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01/09 22:53
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals. While there's an increase in net orders and backlog, margins have declined, and SG&A expenses remain high. The company is managing land inventory and has a positive outlook on ASP. The Q&A reveals cautious optimism, with no major strategy shifts. Market cap suggests moderate volatility, so the stock price is likely to remain stable in the short term.
Revenue $396.6 million, down 39.2% year-over-year, driven by a 39.4% decline in closings.
Average Selling Price of Homes Closed $372,424, up slightly from last year, primarily driven by geographic mix and lower magnitude of incentives, partially offset by a higher percentage of wholesale closings.
Gross Margin 21.5%, down from 25.1% in the same period last year, primarily due to a strong comp last year, higher lot costs, capitalized interest as a percentage of revenue, and a higher mix of wholesale closings.
Adjusted Gross Margin 24.5%, down from 27.2% in the same period last year, with adjustments including $11 million of capitalized interest and $1 million related to purchase accounting.
Selling, General and Administrative Expenses (SG&A) $63.6 million or 16% of revenue, in line with guidance. Selling expenses were $35.7 million or 9% of revenue, up slightly from 8.5% last year. General and administrative expenses were flat year-over-year at $28 million, but as a percentage of revenue, G&A expenses were 7.1% compared to 4.3% last year due to lower volumes.
Other Income $5.2 million, primarily from the gain on sale of leased homes, finished lots, other land held for sale, and LGI living lease income.
Net Income $19.7 million or $0.85 per basic and diluted share, with a pretax net income of $26.7 million or 6.7% of revenue. Effective tax rate was 26.2% compared to 24.3% last year.
Net Orders 1,570 homes, an increase of 8.1% year-over-year and 43.9% sequentially, driven by sales initiatives and improved mortgage rates.
Backlog 1,305 homes, up 19.9% year-over-year and 61.5% sequentially, with a value of $498.7 million. Institutional buyers represented 4.6% of total backlog compared to 19.5% last year.
Land Position 62,564 owned and controlled lots, a decrease of 8.8% year-over-year and 3.4% sequentially. Average finished lot cost was approximately $70,000, representing just over 20% of the average selling price in the third quarter.
Homes Under Construction 895 homes at quarter end, down 40.8% sequentially and 54.7% year-over-year, reflecting a focus on rebalancing inventory in select markets.
Debt and Liquidity $1.75 billion of debt outstanding, with a debt-to-capital ratio of 45.7% and a net debt-to-capital ratio of 44.8%. Total liquidity was $429.9 million, including $62 million of cash and $367.9 million available under the credit facility.
Homes Closed: 1,107 homes closed in Q3 2025, with 1,065 contributing to $397 million in revenue.
Average Selling Price: $372,424 per home, slightly up from last year due to geographic mix and lower incentives.
Top Markets: Charlotte, Las Vegas, Raleigh, Greenville, and Denver were the top-performing markets in terms of closings per community.
Community Count: 141 communities at the end of October, expected to grow to 145 by year-end and increase by 10%-15% by the end of 2026.
Gross Margin: Gross margin at 21.5% and adjusted gross margin at 24.5%, reflecting disciplined execution and cost management.
Net Orders and Backlog: Net orders increased by 8% YoY and 44% sequentially. Backlog grew 20% YoY and 62% sequentially, valued at $498.7 million.
Land Position: 62,564 owned and controlled lots, with an average finished lot cost of $70,000, providing a cost advantage.
Sales Initiatives: Introduced financing options like forward rate buy-downs and price discounts up to $50,000 to improve affordability and boost sales.
Inventory Management: Focused on rebalancing inventory by slowing starts in some markets and prioritizing high-performing communities.
Mortgage Rates and Affordability Challenges: Higher mortgage rates are creating affordability challenges for entry-level buyers, necessitating the use of financing incentives like rate buy-downs, which could impact profitability.
