Momentum from the first half of the year carried into the third quarter for LGI Homes, helping the entry-level builder deliver double-digit, year-over-year growth in closings, revenue, and community openings.

Chairman and CEO Eric Lipar said the results reflected decisions made by the company “to align our business with the unique challenges of today’s affordability-constrained market.”

“We are laser-focused on ensuring that any medium-term decisions around pricing, incentives, investments, and community openings are weighed not only on their impact on the company’s near-term success, but also five, 10, and 20 years down the road,” Lipar said on the home builder’s earnings call.

LGI Homes, No. 15 on the 2023 BUILDER 100 list, reported profits of $67 million, or $2.84 per share. Both metrics were down on a year-over-year basis compared with the third quarter of 2022 but outperformed analyst expectations of approximately $1.96 per share. The builder reported home sales revenues of $617.5 million, an increase from $547 million in the third quarter of 2022.

“These outstanding results are a testament to the focused execution of our teams around the country,” Lipar said.

LGI Homes closed 1,751 homes in the third quarter, a 13.2% increase on a year-over-year basis, which translates to a pace of 5.6 closings per community per month. Lipar said the results reflect the home builder’s discipline: LGI Homes likely could have closed more homes if it offered more than its typical 2- or 3-point rate buydown incentive. However, rather than beating its closing guidance, the home builder was focused on driving further profitability improvements. The effort translated into a 340-basis-point sequential improvement in adjusted gross margin to 27.2%.

Dallas-Fort Worth (10.1 closings per month), Charlotte, North Carolina (9.5 closings per month), Northern California (8.9 closings per month), Fort Pierce, Florida (8.5 closings per month), and Houston (7.9 closings per month), were the top-performing markets on a closings per community basis in the quarter.

The average selling price in the quarter of $352,678 was slightly lower than a year ago but up 1.3% on a sequential basis. Gross orders increased 6% year over year to 2,068, while net orders slightly decreased to 1,490. LGI Homes reported a cancellation rate in the quarter of 27.9% compared with 21.3% in the third quarter of 2022. At quarter’s end, the builder had a backlog of 1,377 homes valued at $510 million.

Lipar said the builder approved 23 new projects in the third quarter, nine of which were composed of entirely finished lots. The majority of the approved projects are expected to contribute to closings and community count growth in the back half of 2024. LGI Homes ended the quarter with 72,109 owned or controlled lots, a 5.7% decrease on a year-over-year basis but a 4.2% sequential improvement. The builder said the sequential increase was driven by the availability of “fairly valued land deals” in the quarter. Of its lots, 56,301 were owned and 15,308 were controlled.

He noted in addition to attractive land opportunities, LGI Homes saw “a meaningful increase” in M&A plays. The majority of available M&A deals are small private builders looking “to leverage longer dated land pipelines to free up capital to continue to grow their operations.”

“During the quarter, we closed a deal to acquire substantially all of the land assets of Glenwood Homes in North Carolina. The transaction enabled us to acquire over 1,100 lots in one of our best-performing regions,” Lipar said. “We expect similar opportunities to materialize in the future and plan to pursue those that work within our profitability-focused, long-term strategy.”