Executive Summary

Q4 2024 revenue fell 8.4% to $557.4M as closings declined 12.8% to 1,533; diluted EPS was $2.15 (down 2.3% YoY), with gross margin at 22.9% (-50 bps) and adjusted gross margin at 25.2% (+10 bps) .
Management initiated cautious FY2025 guidance: closings 6,200–7,000, ASP $360k–$370k, gross margin 23.2%–24.2%, adjusted GM 25.5%–26.5%, SG&A 14%–15%, tax ~24.5%, reflecting continued affordability headwinds and higher rate sensitivity in early Q1 .
Margin resilience aided by self-developed higher-margin communities and a $14M gain from a bulk sale of 103 leased homes; however, sequential ASP fell ~2% on heavier incentives and SG&A rose from increased advertising .
Operational catalysts: record 151 active communities (+29% YoY), backlog ended at 599 homes ($236.5M); but orders/backlog softened late in Q4/Q1 on >7% mortgage rates, setting a conservative tone for FY2025 .

What Went Well and What Went Wrong

What Went Well

Community expansion and lot pipeline: active selling communities ended 2024 at a record 151 (+29.1% YoY); owned/controlled lots totaled 70,899, supporting future growth .
Margin durability: full-year gross margin reached 24.2% (+120 bps YoY) and adjusted GM 26.3% (+160 bps YoY), aligned with pre-pandemic levels; CEO emphasized “self-developed land pipeline…margins at or near the top of our peer group” .
Opportunistic portfolio action: sale of 103 leased SFR homes generated a $14M gain, contributing to pretax margin of ~12% in Q4 (vs 11.3% last year), supporting earnings quality .

Quote: “Our strong execution in the fourth quarter resulted in full year closings of 6,131 homes…We made significant progress improving profitability. Our full year gross margin was 24.2% and adjusted gross margin was 26.3%” .

What Went Wrong

Volume pressure and incentives: Q4 closings -12.8% YoY; ASP declined ~2% sequentially as incentives increased, weighing on reported gross margin (22.9%, -50 bps YoY) .
Demand softness from higher rates: Q4 cancellation rate was 28% (though improved YoY from 37.8%); early Q1 orders/closings down with >7% mortgage rates, prompting conservative absorption assumptions for 2025 .
Higher SG&A intensity: combined SG&A was 14.7% of revenue in Q4 (selling 9.1%, G&A 5.6%), driven by elevated advertising spend and overhead from community growth .

Financial Results

Metric	Q4 2023	Q3 2024	Q4 2024
Revenue ($USD Millions)	$608.4	$651.9	$557.4
Basic EPS ($)	$2.21	$2.96	$2.16
Diluted EPS ($)	$2.19	$2.95	$2.15
Gross Margin %	23.4%	25.1%	22.9%
Adjusted Gross Margin %	25.1%	27.2%	25.2%
Pretax Margin %	11.3%	14.1%	12.0%

Notes:

Adjusted GM in Q4 excludes $11.9M capitalized interest and $0.9M purchase accounting (≈230 bps impact) .
SG&A in Q4: selling 9.1%, G&A 5.6% of revenue; combined 14.7% .

Segment Breakdown (Q4)

Segment	Revenue ($MM)	Closings	ASP ($)	Avg Community Count	Avg Monthly Absorption
Central (Q4’23)	$166.1	517	$321,292	36.7	4.7
Central (Q4’24)	$123.0	394	$312,180	48.0	2.7
Southeast (Q4’23)	$159.2	500	$318,380	27.0	6.2
Southeast (Q4’24)	$131.1	404	$324,510	30.0	4.5
Northwest (Q4’23)	$38.3	78	$490,846	10.3	2.5
Northwest (Q4’24)	$71.2	139	$511,899	16.7	2.8
West (Q4’23)	$124.5	320	$389,147	16.0	6.7
West (Q4’24)	$120.8	292	$413,613	24.7	3.9
Florida (Q4’23)	$120.3	343	$350,738	22.3	5.1
Florida (Q4’24)	$111.4	304	$366,336	24.3	4.2

