Toll Brothers, Inc.: Form 10-Q for the period ended Apr 30, 2025

This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the accompanying unaudited condensed consolidated financial statements and related notes, as well as our consolidated financial statements, notes thereto, and the related MD&A contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024 (“2024 Form 10-K”). It also should be read in conjunction with the disclosure under “Statement on Forward-Looking Information” and “Risk Factors” in this report and in our 2024 Form 10-K.

Unless otherwise stated in this report, net contracts signed represents a number or value equal to the gross number or value of contracts for the sale of homes signed during the relevant period, less the number or value of contracts canceled during the relevant period (irrespective of whether the contract was signed during the relevant period or in a prior period). Backlog consists of homes under contract but not yet delivered to our home buyers (“backlog”). Backlog conversion represents the percentage of homes delivered in the period from backlog at the beginning of the period (“backlog conversion”).

OVERVIEW

Our Business Environment and Current Outlook

In the three months ended April 30, 2025, we signed 2,650 net contracts for an aggregate value of $2.60 billion, a decrease of 13% in units and 11% in dollars compared to the prior-year period, and a 21% decrease on a per-community basis. Demand in the second quarter of fiscal 2025 was softer compared to the prior year period due in part to ongoing affordability challenges caused by elevated mortgage rates and higher housing costs, as well as increased economic uncertainty and a decline in consumer confidence in the quarter. We continue to strategically manage our pricing, incentives and home starts on a community-by-community basis to appropriately balance sales price and margin with pace, and to align our inventory levels with local sales environments. Notwithstanding a softer near-term demand outlook, we believe the long-term outlook for the new home market remains positive, as it is supported by strong fundamentals including favorable demographics, the structural undersupply of homes in the U.S. caused by over a decade of underproduction, the aging stock of existing homes, and accumulated wealth built up from years of stock market and home price appreciation.

In the three months ended April 30, 2025, we delivered 2,899 homes with an average delivered price of $933,600, as compared to 2,641 delivered homes at an average price of $1,002,300 in the three months ended April 30, 2024. The year-over-year increase in the number of homes delivered was primarily the result of the increase in the number of communities we were operating from during the second quarter of fiscal 2025, and a higher backlog conversion ratio due in part to reductions in our construction cycle times. The year-over-year decline in average delivered price was due primarily to changes in the mix of products and locations of delivered homes, reflective of our strategy in recent years to expand our geographies, price points and product types and to increase spec home production. Historically, most of our homes have been sold on a build-to-order basis, where we do not begin construction of the home until we have a signed contract with a customer. In recent years we have increased the number of homes that we start without a buyer (a spec home), which we generally build faster than build-to-order homes and which allow us to attract buyers who are looking for quicker move-in homes. We determine how many such homes to start within each community based on local market conditions, our current and planned sales pace, and construction cadence for the community. In light of recent demand trends, we expect to reduce the pace of our overall spec home starts in the near term.

Financial and Operational Highlights

In the three-month period ended April 30, 2025, we recognized $2.74 billion of revenues, consisting of $2.71 billion of home sales revenue and $32.6 million of land sales and other revenue, and net income of $352.4 million, as compared to $2.84 billion of revenues, consisting of $2.65 billion of home sales revenue and $190.5 million of land sales and other revenue, and net income of $481.6 million in the three-month period ended April 30, 2024. Land sales and other revenue and net income in the fiscal 2024 period included $185.0 million and $124.1 million, respectively, related to the sale of a single parcel of land in northern Virginia to a commercial developer.

In the three-month periods ended April 30, 2025 and 2024, the value of net contracts signed was $2.60 billion (2,650 homes) and $2.94 billion (3,041 homes), respectively.

In the six-month period ended April 30, 2025, we recognized $4.60 billion of revenues, consisting of $4.55 billion of home sales revenues and $51.0 million of land sales and other revenues, and net income of $530.2 million, as compared to $4.79 billion of revenues, consisting of $4.58 billion of home sales revenues and $206.5 million of land sales and other revenues, and net income of $721.2 million in the six-month period ended April 30, 2024. Land sales and other revenue and net income in the fiscal 2024 period included $185.0 million and $124.1 million, respectively, related to the sale of a single parcel of land in northern Virginia to a commercial developer.

In the six-month periods ended April 30, 2025 and 2024, the value of net contracts signed was $4.91 billion (4,957 homes) and $5.01 billion (5,083 homes), respectively.

The value of our backlog at April 30, 2025 was $6.84 billion (6,063 homes), as compared to our backlog at April 30, 2024 of $7.38 billion (7,093 homes). Our backlog at October 31, 2024 was $6.47 billion (5,996 homes), as compared to backlog of $6.95 billion (6,578 homes) at October 31, 2023.

At April 30, 2025, we had $686.5 million of cash and cash equivalents and approximately $2.19 billion available under our $2.35 billion revolving credit facility (the “Revolving Credit Facility”). At April 30, 2025, we had no borrowings and we had approximately $159.0 million of outstanding letters of credit under the Revolving Credit Facility.

