Participants

Joshua Fattor; Executive Vice President of Investor Relations and Capital Markets; LGI Homes Inc

Eric Lipar; Chairman of the Board, Chief Executive Officer; LGI Homes Inc

Charles Merdian; Chief Financial Officer, Treasurer; LGI Homes Inc

Mike Rehaut Richard; Analyst; JP Morgan

Trevor Allinson; Analyst; Wolfe Research

Carl Reichardt; Analyst; BTIG

Kenneth Zener; Analyst; Seaport Research Partners

Jay McCandless McCandless; Analyst; Wedbush Securities

Alex Barron; Analyst; Housing Research Center

Presentation

Operator

Welcome to LGI Homes first quarter 2025 conference call. Today's call is being recorded and a replay will be available on the company's website at www.lgihomes.com. After management's prepared comments, there will be an opportunity to ask questions.
At this time, I'll turn the call over to Joshua Fattor , Executive Vice President of Investor Relations and Capital Markets.

Joshua Fattor

Thanks, and good afternoon. I'll remind listeners that this call contains four looking statements, including management's views on the company's business strategy, outlook, plans, objectives, and guidance for future periods.
Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause those expectations to prove to be incorrect. You should review our filings with the SEC for a discussion of the risks, uncertainties, and other factors that could cause actual results to differ from those presented today.
All forward-looking statements must be considered in light of those related risks, and you shouldn't place undue reliance on such statements, which reflect management's current viewpoints that are not guarantees of future performance.
On this call, we'll discuss non-GAAP financial measures that are not intended to be considered in isolation or as substitutes for financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our quarterly report on Form 10-Q for the quarter ended March 31, 2025, that we expect to file with the SEC later today.
This file will be accessible on the SEC's website and in the Investor Relations section of our website. I'm joined today by Eric Lipar, LGI Homes Chief Executive Officer and Chairman of the Board; and Charles Merdian, Chief Financial Officer and Treasurer.
I'll now turn the call over to Eric.

Eric Lipar

Thanks, Josh. Good afternoon, and welcome to LGI Homes Earnings Call. During the quarter, we continue to see strong demand for new homes. Families across the country are excited about the possibility of homeownership and the lack of existing inventory combined with our ability to offset persistently high mortgage rates through compelling financing incentives is drawing customers into our information centers.
However, affordability remains the biggest challenge for buyers, and rate volatility affects not only their ability to purchase a home, but also their confidence in moving forward with that decision. Against this challenging and uncertain backdrop, we're pleased with the solid results we delivered in the first quarter of 2025.
As we noted in our last call, higher mortgage rates in October and November weighed on our year-end backlog, and with rates rising in further in January, the first quarter got off to a slow start. While February brought some improvement, the overall trend remained muted. However, in March, the pace materially improved, signaling a belated start in spring sales activity just as the quarter ended.
As highlighted in our press release this morning, we delivered 996 homes in the first quarter at an average sales price of $352,831, resulting in revenue of $351.4 million. During the quarter, we recognized a one-time expense related to the completion of our Forward Commitment Incentive Program that weighed on revenue and gross margins, as well as fees related to that charge that flowed through our G&A expense. We ended the first quarter with 146 communities, a 22% increase over the prior year.
During the first quarter, our top markets on a closings per community basis were Richmond with 5.3, Charlotte with 4.6, Raleigh with 4.3, Atlanta with 3.8, and Nashville with 3.6. Congratulations to the teams in these markets on their strong performance last quarter. The improvement in lead and order trends in March enabled us to close out the first quarter with a strong backlog as we transitioned into the second quarter.
We signed 1,437 net contracts in the first quarter and ended March with 1,040 homes in our backlog, representing over $406 million. Throughout our history, evidence has shown that training and time spent in the role are the keys to new salespeople hitting standards and delivering their best results.
As part of last year's rapid community count growth, we welcomed hundreds of new team members across every level of our organization. As these individuals enter their second year with LGI Homes, we're confident that their proficiency with our selling system and growing confidence will positively impact our results.
Earlier this month, we welcomed our sales leaders to our corporate headquarters for intensive sales training that they will roll out to our sales teams across the country, setting the stage for a higher performing, more agile sales organization. By reinforcing foundations, building belief, sharpening skills, enhancing alignment with our core values, we're ensuring that our team is well equipped to seize every opportunity that comes through our doors, particularly while the market remains challenging.
Despite recent headwinds, we're confident in the long-term outlook for the housing market. The persistent shortage of entry-level homes across the country represents a societal challenge that underscores the importance of affordable new residential construction. Underlying demographic fundamentals will only increase this need, setting the stage for a long runway of sustained demand for homeownership. These structural dynamics provide us with clarity and conviction as we continue to invest in our future growth.
With that, I'll invite Charles to provide additional details on our financial results.

