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LGI Homes, Inc. (LGIH)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 revenue $351.4M and diluted EPS $0.17 were below Street consensus; management cited a one-time $8.6M forward commitment expense, higher wholesale mix (18% of closings), affordability pressure, and rate volatility as key drivers . Street consensus: EPS $0.63* vs actual $0.17; revenue $366.5M* vs actual $351.4M. MISS on both.*
  • Gross margin was 21.0% and adjusted gross margin 23.6%, down year over year and sequentially, reflecting the incentive program and mix; management proactively lowered full-year GM guidance to 21.7–23.2% (from 23.2–24.2%) and adjusted GM to 24.0–25.5% (from 25.5–26.5%) due to tariff-related cost notices and market uncertainty .
  • Demand improved late in the quarter: net orders 1,437; ending backlog 1,040 homes ($406.2M); active communities rose 22% YoY to 146; but absorption in Q1 was 2.2 per month, and management targets ~4/month for the rest of 2025 to meet closings guidance (6,200–7,000) .
  • Capital/liquidity remained solid: total liquidity $360.0M; net debt-to-capital 43.4%; credit agreement recast extended maturities; opportunistic buyback of 41,685 shares for $3.1M with $177.7M authorization remaining .

What Went Well and What Went Wrong

What Went Well

  • Backlog strengthened into Q2 with 1,040 homes ($406.2M), supported by improved March order activity after a slow start; net orders 1,437; cancellation rate 16.3% (down slightly YoY) .
  • Community count expansion and salesforce training underpin confidence in accelerating absorption in 2H: “We welcomed our sales leaders...for intensive sales training...setting the stage for a higher performing, more agile sales organization” .
  • Liquidity and capital flexibility improved (credit facility recast to 2029; $360M liquidity), enabling continued investment and buybacks: “Total commitments...$1.2B through 2028...$972.5M through 2029” .

What Went Wrong

  • Revenue and EPS missed consensus; EPS $0.17 vs $0.63* and revenue $351.4M vs $366.5M*, driven by a one-time $8.6M forward commitment expense (with $6.5M netted against revenue, $2.1M in G&A), higher wholesale closings (18%), and affordability headwinds .
  • Margins compressed: GM 21.0% (23.4% prior-year), adjusted GM 23.6% (25.3% prior-year), with management trimming full-year GM outlook due to tariff surcharges and incentives averaging 5–6% of ASP .
  • Absorption rate slowed to 2.2/month vs ~3.6 in Q4 2024; management expects ~4/month needed to hit closings guidance, citing buyer confidence and affordability as challenges, especially in certain regions (Florida, Texas weaker) .

Financial Results

Headline P&L and Margins vs Prior Periods and Estimates

MetricQ1 2024Q4 2024Q1 2025
Revenue ($M)$390.9 $557.4 $351.4
Diluted EPS ($)$0.72 $2.15 $0.17
Gross Margin %23.4% 22.9% 21.0%
Adjusted Gross Margin %25.3% 25.2% 23.6%
Net Income ($M)$17.1 $50.9 $4.0
Estimates vs ActualsQ4 2024Q1 2025
EPS Consensus Mean ($)2.177*0.632*
EPS Actual ($)2.15 0.17
EPS ResultMISSMISS
Revenue Consensus Mean ($M)588.6*366.5*
Revenue Actual ($M)557.4 351.4
Revenue ResultMISSMISS

Values with asterisk (*) retrieved from S&P Global.

Segment Breakdown (Q1)

SegmentRevenue ($M)ClosingsASP ($)Avg Community CountAvg Monthly AbsorptionEnding Community Count
Central (Q1’25)$101.1 330 $306,503 51.0 2.2 50
Southeast (Q1’25)$101.7 312 $325,904 29.3 3.5 30
Northwest (Q1’25)$34.2 65 $526,723 16.7 1.3 16
West (Q1’25)$67.0 159 $421,107 25.7 2.1 25
Florida (Q1’25)$47.4 130 $364,608 25.3 1.7 25
Total (Q1’25)$351.4 996 $352,831 148.0 2.2 146
Central (Q1’24)$103.7 319 $325,191 41.7 2.5 43
Southeast (Q1’24)$116.4 355 $328,014 26.7 4.4 27
Northwest (Q1’24)$36.1 62 $581,726 12.0 1.7 14
West (Q1’24)$73.1 179 $408,263 17.0 3.5 17
Florida (Q1’24)$61.5 168 $366,214 19.3 2.9 19
Total (Q1’24)$390.9 1,083 $360,897 116.7 3.1 120

KPIs and Operational Metrics

KPIQ1 2024Q4 2024Q1 2025
Net Orders (units)1,828 1,044 1,437
Cancellation Rate (%)16.8% 28.0% 16.3%
Ending Backlog (homes)1,335 599 1,040
Ending Backlog Value ($M)$519.5 $236.5 $406.2
Active Communities (period-end)120 151 146
Owned Lots (units)—53,317 53,761
Controlled Lots (units)—17,582 14,031
Total Owned+Controlled (units)—70,899 67,792
Liquidity ($M)—$323.7 $360.0
Net Debt / Capitalization (%)—41.2% 43.4%
Share Repurchases—307,867 shares in FY24 ($30.8M) 41,685 shares ($3.1M)

Additional monthly closings context: January 219; February 351; March 426; Q1 total 996 .