At April 30, 2025, we owned or controlled through options approximately 78,600 home sites, as compared to approximately 74,700 at October 31, 2024; and approximately 70,700 at October 31, 2023. Of the approximately 78,600 total home sites that we owned or controlled through options at April 30, 2025, we owned approximately 32,800 and controlled approximately 45,800 through options. Of the 32,800 home sites owned, approximately 19,300 were substantially improved. In addition, as of April 30, 2025, we expect to purchase approximately 10,500 additional home sites over several years from certain of the joint ventures in which we have interests, at prices to be determined.

At April 30, 2025, we were selling from 421 communities, compared to 408 at October 31, 2024; and 386 at April 30, 2024.

At April 30, 2025, our total stockholders’ equity and our debt to total capitalization ratio were $7.95 billion and 0.26 to 1.00, respectively.

RESULTS OF OPERATIONS – OVERVIEW

The following table compares certain items in our Condensed Consolidated Statements of Operations and Comprehensive Income and other supplemental information for the three months and six months ended April 30, 2025 and 2024 ($ amounts in millions, unless otherwise stated). For more information regarding results of operations by segment, see “Segments” in this MD&A.

Note: Due to rounding, amounts may not add. Net contracts signed information presented above is net of all cancellations that occurred in the period. “Net contracts signed - value” includes the value of each binding agreement of sale that was signed in the period, plus the value of all options that were selected during the period, regardless of when the initial agreement of sale related to such options was signed.

Home Sales Revenues and Home Sales Cost of Revenues

Three months ended April 30, 2025 compared to the three months ended April 30, 2024

The increase in home sale revenues for the three months ended April 30, 2025, as compared to the three months ended April 30, 2024, was primarily attributable to a 10% increase in the number of homes delivered offset by a 7% decrease in the average price of homes delivered. The increase in the number of homes delivered in the three months ended April 30, 2025 was primarily due to an increase in operating communities, more deliveries of spec homes, and a higher backlog conversion in the three months ended April 30, 2025 compared to the three months ended April 30, 2024, primarily as a result of improvement in construction cycle times. These factors were offset, in part, by a decrease in the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023, most significantly in the Mountain and Pacific regions. The decrease in the average delivered home price was mainly due to an increase in homes delivered in less expensive product types/geographic regions, most notably in the Mid-Atlantic and Pacific regions.

The decrease in home sales cost of revenues, as a percentage of home sales revenues, in the three months ended April 30, 2025, as compared to the three months ended April 30, 2024, was principally due to a shift in the mix of revenues to higher margin products/areas, most notably in the North and Mountain regions, and higher inventory impairment charges in the fiscal 2024 period.

Six months ended April 30, 2025 compared to the six months ended April 30, 2024

Home sale revenues for the six months ended April 30, 2025 were flat when compared to the six months ended April 30, 2024. In the period, a 7% increase in the number of homes delivered was offset by a 7% decrease in the average price of homes delivered. The increase in the number of homes delivered in the six months ended April 30, 2025 was primarily due to an increase in operating communities, more deliveries of spec homes, and a higher backlog conversion in the six months ended April 30, 2025, primarily as a result of improvement in build times. These factors were offset, in part, by a decrease in the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023, most significantly in the North, Mid-Atlantic, and South regions. The decrease in the average delivered home price was mainly due to an increase in homes delivered in less expensive product types/geographic regions, including spec homes, most notably from fewer deliveries in the Pacific region and greater deliveries in the Mountain region.

The increase in home sales cost of revenues, as a percentage of home sales revenues, for the six months ended April 30, 2025, as compared to the six months ended April 30, 2024, was principally due to a shift in the mix of revenues to lower margin products/areas, partially offset by lower inventory impairment charges in the fiscal 2025 period and lower interest expense as a percentage of home sales revenues. In the six months ended April 30, 2025 and 2024, interest expense, as a percentage of home sales revenues, was 1.1% and 1.3%, respectively.

Land Sales and Other Revenues and Land Sales and Other Cost of Revenues

Our revenues from land sales and other generally consist of the following: (1) land sales to joint ventures in which we retain an interest; (2) lot sales to third-party builders within our master-planned communities; (3) bulk sales to third parties of land we have decided no longer meets our development criteria; (4) sales of land parcels to third parties (typically because there is a superior economic use of the property); and (5) sales of commercial and retail properties generally located at our urban luxury condominium communities. Land sales to joint ventures in which we retain an interest are generally sold at our land basis and therefore little to no gross margin is earned on these sales. The decreases in land sales and other revenues during the three and six months ended April 30, 2025 compared to the three and six months ended April 30, 2024 were primarily due to the sale of a land parcel in the fiscal 2024 periods to a commercial developer for net cash proceeds of $180.7 million which resulted in a pre-tax gain of $175.2 million, and which did not recur in the fiscal 2025 periods.

Land sales and other cost of revenues as a percentage of land sales and other revenues can vary period to period depending on the mix of sales to joint ventures versus third parties. The increase in land sales and other cost of revenues, as a percentage of land sales and other revenues, in the three and six months ended April 30, 2025 was primarily impacted by the $180.7 million land parcel sale in the fiscal 2024 periods described above, which carried a low basis. In addition, we recognized $1.8 million of impairment charges in the six-month period ended April 30, 2025 in connection with planned land sales. This compares to $0.6 million of land sales and other impairment charges recognized in the three and six months ended April 30, 2024. No impairment charges on land sales and other were recognized in the three months ended April 30, 2025.