Charles Merdian

Thanks, and good afternoon. Revenue in the first quarter was $351.4 million based on 996 homes closed at an average sales price of $352,831. The 10.1% decrease in revenue year-over-year was driven by an 8% decline in home closings and a 2.2% decline in our average sales price.
As Eric noted in his opening comments, we recognized a one-time expense of $8.6 million in the first quarter related to the completion of our forward commitment incentive program, of which $6.5 million was recorded as additional sales incentives in revenue.
The decline in our reported ASP was driven by geographic mix, higher wholesale closings, and the one-time expense. Excluding this charge, ASP was essentially flat year-over-year. Of our total closings, 179 homes were through our wholesale channel, representing 18% of total closings, compared to 9.4% last year. Our first quarter gross margin was 21%, compared to 23.4% during the same period last year.
The decrease as a percentage of revenue was primarily due to the forward commitment expense, an increase in wholesale closings, and to a lesser extent, higher construction overhead, lot costs, and capitalized interest as a percentage of revenue, as well as reduced operating leverage resulting from lower volumes.
Adjusted gross margin was 23.6%, compared to 25.3% during the same period last year. Adjusted gross margin excluded $8.3 million of capitalized interest charged cost of sales, and $809,000 related to purchase accounting, together representing 260 basis points, compared to 190 basis points last year.
Excluding the $6.5 million charge to revenue, gross margin and adjusted gross margin were slightly below the guidance range we provided on our last call, but were in line with our expectations, which factored into typical first quarter seasonality. Combined selling general and administrative expenses for the first quarter totaled $73.5 million, or 20.9% of revenue. Selling expenses were $42.3 million, or 12% of revenue, compared with 10.5% in the same period last year.
The increase was primarily related to higher advertising and personnel costs, and was partially offset by lower commissions due to fewer closings. General and administrative expenses were $31.2 million, or 8.9% of revenue, compared to 8.1% in the same period last year. Included in G&A was $2.1 million related to the buy-down expense.
For the full year, we are maintaining our view that combined SG&A will be 14% to 15% of revenue. Pre-tax net income was $5.7 million, or 1.6% of revenue. Our effective tax rate was 30.2%, compared to 26.2% in the same period last year. The higher rate was related to the timing of the impact of compensation costs for share-based payments. We continue to expect our full year tax rate will be approximately 24.5%.
Finally, net income in the first quarter was $4 million, or $0.17 per basic and diluted share. Gross orders in the first quarter were 1,716, and net orders were 1,437. Our cancellation rate was 16.3%, compared to 16.8% in the same period last year. As highlighted earlier, we ended March with 1,040 homes in backlog, representing $406.2 million.
Turning to our land position, at March 31, our portfolio consisted of 67,792 owned and controlled lots, a decrease of 3.4% year-over-year and 4.4% sequentially. Of those lots 53,761 or 79.3%, were owned, and 14,031 lots, or 20.7%, were controlled. Of our owned lots, 37,064 were raw land and land under development, with less than 30% of those lots in active development.
Of the remaining 16,697 owned lots, 12,473 were finished vacant lots, and we had 2,702 completed homes and information centers. During the quarter, we started 1,176 homes and ended March with 1,522 homes in progress.
I'll now turn the call over to Josh for discussion of our capital position.

Joshua Fattor

Thanks, Charles. We ended the quarter with $1.6 billion of debt outstanding, including $544.4 million drawn on our revolver, resulting in a debt-to-cap ratio of 44.3% and a net debt-to-cap ratio of 43.4%. Total liquidity was $360 million, including $57.6 million of cash, and $302.4 million of availability under a credit facility.
Yesterday, we successfully completed the recast of our credit agreement, extending our maturity from 2028 to 2029. Total commitments through 2028 will be $1.2 billion, after which total commitments will be $972.5 million through 2029.
During the quarter, we repurchased 41,685 shares of our common stock for $3.1 million and ended the quarter with $177.7 million remaining on our current stock buyback authorization. Finally, our stockholder's equity on March 31, was over $2 billion, and our book value per share was $87.27.
At this point, I'll turn the call back over to Eric.

Eric Lipar

Thanks, Josh. The slower start to the year was factored into the full-year guidance we shared on our last earnings call. Therefore, we remain confident in our original closing target of between 6,200 and 7,000 homes, 160 to 170 active communities by year-end, and an average selling price between $360,000 and $370,000.
We continue to monitor tariffs and potential impacts that higher costs could have on margins. Beginning in March, we began receiving notices of price increases from some suppliers related to tariffs imposed to date, particularly those utilizing value-added components from China.
With this in mind, we are proactively trimming our full-year gross margin expectations by 150 basis points at the low end and 100 basis points at the high end of our prior range to account for these additional costs and the potential for additional market uncertainty over the coming quarters. As a result, we now expect a full-year gross margin between 21.7% and 23.2% and adjusted gross margin between 24% and 25.5%.
To conclude, I want to thank our team members again for their dedication and congratulate them on the results they delivered in the face of a challenging market. We deeply value our people in being named a Top Workplaces USA recipient for the fifth consecutive year is a powerful testament to how enthusiastic our team members are about being part of LGI Homes.
Thank you for your belief in our mission and your continued commitment to our company and our customers. We will now open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Michael Rue from JP Morgan.

