Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operation, references to “we,” “our,” “us” or similar terms refer to LGI Homes, Inc. and its subsidiaries.
Business Overview
Our management team has been in the residential land development business since the mid-1990s. Since commencing home building operations in 2003, we have constructed and closed over 75,000 homes.
We are engaged in the design, construction and sale of new homes in the following markets:
West Northwest Central Midwest Florida Southeast Mid-Atlantic
Phoenix, AZ Seattle, WA Houston, TX Minneapolis, MN Tampa, FL Atlanta, GA Washington, D.C.
Tucson, AZ Portland, OR Dallas Ft. Worth, TX Orlando, FL Charlotte, NC Norfolk, VA
Albuquerque, NM Denver, CO San Antonio, TX Fort Myers, FL Raleigh, NC Richmond, VA
Las Vegas, NV Austin, TX Jacksonville, FL Wilmington, NC Baltimore, MD
Northern CA Oklahoma City, OK Fort Pierce, FL Winston-Salem, NC
Southern CA Daytona Beach, FL Columbia, SC
Salt Lake City, UT
Sarasota, FL Greenville, SC
Birmingham, AL
Nashville, TN
Our third quarter 2025 results were achieved against a challenging macroeconomic backdrop that included elevated mortgage rates, persistent inflation, and a government shutdown. Throughout the quarter, we continued executing on our strategy of delivering affordable homes to entry-level buyers across our markets. Although mortgage rates have trended downward since June, they continue to be a key pressure point for entry-level buyers. Additionally, subdued consumer sentiment continues to impact buyers’ willingness to purchase new homes. In response, we continued offering affordable, move-in ready homes supported by financial incentives and discounts on older inventory. These strategies are designed to bridge the ongoing affordability gap and make homeownership accessible to as many customers as possible.
For the nine months ended September 30, 2025, we closed 3,384 homes, compared to 4,495 homes during the nine months ended September 30, 2024.
We sell homes under the LGI Homes and Terrata Homes brands. Our 141 active communities at September 30, 2025 included 14 Terrata Homes communities. At September 30, 2024, we had 138 active communities, including 18 Terrata Homes communities.
For additional discussion regarding our business and operations, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. For additional discussion regarding risks associated with our business and operations, see Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Recent Developments
Impact of October 2025 U.S. Government Shutdown
During October 2025, the U.S. federal government experienced a partial shutdown that affected several agencies and regulatory functions. While LGI Homes’ core operations continued uninterrupted, we have identified certain areas where the shutdown may have implications for our business and financial reporting:
Government-Backed Mortgage Programs: LGI Homes serves a significant number of entry-level and first-time homebuyers who utilize federally backed mortgage programs, including FHA and VA loans. During the shutdown, we observed delays in loan processing and approvals, which may impact the timing of certain home closings and backlog conversion in future periods. In addition to delays in FHA and VA loan processing, the government shutdown has impacted USDA loan
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programs, which are a critical financing option for many of our entry-level buyers in rural and suburban markets. The disruption in USDA loan approvals may result in delayed closings and increased cancellations.
Economic Data Availability: The shutdown disrupted the release of key economic indicators, including employment and inflation data, which are typically used to inform our market outlook and strategic planning. As a result, our forward-looking statements and guidance may reflect increased uncertainty.
Affordable Housing and Development Approvals: For communities involving federal funding or oversight, including certain affordable housing initiatives, we may experience delays in approvals and contract processing. While these delays were not material to our results for the third quarter of 2025, extended disruptions could affect future development timelines and revenue recognition.
We continue to monitor the situation closely and will provide updates in future filings should the shutdown or its effects materially impact our operations, financial condition, or results of operations.
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Key Results
Key financial results as of and for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, were as follows:
• Home sales revenues decreased 39.2% to $396.6 million from $651.9 million.
• Homes closed decreased 39.4% to 1,065 homes from 1,757 homes.
• Average sales price per home closed increased 0.4% to $372,424 from $371,004.
• Gross margin as a percentage of home sales revenues decreased to 21.5% from 25.1%.
• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 24.5% from 27.2%.
• Net income before income taxes decreased 70.9% to $26.7 million from $91.9 million.
• Net income decreased 71.7% to $19.7 million from $69.6 million.
• EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 9.8% from 16.2%.
For reconciliations of the non-GAAP financial measures of adjusted gross margin and EBITDA to the most directly comparable GAAP financial measures, please see “ —Non-GAAP Measures .”
Key financial results as of and for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, were as follows:
• Home sales revenues decreased 25.1% to $1.2 billion from $1.6 billion.
• Homes closed decreased 24.7% to 3,384 homes from 4,495 homes.
• Average sales price per home closed decreased 0.6% to $363,929 from $366,007.
• Gross margin as a percentage of home sales revenues decreased to 21.9% from 24.7%.
• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues decreased to 24.6% from 26.7%.
• Net income before income taxes decreased 61.2% to $74.5 million from $191.8 million.
• Net income decreased 62.0% to $55.2 million from $145.2 million.
• EBITDA (non-GAAP) as a percentage of home sales revenues decreased to 8.8% from 13.6%.
For reconciliations of the non-GAAP financial measures of adjusted gross margin and EBITDA to the most directly comparable GAAP financial measures, please see “ —Non-GAAP Measures .”
We owned and controlled 62,564 lots at September 30, 2025 as compared to 64,756 lots at June 30, 2025 and 70,899 lots at December 31, 2024.
