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LGI Homes, Inc. (LGIH)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 results were mixed: revenue beat consensus while EPS missed; management emphasized margin discipline amid affordability headwinds. Revenue was $396.6M vs $390.3M consensus and $651.9M LY; diluted EPS was $0.85 vs $0.93 consensus and $2.95 LY . Consensus values marked with an asterisk are from S&P Global*.
  • Order momentum inflected: net orders rose 8.1% YoY and 43.9% QoQ; backlog ended at 1,305 homes (+19.9% YoY; +61.5% QoQ), positioning Q4 closings at 1,300–1,500 with ASP $365k–$375k, GM 21–22%, adj. GM 24–25%, SG&A 15–16%, tax ~26% .
  • Margins tracked guidance: GM 21.5% and adj. GM 24.5% (down YoY on tougher comps, higher lot cost/cap interest, and higher wholesale mix). SG&A was 16% of revenue on lower volume leverage .
  • Stock setup: near-term catalysts include sequential acceleration into Q4 (395 October closings) and evidence that rate buydowns (e.g., 3.99% 5/1 ARM) sustain orders; risks include elevated cancellations (33.6% in Q3) and capitalized interest remaining high .

What Went Well and What Went Wrong

  • What Went Well

    • Orders/backlog re-accelerated on rate relief and targeted promotions: net orders +8.1% YoY, +43.9% QoQ; backlog +19.9% YoY, +61.5% QoQ. “Rates are down and sales are up” with early Q4 momentum from October closings of 395 .
    • Disciplined incentive strategy and pricing: management leaned into competitive buydowns (3.99% 5/1 ARM) while avoiding extreme buydowns and selective price cuts, preserving margins within guidance. “Our margins reflect disciplined execution, not elevated pricing.” .
    • Land and cost position remain a differentiator: self-developed lots add several hundred bps to margins; average finished lot cost ~ $70k, with lot cost just over 20% of ASP supporting margin stability .

  • What Went Wrong

    • Profitability compressed YoY: GM 21.5% vs 25.1% LY; adj. GM 24.5% vs 27.2% LY, driven by tougher prior-year comp, higher lot cost and capitalized interest as % of revenue, and higher wholesale mix .
    • EPS miss vs consensus: diluted EPS $0.85 vs $0.93 consensus*; other income was positive but SG&A delevered to 16% on lower revenue base, limiting EPS .
    • Cancellation rate elevated: quarterly cancellation rate was 33.6%, up from earlier 2025 levels; management expects capitalized interest to “remain elevated,” a headwind to GM .

Financial Results

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($M)$651.9 $351.4 $483.5 $396.6
Diluted EPS ($)$2.95 $0.17 $1.36 $0.85
Gross Margin %25.1% 21.0% 22.9% 21.5%
Adjusted Gross Margin %27.2% 23.6% 25.5% 24.5%
Net Income ($M)$69.6 $4.0 $31.5 $19.7

Consensus vs. Actual (S&P Global; estimates marked with asterisk*)

MetricQ1 2025Q2 2025Q3 2025
Revenue Cons ($M)$366.5*$478.4*$390.3*
Revenue Actual ($M)$351.4 $483.5 $396.6
EPS Cons ($)$0.632*$1.31*$0.932*
EPS Actual ($)$0.17 $1.36 $0.85
Values retrieved from S&P Global.

Segment Performance (Q3)

SegmentRevenue Q3’24 ($M)Revenue Q3’25 ($M)Closings Q3’24Closings Q3’25ASP Q3’24 ($)ASP Q3’25 ($)
Central164.4 99.4 509 307 323,063 323,632
Southeast155.2 101.4 466 299 333,058 339,194
Northwest83.1 49.4 150 109 553,740 453,284
West150.6 91.7 361 203 417,302 451,719
Florida98.5 54.8 271 147 363,480 372,456
Total651.9 396.6 1,757 1,065 371,004 372,424