Mike Rehaut Richard

Hi, good afternoon, everyone. It's Mike Rehaut. Thanks for all the details always. I was hoping to get a little more granular in terms of my first question on the gross margin trajectory that you've adjusted for in terms of guidance.
Specifically, how we should think about 2Q, 3Q, 4Q in terms of cadence? And of the reduction in overall guidance, what is kind of related to the expected incline in costs related to tariffs as opposed to other drivers of the margin?

Eric Lipar

Thanks, Mike. This is Eric. I think on the margin question, there's really three components to it. We start with the tariffs. We've seen minimal cost increases yet, but there's no question we are getting letters from our suppliers with tariff surcharges that are going into effect in April and May.
Right now, it's not a material amount, but it is a factor in our decision to lower gross margins. More than that is just the uncertainty of what will happen next week on tariffs or costs. We're still seeing costs generally increase when it comes to doing business with cities, various fees.
Also, the results of Q1, the gross margin was lost. We thought it was prudent taking all that into consideration. We're leaning into incentives with our customers. Those are averaging 5% to 6% now of ASP, which impacts gross margin. With all those things considered, we thought it was prudent for the end-of-the-year gross margin to be adjusted.

Mike Rehaut Richard

I appreciate that, Eric. I guess your comments also kind of lead into my second question, which is you said that you're maybe leaning into incentives a little more this past quarter. I was curious -- I think you said 5% to 6% just now. What that compares to maybe last quarter and how much of this is just more related to when you think about what's driving the need to do that?
Is it more just can buyers kind of maybe on the sideline amid some of the volatility going on here or other factors driving maybe a more competitive market? I know that you kind of said in your prepared remarks a lack of existing inventory across your markets as being a positive fundamental element of the housing backdrop.
I just wanted to kind of circle back to that as well and if that's at all part of what's driving the higher incentives as well or in fact, to the extent that there is some increase in inventory, that's also been a reason.

Eric Lipar

I think incentives as a percentage is similar to last quarter. What we're doing on incentives, and we think we need to be competitive in the market, so the market dynamic is certainly playing a role in that. We don't think we need to be racing to the bottom as far as incentives go.
But the three components are closing cost incentive, as most of our competitors are doing, something we've always done with our customers, cash out of pocket is important for our customers and we are incentivizing closing cost assistance.
The second one is we're currently incentivizing with rate buy-downs as most builders are doing. That trend continues. That's a big expense for LGI. We're getting that fixed rate as low as we possibly can for our buyers because certainly an affordable payment and qualifying for a mortgage or sales prices are today as important.
And then finally, and right now the slower sales pace that leads to more finished inventory across our portfolio. And when you have more finished inventory, that leads to more price discounting or more heavily incentives on the older inventory. So all those added up is a more heavier incentive. The percentage is similar, but we're talking about what it's going to look like over the next two or three quarters. Obviously, it depends on the sales pace, but we thought reducing our gross margin was prudent.

Mike Rehaut Richard

All right, great. Thank you very much.

Operator

Trevor Allenson, Wolf Research.

Trevor Allinson

Hi, good afternoon. Thank you for taking my questions. First one's on the midpoint of the full year closings guide. I think it implies a roughly 3.5 absorption pace on closings. You did more like 2.2 here in the first quarter. So you just talk about your confidence in accelerating pace the rest of the year to drive at that full year target range, especially given some of the volatility we're seeing.

Eric Lipar

Yeah, it's a great question, Trevor. I can start. January, February certainly were sluggish -- March sales were great. I mean, March sales were more in the four to five a month pace, which is fantastic. April so far, it's been a little bit more sluggish.
Even last week's sales, we got to get in the loan application, but not as strong as April. We're going to close approximately 450 houses in April, which is more of the three a month cadence. Every month, January to February, February to March, March to April has been increasing closings, so we're trending in the correct direction.
And yeah, we need to be in that four closings a month absorption pace for the rest of the year. And I think the rest of the year, does it look more like March or the first couple weeks of April? If it looks more like March, then we're going to be in really good shape. We're still seeing demand, so we're confident in our end of the year closing guidance.

Trevor Allinson

Okay, I appreciate all that color. And then second question is more of kind of the pace and price tradeoff here. You're taking down your gross margin estimates or guidance. Some of that is due to tariffs. Some of that is due to market conditions.
Should we interpret the adjustment as a view that the 3.3 absorption pace implied by the low end of your guidance represents afford and that if demand were to soften, that you would lean more heavily into either incentives or discounting to make sure you don't fall below that pace?
Or should we think that if demand were to soften, that would play through a slower pace? How are you thinking about the tradeoff between those two things? Thanks.