Selling, General and Administrative Expenses (“SG&A”)

SG&A expenditures increased by $18.1 million in the three-month period ended April 30, 2025, as compared to the three-month period ended April 30, 2024. As a percentage of home sales revenues, SG&A expenditures were 9.5% of home sales revenues in the three months ended April 30, 2025, as compared to 9.0% in the three months ended April 30, 2024. The dollar increase in SG&A expenditures was due primarily to higher internal commissions, marketing spend from increased community count and higher payroll costs. These increases were offset, in part, by reduced external broker commissions.

SG&A expenditures increased by $28.4 million in the fiscal 2025 six-month period, as compared to the fiscal 2024 six-month period. As a percentage of home sales revenues, SG&A expense was 10.9% in the fiscal 2025 period versus 10.2% in the fiscal 2024 period. The dollar increase in SG&A expenditures was primarily due to higher internal commissions, marketing spend from increased community count and higher payroll costs. These increases were offset, in part, by reduced external broker commissions. The increase in SG&A expense as a percentage of revenues was due to revenues decreasing 1% year-over-year in the fiscal 2025 period, while SG&A expenditures increased 6%.

Income from Unconsolidated Entities

In the three-month period ended April 30, 2025, we recognized income from unconsolidated entities of $11.5 million as compared to income of $5.9 million in the prior year period. The increase was primarily due to a $15.5 million gain in the fiscal 2025 period related to our share of the gain from the sale of a stabilized rental property by one of our Rental Property Joint Ventures, increased earnings at one of our Home Building Joint Ventures due to higher settlement volume, and increased earnings at one of our Land Development Joint Ventures. In the fiscal 2024 period, we recognized $21.0 million related to our share of the gain from a property sale by one of our Rental Property Joint Ventures.

In the six-month period ended April 30, 2025, we recognized income from unconsolidated entities of $2.7 million, as compared to a loss of $3.3 million in the prior-year period. The increase was primarily due to the same factors noted above impacting the three-month periods ended April 30, 2025 and April 30, 2024.

Other Income – Net

The table below provides, for the periods indicated, the components of “Other income – net” (amounts in thousands):

The decreases in interest income in the three-month and six-month periods ended April 30, 2025 was primarily due to lower average cash balances in the fiscal 2025 periods.

The increases in income from ancillary businesses were mainly due to increased earnings from our mortgage operations due to higher closing volume and $5.0 million of net write-offs related to our Apartment Living operations in both the three-month and six-month periods ended April 30, 2024 compared to $4.4 million of net write-offs related to our Apartment Living operations in the six-month period ended April 30, 2025. No similar net write-offs were incurred in the three-month period ended April 30, 2025. Furthermore, the fiscal 2024 periods included a $4.4 million gain from a bulk sale of security monitoring accounts by our smart home technology business that did not recur in fiscal 2025.

The decreases in management fee income earned by our home building operations in the three-month and six-month periods ended April 30, 2025 were primarily related to a decrease in fees from certain of our Rental Property Joint Ventures.

The decreases in “other” in the three-month and six-month periods ended April 30, 2025 was primarily due to a $5.0 million gain related to an investment we held in a privately held company which sold substantially all of its assets to a third party in the fiscal 2024 periods, which did not recur in fiscal 2025.

Income Before Income Taxes

For the three-month period ended April 30, 2025, we reported income before income taxes of $477.5 million, as compared to $649.8 million in the three-month period ended April 30, 2024.

For the six-month period ended April 30, 2025, we reported income before income taxes of $698.9 million, as compared to $960.9 million in the six-month period ended April 30, 2024.

Income Tax Provision

In the three-month periods ended April 30, 2025 and 2024, we recognized income tax provisions of $125.1 million and $168.2 million, respectively. Based upon the federal statutory rate of 21.0% for the fiscal 2025 and 2024 periods, our federal tax provisions would have been $100.3 million and $136.5 million, in the three-month periods ended April 30, 2025 and 2024, respectively. The difference between the tax provisions recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes and permanent differences.

We recognized income tax provisions of $168.7 million and $239.8 million in the six-month periods ended April 30, 2025 and 2024, respectively. The effective tax rate was 24.1% for the six months ended April 30, 2025, compared to 25.0% for the six months ended April 30, 2024. Based upon the federal statutory rate of 21.0% for each period, our federal tax provisions would have been $146.8 million and $201.8 million, in the six-month periods ended April 30, 2025 and 2024, respectively. The difference between the tax provisions recognized and the tax provision based on the federal statutory rate was mainly due to the provision for state income taxes and other permanent differences, offset, in part, by excess tax benefits related to stock-based compensation. The decrease in the effective tax rate for the six months ended April 30, 2025 compared to the six months ended April 30, 2024 was primarily due to an increase in excess tax benefits related to stock-based compensation.

Contracts

In the three-month periods ended April 30, 2025 and 2024, the value of net contracts signed was $2.60 billion (2,650 homes) and $2.94 billion (3,041 homes), respectively. The aggregate value of net contracts signed decreased $336.6 million, or 11.4%, in the three-month period ended April 30, 2025, as compared to the three-month period ended April 30, 2024. The decrease in the aggregate value of net contracts signed was due to a 12.9% decrease in the number of net contracts signed partially offset by a 1.6% increase in the average value attributed to each signed contract. The decrease in the number of net contracts signed was primarily due to a softer overall demand environment in fiscal 2025 compared to fiscal 2024. The average value of each signed contract in the three-months ended April 30, 2025 was essentially flat compared to the prior year period.

