Toll Brothers Inc

PROXY STATEMENT

Annual Meeting of Stockholders

Tuesday, March 12, 2024

PROXY SUMMARY

A summary of certain information in this proxy statement is provided below. Please review the complete proxy statement and our Annual Report on Form 10-K for the fiscal year ended October 31, 2023 before you vote.

Toll Brothers Strategy and Fiscal 2023 Highlights

In fiscal 2023, we delivered 9,597 new homes at an average price of $1,028,000, generating $9.9 billion in home sales revenues. We achieved a full year home sales gross margin of 26.9%, a 140-basis point increase compared to fiscal year 2022. Excluding interest in cost of home sales of approximately 1.4% and inventory write downs of approximately 0.3%, our adjusted home sales gross margin was 28.7% for the full year. Selling, general & administrative (SG&A) expenses were 9.2% of home sales revenues compared to 10.1% in fiscal 2022. These margin improvements were driven by leverage from top line growth as well as our continued focus on operational efficiency. They contributed to the record $1.8 billion of pre-tax income we earned in fiscal 2023 ($1.4 billion after taxes) and $12.36 in earnings per diluted share, a 13% increase over the $10.90 we generated in fiscal 2022. These earnings drove a return on beginning equity of 22.8% in fiscal 2023 and contributed to a three-year return on average equity of 21.0%.

Our success in fiscal 2023 was due in large part to strategies we began to implement in the latter half of 2022. In particular, we chose not to chase sales at lower margins during the second half of 2022, when home demand was weak owing to the dramatic increase in mortgage rates that occurred over the course of the year. Because of the strength of our backlog at the end of fiscal 2022, we were able to take a patient approach to new sales while diligently working to convert our backlog and maintain margins. We also concentrated on replenishing our inventory of quick move-in (or "spec") homes and increasing community count into the spring selling season when there is typically a higher level of demand for homes. This strategy also allowed us to take advantage of improving supply chains and labor conditions. As a result, in fiscal 2023 we were able to deliver high-margin homes out of our backlog while also generating new home sales for deliveries in both fiscal 2023 and 2024.

While these decisions contributed to fiscal 2023's results, our success was also grounded in our multi-year strategy of expanding our product lines, price points and the geographic markets in which we operate, as well as our focus on increasing profitability and improving our capital efficiency. Expanding our product lines, price points and geographies has allowed us to appeal to a broader range of customers while mitigating geographic and product concentration risks. It has also facilitated our spec strategy by enabling us to build more quickly and efficiently. With a wider range of products, including more affordable luxury and active adult homes that tend to carry lower prices compared to our traditional luxury move-up product, we are also able to pursue more growth opportunities that are aligned with our spec strategy. A natural result of this is a lower average sales price for the homes in our portfolio, as the mix of homes we sell expands to include more affordable products and lower priced geographies. Notwithstanding lower average sales prices, we expect to continue growing home sales revenues over the long term through increased volume and faster inventory turns.

In fiscal 2024 and beyond, we will continue to focus on ways to improve operating efficiency. In recent years, we have expended considerable time and effort in optimizing our home designs, reducing SKUs and curating our design studio offerings, with the goal of improving the speed and efficiency of construction while continuing to offer the stunning floorplans, architectural details and high-end finishes that are hallmarks of the Toll Brothers brand. We have also continued to focus on improving our cost structure through tighter controls on items such as headcount, advertising, model home expenses and broker commissions, and using technology to streamline the building, marketing and purchasing of our homes. While we are pleased with the margins we achieved in fiscal 2023, we continue to look for ways to reduce overhead and improve operating efficiency.

Our land position and sound financial footing position us well for continued success. In fiscal 2023, we continued to pursue strategies to drive capital efficiency and return on equity by controlling a significant percentage of our land through options rather than outright ownership. We owned or controlled approximately 70,700 lots at fiscal year-end 2023 compared to approximately 76,000 at fiscal year-end 2022. We continue to evaluate all land opportunities, whether new land acquisitions or lot takedowns under existing options, using underwriting standards that are focused on both margins and returns, and which take into account local market conditions. Of the approximate 70,700 lots we held at fiscal year end, nearly 50% were controlled through options, and an additional 9.3% were allocated to lots in our backlog. We continue to target an overall mix (including lots in backlog) of 60% optioned lots and 40% owned over the long term.

We ended fiscal 2023 with over $3.0 billion of liquidity, including $1.3 billion of cash and cash equivalents and $1.8 billion available under our long-term $1.9 billion multi-bank revolving credit facility. During the fiscal year, we generated approximately $1.3 billion in cash from operations, repurchased 7.9 million shares of stock for $565.9 million, paid dividends of $91 million, and retired approximately $400 million of public debt. Our book value per share was $65.49 at fiscal year end and our debt-to-capital ratio was 29.6%, or 17.7% on a net basis after adjusting for cash and cash equivalents and $100 million of loans made by our mortgage subsidiary. We have no significant debt maturities until fiscal 2026. Our balance sheet is in excellent shape, which should allow us to continue investing in our business while returning capital to our stockholders. Our strategy also includes growing community count in fiscal 2024. This growth, combined with the nearly 6,600 homes in backlog at fiscal year-end 2023 and our pipeline of spec homes under construction for delivery in fiscal 2024, give us confidence that fiscal 2024 will be another strong year.

Meeting Agenda Items

Proposal One—Election of Directors. We are asking stockholders to elect 11 director nominees to hold office until the 2025 Annual Meeting of Stockholders and until his or her respective successor has been duly elected and qualified. The Board has nominated 11 of our current directors for re-election at the Meeting.

Set forth below is summary information concerning our director nominees. For more information regarding the experience and qualifications of our director nominees, see “Proposal One—Election of Directors” on page 8.

The Board of Directors recommends that you vote “FOR” all Nominees

Proposal Two—Ratification of the Re-Appointment of Independent Registered Public Accounting Firm. We are asking stockholders to ratify, in a non-binding vote, the re-appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending October 31, 2024. For more information regarding our engagement of Ernst & Young LLP, including the fees billed for services rendered by Ernst & Young LLP in fiscal 2023 and fiscal 2022, see “Proposal Two—Ratification of the Re-Appointment of Independent Registered Public Accounting Firm” on page 15.

The Board of Directors recommends that you vote “FOR” Proposal Two

Proposal Three—Advisory and Non-Binding Vote on Executive Compensation (Say on Pay). As described on page 16 under “Proposal Three—Advisory and Non-Binding Vote on Executive Compensation (Say on Pay)," we are asking stockholders to approve, on an advisory basis, the compensation of our named executive officers ("NEOs"). We hold this advisory vote on an annual basis.

The Board of Directors recommends that you vote “FOR” Proposal Three