KPIs and Operating Metrics

KPIQ3 2024Q3 2025
Home Closings (quarter)1,757 1,065
Average Sales Price (quarter)$371,004 $372,424
Avg. Monthly Absorption Rate4.4 2.5
Active Selling Communities (end)138 141
Net Orders (quarter)—1,570
Cancellation Rate (quarter)—33.6%
Backlog Homes (end)1,088 1,305
Backlog Value (end, $M)$417.8 $498.7
Wholesale Mix (closings)9.1% 15.3%
Capitalized Interest in COGS (Q)$13.0M $11.0M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Home ClosingsQ4 2025N/A (FY guidance withdrawn in Aug.) 1,300–1,500 New
Avg. Sales PriceQ4 2025—$365k–$375k New
Gross Margin %Q4 2025—21%–22% New
Adjusted Gross Margin %Q4 2025—24%–25% New
SG&A % of RevenueQ4 2025—15%–16% New
Effective Tax RateQ4 2025—~26% New
Active Communities (end)Q4 2025—~145 New
Full-Year 2025 GuidanceFY 2025Q1: Closings 6,200–7,000; ASP $360k–$370k; GM 21.7%–23.2%; Adj. GM 24.0%–25.5%; SG&A 14%–15%; ETR ~24.5% Withdrawn (Aug. 5) Withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Affordability & IncentivesRate volatility; trimmed FY GM outlook 100–150 bps due to tariffs; maintained FY closings/ASP guide (Q1) . Withdrew FY guide citing visibility; demand resilient but sequential order decline (Q2) .Leaned into financing incentives including a 3.99% 5/1 ARM and selective pricing on aging inventory; “margins reflect disciplined execution” .Incentives remain critical; disciplined usage; improved efficacy as rates eased.
Orders/BacklogQ2: improved sales in late June/July (setup for Q3) .Net orders +8.1% YoY, +43.9% QoQ; backlog +19.9% YoY, +61.5% QoQ; October closings 395 .Momentum strengthening into Q4.
Wholesale ChannelBacklog included bulk units (Q1/Q2) .$54.5M revenue; 15.3% of closings; continued partner interest; transactions depend on price alignment .Elevated mix vs LY; provides inventory balance.
Margins & Capitalized InterestQ1/Q2 adj. GM 23.6%/25.5% .GM 21.5%, Adj. GM 24.5%; cap interest to remain elevated; wholesale mix weighed on GM .Stable within guidance; headwinds persist.
Land Strategy & Lot CostsRobust owned/controlled lots (Q1/Q2) .Avg finished lot cost ~ $70k; lot cost just over 20% of ASP; self-develop adds several hundred bps to margin .Cost advantage supports margins.
Community Count OutlookQ1: YE 160–170 (later withdrawn) ; Q2: 146 active at quarter end .YE ~145; 2026 community count growth 10–15% (FL, TX, CA) .Flat 2025; growth planned 2026.
Tariffs/MacroTariff-related cost increases noted (Q1) .Rate declines aided demand; no new tariff impact update .Rate-driven demand sensitivity persists.
Mortgage Mix—~70–75% government (FHA/VA/USDA), 10–15% conventional; offering 3.99% 5/1 ARM .Mix stable; ARM promotion helping affordability.

Management Commentary

  • “Our margins reflect disciplined execution, not elevated pricing.” Emphasized thoughtful buydowns, selective pricing, and avoiding land bankers; self-developed lots embed developer profit and support margins .
  • “Together, these initiatives jump-started sales activity,” citing +8% YoY and +44% QoQ net orders; backlog up 20% YoY and 62% QoQ .
  • CFO: “Adjusted gross margin excluded $11 million of capitalized interest and $1 million purchase accounting… We expect capitalized interest to remain elevated due to higher borrowing costs” .
  • CFO on land: “Average finished lot cost of approximately $70,000, and lot cost representing just over 20% of our ASP… provides a meaningful cost advantage” .
  • CEO: “Rates are down and sales are up… October closings demonstrate that the fourth quarter is off to a strong start” .

Q&A Highlights

  • Order acceleration drivers: Management attributed the +44% QoQ order surge to rate relief, a 3.99% promotional rate, increased advertising, and sales execution rather than a strategy shift to chase volume .
  • Land inventory and monetization: Holding ~13k finished VDLs with attractive basis; will balance monetization vs future builds, with development spend moderating and inventory rebalanced in select markets .
  • SG&A leverage and community growth: G&A ~ $30M/quarter stable since early 2024; SG&A rate to decline with Q4 volume; 2026 community count growth of 10–15% spread evenly across the year .
  • Mortgage mix: ~70–75% government loans; ARM uptake increasing due to 3.99% 5/1 offering .
  • Incentives outlook: Levels broadly consistent; GM guided similar to Q3, indicating no incremental incentive pressure planned for Q4 .

Estimates Context

  • Q3 2025: Revenue beat ($396.6M vs $390.3M*), EPS miss ($0.85 vs $0.932*). Drivers: higher wholesale mix, SG&A deleverage, and elevated capitalized interest weighing on GM .
  • Trend across 2025: Q1 missed both revenue and EPS; Q2 beat both; Q3 split beat/miss—suggesting near-term estimate revisions could lift revenue for Q4 while EPS may be more sensitive to mix/interest burden.
  • Consensus snapshot (S&P Global*): see table above; values marked with asterisk are sourced from S&P Global.

Key Takeaways for Investors

  • Order/Backlog inflection provides better Q4 visibility; October closings of 395 support closings guidance of 1,300–1,500 in Q4 .
  • Margin discipline remains intact despite affordability pressures; adj. GM held 24.5% and is guided to 24–25% in Q4, but capitalized interest remains a headwind .
  • Mix watch: wholesale closings rose to 15.3% (from 9.1% LY), aiding inventory balance but diluting margin; EPS sensitivity remains most acute to mix and interest burden .
  • Incentive toolkit appears effective without over-discounting (3.99% ARM, selective price reductions), supporting traffic and order conversion as rates eased .
  • Land position is a strategic advantage (avg finished lot cost ~ $70k; lot cost just over 20% of ASP) that can cushion margins through cycles .
  • Risk flags: elevated cancellations (33.6% in Q3), SG&A deleverage if volumes undershoot, and potential macro/interest-rate reversals .
  • 2026 setup: community count growth targeted at 10–15% with focus on FL, TX, CA; monitor execution and incremental overhead needs versus margin trajectory .

Notes:

  • S&P Global consensus values are marked with an asterisk and provided under license; “Values retrieved from S&P Global.”
  • Non-GAAP adjusted gross margin reconciliations are provided in company materials .
  • All quantitative figures and quotes are sourced from LGI Homes’ Q3 2025 8‑K/press release and earnings call unless noted: .