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Results of Operations
The following table sets forth our results of operations for the three and nine months ended September 30, 2025 and 2024:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
(dollars in thousands, except per share data and average home sales price)
Statement of Income Data:
Home sales revenues $ 396,632 $ 651,854 $ 1,231,537 $ 1,645,202
Expenses:
Cost of sales 311,520 488,362 962,104 1,239,425
Selling expenses 35,661 55,196 119,602 149,196
General and administrative 27,967 27,991 88,570 90,022
Operating income 21,484 80,305 61,261 166,559
Other income, net (5,217) (11,547) (13,204) (25,270)
Net income before income taxes 26,701 91,852 74,465 191,829
Income tax provision 6,997 22,277 19,234 46,628
Net income $ 19,704 $ 69,575 $ 55,231 $ 145,201
Basic earnings per share $ 0.85 $ 2.96 $ 2.38 $ 6.17
Diluted earnings per share $ 0.85 $ 2.95 $ 2.37 $ 6.15
Other Financial and Operating Data:
Average community count 142.0 133.3 145.3 126.1
Community count at end of period 141 138 141 138
Home closings 1,065 1,757 3,384 4,495
Average sales price per home closed $ 372,424 $ 371,004 $ 363,929 $ 366,007
Gross margin (1)
$ 85,112 $ 163,492 $ 269,433 $ 405,777
Gross margin % (2)
21.5 % 25.1 % 21.9 % 24.7 %
Adjusted gross margin (3)
$ 97,115 $ 177,603 $ 303,390 $ 439,098
Adjusted gross margin % (2)(3)
24.5 % 27.2 % 24.6 % 26.7 %
EBITDA (4)
$ 38,883 $ 105,636 $ 108,625 $ 224,296
EBITDA margin % (2)(4)
9.8 % 16.2 % 8.8 % 13.6 %
(1) Gross margin is home sales revenues less cost of sales.
(2) Calculated as a percentage of home sales revenues.
(3) Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. Please see “ —Non-GAAP Measures ” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.
(4) EBITDA is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. Our management believes that the presentation of EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be
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unusual or non-recurring. Accordingly, our management believes that this measure is useful for comparing general operating performance from period to period. Other companies may define this measure differently and, as a result, our measure of EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA as a financial measure to assess the performance of our business, the use of this measure is limited because it does not include certain material costs, such as interest and taxes, necessary to operate our business. EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA is limited as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Please see “ —Non-GAAP Measures ” for reconciliations of EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.
Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the three months ended September 30, 2025 and 2024, and our community count by reportable segment as of September 30, 2025 and 2024, were as follows (revenues in thousands):
Three Months Ended September 30, 2025 As of September 30, 2025
Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate Community Count at End of Period
Central $ 99,355 307 $ 323,632 45.0 2.3 45
Southeast 101,419 299 339,194 32.3 3.1 32
Northwest 49,408 109 453,284 14.7 2.5 14
West 91,699 203 451,719 25.7 2.6 25
Florida 54,751 147 372,456 24.3 2.0 25
Total $ 396,632 1,065 $ 372,424 142.0 2.5 141
Three Months Ended September 30, 2024 As of September 30, 2024
Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate Community Count at End of Period
Central $ 164,439 509 $ 323,063 45.7 3.7 47
Southeast 155,205 466 333,058 27.3 5.7 29
Northwest 83,061 150 553,740 14.3 3.5 15
West 150,646 361 417,302 23.0 5.2 24
Florida 98,503 271 363,480 23.0 3.9 23
Total $ 651,854 1,757 $ 371,004 133.3 4.4 138
Home sales revenues for the three months ended September 30, 2025 were $396.6 million, a decrease of $255.2 million, or 39.2%, from $651.9 million for the three months ended September 30, 2024. The decrease in home sales revenues was primarily due to a 39.4% decrease in the number of homes closed during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The overall decrease in home closings was a result of a lower absorption rate, partially offset by a higher average community count, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The overall increase in average community count relates to timing associated with new community openings, offset by the close out of some communities and transition between certain active communities during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The average sales price per home closed during the three months ended September 30, 2025 was $372,424, an increase of $1,420, or 0.4%, from the average sales price per home closed of $371,004 for the three months ended September 30, 2024. The increase in the average sales price per home closed was primarily due to geographic mix and a decrease in sales incentives. The overall decrease in absorption rate generally relates to the impact of ongoing affordability constraints, new community openings, and the overall increase in community count.
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Included within our home sales revenues for the three months ended September 30, 2025 was $54.5 million in wholesale revenues resulting from 163 home closings, representing 15.3% of the 1,065 total number of homes closed during the three months ended September 30, 2025. Included within our home sales revenues for the three months ended September 30, 2024 was $49.5 million in wholesale revenues resulting from 160 home closings, representing 9.1% of the 1,757 total number of homes closed during the three months ended September 30, 2024. The increase in home closings as a percentage of revenues through our wholesale channel was primarily related to lower retail demand during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.
• Home sales revenues in our Central reportable segment decreased by $65.1 million, or 39.6%, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a 39.7% decrease in the number of homes closed, partially offset by an increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate and a decrease in the average community count.
• Home sales revenues in our Southeast reportable segment decreased by $53.8 million, or 34.7%, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a 35.8% decrease in the number of homes closed, partially offset by an increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our Northwest reportable segment decreased by $33.7 million, or 40.5%, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a 27.3% decrease in the number of homes closed and an 18.1% decrease in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our West reportable segment decreased by $58.9 million, or 39.1%, during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a 43.8% decrease in the number of homes closed, partially offset by an 8.2% increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our Florida reportable segment decreased by $43.8 million, or 44.4%, during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to a 45.8% decrease in the number of homes closed, partially offset by an increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales for the three months ended September 30, 2025 was $311.5 million, a decrease of $176.8 million, or 36.2%, from $488.4 million for the three months ended September 30, 2024. This overall decrease was primarily due to a 39.4% decrease in the number of homes closed. Gross margin for the three months ended September 30, 2025 was $85.1 million, a decrease of $78.4 million, or 47.9%, from $163.5 million for the three months ended September 30, 2024. Gross margin as a percentage of home sales revenues was 21.5% for the three months ended September 30, 2025 and 25.1% for the three months ended September 30, 2024. The decrease in gross margin as a percentage of home sales revenues was primarily due to higher lot costs, higher capitalized interest and higher indirect overhead, partially offset by the impact of lower sales incentives offered during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.
