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Date
Nov. 4, 2025 at 12:30 p.m. ET
Call participants
Chief Executive Officer and Chairman of the Board — Eric Thomas Lipar
Chief Financial Officer and Treasurer — Charles Michael Merdian
Vice President, Finance and Investor Relations — Joshua D. Fattor
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Takeaways
Homes closed -- 1,107 homes delivered, of which 1,065 contributed to reported revenue.
Reported revenue -- $390.6 million in revenue, representing a 39.2% decrease due to a 39.4% decline in closings compared to the prior year.
Wholesale channel expansion -- 163 homes sold through wholesale (15.3% of total closings), generating $54 million in revenue, up from 9.1% of total closings in the same period last year.
Gross margin -- 21.5%, down from 25.1% in the same period last year, primarily due to higher capitalized interest and an increased mix of wholesale closings.
Adjusted gross margin -- 24.5%, compared to 27.2% in the same period last year, with capitalized interest and purchase accounting charges excluding $12 million (300 basis points impact compared to 210 basis points previously).
Net income -- $19.7 million net income for the quarter, translating to $0.85 per basic and diluted share.
Order growth -- Net orders rose 8.1% year over year, reaching 1,570 homes.
Backlog -- 1,350 homes at quarter-end, up 19.9% year over year and 61.5% sequentially, totaling $498.7 million in value.
Cancellation rate -- 33.6%, flat compared to the prior quarter.
SG&A expenses -- $63.6 million (16% of revenue), with selling expenses at $35.7 million (9%), and general and administrative flat at $28 million (7.1% of revenue versus 4.3% previously).
Debt position -- $1.75 billion total outstanding debt, with $623.6 million drawn on the revolver; debt-to-capital ratio at 45.7%, net debt-to-capital ratio at 44.8%.
Total liquidity -- $429.9 million, including $62 million in cash and $367.9 million undrawn credit.
Lot position -- 62,504 owned and controlled lots (down 8.8% year over year as of September 30), with 84.9% owned as of September 30, and an average finished lot cost of about $70,000.
Homes under construction -- 895 homes at quarter-end, representing decreases of 40.8% sequentially and 54.7% year over year.
Guidance for Q4 -- Anticipates 1,300 to 1,500 closings (26% increase at midpoint), ASP between $365,000 and $375,000, gross margin of 21%-22%, adjusted gross margin between 24% and 25% for the fourth quarter, SG&A expenses are expected to fall between 15% and 16% for the fourth quarter, and tax rate is expected to be approximately 26% for the fourth quarter.
Community count -- 141 communities at the end of October 2025; expecting approximately 145 communities at year-end 2025, and 10%-15% community count growth by the end of 2026.
Sales initiatives -- Introduced a forward rate buy-down (as low as 3.99%) and price discounts up to $50,000 on older inventory to drive sales volume.
Mix of institutional buyers -- Institutional buyer contracts made up 4.6% of backlog (60 homes) at quarter-end, down from 19.5% (212 homes) in Q3 2024.
Top markets by closings per community per month -- Charlotte (5.7), Las Vegas (4.7), Raleigh (4.2), Greenville (3.7), and Denver (3.5) closings per community per month.
Summary
LGI Homes (LGIH +9.13%) reported sequential and year-over-year increases in net orders and backlog, driven by market-driven rate relief and enhanced sales promotion initiatives. Management attributed sales benefits primarily to affordability improvements through lower mortgage rates and focused rate buy-down offers, rather than a shift in core strategy. The company maintained gross margin discipline through selective use of incentives, price adjustments on aged inventory, and reduced exposure to institutional lot transactions, despite a material year-over-year drop in revenue and closings.
Eric Thomas Lipar said, "Offering a 3.99% promotional rate is something we never offered before, and that's new this quarter to drive those payments."
Fourth-quarter guidance indicates a meaningful rebound in closings, with management projecting a rise to 1,300-1,500 units.
Wholesale closings formed a higher share of total sales, giving the company flexibility to manage inventory, even as institutional buyer contracts in backlog declined sharply as a proportion of total.
Charles Michael Merdian affirmed confidence in the "cost advantage" from low basis in finished lots to sustain margins amid continued focus on matching starts to demand, and controlling development spend.
Industry glossary
Wholesale closings: Home sales to institutional or bulk purchasers (such as single-family rental operators), as opposed to individual retail buyers.
Buy-down: A financing arrangement where the seller pays to reduce the buyer's mortgage interest rate for a set period or the life of the loan.
