661 970.6 926.5 $1,493,200 $1,401,700Home Building 4,318 4,336 4,240.1 3,877.4 $982,000 $894,200Corporate and other (0.6) (3.5) Total home sales 4,318 4,336 4,239.5 3,873.9 $981,800 $893,400Land sales and other 47.6 194.7 Total Consolidated $4,287.1 $4,068.6 CONTRACTS North 724 963 $681.3 $896.7 $941,000 $931,200Mid-Atlantic 567 620 589.5 647.2 $1,039,700 $1,043,900South 1,164 1,353 919.4 1,185.1 $789,900 $875,900Mountain 828 1,801 713.3 1,701.4 $861,500 $944,700Pacific 511 1,066 826.0 1,652.9 $1,616,400 $1,550,600Total Consolidated 3,794 5,803 $3,729.5 $6,083.3 $983,000 $1,048,300 

Unconsolidated entities:

Information related to revenues and contracts of entities in which we have an interest for the three-month and six-month periods ended April 30, 2023 and 2022, and for backlog at April 30, 2023 and 2022 is as follows: Units $ (Millions) Average Price Per Unit $ 2023 2022
2023
2022
2023
2022Three months ended April 30, Revenues 3 4 $8.6 $16.3 $2,864,500 $4,080,600Contracts 29 4 $37.3 $16.2 $1,286,000 $4,039,600 Six months ended April 30, Revenues 6 11 $23.4 $35.1 $3,906,700 $3,187,900Contracts 52 13 $70.2 $42.1 $1,350,300 $3,237,300 Backlog at April 30, 127 3 $143.4 $10.2 $1,128,800 $3,406,100                 

RECONCILIATION OF NON-GAAP MEASURES

This press release contains, and Company management’s discussion of the results presented in this press release may include, information about the Company’s adjusted home sales gross margin and the Company’s net debt-to-capital ratio.

These two measures are non-GAAP financial measures which are not calculated in accordance with generally accepted accounting principles (“GAAP”). These non-GAAP financial measures should not be considered a substitute for, or superior to, the comparable GAAP financial measures, and may be different from non-GAAP measures used by other companies in the home building business.

The Company’s management considers these non-GAAP financial measures as we make operating and strategic decisions and evaluate our performance, including against other home builders that may use similar non-GAAP financial measures. The Company’s management believes these non-GAAP financial measures are useful to investors in understanding our operations and leverage and may be helpful in comparing the Company to other home builders to the extent they provide similar information.

Adjusted Home Sales Gross Margin
The following table reconciles the Company’s home sales gross margin as a percentage of home sales revenues (calculated in accordance with GAAP) to the Company’s adjusted home sales gross margin (a non-GAAP financial measure). Adjusted home sales gross margin is calculated as (i) home sales gross margin plus interest recognized in home sales cost of revenues plus inventory write-downs recognized in home sales cost of revenues divided by (ii) home sales revenues.

Adjusted Home Sales Gross Margin Reconciliation
(Amounts in thousands, except percentages) Three Months Ended
April 30, Six Months Ended
April 30, 2023 2022 2023 2022 Revenues - home sales$2,490,098 $2,186,529 $4,239,520 $3,873,881 Cost of revenues - home sales 1,832,878 1,659,265 3,133,801 2,948,792 Home sales gross margin 657,220 527,264 1,105,719 925,089 Add: Interest recognized in cost of revenues - home sales 37,558 40,822 62,638 73,259 Inventory impairments and write-offs 11,069 2,192 19,073 4,425 Adjusted home sales gross margin$705,847 $570,278 $1,187,430 $1,002,773 Home sales gross margin as a percentage of home sale revenues 26.4% 24.1% 26.1% 23.9% Adjusted home sales gross margin as a percentage of home sale revenues 28.3% 26.1% 28.0% 25.9%

The Company’s management believes adjusted home sales gross margin is a useful financial measure to investors because it allows them to evaluate the performance of our home building operations without the often varying effects of capitalized interest costs and inventory impairments. The use of adjusted home sales gross margin also assists the Company’s management in assessing the profitability of our home building operations and making strategic decisions regarding community location and product mix.

Forward-looking Adjusted Home Sales Gross Margin
The Company has not provided projected third quarter and full FY 2023 home sales gross margin or a GAAP reconciliation for forward-looking adjusted home sales gross margin because such measure cannot be provided without unreasonable efforts on a forward-looking basis, since inventory write-downs are based on future activity and observation and therefore cannot be projected for the third quarter and full FY 2023. The variability of these charges may have a potentially unpredictable, and potentially significant, impact on our third quarter and full FY 2023 home sales gross margin.

Net Debt-to-Capital Ratio
The following table reconciles the Company’s ratio of debt to capital (calculated in accordance with GAAP) to the Company’s net debt-to-capital ratio (a non-GAAP financial measure). The net debt-to-capital ratio is calculated as (i) total debt minus mortgage warehouse loans minus cash and cash equivalents divided by (ii) total debt minus mortgage warehouse loans minus cash and cash equivalents plus stockholders’ equity.

Net Debt-to-Capital Ratio Reconciliation
(Amounts in thousands, except percentages) April 30, 2023 January 31, 2023 October 31, 2022Loans payable$1,136,235 $1,145,646 $1,185,275 Senior notes 1,595,727 1,995,439 1,995,271 Mortgage company loan facility 102,489 71,187 148,863 Total debt 2,834,451 3,212,272 3,329,409 Total stockholders' equity 6,420,220 6,201,347 6,006,088 Total capital$9,254,671 $9,413,619 $9,335,497 Ratio of debt-to-capital 30.6% 34.1% 35.7% Total debt$2,834,451 $3,212,272 $3,329,409 Less:Mortgage company loan facility (102,489) (71,187) (148,863) Cash and cash equivalents (761,945) (791,609) (1,346,754)Total net debt 1,970,017 2,349,476 1,833,792 Total stockholders' equity 6,420,220 6,201,347 6,006,088 Total net capital$8,390,237 $8,550,823 $7,839,880 Net debt-to-capital ratio 23.5% 27.5% 23.4%

The Company’s management uses the net debt-to-capital ratio as an indicator of its overall leverage and believes it is a useful financial measure to investors in understanding the leverage employed in the Company’s operations. CONTACT: Frederick N. Cooper (215) 938-8312fcooper@tollbrothers.com 

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