In the six-month periods ended April 30, 2025 and 2024, the value of net contracts signed was $4.91 billion (4,957 homes) and $5.01 billion (5,083 homes), respectively. The aggregate value of net contracts signed decreased $94.2 million, or 1.9%, in the six-month period ended April 30, 2025, as compared to the six-month period ended April 30, 2024. The decrease in the aggregate value of net contracts signed was due to a 2.5% decrease in the number of net contracts signed partially offset by a 0.6% increase in the average value attributed to each signed contract. The decrease in the number of net contracts signed primarily reflects a softer overall demand environment in fiscal 2025 compared to fiscal 2024. The average value of each signed contract in the six-months ended April 30, 2025 was essentially flat compared to the prior year period.

Backlog

The value of our backlog at April 30, 2025 decreased 7% to $6.84 billion (6,063 homes), as compared to $7.38 billion (7,093 homes) at April 30, 2024. Our backlog at October 31, 2024 and 2023 was $6.47 billion (5,996 homes) and $6.95 billion (6,578 homes), respectively. The decrease in the value of our backlog at April 30, 2025 as compared to April 30, 2024, was due to a 15% decrease in the number of homes in backlog partially offset by an 8% increase in the average contracted price per home. The decrease in the number of homes in backlog was primarily attributable to spec homes representing a larger portion of our net signed contracts and homes delivered.

For more information regarding results of operations by segment, see “Segments” in this MD&A.

CAPITAL RESOURCES AND LIQUIDITY

Funding for our business has been, and continues to be, provided principally by cash flow from operating activities before inventory additions, credit arrangements with third parties, and the public capital markets.

Our cash flows from operations generally provide us with a significant source of liquidity. Our cash flows provided by operating activities, supplemented with our short-term borrowings and long-term debt, have been sufficient to fund our operations while allowing us to invest in activities that support the long-term growth of our Company. Our primary uses of cash include inventory additions in the form of land acquisitions and deposits to obtain control of land, land development, working capital to fund day-to-day operations, and investments in existing and future unconsolidated joint ventures. We may also use cash to fund capital expenditures such as investments in our information technology systems. We also use cash flows from operations and other sources to pay dividends on our common stock, to repay debt and make share repurchases. We believe our sources of cash and liquidity will continue to be adequate to fund operations, finance our strategic operating initiatives, repay debt, fund our share repurchases and pay dividends for the foreseeable future.

At April 30, 2025, we had $686.5 million of cash and cash equivalents on hand and approximately $2.19 billion available for borrowing under our Revolving Credit Facility. At quarter-end, the Revolving Credit Facility provided us with a committed borrowing capacity of $2.35 billion, which we had the ability to increase to up to $3.00 billion with the consent of lenders, and was scheduled to mature on February 7, 2030. Toll Brothers, Inc. and substantially all of its 100%-owned home building subsidiaries are guarantors of the borrower’s obligations under the Revolving Credit Facility. We are also a party to a $650.0 million unsecured Term Loan Facility which matures February 7, 2030.

Short-term Liquidity and Capital Resources

For the next twelve months, we expect our principal demand for funds will be for inventory additions (in the form of land acquisition, land development, home construction costs, and deposits to control land, which could occur directly or indirectly through builder acquisitions), operating expenses, including our selling, general and administrative expenses, investments and funding of capital improvements, investments in existing and future unconsolidated joint ventures, repayment of community-level borrowings, common stock repurchases, and dividend payments. Demand for funds include interest and principal payments on current and future debt, including $350.0 million of 4.875% Senior Notes due November 15, 2025. We expect to meet our short-term liquidity requirements primarily through our cash and cash equivalents on hand and net cash flows provided by operations, although we may from time to time access other sources. Additional sources of funds include distributions from our unconsolidated joint ventures, borrowing capacity under our Revolving Credit Facility, and other borrowings from banks and other lenders.

We believe we will have sufficient liquidity available to fund our business needs, commitments and contractual obligations in a timely manner for the next twelve months. We may, however, seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets, but there is no assurance that such financing will be available on favorable terms, or at all.

Long-term Liquidity and Capital Resources

Beyond the next twelve months, our principal demands for funds will be for the payments of the principal amount of our long-term debt as it becomes due or otherwise matures, land purchases and inventory additions needed to grow our business (which could occur directly or indirectly through builder acquisitions), long-term capital investments and investments in unconsolidated joint ventures, common stock repurchases, and dividend payments.

Over the longer term, to the extent the sources of capital described above are insufficient to meet our needs, we may also conduct additional public offerings of our securities, refinance debt or dispose of certain assets to fund our operating activities and debt service. We expect these resources will be adequate to fund our ongoing operating activities as well as provide capital for investment in future land purchases and related development activities and future joint ventures.