Lot takedown: A structured schedule by which a builder acquires land inventory in stages, often with pre-set volume and timing commitments.
ASP (Average Sales Price): The mean price at which homes are sold during a period.
Backlog: Homes under contract for sale, not yet closed or delivered, representing future revenue.
SG&A: Selling, general, and administrative expenses incurred as part of ongoing operations.
Community count: The number of distinct developments or sales locations active or open during the period, used as a measure of scale and market reach in residential construction.
Full Conference Call Transcript
Eric Thomas Lipar, LGI Homes' Chief Executive Officer and Chairman of the Board, and Charles Michael Merdian, Chief Financial Officer and Treasurer. I'll now turn the call over to Eric.
Eric Thomas Lipar: Thanks, Josh. Good afternoon, and welcome to our earnings call. During the quarter, our teams remained focused on driving leads, managing inventory, and supporting our customers by delivering exceptional customer service and providing a seamless road to homeownership. Thanks to our outstanding efforts, we delivered positive third-quarter results that were in line with the guidance provided on our last call. During the quarter, we closed 1,107 homes. Of this total, 1,065 homes contributed directly to our reported revenue of $397 million. The remaining 42 were currently or previously leased homes, the profits of which are reflected in other income. Gross margin came in at 21.5%, and adjusted gross margin was 24.5%, both in line with the guidance range we provided.
We've been successful in maintaining the overall strength of our margins even while operating in the most challenging segment of the market. That's on purpose, and it's worth spending a few moments discussing why. First, we take a thoughtful approach to financing incentives. With higher mortgage rates driving affordability challenges, buy-downs and other financing tools are among the most effective ways to help buyers reach the closing table, and we continue to lean into offering the most competitive buy-downs possible. However, going to extremes on buy-downs just to move a few incremental homes is something we're working hard to avoid.
Second, we continue to price all of our homes competitively, and we use price adjustments selectively, focusing on aging inventory while maintaining or raising prices in high-performing communities. Third, we prefer not to sacrifice margins to institutional bankers. As a result, we don't have a pipeline of lot takedowns pressuring us to start homes prematurely, heavily discounting them to keep the system moving, or to renegotiate takedown schedules, which leads to higher future lock costs. Avoiding these situations gives us the freedom to be patient and make smart, long-term decisions that will benefit our shareholders. Our best land banking partner has been and will continue to be the seller.
Finally, because we primarily self-develop our lots, our margins include the profit a developer would have earned. This adds several hundred basis points to our margins and sets our performance apart from other builders who rely on purchasing finished lots. It's also a key reason we have never taken an inventory impairment. In short, our margins reflect disciplined execution, not elevated pricing. We do everything possible to manage costs and deliver a high-quality, beautiful home at a price that enables as many first-time buyers as possible to achieve the dream of homeownership.
During the third quarter, our top markets on a closings per P and D basis were Charlotte with 5.7, Las Vegas with 4.7, Raleigh with 4.2, Greenville with 3.7, and Denver with 3.5 closings per community per month. Congratulations to the teams in these markets for their performance last quarter. Another highlight of our results was a significant increase in net orders and backlog. As we noted on our last call, sales trends improved in June, continuing into July as mortgage rates declined from their midyear highs.
These trends continued into August and September, driven by continued relief in rates and sales initiatives connected to our year-end Make Your Move national sales event, including a forward rate buy-down commitment, which has a meaningful impact on improving affordability for many buyers. Additionally, we're offering price discounts of up to $50,000 on select older inventory. Together, these initiatives jump-started sales activity, demonstrated by an 8% increase in net orders compared to the same period last year and a 44% increase compared to the second quarter. As a result, our backlog at quarter-end was up 20% year-over-year and 62% sequentially.
We're encouraged by the momentum these initiatives have generated and view them as a positive step forward as we head into the fourth quarter. Before I hand the call over to Charles, I'll note that our long-term view of the housing market remains solidly optimistic. The underlying demographic trends continue to support our strategy, while the widening supply gap makes the attainable housing options LGI Homes provides more valuable than ever. With that, I'll invite Charles to provide additional details on our financial results.
Charles Michael Merdian: Thanks, Eric. Revenue in the third quarter totaled $390.6 million, down 39.2% compared to the prior year, driven by a 39.4% decline in closings. The average selling price of homes closed was $372,424, up slightly from last year, primarily driven by geographic mix and a lower magnitude of incentives and was partially offset by a higher percentage of wholesale closings in the third quarter. The wholesale channel remains a compelling way to balance our home inventory. Our wholesale operation generated $54 million of revenue resulting from 163 home closings or 15.3% of total closings compared to 9.1% of total closings in the same period last year. Our gross margin was 21.5% compared to 25.1% in the same period last year.
