Toll Brothers Inc. (NYSE:TOL) Q3 2020 Earnings Conference Call - Final Transcript

Aug 26, 2020 • 11:00 am ET

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Toll Brothers Inc. (NYSE:TOL) Q3 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day and welcome to the Toll Brothers Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Douglas Yearley, Chairman and Chief Executive Officer. Please go ahead.

Executive
Douglas C. Yearley

Thank you, Cole. Welcome and thank you for joining us. I hope you, your families and your friends are staying well. With me on the call today are Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance and Investor Relations; Wendy Marlett, Chief Marketing Officer; and Gregg Ziegler, Senior VP and Treasurer.

Before I begin, I ask you to read the statement on forward-looking information on our earnings release and on our website. I caution you that many statements on this call are forward-looking, based on assumptions about the economy, world events, housing and financial markets, the current and long-term impact of the COVID-19 pandemic and many other factors beyond our control, that could significantly affect future results. Those listening on the web can email questions to investorrelations@tollbrothers.com.

Now, let's begin. We are very pleased with our overall performance in our third quarter ended July 31st. I will focus on the current sales environment and then turn it over to Marty, to address the numbers. Our third quarter net signed contracts of 2,833 homes and $2.2 billion were up 26% in units and 18% in dollars, compared to one year ago, the highest third quarter ever in both units and dollars. Our contracts per community in the third quarter at 8.5, was the highest third quarter in 15 years. As for a monthly cadence, May's contracts were down 21%, June's were up 76%, and July's were up 31%, versus one year ago. Demand in June was not stronger than July, it just had an easier comp to 2019. In fact, while June contracts were the highest June in our history, our July contracts were the highest for any month in our history, including the spring selling months of February, March and April, when we historically sell the most homes.

The strong demand has continued so far into August, with deposits trending even better than July, and also up significantly compared to the same three weeks last August. We remind you that for Toll Brothers, non-binding reservation deposits are an indicator of current market conditions, as they generally precede our binding contracts by about three weeks.

With the strength in demand, we increased prices in most of our communities this quarter. If this strength continues, we expect to keep raising prices. Our traffic to deposit ratio of 11.3% and our traffic-to-agreement ratio of 7.1% were by far our highest conversion ratios ever. Customers who visited our communities, whether in person or online, were intent on buying. We believe that there are many reasons why demand for our homes has surged. Some are positives for the entire industry, but importantly, some are very specific to our luxury build-to-order business model. Historically low interest rates are an undeniable benefit