Material Cash Requirements

We are a party to many agreements that include contractual obligations and commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Condensed Consolidated Balance Sheet as of April 30, 2025, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, payments due on our mortgage company loan facility, purchase obligations related to expected acquisition of land under purchase agreements and land development agreements (many of which are secured by letters of credit or surety bonds), operating leases, obligations under our deferred compensation plan, and obligations under our supplemental executive retirement plans. We also enter into certain short-term lease commitments, commitments to fund our existing or future unconsolidated joint ventures, letters of credit and other purchase obligations in the normal course of business. For more information regarding our primary obligations, refer to Note 5, “Loans Payable, Senior Notes, and Mortgage Company Loan Facilities,” and Note 13, “Commitments and Contingencies,” in the Notes to the Condensed Consolidated Financial Statements for amounts outstanding as of April 30, 2025, related to debt and commitments and contingencies, respectively.

We also operate through a number of joint ventures and have undertaken various commitments as a result of those arrangements. At April 30, 2025, we had investments in these entities of $1.17 billion and were committed to invest or advance up to an additional $349.3 million to these entities if they require additional funding. At April 30, 2025, we had agreed to terms for the acquisition of 705 home sites from four joint ventures for an estimated aggregate purchase price of $76.1 million. We also expect to purchase approximately 10,500 additional home sites over a number of years from several joint ventures in which we have interests. The purchase price of these home sites will be determined at a future date.

The unconsolidated joint ventures in which we have investments generally finance their activities with a combination of partner equity and debt financing. In some instances, we and our joint venture partner have guaranteed debt of unconsolidated entities. These guarantees may include any or all of the following: (i) project completion guarantees, including any cost overruns; (ii) repayment guarantees, generally covering a percentage of the outstanding loan; (iii) carry cost guarantees, which cover costs such as interest, real estate taxes, and insurance; (iv) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (v) indemnification of the lender from “bad boy acts” of the unconsolidated entity.

In situations where we have joint and several guarantees with our joint venture partner, we generally seek to implement a reimbursement agreement with our partner that provides that neither party is responsible for more than its proportionate share or agreed-upon share of the guarantee; however, we are not always successful. In addition, if the joint venture partner does not have adequate financial resources to meet its obligations under such a reimbursement agreement, we may be liable for more than our proportionate share. We believe that, as of April 30, 2025, in the event we become legally obligated to perform under a guarantee of the obligation of an unconsolidated entity due to a triggering event, the collateral in such entity should be sufficient to repay all or a significant portion of the obligation. If it is not, we and our partners would need to contribute additional capital to the entity. At April 30, 2025, we had guaranteed the debt of certain unconsolidated entities that have loan commitments aggregating $2.68 billion, of which, if the full amount of the debt obligations were borrowed, we estimate $581.8 million to be our maximum exposure related to repayment and carry cost guarantees. At April 30, 2025, the unconsolidated entities had borrowed an aggregate of $1.92 billion, of which we estimate $523.0 million to be our maximum exposure related to repayment and carry cost guarantees. The terms of these guarantees generally range from 1 month to 8.7 years. These maximum exposure estimates do not take into account any recoveries from the underlying collateral or any reimbursement from our partners, nor do they include any potential exposures related to project completion guarantees or the other (non-carry cost/repayment) indemnities noted above, which are not estimable.

For more information regarding these joint ventures, see Note 3, “Investments in Unconsolidated Entities” in the Notes to the Condensed Consolidated Financial Statements.

Debt Service Requirements

Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced profile of debt maturities, and to manage our exposure to floating interest rate volatility.

Outside of the normal course of operations, one of our principal liquidity needs is the payment of principal and interest on outstanding indebtedness. We are required by the terms of certain loan documents to meet certain covenants, such as financial ratios and reporting requirements. As of April 30, 2025, we were in compliance with all such covenants and requirements on our term loan, revolving credit facility and other loans payable. Refer to Note 5, “Loans Payable, Senior Notes, and Mortgage Company Loan Facilities” in the Notes to the Condensed Consolidated Financial Statements.

Operating Activities

At April 30, 2025 and October 31, 2024, we had $761.7 million and $1.37 billion, respectively, of cash, cash equivalents, and restricted cash. Cash used in operating activities during the six-month period ended April 30, 2025 was $57.9 million. Cash used in operating activities during the fiscal 2025 period was primarily related to an increase in inventory. This activity was offset, in part, by net income (adjusted for depreciation and amortization, impairments, stock-based compensation, losses and distributions of earnings from unconsolidated entities, and deferred taxes); an increase in accounts payable and accrued expenses; an increase in current income taxes – net; and an increase in customer deposits – net.

At April 30, 2024 and October 31, 2023, we had $1.09 billion and $1.34 billion, respectively, of cash and cash equivalents, and restricted cash. Cash provided by operating activities during the six-month period ended April 30, 2024 was $152.0 million. Cash provided by operating activities during the fiscal 2024 period was primarily related to net income (adjusted for stock-based compensation, depreciation and amortization, losses and distributions of earnings from unconsolidated entities, deferred taxes, impairments and gain on sale of assets); increases in accounts payable and accrued expenses, and current income taxes – net. This activity was offset, in part, by an increase in inventory; mortgage loans originated, net of mortgage loans sold, a decrease in customer deposits – net; and an increase in receivables, prepaid expenses, and other assets.