The decline was primarily driven by a particularly strong comp last year, along with higher lot cost capitalized interest as a percentage of revenue and a higher mix of wholesale closings. Adjusted gross margin was 24.5% compared to 27.2% in the same period last year. Adjusted gross margin excluded $11 million capitalized interest charged cost to sales, and $1 million related to purchase accounting. Together representing 300 basis points compared to 210 basis points last year. We expect capitalized interest to remain elevated due to higher borrowing and have reflected such in our fourth-quarter guidance. Combined selling, general and administrative expenses totaled $63.6 million or 16% of revenue, in line with our guidance.
Selling expenses were $35.7 million or 9% of revenue, up slightly from 8.5% in the same period last year. General and administrative expenses were flat year over year at $28 million. As a percentage of revenue, G and A expenses were 7.1% compared to 4.3% in the same period last year. Both selling and general and administrative expenses were higher as a percentage of revenue due to lower volume. Other income in the quarter was $5.2 million, primarily resulting from the gain on sale of leased homes, finished lots, other land held for sale, and LGI Living lease income. Pretax net income was $26.7 million or 6.7% of revenue.
Our effective tax rate was 26.2% compared to 24.3% in the same period last year. And for the quarter, we generated net income of $19.7 million or $0.85 per basic and diluted share. Order metrics improved materially in the third quarter, with net orders coming in at 1,570 homes, an increase of 8.1% over the same period last year and 43.9% sequentially. Our cancellation rate in the third quarter was 33.6%, similar to the prior quarter of this year. Backlog at quarter-end totaled 1,350 homes, up 19.9% year over year and 61.5% sequentially. The value of our backlog at quarter-end was $498.7 million.
Of the homes under contract, 60 were tied to contracts with institutional buyers, representing 4.6% of total backlog compared to 212 or 19.5% of backlog in the same period last year. Currently, we're seeing continued interest from our wholesale partners, and we're well-positioned for increased engagement from institutional buyers seeking to acquire scaled portfolios of finished inventory. However, the ability to transact continues to depend on alignment around pricing expectations. Turning to our land position. At September 30, our portfolio consisted of 62,504 owned and controlled lots, a decrease of 8.8% year over year and 3.4% sequentially. 53,148 or 84.9% were owned.
Of our owned lots, 36,300 or 25% were in active development that we expect to deliver over the next few years. The remaining 16,832 owned lots were finished. Of those, 13,136 were vacant, and 3,696 were related to completed homes or homes under construction. We had 895 homes under construction at quarter-end, down 40.8% sequentially and 54.7% year over year as we continue to focus on rebalancing inventory in select markets to meet current sales trends. The value of our portfolio of owned lots continues to be a competitive advantage for LGI Homes.
With an average finished lot cost of approximately $70,000, and lot cost representing just over 20% of our AS in the third quarter, our land position provides a meaningful cost advantage that supports margin stability even in a volatile market. This low basis enables us to offer competitive pricing to buyers while preserving profitability, and it reflects years of disciplined land acquisition and development. During the quarter, we started 725 homes. We expect to continue to balance starts in the coming quarters, primarily focusing on new and high-performing communities while slowing or pausing starts in communities where there is unsold existing inventory. I'll now turn the call over to Josh for a discussion of our capital position.
Joshua D. Fattor: Thanks, Charles. We ended the quarter with $1.75 billion of debt outstanding, including $623.6 million drawn on our revolver. We remain focused on reducing leverage, ending the quarter with a debt-to-capital ratio of 45.7% and a net debt-to-capital ratio of 44.8%. As inventory levels decrease and development spend moderates, leverage will continue moving toward the midpoint of our targeted range of 35% to 45%. Total liquidity at the end of the quarter was $429.9 million, including $62 million of cash, and $367.9 million available under our credit facility. Our liquidity was up by over $107 million compared to the prior quarter, and over $54 million compared to the same period last year.
As of September 30, stockholders' equity was $2.1 billion, and our book value per share was $90.1. With that, I'll turn the call back to Eric.