Selling Expenses. Selling expenses for the three months ended September 30, 2025 were $35.7 million, a decrease of $19.5 million, or 35.4%, from $55.2 million for the three months ended September 30, 2024. The decrease in selling expenses was primarily due to a decrease in the number of homes closed for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. Sales commissions decreased to $15.2 million for the three months ended September 30, 2025 from $27.6 million for the three months ended September 30, 2024, primarily due to a decrease in the number of homes closed. Selling expenses as a percentage of home sales revenues were 9.0% and 8.5% for the three months ended September 30, 2025 and 2024, respectively. The increase in selling expenses as a percentage of home sales revenues was primarily due to a decrease in home sales revenues during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.
General and Administrative. General and administrative expenses for the three months ended September 30, 2025 were $28.0 million, which was consistent with $28.0 million for the three months ended September 30, 2024. General and administrative expenses as a percentage of home sales revenues were 7.1% and 4.3% during the three months ended September 30, 2025 and 2024, respectively. The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to lower home sales revenues during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.
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Other Income, Net. Other income, net of other expenses was $5.2 million for the three months ended September 30, 2025, a decrease of $6.3 million from $11.5 million for the three months ended September 30, 2024. The decrease in other income, net of other expenses, primarily reflects the decrease in income associated with our investment in unconsolidated entities and the decrease in interest income recognized.
Operating Income and Net Income before Income Taxes. Operating income for the three months ended September 30, 2025 was $21.5 million, a decrease of $58.8 million, or 73.2%, from $80.3 million for the three months ended September 30, 2024. Net income before income taxes for the three months ended September 30, 2025 was $26.7 million, a decrease of $65.2 million, or 71.0%, from $91.9 million for the three months ended September 30, 2024. The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption rate, lower gross margin and other costs associated with the increase in average community count during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. Our reportable segments contributed to net income before income taxes during the three months ended September 30, 2025 as follows: Central - $9.1 million, or 34.2%; Southeast - $10.7 million, or 40.1%; Northwest - $(0.8) million, or (2.9)%; West - $9.7 million, or 36.4%; and Florida - $(1.1) million, or (4.1)%.
Income Taxes . Income tax provision for the three months ended September 30, 2025 was $7.0 million, a decrease of $15.3 million, or 68.7%, from income tax provision of $22.3 million for the three months ended September 30, 2024. The decrease in our income tax provision was primarily due to the overall decrease in net income before income taxes. The increase in our effective tax rate to 26.2% for the three months ended September 30, 2025 from 24.3% for the three months ended September 30, 2024 was primarily a result of an increase in the rate for state income taxes, net of the federal benefit, and the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended.
Net Income . Net income for the three months ended September 30, 2025 was $19.7 million, a decrease of $49.9 million, or 71.7%, from $69.6 million for the three months ended September 30, 2024. The decrease in net income was primarily attributed to an overall decrease in the number of homes closed, home sales revenues and gross margin during the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.
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Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024
Homes Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the nine months ended September 30, 2025 and 2024 were as follows (revenues in thousands):
Nine Months Ended September 30, 2025
Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate
Central $ 313,487 997 $ 314,430 47.8 2.3
Southeast 353,211 1,067 331,032 31.8 3.7
Northwest 137,132 274 500,482 15.8 1.9
West 258,994 592 437,490 25.3 2.6
Florida 168,713 454 371,615 24.6 2.1
Total $ 1,231,537 3,384 $ 363,929 145.3 2.6
Nine Months Ended September 30, 2024
Revenues Home Closings ASP Average Community Count Average Monthly Absorption Rate
Central $ 441,609 1,363 $ 323,998 43.8 3.5
Southeast 407,068 1,231 330,681 26.2 5.2
Northwest 187,253 344 544,340 13.6 2.8
West 351,880 848 414,953 20.7 4.6
Florida 257,392 709 363,035 21.8 3.6
Total $ 1,645,202 4,495 $ 366,007 126.1 4.0
Home sales revenues for the nine months ended September 30, 2025 were $1.2 billion, a decrease of $413.7 million, or 25.1%, from $1.6 billion for the nine months ended September 30, 2024. The decrease in home sales revenues was primarily due to a 24.7% decrease in the number of homes closed and a decrease in the average sales price per home closed during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The overall decrease in home closings was a result of a lower absorption rate, partially offset by a higher average community count, during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The overall increase in average community count relates to timing associated with new community openings, offset by the close out of some communities and transition between certain active communities during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The average sales price per home closed during the nine months ended September 30, 2025 was $363,929, a decrease of $2,078, or 0.6%, from the average sales price per home closed of $366,007 for the nine months ended September 30, 2024. The decrease in the average sales price per home closed was primarily due to an increase in wholesale home closings and to a lesser extent geographic mix. The overall decrease in absorption rate generally relates to the impact of ongoing affordability constraints, new community openings, and the overall increase in community count.
Included within our home sales revenues for the nine months ended September 30, 2025 was $180.4 million in wholesale revenues resulting from 579 home closings, representing 17.1% of the 3,384 total number of homes closed during the nine months ended September 30, 2025. Included within our home sales revenues for the nine months ended September 30, 2024 was $113.7 million in wholesale revenues resulting from 379 home closings, representing 8.4% of the 4,495 total number of homes closed during the nine months ended September 30, 2024. The increase in home closings as a percentage of revenues through our wholesale channel was primarily related to higher demand from our wholesale channel customers during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
• Home sales revenues in our Central reportable segment decreased by $128.1 million, or 29.0%, during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a 26.9% decrease in the number of homes closed and a 3.0% decrease in the average sales price per home closed. The decrease
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in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our Southeast reportable segment decreased by $53.9 million, or 13.2%, during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a 13.3% decrease in the number of homes closed, partially offset by an increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our Northwest reportable segment decreased by $50.1 million, or 26.8%, during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a 20.3% decrease in the number of homes closed and an 8.1% decrease in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our West reportable segment decreased by $92.9 million, or 26.4%, during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a 30.2% decrease in the number of homes closed, partially offset by a 5.4% increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
• Home sales revenues in our Florida reportable segment decreased by $88.7 million, or 34.5%, during the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to a 36.0% decrease in the number of homes closed, partially offset by a 2.4% increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.
Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales for the nine months ended September 30, 2025 was $962.1 million, a decrease of $277.3 million, or 22.4%, from $1.2 billion for the nine months ended September 30, 2024. This overall decrease was primarily due to a 24.7% decrease in the number of homes closed. Gross margin for the nine months ended September 30, 2025 was $269.4 million, a decrease of $136.3 million, or 33.6%, from $405.8 million for the nine months ended September 30, 2024. Gross margin as a percentage of home sales revenues was 21.9% for the nine months ended September 30, 2025 and 24.7% for the nine months ended September 30, 2024. The decrease in gross margin as a percentage of home sales revenues during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 was primarily due to a lower average sales price per home closed, a higher number of wholesale closings, higher lot costs, higher capitalized interest and higher indirect overhead as a percentage of revenue, partially offset by a decrease in sales incentives offered during the nine months ended September 30, 2025.
Selling Expenses. Selling expenses for the nine months ended September 30, 2025 were $119.6 million, a decrease of $29.6 million, or 19.8%, from $149.2 million for the nine months ended September 30, 2024. The decrease in selling expenses was primarily due to a decrease in the number of homes closed for the nine months ended September 30, 2025 as compared to the three months ended September 30, 2024. Sales commissions decreased to $48.1 million during the nine months ended September 30, 2025 from $72.2 million for the nine months ended September 30, 2024, primarily due to a decrease in the number of homes closed. Selling expenses as a percentage of home sales revenues were 9.7% and 9.1% for the nine months ended September 30, 2025 and 2024, respectively. The increase in selling expenses as a percentage of home sales revenues was primarily due to a decrease in home sales revenues during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
General and Administrative. General and administrative expenses for the nine months ended September 30, 2025 were $88.6 million, a decrease of $1.5 million, or 1.7%, from $90.0 million for the nine months ended September 30, 2024. The decrease in general and administrative expenses was primarily due to a decrease in bonuses and indirect overhead costs, partially offset by an increase in other general and administrative expense. General and administrative expenses as a percentage of home sales revenues were 7.2% and 5.5% for the nine months ended September 30, 2025 and 2024, respectively. The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to lower home sales revenues during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
Other Income, Net. Other income, net of other expenses was $13.2 million for the nine months ended September 30, 2025, a decrease of $12.1 million from $25.3 million for the nine months ended September 30, 2024. The decrease in other income, net of other expenses, primarily reflects the decrease in income associated with our investment in unconsolidated entities and the decrease in interest income.
Operating Income and Net Income before Income Taxes. Operating income for the nine months ended September 30, 2025 was $61.3 million, a decrease of $105.3 million, or 63.2%, from $166.6 million for the nine months ended September 30,
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2024. Net income before income taxes for the nine months ended September 30, 2025 was $74.5 million, a decrease of $117.4 million, or 61.2%, from $191.8 million for the nine months ended September 30, 2024. The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption rate, lower gross margin and the increase in other costs associated with the increase in average community count during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. Our reportable segments contributed to net income before income taxes during the nine months ended September 30, 2025 as follows: Central - $15.1 million, or 20.3%; Southeast - $37.0 million, or 49.7%; Northwest - $2.6 million, or 3.5%; West - $23.0 million, or 30.8%; and Florida - $(1.6) million, or (2.2)%.
Income Taxes . Income tax provision for the nine months ended September 30, 2025 was $19.2 million, a decrease of $27.4 million, or 58.8%, from income tax provision of $46.6 million for the nine months ended September 30, 2024. The decrease in our income tax provision was primarily due to the overall decrease in net income before income taxes. The increase in our effective tax rate to 25.8% for the nine months ended September 30, 2025 from 24.3% for the nine months ended September 30, 2024 was primarily a result of an increase in the rate for state income taxes, net of the federal benefit, the compensation cost in excess of deductions for share-based payments, and the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended.
Net Income . Net income for the nine months ended September 30, 2025 was $55.2 million, a decrease of $90.0 million, or 62.0%, from $145.2 million for the nine months ended September 30, 2024. The decrease in net income was primarily attributed to overall lower number of homes closed, home sales revenues and gross margin during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Quarterly Report on Form 10-Q relating to adjusted gross margin and EBITDA.
Adjusted Gross Margin
Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin less capitalized interest and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes this information is useful because it isolates the impact that capitalized interest and purchase accounting adjustments have on gross margin. However, because adjusted gross margin information excludes capitalized interest and purchase accounting adjustments, which have real economic effects and could impact our results, the utility of adjusted gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.
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The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Home sales revenues $ 396,632 $ 651,854 $ 1,231,537 $ 1,645,202
Cost of sales 311,520 488,362 962,104 1,239,425
Gross margin 85,112 163,492 269,433 405,777
Capitalized interest charged to cost of sales 11,004 12,954 31,107 30,187
Purchase accounting adjustments (1)
999 1,157 2,850 3,134
Adjusted gross margin $ 97,115 $ 177,603 $ 303,390 $ 439,098
Gross margin % (2)
21.5 % 25.1 % 21.9 % 24.7 %
Adjusted gross margin % (2)
24.5 % 27.2 % 24.6 % 26.7 %
(1) Adjustments result from the application of purchase accounting for acquisitions and represent the amount of the fair value step-up adjustments included in cost of sales for real estate inventory sold after the acquisition dates.