Investing Activities

In the six-month period ended April 30, 2025, cash used in investing activities was $187.8 million, which was primarily related to $179.9 million used to fund our investments in unconsolidated entities and $32.9 million used for the purchase of property and equipment. This activity was offset, in part, by $28.2 million of cash received as returns from our investments in unconsolidated entities.

In the six-month period ended April 30, 2024, cash used in investing activities was $100.7 million, which was primarily related to $99.6 million used to fund our investments in unconsolidated entities and $29.7 million used for the purchase of property and equipment. This activity was offset, in part, by $29.3 million of cash received as returns from our investments in unconsolidated entities.

Financing Activities

We used $363.1 million of cash in financing activities in the six-month period ended April 30, 2025, primarily for the repurchase of $204.9 million of our common stock, payments of $66.3 million of loans payable, net of borrowings, the payment of dividends on our common stock of $49.0 million, $35.0 million of payments related to repurchases from land bank programs, and $22.2 million of payments related to stock-based benefit plans - net. This activity was offset, in part, by $22.1 million of proceeds related to sales to land bank programs.

We used $308.2 million of cash in financing activities in the six-month period ended April 30, 2024, primarily for the repurchase of $180.1 million of our common stock, the payments of $77.7 million of loans payable, net of borrowings, the payment of dividends on our common stock of $47.1 million, and $3.5 million of payments related to stock-based benefit plans - net.

CRITICAL ACCOUNTING ESTIMATES

As disclosed in our 2024 Form 10-K, our most critical accounting estimates relate to inventory, cost of revenue recognition, warranty and self-insurance, and investments in unconsolidated entities. Since October 31, 2024, there have been no material changes to those critical accounting estimates.

SUPPLEMENTAL GUARANTOR INFORMATION

At April 30, 2025, our 100%-owned subsidiary, Toll Brothers Finance Corp. (the “Subsidiary Issuer”), had issued and outstanding $1.60 billion aggregate principal amount of senior notes maturing on various dates between November 15, 2025 and November 1, 2029 (the “Senior Notes”). For further information regarding the Senior Notes, see Note 5, “Loans Payable, Senior Notes and Mortgage Company Loan Facility” in the Notes to the Consolidated Condensed Financial Statements under the caption “Senior Notes.”

The obligations of the Subsidiary Issuer to pay principal, premiums, if any, and interest are guaranteed jointly and severally on a senior basis by Toll Brothers, Inc. and substantially all of its 100%-owned home building subsidiaries (the “Guarantor Subsidiaries” and, together with us, the “Guarantors”). The guarantees are full and unconditional, and the Subsidiary Issuer and each of the Guarantor Subsidiaries are consolidated subsidiaries of Toll Brothers, Inc. Our non-home building subsidiaries and several of our home building subsidiaries (together, the “Non-Guarantor Subsidiaries”) do not guarantee the Senior Notes. The Subsidiary Issuer generates no operating revenues and does not have any independent operations other than the financing of our other subsidiaries by lending the proceeds of its public debt offerings, including the Senior Notes. Our home building operations are conducted almost entirely through the Guarantor Subsidiaries. Accordingly, the Subsidiary Issuer’s cash flow and ability to service the Senior Notes is dependent upon the earnings of the Company’s subsidiaries and the distribution of those earnings to the Subsidiary Issuer, whether by dividends, loans or otherwise. Holders of the Senior Notes have a direct claim only against the Subsidiary Issuer and the Guarantors. The obligations of the Guarantors under their guarantees will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference or similar laws affecting the rights of creditors generally) under applicable law.

The indentures under which the Senior Notes were issued provide that any of our subsidiaries that provide a guarantee of our obligations under the Revolving Credit Facility will guarantee the Senior Notes. The indentures further provide that any Guarantor Subsidiary may be released from its guarantee so long as (i) no default or event of default exists or would result from release of such guarantee; (ii) the Guarantor Subsidiary being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of our most recent fiscal quarter; (iii) the Guarantor Subsidiaries released from their guarantees in any fiscal year comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of our consolidated net worth as of the end of our most recent fiscal quarter; (iv) such release would not have a material adverse effect on ours and our subsidiaries’ home building business; and (v) the Guarantor Subsidiary is released from its guaranty under the Revolving Credit Facility. If there are no guarantors under the Revolving Credit Facility, all Guarantor Subsidiaries under the indentures will be released from their guarantees.

The following summarized financial information is presented for Toll Brothers, Inc., the Subsidiary Issuer, and the Guarantor Subsidiaries on a combined basis after intercompany transactions and balances have been eliminated among Toll Brothers, Inc., the Subsidiary Issuer and the Guarantor Subsidiaries, as well as their investment in, and equity in earnings from the Non-Guarantor Subsidiaries.

Summarized Balance Sheet Data (amounts in millions):

Summarized Statement of Operations Data (amounts in millions):

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SEGMENTS

We operate in the following five geographic segments, with operations generally located in the states listed below:

• The North region: Connecticut, Delaware, Illinois, Massachusetts, Michigan, New Jersey, New York and Pennsylvania;
• The Mid-Atlantic region: Georgia, Maryland, North Carolina, Tennessee and Virginia;
• The South region: Florida, South Carolina and Texas;
• The Mountain region: Arizona, Colorado, Idaho, Nevada and Utah; and
• The Pacific region: California, Oregon and Washington.