Eric Thomas Lipar: Thanks, Josh. Rates are down, and sales are up. This recent increase in the pace of sales is an encouraging sign, and our October closings demonstrated the fourth quarter is off to a strong start. Tomorrow, we plan to issue a press release announcing that we closed between 390 and 400 homes in October, pending verification of funding. This was our best month since June and reflects early signs of momentum coming from our sales initiatives. Community count at the end of October was 141 communities. We're continuing to write contracts in a market where many of our buyers need additional time to save for a down payment, make modest improvements to their credit, or sell an existing home.
This dynamic results in longer times between contract and close. Recent pull-through trends, October closings, and current sales trends lead us to currently expect to close between 1,300 and 1,500 homes in the fourth quarter. At the midpoint of this range, that would represent a 26% increase in closings compared to the third quarter. We remain focused on affordability and meeting buyers at a monthly payment where they are able and willing to transact. We expect an average sales price in the fourth quarter to range between $365,000 and $375,000. Community count at year-end is expected to be approximately 145.
Looking ahead, we expect community count at the end of 2026 to increase by 10% to 15%, reflecting continued investment in growing community count in our existing markets. Fourth-quarter gross margin is expected to range between 21% and 22%, and adjusted gross margin between 24% and 25%, similar to the results we delivered in the third quarter. Finally, SG&A expenses are expected to fall between 15% and 16%, and our tax rate is expected to be approximately 26%. We're pleased with our third-quarter results and proud of the hard work our teams have put in to build up the backlog and position us for success in the quarters ahead.
Their efforts drive our results and lay the groundwork for future opportunities. I want to thank them for their continued focus and dedication to our company and to our customers. We'll now open the call for questions.
Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait. Our first question will be coming from Trevor Scott Allinson of Wolfe Research. Your line is open.
Trevor Scott Allinson: Hi, good afternoon. Thank you for taking my questions. First question is on the acceleration in orders of more than 40% sequentially. So clearly, much better than normal seasonal trends. You talked about the benefit of lower rates, but then you also talked about some company-specific initiatives. Can you talk about which of those you think was the biggest driver of the acceleration? And then do we view this as a strategy shift to lean into more volume, or were some of the actions more a reflection of a desire to move some of the aged inventory that you guys had?
Eric Thomas Lipar: Yes. Thanks, Trevor. Great question. This is Eric. I want to look at it as a strategy step to start with. I think what we've been talking to investors about and talking throughout calls, you know, we're in the affordable housing business focused on an entry-level buyer. And rates, the headline rates, are the lowest they've been in the last twelve to eighteen months as that ten-year popped below 4%. And as rates went down, our sales went up. You know, not a surprise to us. Just offering a more affordable monthly payment.
There are things that happened when rates have come down, not necessarily spending more money, but being able to offer a 3.99% promotional rate is something we never offered before, and that's new for the quarter to drive those payments. And also, the team in the field is doing a great job. We're hiring more salespeople. The field is taking on more responsibility and training our new sales reps and doing a great job with that. So all those in combination are really more, I think, market-driven and affordability-driven. Not a shift of strategy.
Trevor Scott Allinson: Okay. Thanks for that, Eric. That was really helpful. And then second is on your views on your own land position, and you had some commentary about the benefits of your own land position. But appreciating you guys, your orders did jump here. It does seem overall like the market still remains pretty slow for most of the industry. You guys still control, you know, give or take, ten years of land. So is there a desire to more significantly work down your land positions here? And if you have already done this to some degree, what's been the appetite from other builders for additional land? Thanks.
Charles Michael Merdian: Yeah, Trevor. This is Charles. I can take that one first. So we're constantly looking at our land supply in terms of what our current absorptions are, timing our development. We've got 13,000 finished vacant developed lots, which is a little heavier than we typically would like to have. But given the fact that we started development on a number of these communities beginning back in 2021, 2022. So we have a number of communities that have been either in entitlements or active development for several years, and they're just now coming to fruition and getting online for sales. So we feel very confident in our basis in those finished lots, with a basis in the seventies.
So of our 13,000 finished lots, we have an average lot cost, which we think is a tremendous value to help us maintain stability in margins and gives us a cost advantage when we're thinking about our land inventory and when to bring it on. And then the processes and what we're working with is managing our future development spend. So our development spend is sequentially coming down. We had about 9,000 lots that were in active development that's going to come into the operation over the next couple of years.
So I think as we continue to focus on absorptions, work through the vacant developed land, we think eventually we are going to be in a position where the land inventory has been right-sized and in line with what we would expect. As far as availability of land and what we're offering, we do have some communities where we have excess finished vacant developed lots in terms of where we're thinking about. We may have another community that we can adjust and put in behind it. So we're actively working on making good decisions on monetizing those where appropriate.