KPIs

KPI	Q4 2023	Q3 2024	Q4 2024
Closings (units)	1,758	1,757	1,533
ASP ($)	$346,083	$371,004	$363,598
Avg Monthly Absorption (Total)	5.2	4.4	3.6
Backlog (homes)	590	1,088	599
Backlog Value ($MM)	$224.9	$417.8	$236.5

Additional operational context:

Monthly closings: October 525; November 531 (incl. 103 bulk SFR) .
Q4 wholesale closings: 173 (11.3% of total) vs 298 (17%) in Q4’23 .

Guidance Changes

FY2025 Guidance (Initiated)

Metric	Period	Previous Guidance	Current Guidance	Change
Closings (units)	FY2025	N/A	6,200–7,000	Initiated
Active communities (EOP)	FY2025	N/A	160–170	Initiated
ASP ($)	FY2025	N/A	$360k–$370k	Initiated
Gross Margin %	FY2025	N/A	23.2%–24.2%	Initiated
Adjusted Gross Margin %	FY2025	N/A	25.5%–26.5%	Initiated
SG&A % of revenue	FY2025	N/A	14.0%–15.0%	Initiated
Effective tax rate	FY2025	N/A	~24.5%	Initiated

FY2024 Guidance Evolution (Revisions During Year)

Metric	Period	Previous Guidance (Q2’24)	Current Guidance (Q3’24 Update)	Change
Closings (units)	FY2024	6,400–7,200	6,100–6,400	Lowered
ASP ($)	FY2024	$360k–$370k	$360k–$370k	Maintained
Gross Margin %	FY2024	23.5%–24.5%	24.0%–25.0%	Raised
Adjusted Gross Margin %	FY2024	25.5%–26.5%	26.0%–27.0%	Raised
SG&A % of revenue	FY2024	13.0%–14.0%	14.0%–14.5%	Raised
Effective tax rate	FY2024	24.0%–25.0%	~24.5%	Maintained

Actual FY2024 vs Final Guidance

Metric	Period	Final Guidance (Q3’24)	Actual Result	Outcome
Closings (units)	FY2024	6,100–6,400	6,028 retail; 6,131 incl. bulk SFR	Slightly below retail; within incl. bulk
ASP ($)	FY2024	$360k–$370k	$365,394	Met
Gross Margin %	FY2024	24.0%–25.0%	24.2%	Met
Adjusted Gross Margin %	FY2024	26.0%–27.0%	26.3%	Met
SG&A % of revenue	FY2024	14.0%–14.5%	14.6%	Slightly above
Effective tax rate	FY2024	~24.5%	24.3% (62.842/258.913) – directionally ~24.5%	In line

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 2024)	Previous Mentions (Q3 2024)	Current Period (Q4 2024)	Trend
Affordability & incentives	Raised prices offsetting buy-downs; GM/Adj GM at high end of guidance	Gross margin/Adj GM increased; ASP $371k; updating 2024 guidance upward for margins	Incentives ~~5–6 points (~~$20k/home); ASP down 2% seq on heavier incentives	Incentive intensity increased; margin resilience maintained
Mortgage rates & demand	N/A	Q4 outlook updated; industry headwinds noted	>7% mortgage rates in Jan; slower orders/closings; conservative 2025 absorption (~3.5)	Demand subdued early Q1; cautious guide
Community count expansion	Target ~150 by YE; hit 130 in May	Community count 138 at Q3-end; +30% YoY	Year-end 151 (+29.1% YoY); FY2025 EOP 160–170	Continuing expansion; cadence back-half weighted
Segment/regional performance	Broad strength; self-developed margins	Strength across segments; ASP growth	Top markets: Charlotte, Las Vegas (7.4), DC area (6.7), Raleigh (6.3), Fort Pierce (5.5)	Mixed pace by market; entry-level demand persists
Supply chain/product substitution	N/A	N/A	Ability to substitute products in real time to mitigate cycle-time disruptions, similar to COVID-era	Prepared for potential policy/supply shifts
Wholesale & SFR activity	N/A	Nine months owned/controlled lots; backlog data	Q4 wholesale 173 homes; $14M gain from 103 leased SFR bulk sale	Wholesale mix lower YoY; opportunistic bulk disposition