The tables below summarize information related to units delivered and revenues, net contracts signed, and income (loss) before income taxes, by segment, for the periods indicated, and information related to backlog, by segment, as of the dates indicated.

Units Delivered and Revenues:

Note: Due to rounding, amounts may not add.

Net Contracts Signed:

Backlog:

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Income (Loss) Before Income Taxes ($ amounts in millions):

Note: Due to rounding, amounts may not add.

“Corporate and other” is comprised principally of general corporate expenses such as our executive offices; the corporate finance, accounting, audit, tax, human resources, risk management, information technology, marketing, and legal groups; interest income; income from certain of our ancillary businesses, including our apartment rental development business and our high-rise urban luxury condominium operations; and income from our Rental Property Joint Ventures and Other Joint Ventures.

FISCAL 2025 COMPARED TO FISCAL 2024

North

The increase in the number of homes delivered in the fiscal 2025 three-month period was mainly due to an increase in the number of spec homes delivered, offset, in part, by a decrease in the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023. The average prices of homes delivered in the fiscal 2025 three-month period was relatively flat compared to the fiscal 2024 three-month period.

The number of homes delivered in the fiscal 2025 six-month period was essentially flat compared to fiscal 2024 period, despite a decrease in the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023. We attribute this primarily to an increase in the number of spec homes delivered in the fiscal 2025 period. The average prices of homes delivered in the fiscal 2025 six-month increased compared to the fiscal 2024 six-month period primarily due to a shift in the number of homes delivered to more expensive areas and/or products.

The decreases in the number of net contracts signed in fiscal 2025 periods, compared to the prior year periods, were due to a decline in demand, offset, in part, by an increase in the number of selling communities. The increases in the average value of each contract signed in the fiscal 2025 periods were mainly due to a shift in the number of contracts signed to more expensive areas and/or products partially offset by increased sales incentives.

The increases in income before income taxes in the three-month and six-month fiscal 2025 periods were attributable to higher earnings from increased revenue, lower home sales cost of revenues, as a percentage of home sale revenues offset, in part, by higher SG&A costs. The decreases in home sales cost of revenues, as a percentage of home sales revenues, in the fiscal 2025 periods were primarily due to a shift in product mix/areas to higher-margin areas and by lower interest expense as a percentage of home sales revenues. The three-month fiscal 2025 period also benefited from higher income from unconsolidated entities and other income - net.

Mid-Atlantic

The number of homes delivered in each of the fiscal 2025 periods was flat year over year. Although the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023 was lower, the segment delivered more spec homes in the fiscal 2025 periods, which kept deliveries relatively flat. The average price of homes delivered in the fiscal 2025 periods decreased compared to the fiscal 2024 periods, primarily due to a shift in the number of homes delivered to less expensive areas.

The increases in the number of net contracts signed in the fiscal 2025 periods were mainly due to the increase in the average number of selling communities, offset, in part by softer demand. The average values of signed contracts in the fiscal 2025 periods were relatively flat compared to the fiscal 2024 periods.

The decreases in income before income taxes in the fiscal 2025 periods were mainly due to the $180.7 million land parcel sale described above, which resulted in a pre-tax gain of $175.2 million during the three and six months ended April 30, 2024 and which did not recur in fiscal 2025. In addition, the fiscal 2025 periods were impacted by lower earnings from decreased revenue and higher SG&A costs.

South

The increases in the number of homes delivered in the fiscal 2025 periods were mainly due to higher backlog conversion and increased spec home deliveries, offset, in part, by a decrease in the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023. The average prices of homes delivered in the fiscal 2025 periods were relatively flat with the fiscal 2024 periods.

The decreases in the number of net contracts signed in the fiscal 2025 periods were due primarily to softer demand, offset, in part, by an increase in the average number of selling communities. The increases in the average value of each contract signed in the fiscal 2025 periods were primarily due to a shift in the number of contracts signed to more expensive areas or product types, partially offset by increased sales incentives.

The increases in income before income taxes in the fiscal 2025 periods were principally due to higher earnings from increased revenues and lower home sales cost of revenues, as a percentage of home sale revenues, offset, in part by higher SG&A costs and lower other income - net. The decreases in home sales cost of revenues, as a percentage of home sales revenues, in the fiscal 2025 periods were primarily due to a shift in product mix/areas to higher-margin areas and lower interest expense as a percentage of home sales revenues.

Mountain

The increases in the number of homes delivered in the fiscal 2025 periods were mainly due to higher backlog conversion, an increase in spec homes delivered in the fiscal 2025 periods and an increase in the number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023. The average price of homes delivered in the fiscal 2025 three-month period was relatively flat with the fiscal 2024 period. The decrease in the average price of homes delivered in the fiscal 2025 six-month period was primarily due to a shift in the number of contracts delivered to less expensive areas or product types.

The decreases in the number of net contracts signed in the fiscal 2025 periods were primarily due to softer demand and a decrease in the number of selling communities. The increase in the average value of each contract signed in the fiscal 2025 three-month period was mainly due to a shift in the number of contracts signed to more expensive areas or product types, partially offset by increased sales incentives. The decrease in the average value of each contract signed in the fiscal 2025 six-month period was mainly due to a shift in the number of contracts signed to less expensive areas or product types and increased sales incentives.

