[Management View]
LGI Homes reported a 39.2% year-over-year decline in revenue to $390.6 million, driven by a 39.4% decrease in home closings. Despite the challenging market conditions, management emphasized their focus on affordability, strategic sales initiatives, and disciplined margin management. Key highlights included the introduction of a 3.99% promotional rate and price discounts of up to $50,000 on older inventory to drive sales volume. The company maintained gross margin discipline through selective use of incentives and reduced exposure to institutional lot transactions.

[Outlook]
Management provided Q4 guidance, projecting 1,300-1,500 closings (26% increase at midpoint), an average sales price (ASP) between $365,000 and $375,000, gross margin of 21%-22%, and adjusted gross margin between 24%-25%. SG&A expenses are expected to fall between 15%-16%, with a tax rate of approximately 26%. Community count is expected to grow to approximately 145 by year-end 2025, with a 10%-15% increase by the end of 2026. The company remains optimistic about long-term housing market trends and plans to continue investing in community count growth in key markets such as Florida, Texas, and California.

[Financial Performance]
Revenue declined 39.2% YoY to $390.6 million, primarily due to a 39.4% drop in closings. Gross margin decreased to 21.5% from 25.1% YoY, while adjusted gross margin fell to 24.5% from 27.2%. Net income for the quarter was $19.7 million, translating to $0.85 per share. Net orders rose 8.1% YoY to 1,570 homes, and backlog increased 19.9% YoY to 1,350 homes, valued at $498.7 million. The cancellation rate remained flat at 33.6%.

[Q&A Highlights]
Question 1: What drove the acceleration in orders, and is this a strategy shift towards higher volume or a move to clear aged inventory?
Answer: CEO Eric Thomas Lipar attributed the acceleration to market-driven affordability improvements, including lower mortgage rates and the introduction of a 3.99% promotional rate. He emphasized that this was not a strategy shift but rather a response to affordability challenges. The company also hired more salespeople and implemented training programs to enhance sales performance.

Question 2: Does LGI Homes plan to work down its land position, and what is the appetite from other builders for additional land?
Answer: CFO Charles Michael Merdian explained that the company is actively managing its land inventory, focusing on absorptions and development timing. LGI Homes has 13,000 finished vacant developed lots with an average cost in the $70,000 range, providing a cost advantage. While the company evaluates opportunities to monetize excess lots, it remains confident in its land position and development strategy.

Question 3: How does community count growth impact SG&A expenses, and is there a front-loaded cost associated with this growth?
Answer: Management stated that SG&A expenses are expected to remain stable as community count grows, with incremental costs for new sales staff and infrastructure aligned with revenue growth. The company does not anticipate significant front-loaded costs, as the community count growth is spread evenly throughout 2026.

Question 4: Will LGI Homes increase incentives to drive sales, and how does this impact gross margins?
Answer: Management indicated that current incentive levels are consistent with industry trends and are not expected to increase further. Gross margin guidance for Q4 remains similar to Q3, reflecting disciplined execution and stable incentive levels.

[Sentiment Analysis]
Analysts expressed cautious optimism about LGI Homes' strategic initiatives and ability to navigate challenging market conditions. Management maintained a confident tone, emphasizing their focus on affordability, disciplined margin management, and long-term growth opportunities.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 | YoY Change (%) |
|-------------------------|-----------------|-----------------|----------------|
| Revenue | $390.6 million | $642.2 million | -39.2% |
| Gross Margin | 21.5% | 25.1% | -3.6% |
| Adjusted Gross Margin | 24.5% | 27.2% | -2.7% |
| Net Income | $19.7 million | $32.4 million | -39.2% |
| Net Orders | 1,570 homes | 1,452 homes | +8.1% |
| Backlog | 1,350 homes | 1,126 homes | +19.9% |

[Risks and Concerns]
1. Elevated cancellation rates (33.6%) could impact future revenue stability.
2. Higher capitalized interest costs and wholesale closings may continue to pressure gross margins.
3. Uncertainty in institutional buyer engagement and alignment on pricing expectations.
4. Potential challenges in maintaining affordability amid rising costs and interest rates.

[Final Takeaway]
LGI Homes demonstrated resilience in a challenging market by leveraging strategic sales initiatives and maintaining disciplined margin management. The company's focus on affordability, including promotional rates and selective price adjustments, drove significant improvements in net orders and backlog. While revenue and closings declined year-over-year, management's guidance for Q4 indicates a meaningful rebound in performance. Investors should monitor risks related to cancellation rates, margin pressures, and institutional buyer activity, but LGI Homes' long-term growth strategy and cost advantages position it well for future opportunities.