Guidance Changes

MetricPeriodPrevious Guidance (as of Q4 2024)Current Guidance (Q1 2025)Change
Home Closings (units)FY 20256,200–7,000 6,200–7,000 Maintained
Active Communities (year-end)FY 2025160–170 160–170 Maintained
ASP ($)FY 2025$360,000–$370,000 $360,000–$370,000 Maintained
Gross Margin (%)FY 202523.2%–24.2% 21.7%–23.2% Lowered
Adjusted Gross Margin (%)FY 202525.5%–26.5% 24.0%–25.5% Lowered
SG&A (% of revenue)FY 202514.0%–15.0% 14.0%–15.0% Maintained
Effective Tax Rate (%)FY 2025~24.5% ~24.5% Maintained

Rationale: tariff-related supplier price increases beginning in March and incentive levels prompted margin outlook reductions .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Tariffs/Macro CostsMonitoring cost inflation; strong margins despite incentives Received supplier tariff surcharges; proactively trimmed GM guidance 100–150bps Negative margin headwind emerging
Incentives StrategyBalanced financing incentives with pricing; adjusted GM ~27.2% Incentives ~5–6% of ASP; includes closing cost assistance and rate buydowns Sustained heavier incentives
Wholesale Mix9.1% of closings (Q3) 18% of closings in Q1; willing to accept lower GM for wholesale Higher wholesale share
Absorption & TrainingCommunity count up 30%; pace ~4.4/month Q1 absorption 2.2; goal ~4/month; intensive sales training to drive improvement Near-term soft, planned acceleration
Regional TrendsTop markets: Las Vegas, Nashville, Charlotte, Dallas, Tampa Top closings per community: Richmond, Charlotte, Raleigh, Atlanta, Nashville; Florida/Texas weaker Southeast strength; mixed elsewhere
Product Mix & Price DisciplineFocus on margins vs pace; avoid broad price cuts Discounting focused on aged inventory; avoid “race to the bottom” Consistent discipline
Capital & Liquidity$323.7M liquidity; issued $400M notes (7%) Liquidity $360M; credit agreement recast; buybacks continue Improved flexibility

Management Commentary

  • CEO Eric Lipar: “We delivered 996 homes...resulting in total revenue of $351.4 million...we recognized a one-time expense related to the completion of our forward commitment incentive program that weighed on revenue and gross margins” .
  • CEO on guidance and tariffs: “We are proactively trimming our full year gross margin expectations...to account for these additional costs...We now expect a full year gross margin between 21.7% and 23.2% and adjusted gross margin between 24% and 25.5%” .
  • CFO Charles Merdian: “Of our total closings, 179 homes were through our wholesale channel, representing 18%...first quarter gross margin was 21%...Adjusted gross margin was 23.6%...Excluding the $6.5 million charge to revenue, gross margin and adjusted gross margin were slightly below the guidance range” .
  • IR/Capital Markets Joshua Fattor: “We ended the quarter with $1.6 billion of debt...Total liquidity was $360 million...we successfully completed the recast of our credit agreement...we repurchased 41,685 shares...$177.7 million remaining” .

Q&A Highlights

  • Gross margin cadence: Management expects GM to ramp through the year primarily on volume leverage; tariff surcharges and incentives underpin lowered FY range .
  • Incentives level and rationale: Incentives remain 5–6% of ASP, focused on closing costs, rate buydowns (mid-5% FHA for qualified buyers), and discounting aged finished inventory; avoid broad price cuts .
  • Absorption vs margin trade-off: Target ~4/month absorption; willing to lean on wholesale and incentives to support pace while maintaining margin discipline .
  • Wholesale appetite: Demand exists at the right price, varies by market; wholesale share elevated due to lower retail volume base .
  • Buybacks and valuation: With shares trading below book, company prioritizes buybacks; $177.7M authorization remaining .
  • Inventory outlook: Year-end inventory units likely similar to Q1 levels (~4,200), with a more balanced split between completed and WIP (60/40) .

Estimates Context

  • Q1 2025: Actual EPS $0.17 vs consensus $0.63*; revenue $351.4M vs consensus $366.5M*. MISS driven by $8.6M incentive program expense ($6.5M netted in revenue; $2.1M G&A), wholesale mix (18%), higher capitalized interest/overhead, and lower operating leverage .
  • Q4 2024 (prior quarter): Actual EPS $2.15 vs consensus $2.18*; revenue $557.4M vs consensus $588.6M*. Slight MISS on both.*
  • Implication: Street models likely need lower near-term margins and higher wholesale mix assumptions; full-year GM/Adj GM ranges revised down by management. Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term earnings pressure from incentives and tariff-related cost surcharges led to a reset in margin guidance; monitor Q2/Q3 cadence to validate expected ramp .
  • Backlog improved and community count remains elevated, but absorption must accelerate to ~4/month; watch sequential orders and closings trajectory alongside March rebound sustainability .
  • Wholesale channel is a tactical lever (18% of Q1 closings) that supports pace but dilutes margin; mix shifts are key to modeling GM and ASP .
  • Liquidity/credit recast and buyback capacity provide flexibility; capital returns likely opportunistic while shares trade below book value .
  • Regional dispersion persists (Southeast strength; Florida/Texas softer); investors should track geographic mix impacts on ASP and absorption .
  • Structural housing undersupply and entry-level demand remain supportive long-term; price discipline and self-developed land pipeline underpin margin resiliency as costs rise .
  • Near-term estimate revisions likely lower on margins/ASP mix; upside if incentives moderate and tariffs stabilize; downside if affordability worsens and wholesale mix stays elevated .