Didn't have a lot of activity that closed in this quarter, but we just continue to evaluate that and make good decisions whether to monetize those finished lots or whether to put them in the queue for future home construction.
Trevor Scott Allinson: Makes a lot of sense. Thank you for all the color, and good luck moving forward.
Charles Michael Merdian: Yes. You bet. Thanks, Trevor.
Operator: And our next question will be coming from Kenneth Robinson Zener of Seaport. Your line is open.
Kenneth Robinson Zener: Good afternoon. So the commentary around 10% to 15% community count growth, two aspects. First, given your selling and training process, which is unique to you guys, can you talk about how much of that, I guess, the G and A is in your fourth-quarter guidance as we think about modeling that community count growth? And then is that community count growth, could you give us, like, a first half, second half lift? Or is it steady? Thank you.
Eric Thomas Lipar: Yes, Ken. Yeah. No. A good question, Ken. This is Eric. I can talk about the community counts, and then Charles can talk about the G and A part of that. But community count, I think, is going to be spread equally through 2026. One of the notes I made is the states that'll be primarily driving the increase in community count are Florida, Texas, and California, but they'll be spread equally in 2026. They're all bought. They're in process. We're confident with that number.
Charles Michael Merdian: Yeah. Ken, as far as SG&A goes, starting with G and A, I mean, we've been averaging around $30 million in quarterly G and A expense going all the way back to 2024. So we feel pretty comfortable that we've pretty well established the overhead side from a G and A perspective. And then as we bring in new community counts, we have the incremental dollars that we're going to have in terms of installing our information centers, hiring new sales staff, our office managers, and our sales managers. So incrementally, they come in as a similar percentage of our expected revenue.
So we don't think there's any front-ending, if you will, on this coming up next twelve months of community count. We're in the same geographic areas, so we're not expanding into any new markets. So our leadership infrastructure is in place, so that should be limited additional costs related to that.
Kenneth Robinson Zener: And then thinking about leverage, sticking with SG&A, on units, obviously, the first quarter was quite high this year, but we've been in that kind of 15 range. To three implied 4Q. Or a little higher. But can you comment about what do you think about SG&A given your community count and how you see the business unfolding, would it should it stay at the same rate? Or as we are ending this year? Or do you think you're going to get some lift in SG&A in general?
Eric Thomas Lipar: Yeah, Ken. Great question. Charles can add to it, but I think we look at SG&A as it's really all about leverage and volume and absorption. But the total percentage of SG&A that was 16% last quarter, that is entirely dependent on the volume. Backlog heading into Q4, and our guidance is for closings to be up 26%. And that's why we're guiding to a little bit less SG&A percentage in Q4 because of the leverage we're getting from closings.
Kenneth Robinson Zener: Thank you.
Operator: Thank you. Our next question will come from Alex Rygiel from Texas Capital Securities. Your line is open.
Alex Rygiel: A very small percentage of USDA, just over 60% of our customers are taking FHA mortgages. And then when you combine that with VA and conventional mortgages are another 10 to 15%. Only because we are offering, I mentioned it earlier.
Andrew Azzi: Super helpful. Directionally speaking, unique dynamic. And then it also even on a community-by-community basis, the customers, the range of floor plans and available the smallest floor plan to the largest floor plan. So that brings a decrease in a more challenging affordability market, which is a little bit of a tailwind to margins, but, you know, a little bit lower ASP, all things considered. So we have a view that prices are going to continue to go up. 2019. So, you know, when you look at costs over the next three to five years, we believe they're.
Operator: And our next question will be coming from Andrew Azzi of JPMorgan. Your line is open, Andrew.
Andrew Azzi: For taking my questions, guys. Just wanted to dig in a little bit on are you kind of dedicated to that? Yeah. We're dedicated to that. You know, the dollars on the ground, and that would be at a community count that would be level with the current pace of absorption today. Got it. And say, six months ago? And how are you thinking about kind of adjusting these? And Yeah. I would describe it as similar. You know, we have been leaning into incentives and focus on I think the overall market coming down is what's been the difference for us. Similar pain points to get a lower rate. You just get more.
You can see in our gross margin guide being similar to in Q4 as Q3. We're not planning on incentivizing more current levels of gross margin, and then we'll see what, you know, 2026 holds. Incentive levels have been consistent. It's something that all of us in the industry have had to do for the last couple of years.
Andrew Azzi: I appreciate that. I'll pass to them. Have a great day.