Gross Margin Pressure: Gross margins have declined compared to the previous year due to higher lot costs, capitalized interest, and a higher mix of wholesale closings, which could affect financial performance.
Inventory Management: The company is focusing on rebalancing inventory in select markets, which includes slowing or pausing starts in certain communities. This could lead to inefficiencies or missed opportunities in high-demand areas.
Land Portfolio and Development Costs: While the company benefits from a low-cost land portfolio, the decrease in owned and controlled lots year-over-year and sequentially could limit future growth opportunities.
Cancellation Rates: The cancellation rate remains high at 33.6%, which could disrupt sales forecasts and revenue stability.
Leverage and Debt Levels: The company has $1.75 billion in debt, with a debt-to-capital ratio of 45.7%. While leverage is being reduced, high debt levels could pose risks in a volatile market.
Institutional Buyer Alignment: The ability to transact with institutional buyers depends on alignment around pricing expectations, which could delay or reduce sales in this channel.
Economic and Market Volatility: The company operates in a volatile market where buyer behavior is influenced by economic conditions, including interest rates and credit availability, which could impact sales and profitability.
Net Orders and Backlog: Net orders increased by 8% year-over-year and 44% sequentially in Q3 2025. Backlog at quarter-end was up 20% year-over-year and 62% sequentially, reflecting strong sales momentum driven by financing options and price discounts.
Fourth Quarter Closings: The company expects to close between 1,300 and 1,500 homes in Q4 2025, representing a 26% increase in closings compared to Q3 2025.
Average Sales Price (ASP): The average sales price in Q4 2025 is expected to range between $365,000 and $375,000.
Community Count: Community count is expected to reach approximately 145 by year-end 2025, with a projected increase of 10% to 15% by the end of 2026.
Gross Margin: Fourth quarter gross margin is expected to range between 21% and 22%, with adjusted gross margin between 24% and 25%, consistent with Q3 2025 results.
SG&A Expenses: Selling, general, and administrative expenses are expected to fall between 15% and 16% of revenue in Q4 2025.
Tax Rate: The effective tax rate for Q4 2025 is expected to be approximately 26%.
Land Position and Development: The company plans to balance home starts in the coming quarters, focusing on high-performing communities while slowing starts in areas with unsold inventory. Community count growth is expected to continue into 2026.
The selected topic was not discussed during the call.
The earnings call presents mixed signals. While there's an increase in net orders and backlog, margins have declined, and SG&A expenses remain high. The company is managing land inventory and has a positive outlook on ASP. The Q&A reveals cautious optimism, with no major strategy shifts. Market cap suggests moderate volatility, so the stock price is likely to remain stable in the short term.
The earnings call presents mixed signals: while community growth and sales initiatives are promising, there are concerns about high cancellation rates and lower gross margin guidance. The Q&A highlighted management's focus on incentives and debt reduction but avoided specifics on improving trends. The market cap indicates moderate volatility, leading to a neutral prediction. Without clear positive catalysts or strong negative trends, the stock price is likely to remain stable.
The earnings call indicates several negative factors: declining revenue, reduced gross margins, higher expenses, and missed EPS expectations. The slight improvement in cancellation rate and share repurchase plan are positive but insufficient to offset concerns. The Q&A revealed management's vague responses on gross margins and tariffs, suggesting uncertainty. The market may react negatively, especially with a 10.1% revenue decline and increased costs. Given the company's small market cap, these factors are likely to result in a stock price decline of -2% to -8% over the next two weeks.
The earnings call revealed several negative factors: a 10.1% revenue decline, increased SG&A expenses, and a reduction in gross margins. Despite the share repurchase plan, the Q&A section highlighted concerns about tariffs, price competition, and lack of clear guidance on gross margin recovery. The market cap suggests moderate sensitivity to these results. Overall, the combination of declining financial metrics, cautious management responses, and market uncertainties points to a negative stock price movement.
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