(2) Calculated as a percentage of home sales revenues.
EBITDA
EBITDA is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. Our management believes that the presentation of EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, our management believes that this measure is useful for comparing general operating performance from period to period. Other companies may define this measure differently and, as a result, our measure of EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA as a financial measure to assess the performance of our business, the use of this measure is limited because it does not include certain material costs, such as interest and taxes, necessary to operate our business. EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA is limited as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
(i) it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments, including for purchase of land;
(ii) it does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
(iii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and EBITDA does not reflect any cash requirements for such replacements or improvements;
(iv) it does not adjust for all non-cash income or expense items that are reflected in our statements of cash flows;
(v) it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and
(vi) other companies in our industry may calculate it differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, our EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. We compensate for these limitations by using our EBITDA along with other comparative tools, together with GAAP measures, to assist in the evaluation of operating performance. These GAAP measures include operating income, net income and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments and other non-recurring charges, which
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are not reflected in our EBITDA. EBITDA is not intended as an alternative to net income as an indicator of our operating performance, as an alternative to any other measure of performance in conformity with GAAP or as an alternative to cash flows as a measure of liquidity. You should therefore not place undue reliance on our EBITDA calculated using these measures.
The following table reconciles EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Net income $ 19,704 $ 69,575 $ 55,231 $ 145,201
Income tax provision (benefit) 6,997 22,277 19,234 46,628
Depreciation and amortization 1,178 830 3,053 2,280
Capitalized interest charged to cost of sales 11,004 12,954 31,107 30,187
EBITDA $ 38,883 $ 105,636 $ 108,625 $ 224,296
EBITDA margin % (1)
9.8 % 16.2 % 8.8 % 13.6 %
(1) Calculated as a percentage of home sales revenues.
Net Debt to Capital Ratio Reconciliation
Net debt to capital ratio is a non-GAAP financial measure used by management as a supplemental measure in understanding the leverage employed in our operations and as an indicator of our ability to obtain financing. We define net debt to capital ratio as net debt (which is total debt minus cash and cash equivalents) divided by net debt plus total equity. Our management believes that the presentation of net debt to capital ratio provides useful information to investors regarding the Company’s financial leverage and its ability to meet long-term obligations. By excluding cash and cash equivalents from total debt, the ratio offers a clearer view of our capital structure and financial flexibility. Our management uses this metric to monitor our capital efficiency and to evaluate the effectiveness of our capital management strategies over time. Other companies may define this measure differently and, as a result, our measure of net debt to capital ratio may not be directly comparable to the measures of other companies.
The following table reconciles net debt to capital ratio (a non-GAAP financial measure) to debt to capital ratio, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):
September 30, 2025 December 31, 2024
Total debt (Notes payable)
$ 1,751,427 $ 1,480,718
Total equity
2,079,374 2,037,228
Total capital
$ 3,830,801 $ 3,517,946
Debt to capital ratio
45.7 % 42.1 %
Total debt (Notes payable)
$ 1,751,427 $ 1,480,718
Less: Cash and cash equivalents
61,979 53,197
Net debt
$ 1,689,448 $ 1,427,521
Total equity
2,079,374 2,037,228
Total net capital
$ 3,768,822 $ 3,464,749
Net debt to capital ratio (1)
44.8 % 41.2 %
(1) Net debt to capital ratio is calculated as net debt (which is total debt minus cash and cash equivalents) divided by net debt plus total equity.
Backlog
We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract. The amount of the required deposit is minimal (typically $1,000 to $10,000). We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract. Typically, our retail homebuyers provide documentation regarding their ability to obtain mortgage financing within 14 days after the purchase contract is signed. If we determine that the homebuyer is not qualified to obtain mortgage financing or is not otherwise financially able to purchase the home, we will terminate the purchase contract. If a purchase contract has not been cancelled or terminated within 14 days after
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the purchase contract has been signed, then we have assumed the homebuyer will meet the preliminary criteria to obtain mortgage financing. Only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.
Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts with varying terms. Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete. Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) generated during the current period minus the number of homes closed during the current period. Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings. Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed. In addition, we may experience cancellations of purchase contracts at any time prior to closing. It is important to note that net orders, backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate performance. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, and in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.
Our net orders decreased for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 primarily due to lower demand in the first six months of the year. The number of homes in our backlog at September 30, 2025 increased 19.9% compared to September 30, 2024. The increase generally relates to management’s focus on newly implemented sales initiatives, an increase in sales personnel and an increase in community count, partially offset by ongoing affordability constraints and the limited use of incentives during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
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As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):
Nine Months Ended September 30,
Backlog Data 2025 (4)
2024 (5)
Net orders (1)
4,098 4,993
Cancellation rate (2)
28.1 % 21.6 %
Ending backlog – homes (3)
1,305 1,088
Ending backlog – value (3)
$ 498,713 $ 417,798
(1) Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
(2) Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.
(3) Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts with varying terms. Ending backlog is valued at the contract amount.
(4) As of September 30, 2025, we had 60 units related to bulk sales agreements associated with our wholesale business.
(5) As of September 30, 2024, we had 212 units related to bulk sales agreements associated with our wholesale business.
Land Acquisition Policies and Development
We had 141 and 151 active communities as of September 30, 2025 and December 31, 2024, respectively. Generally, it takes us three to four years to turn raw or undeveloped land into an active community. To mitigate our exposure to real estate inventory risks, we have utilized, on a limited and strategic basis, land banking financing arrangements.
Our lot inventory decreased to 62,564 owned or controlled lots as of September 30, 2025 from 70,899 owned or controlled lots as of December 31, 2024, primarily related to our discipline in the evaluation and selective approval of new land deals and strategic lot sales in select markets.