Management Commentary

Strategy and profitability: “Our strong execution…full year gross margin was 24.2% and adjusted gross margin was 26.3%…aligned with our pre-pandemic, historical levels” .
FY2025 posture: “We will continue to lean into incentives while maintaining profitability metrics in-line with our historical averages…projecting full year gross margin between 23.2% and 24.2% and adjusted gross margin between 25.5% and 26.5%” .
Demand backdrop: “With mortgage rates exceeding 7% in January, both orders and closings were down…we expect…absorption…around 3.5 at the midpoint” .
Margin drivers: “Being in…historical range around that 25% adjusted gross margin is where we need to be to capture that developer profit even though we’re offering a lot of incentives” .
Marketing spend: “We are having to spend more dollars than we ever had to…to make sure we hit an acceptable absorption pace and maintain our margins and profitability” .

Q&A Highlights

Gross margin outlook: Management expects similar YoY gross margins despite cost inflation, offset by pricing and incentives; adjusted GM targeted ~25–26% via self-developed projects capturing developer profit .
Absorption/pace: 2025 pace guided lower vs prior commentary due to slower start, higher rates, and ramping many new communities/new sales reps; cadence for community additions likely back-half weighted .
Inventory/starts: ~4,000 total units in inventory at Q4-end (≈2,500 completed; ≈1,360 in progress); ~1,100 starts in Q4, reducing inventory .
Incentives efficiency: Focused on qualifying entry-level renters; balancing rate buy-down cost vs expanded qualified buyer pool on a community-by-community basis .
Regional read: DC area strength driven by exurban markets (e.g., West Virginia), not core federal employment centers .

Estimates Context

Wall Street consensus for Q4 2024 EPS and revenue via S&P Global was unavailable due to an S&P daily request limit error; therefore, a beat/miss determination versus consensus cannot be provided at this time [Values retrieved from S&P Global]*.
Given ASP sequential decline (~2%) and heavier incentives, estimates for 2025 may need to reflect lower absorption assumptions (midpoint ~3.5) and elevated SG&A, while factoring margin resilience from self-developed land .

Key Takeaways for Investors

Volume softness but margin resilience: Q4 revenue down 8.4% on lower closings, yet adjusted GM improved (+10 bps YoY) and pretax margin held ~12%, supported by self-developed communities and portfolio actions .
Incentives likely persist: Management is investing ~~5–6 points (~~$20k/home) to support affordability; expect ASP to be similar YoY and sequential variability tied to rate dynamics/incentives .
Conservative 2025 playbook: Slower start to Q1 on >7% rates and onboarding many new communities/sales reps; absorption guided ~3.5 with back-half community additions .
Growth capacity intact: Record 151 communities and 70,899 lots position LGIH for medium-term expansion; FY2025 EOP communities guided to 160–170 .
Watch marketing efficiency: SG&A stepped up with higher advertising; monitor demand elasticity and lead conversion as rates evolve .
Operational optionality: Ability to substitute products and manage cycle times mitigates potential supply chain/policy shocks; wholesale activity expected ~10% of closings in 2025 .
Trading implications: Near term, stock narrative hinges on rate trajectory and absorption stabilization; medium term, thesis centers on self-developed margin durability and scaling community count while controlling SG&A intensity .

Footnote: *Estimates unavailable; S&P Global API limit error encountered.

LGI Homes, Inc. (LGIH)·Q4 2024 Earnings Summary