The increases in income before income taxes in the fiscal 2025 periods were due mainly to higher earnings from increased revenues in the fiscal 2025 periods, lower home sales cost of revenues, as a percentage of home sale revenues, offset, in part, by higher SG&A costs. The decreases in home sales cost of revenues, as a percentage of home sales revenues, in the fiscal 2025 periods were primarily due to a shift in product mix/areas to higher-margin areas and a decrease in inventory impairment charges. Inventory impairment charges were $7.3 million and $25.0 million during the three months ended April 30, 2025 and 2024, respectively. Inventory impairment charges were $14.8 million and $25.7 million during the six months ended April 30, 2025 and 2024, respectively.

Pacific

The decreases in the number of homes delivered in the fiscal 2025 periods were mainly due to the lower number of homes in backlog at October 31, 2024, as compared to the number of homes in backlog at October 31, 2023 and lower backlog conversion. The average price of homes delivered decreased in the fiscal 2025 periods compared to the prior-year periods primarily due to a shift in the number of contracts delivered to less expensive areas or product types.

The decreases in the number of net contracts signed in the fiscal 2025 periods were primarily due to softer demand, offset, in part, by an increase in the number of selling communities in the fiscal 2025 periods. The increases in the average value of each contract signed in the fiscal 2025 periods were primarily due to a shift in the number of contracts signed to more expensive areas or product types and decreased sales incentives.

The decreases in income before income taxes in the fiscal 2025 periods were mainly due to lower earnings from decreased revenues in the fiscal 2024 periods and higher home sales cost of revenues, as a percentage of home sales revenues. The increases in home sales cost of revenues, as a percentage of home sales revenues, was primarily due to a shift in product mix/areas to lower-margin areas, offset, in part, by lower interest expense as a percentage of home sales revenues. The six-month fiscal 2025 period was also impacted by higher SG&A costs.

Corporate and Other

In the three months ended April 30, 2025 and 2024, loss before income taxes was $58.4 million and $35.5 million, respectively. The increase in the loss before income taxes in the fiscal 2025 period was principally due to higher SG&A costs, higher losses from unconsolidated entities, and a decrease in other income - net. The higher losses from unconsolidated entities was primarily due to a $21.0 million gain we recognized in the fiscal 2024 period related to a property sale by one of our Rental Property Joint Ventures, while we only recognized $15.5 million of such gains in the fiscal 2025 period. The decrease in other income - net was primarily due to gains recognized in fiscal 2024 that did not recur in fiscal 2025. Specifically, in the fiscal 2024 period, we recognized a $5.0 million gain related to an investment in a privately held company that sold substantially all of its assets to a third party and a $4.4 million gain from a bulk sale of security monitoring accounts by our smart home technology business. In addition, we recognized lower interest income in the fiscal 2025 period primarily due to lower average cash balances. These decreases were partially offset by increased earnings from our mortgage operations due to higher closing volume. In addition, we recognized $5.0 million of net write-offs related to our Apartment Living operations in the fiscal 2024 period that did not recur in the fiscal 2025 period.

In the six months ended April 30, 2025 and 2024, loss before income taxes was $107.9 million and $89.0 million, respectively. The increase in the loss before income taxes in the fiscal 2025 period was principally due to higher SG&A costs and higher losses from unconsolidated entities, and a decrease in other income - net. The higher losses in the six-month period in fiscal 2025 were primarily due to the factors noted above impacting the three-month period.

AVAILABLE INFORMATION

Our principal Internet address is www.tollbrothers.com (http://www.tollbrothers.com), and our Investor Relations website is located at investors.tollbrothers.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on

Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available through our Investor Relations website, free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

We provide information about our business and financial performance, including our company overview, on our Investor Relations website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on our Investor Relations website. Corporate governance information, including our codes of ethics, corporate governance guidelines, and board committee charters, is also available on our Investor Relations website. The content of our websites is not incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

We are exposed to market risk primarily due to fluctuations in interest rates. We utilize both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but do affect our earnings and cash flow. We generally do not have the obligation to prepay fixed-rate debt before maturity and, as a result, interest rate risk and changes in fair value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.

The table below sets forth, at April 30, 2025, our debt obligations by scheduled maturity, weighted-average interest rates, and estimated fair value (amounts in thousands):

(a) Based upon the amount of variable-rate debt outstanding at April 30, 2025, and holding the variable-rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $9.1 million per year, without consideration of the Company’s interest rate swap transactions.

(b) In November 2020, we entered into five interest rate swap transactions to hedge $400.0 million of the $650.0 million Term Loan Facility, which is included in the variable-rate debt column in the table above. The interest rate swaps effectively fix the interest cost on the $400.0 million at 0.369% plus the spread set forth in the pricing schedule in the Term Loan Facility through October 31, 2025. The spread was 1.15% as of April 30, 2025. These interest rate swaps were designated as cash flow hedges.

Any controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected; however, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

Our Chief Executive Officer and Chief Financial Officer, with the assistance of management, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has not been any change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our quarter ended April 30, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in our risk factors as previously disclosed in Part I, Item 1A., “Risk Factors” in our 2024 Form 10-K.