We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources. In consideration for this repurchase option, we paid a non-refundable commitment fee. Based on our right to control the ultimate economic outcome of these finished lots, these assets will continue to be held as real estate not owned within our inventory and a corresponding obligation was established within our accrued liabilities, as discussed in Note 3 , “Accrued Expenses and Other Liabilities” to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, to recognize this relationship. While we are not legally obligated to repurchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased. We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.
The table below shows (i) home closings by reportable segment for the nine months ended September 30, 2025 and (ii) our owned or controlled lots by reportable segment as of September 30, 2025.
Nine Months Ended September 30, 2025 As of September 30, 2025
Reportable Segment Home Closings Owned (1)
Controlled Total
Central 997 19,299 715 20,014
Southeast 1,067 13,689 2,666 16,355
Northwest 274 6,064 1,223 7,287
West 592 8,745 3,530 12,275
Florida 454 5,351 1,282 6,633
Total 3,384 53,148 9,416 62,564
(1) Of the 53,148 owned lots as of September 30, 2025, 36,316 were raw/under development lots and 16,832 were finished lots.
Homes in Inventory
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When entering a new community, we intend to build a sufficient number of move-in ready homes to meet our budgets. We base future home starts on home closings. As homes are closed, we start more homes to maintain our inventory. As of September 30, 2025, we had a total of 2,801 completed homes, including information centers, and 895 homes in progress.
Raw Materials and Labor
When constructing homes, we use various materials and components. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in building materials and labor costs between the time construction begins on a home and the time it is closed. Typically, the raw materials and most of the components used in our business are readily available in the United States. We purchase some components and materials centrally to achieve volume discounts, a practice that often reduces costs and ensures timely deliveries. We typically do not store significant inventories of construction materials, except for work in progress materials for homes under construction. In addition, the majority of our raw materials are supplied to us by our subcontractors and are included in the price of our contract with such subcontractors. Most of the raw materials necessary for our subcontractors are standard items carried by major suppliers. Our construction work is substantially completed by third-party subcontractors, most of whom are non-unionized. We continue to monitor the supply markets to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in labor, commodities and lumber. In future quarters, we could see various cost pressures associated with inflation similar to the cost pressures experienced in the last few years. Generally, we have successfully increased the sales prices of our homes to absorb these increased costs or have successfully made cost-effective changes as we endeavor to keep our homes affordable.
Seasonality
In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally close more homes in our second, third and fourth quarters. Thus, our revenues may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. Our revenues and capital requirements are generally similar across our second, third and fourth quarters.
As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially the first quarter, are not necessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.
Liquidity and Capital Resources
Overview
As of September 30, 2025, we had $62.0 million of cash and cash equivalents. Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.
Our principal uses of capital are operating expenses, land and lot purchases, lot development, home construction, interest costs on our indebtedness and the payment of various liabilities. In addition, we may purchase land, lots, homes under construction or other assets as part of an acquisition and repurchase shares of our common stock. Early stages of development or expansion require significant cash outlays for land acquisitions, land development, plats, vertical development, construction of information centers, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of home sales revenues. In the later stages of an active community, cash inflows may exceed home sales revenues reported for financial statement purposes, as the costs associated with home and land construction were previously incurred.
Net Debt to Capital Ratio
As of September 30, 2025, our net debt to capital ratio was 44.8%. We use this ratio as a supplemental measure of financial leverage and capital efficiency. This ratio is calculated as net debt (which is total debt minus cash and cash equivalents) divided by net debt plus total equity. Our net debt to capital ratio reflects our balanced approach to financing growth while maintaining liquidity. We continue to monitor leverage levels in light of evolving market conditions to keep an eye on capital efficiency and shareholder value. At September 30, 2025, we were in compliance with all of the covenants contained in the Credit Agreement, including minimum tangible net worth, maximum leverage ratio, minimum liquidity amount, and minimum EBITDA to interest expense ratio, and with all of the covenants contained in the Loan Agreement. As of September 30, 2025, $367.9 million was available to borrow under the Credit Agreement, providing ample liquidity to support operations and growth initiatives.
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Short-term Liquidity and Capital Resources
We generally rely on our ability to finance our operations by generating operating cash flows and borrowing under the Credit Agreement to adequately fund our short-term working capital obligations and to purchase land and other assets, develop lots and homes and repurchase shares of our common stock. As needed, we will consider accessing the debt and equity capital markets as part of our ongoing financing strategy. We rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects. Furthermore, we utilize, on a limited and strategic basis, land banking financing arrangements to access short-term liquidity.
As of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed. However, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.
Long-term Liquidity and Capital Resources
We believe that our long-term principal uses of liquidity and capital resources will be inventory related purchases concerning land, lot development, repurchases of shares of our common stock, other capital expenditures, and principal and interest payments on our debt obligations maturing between 2028 and 2032. We believe that we will be able to fund our long-term liquidity needs with cash generated from operations and cash expected to be available to borrow under the Credit Agreement or through accessing debt or equity capital, as needed, although no assurance can be provided that such additional debt or equity capital will be available when needed or on terms that we find attractive. Additionally, we may further utilize, on a limited and strategic basis, land banking financing arrangements to maximize long-term liquidity for lot development projects where we have sufficient finished lot availability in certain markets. To the extent these sources of capital are insufficient to meet our needs, we may also conduct additional public or private offerings of our securities, refinance our indebtedness, or dispose of certain assets to fund our operating activities and capital needs.
Revolving Credit Facility
On August 1, 2025, we entered into a Letter Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Letter Agreement Amendment”), which amended the Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (as amended to date, including the Letter Agreement Amendment, the “Credit Agreement”). The Credit Agreement provides for a $1.1825 billion revolving credit facility, which can be increased at the request of the Company by up to $95.0 million, subject to the terms and conditions of the Credit Agreement. The Credit Agreement matures on April 28, 2029 with respect to $972.5 million, or 82.2%, of the $1.1825 billion of commitments thereunder and on April 28, 2028 with respect to 17.8% of the commitments thereunder.
Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date. The Credit Agreement is guaranteed by, among others, each of our subsidiaries that have gross assets of at least $0.5 million, other than subsidiaries whose sole purpose is to own and operate single-family rental homes.
The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 8.750% Senior Notes due 2028 (the “2028 Senior Notes”), our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”) and our 7.000% Senior Notes due 2032 (the “2032 Senior Notes”), may not exceed the borrowing base under the Credit Agreement. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement. As of September 30, 2025, the borrowing base under the Credit Agreement was $2.1 billion, of which the maximum available to borrow was $2.1 billion. As of September 30, 2025, borrowings under the Credit Agreement and the outstanding principal amount of the 2028 Senior Notes, the 2029 Senior Notes and the 2032 Senior Notes totaled approximately $1.7 billion, $27.0 million of letters of credit were outstanding and $367.9 million was available to borrow under the Credit Agreement.
Borrowings under the Credit Agreement bear interest, payable monthly in arrears, at the Company’s option, at either (1) the Adjusted Term SOFR (defined as a term SOFR that is based on a fixed 1, 3 or 6 month interest period, as selected by the Company, plus a 10, 15 or 25 basis point adjustment, respectively), which rate is subject to a 50 basis point floor, plus an applicable margin ranging from 145 basis points to 210 basis points (the “Applicable Margin”) based on the Company’s leverage ratio as determined in accordance with a pricing grid, or (2) the Base Rate (defined as a term SOFR that is based on a daily variable 1 month interest period plus a 10 basis point adjustment), subject to a 50 basis point floor, plus the Applicable
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Margin. At September 30, 2025, the Applicable Margin was 1.95%, and SOFR was 4.16%, subject to the 0.50% SOFR floor as included in the Credit Agreement.
The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a maximum leverage ratio, a minimum liquidity amount and a minimum EBITDA to interest expense ratio. The Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments. At September 30, 2025, we were in compliance with all of the covenants contained in the Credit Agreement.
LGI Living Loan Agreement
On July 23, 2025, the Company’s indirect, wholly owned special purpose subsidiary LGI Living - SFR 1, LLC (“LGI Living SFR”) entered into a Loan Agreement (the “Loan Agreement”) with Evergreen Residential Capital, LLC, as lender. The Loan Agreement provides for a secured non-recourse loan for up to $50.0 million, which can be increased at the request of LGI Living SFR by up to $75.0 million (for a total of $125.0 million), subject to the terms and conditions of the Loan Agreement.
As of September 30, 2025, the total amount of borrowings outstanding under the Loan Agreement was $50.0 million. The loan matures on July 8, 2030 and bears interest at a rate of 6.433% per annum, which may be adjusted in connection with an increase in the amount of the loan. The loan is unconditionally guaranteed as to payment and performance by the Company under a limited recourse guaranty with respect to (i) certain losses and liabilities to the extent such losses or liabilities are actually incurred by the lender and (ii) the entire amount of the loan upon the occurrence of certain events. The Loan Agreement requires that the Company, as guarantor, maintain (i) liquidity of not less than 15% of the loan amount and (ii) maintain net worth in excess of 50% of the loan amount.
The loan is unconditionally guaranteed as to payment and performance by LGI Living - ER FIN, LLC, as the direct owner of the equity interests in LGI Living SFR, but recourse under such guaranty is limited to LGI Living - ER FIN, LLC’s equity interests in LGI Living SFR, which are pledged as collateral for the loan. The loan is also secured by a security interest in all assets of LGI Living SFR, including a mortgage lien on certain of LGI Living SFR’s real property. The Loan Agreement includes certain restrictive covenants that may limit LGI Living SFR’s ability to, among other things, incur additional indebtedness or make certain investments. The Loan Agreement contains representations and warranties, affirmative covenants, and events of default, all of which the Company believes are customary for special purpose subsidiary real estate secured loan agreements. If an event of default exists under the Loan Agreement, the lender will be able to accelerate the maturity of the loan and exercise other rights and remedies. At September 30, 2025, we were in compliance with all of the covenants contained in the Loan Agreement.
Senior Notes Offering
On November 15, 2024, we issued $400.0 million aggregate principal amount of the 2032 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S (“Regulation S”) under the Securities Act. Interest on the 2032 Senior Notes accrues at a rate of 7.000% per annum, payable semi-annually in arrears on May 15 and November 15 of each year. The 2032 Senior Notes mature on November 15, 2032. The terms of the 2032 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Fifth Supplemental Indenture thereto, dated as of November 15, 2024, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee.
On November 21, 2023, we issued $400.0 million aggregate principal amount of the 2028 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. Interest on the 2028 Senior Notes accrues at a rate of 8.750% per annum, payable semi-annually in arrears on June 15 and December 15 of each year. The 2028 Senior Notes mature on December 15, 2028. The terms of the 2028 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Fourth Supplemental Indenture thereto, dated as of November 21, 2023, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Regions Bank, as trustee.
On June 28, 2021, we issued $300.0 million aggregate principal amount of the 2029 Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S. persons in transactions outside the United States pursuant to Regulation S. Interest on the 2029 Senior Notes accrues at a rate of 4.000% per annum, payable semi-annually in arrears on January 15 and July 15 of each year. The 2029 Senior Notes mature on July 15, 2029. The terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.
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Letters of Credit, Surety Bonds and Financial Guarantees
We are often required to provide letters of credit and surety bonds to secure our performance under construction contracts, development agreements and other arrangements. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit.
Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit, surety bonds and financial guarantees under these arrangements totaled $423.1 million as of September 30, 2025. Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed. We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of September 30, 2025 will be drawn upon.
Stock Repurchase Program
In February 2022, our Board of Directors (the “Board”) approved a $200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws. During the three months ended September 30, 2025, we did not repurchase any shares of our common stock. During the nine months ended September 30, 2025, we repurchased 409,253 shares of our common stock at a total cost, including commissions and excise taxes, of $23.6 million, to be held as treasury stock. During the three months ended September 30, 2024, we did not repurchase any shares of our common stock. During the nine months ended September 30, 2024, we repurchased 172,990 shares of our common stock at a total cost, including commissions and excise taxes, of $18.0 million, to be held as treasury stock. A total of 3,656,592 shares of our common stock has been repurchased since our stock repurchase program commenced in 2022. As of September 30, 2025, we may purchase up to $157.3 million of shares of our common stock under our stock repurchase program. The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements. Our stock repurchase program may be modified, discontinued or suspended at any time.
Cash Flows
Operating Activities
Net cash used in operating activities was $226.7 million during the nine months ended September 30, 2025. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash used in operating activities during the nine months ended September 30, 2025 was primarily driven by cash outflow of $347.3 million in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $12.8 million decrease in the net change in accrued expenses and other liabilities, partially offset by the $45.7 million increase in the net change in other assets and the $22.9 million increase in the net change related to pre-acquisition costs and deposits, accounts receivable and compensation expense for equity awards.
Net cash used in operating activities was $200.7 million during the nine months ended September 30, 2024. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development. Net cash used in operating activities during the nine months ended September 30, 2024 was primarily driven by cash outflow from the $390.9 million decrease in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and partially offset by net income of $145.2 million and the $21.7 million increase in the net change in accounts payable.
Investing Activities
Net cash provided by investing activities was $14.3 million during the nine months ended September 30, 2025, primarily due to $10.2 million in proceeds from the sale of property and equipment and $8.6 million in return of capital, partially offset by an additional $3.6 million investment in unconsolidated entities.
Net cash used in investing activities was $6.6 million during the nine months ended September 30, 2024, primarily due to additional investment in unconsolidated entities.
Financing Activities
Net cash provided by financing activities was $221.2 million during the nine months ended September 30, 2025, primarily driven by $594.6 million of borrowings under the Credit Agreement, offset by $323.0 million of repayments on our credit agreement then in effect and payments of $24.2 million related to a financing arrangement with a third-party land banker. In
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addition, during the nine months ended September 30, 2025, we repurchased $23.6 million of shares of our common stock under our stock repurchase program to be held as treasury stock.
Net cash provided by financing activities was $219.3 million during the nine months ended September 30, 2024, primarily driven by $507.7 million of borrowings under our credit agreement then in effect, offset by $214.0 million of repayments on our credit agreement then in effect and payments of $60.3 million related to a financing arrangement with a third-party land banker. In addition, during the nine months ended September 30, 2024, we repurchased $18.0 million of shares of our common stock under our stock repurchase program to be held as treasury stock.
Inflation
Our business can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. See “Industry and Economic Risks—Inflation could adversely affect our business and financial results” in Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Material Cash Requirements
As of September 30, 2025, there have been no material changes to our known contractual and other obligations appearing in the “Material Cash Requirements” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. On an ongoing basis, management evaluates such estimates and judgments and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.
We believe that there have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2025 as compared to those disclosed in Management ’ s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Cautionary Statement about Forward-Looking Statements
From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will” or other similar words.
We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions and projections about future events may, and often do, vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.
The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:
• adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage rates, supply chain disruptions (including due to the conflict between Russia and Ukraine and the wide-ranging sanctions the United States and other countries have imposed or may further impose on Russian business sectors, financial organizations, individuals and raw materials and the conflict in the Middle East), inflation, the possibility of recession and decreases in housing prices;
• a slowdown in the homebuilding industry or changes in population growth rates in our markets;
• volatility and uncertainty in the credit markets and broader financial markets;
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• elevated mortgage interest rates for prolonged periods, disruption in the terms or availability of mortgage financing or increase in the number of foreclosures in our markets;
• disruptions in global trade, including as a result of tariffs, trade restrictions, retaliatory trade measures or the effect of such actions on trading relationships between the United States and other countries;
• the cyclical and seasonal nature of our business;
• our future operating results and financial condition;
• our business operations;
• changes in our business and investment strategy;
• the success of our operations in recently opened new markets and our ability to expand into additional new markets;
• our ability to successfully extend our business model to building homes with higher price points, developing larger communities and producing and selling multi-unit products, townhouses, wholesale products, and acreage home sites;
• our ability to develop our projects successfully or within expected timeframes;
• our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions;
• increases in taxes or government fees;
• decline in the market value of our land portfolio;
• our ability to successfully integrate any acquisitions with our existing operations;
• availability of land to acquire and our ability to acquire such land on favorable terms or at all;
• availability, terms and deployment of capital and ability to meet our ongoing liquidity needs;
• decisions of the Credit Agreement lender group;
• the cost and availability of insurance and surety bonds;
• shortages of or increased prices for labor, land, or raw materials used in land development and housing construction, including due to tariffs or trade restrictions imposed by the U.S. government, and any effect on trading relationships between the United States and other countries;
• delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control;
• uninsured losses in excess of insurance limits;
• our leverage and future debt service obligations;
• changes in, liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental, privacy and security laws and regulations;
• the timing of receipt of regulatory approvals and the opening of projects;
• the degree and nature of our competition;
• information system failures, cyber incidents or breaches in security;
• our ability to retain our key personnel;
• the impact of an epidemic or pandemic and its effect on us, our business, customers, subcontractors and suppliers (including associated supply chain disruptions);
• negative publicity or poor relations with the residents of our projects;
• existing and future litigation, arbitration or other claims;
• availability of qualified personnel and third-party contractors and subcontractors;
• the impact on our business of the ongoing U.S. government shutdown and any future U.S. government shutdown;
• other risks and uncertainties inherent in our business;
• other factors we discuss under the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ”; and
• the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.