Eric Lipar

Yeah, the other component on demand is our wholesale business. It was 18% of our closings in Q1, so it depends on what percentage that flows through the rest of the year because we're willing to take a lower gross margin when we sell wholesale houses to our investor friends. So that will have a factor as well on gross margin.
And then demand, when we talk about demand at LGI is how many leads are we having come through our systems, how many inquiries we're having, how many people are going to our website. The good news for all of us is the demand is still strong, I would say. We're having 6,000 to 7,000 inquiries a week, people looking to change their address, primarily getting out of a leasing situation to home ownership.
The challenge is in affordability. So we think demand is going to be there. It's just getting the customers qualified, and that comes into what's the tenure doing, where's the mortgage rate market, what is pricing doing. So we're going to keep an eye on all those factors very closely.

Trevor Allinson

Thanks for the color, and good luck moving forward.

Operator

Carl Reichardt, BTIG.

Carl Reichardt

It's nice to talk to you. Thanks for getting my questions. Eric, you talked about confidence related to rate volatility as a hindrance in Q1. That seemed odd to me. I'm wondering if you're seeing confidence related to, say, worries about income, worries about costs out the door, worries about savings or the market. I'm trying to see how broad the lack of confidence is.
We know rate vol impacts business, but I'm curious if you're seeing it morph into deeper concerns when you talk to your sales teams about the consumers they're seeing.

Eric Lipar

Yeah, I think, Carl, it's a great question. I think the first thing we look at is affordability and qualifying, like I said on the previous answer. But certainly, as homes have gotten more expensive, I mean, our average credit score for our buyer is around 700 now last quarter in the 690s, with very good income and very good debt-to-income ratios.
So we have a very strong buyer that probably is paying attention more to the market dynamics and the job market and uncertainty in the economy than our entry level -- our true entry level buyer was from five years ago. So I think that's playing a role. So general uncertainty, but the demand is there, obviously, per market conditions. We talked about our five strongest markets on the call for Q1 closings. Those, for us, were all in the southeast. So on a closing volume, Florida, Texas, and the West were not as strong. I think that's playing into the market dynamic as well.

Carl Reichardt

Great. Thank you, Eric. And then just on new community openings as you go, so two things. One, typically I'm expecting that new stores are going to generate faster sales when they open, but at the same time for you guys, because the sales system is so important, training is so important to your folks, I think you've said in the past, sometimes it takes new salespeople at new communities a while to get ramped up.
So between those two dynamics, as you look out for this year, what are you expecting to see in terms of mix from new communities helping sales rate or improving salespeople as they get experience helping your sales rate?

Eric Lipar

Yeah, those are both great comments, Carl, and probably should have been added to Trevor's comments on why we're confident in our overall year-end closing guidance because with 22% year-over-year closing growth, we hired a lot of new people, a lot of new managers over the last 12 months, and we expect all those salespeople to improve in year two in the business. That's been consistent for the last 25 years. And then also community count will be opening up.
We do expect communities to get off to sometimes a fast start, sometimes a cautious start, but it will improve as the community gets more experience as well. And then just the overall volume of new communities from 146 reported last month to the end of the year, 160, 170, those additional communities will help us achieve our closing target.

Carl Reichardt

Great, I appreciate it. Thank you, Eric.

Operator

Kenneth Zener from Seaport Research Partners.

Kenneth Zener

Afternoon, everybody. Look, obviously one cue came in below what had been a strong 4Q where you guys were confident your land model would be delivering those higher margins, part of your long-term DNA. The street's obviously skeptical given the stock's valuation. So was it January, February slow, March picked up, but you're giving guidance sequentially, right?
I think you can understand why people are, given what other builders have been saying, skeptical of that. So it sounds like in reference to Carl's question, mix is playing a big piece of that. And then I wasn't clear if you gave, or I guess I missed it if you did give the answer to the earlier question about is there a ramp-up in gross margins, or is that kind of just the click-up occurs all at once and then we hold steady for the year?
If you could just, I know that was a little broad question, but I was trying to get an understanding of where your confidence exists and clearly the market's, lacking a little bit.

Eric Lipar

Yeah. I'll start, Kenneth, on the ramp-up in gross margin. I think gross margin will ramp up through the end of the year, primarily because we expect volume to ramp up through the year. I think the cost associated with gross margin and the incentives, I'd say is similar, but I think it will ramp up because of volume components. Charles, do you have anything to add to that? Sure.

Charles Merdian

I would just add in terms of the land management, how we're thinking about it is that our acquisition pace has tempered as we're modeling to our current absorption expectations. We are working through our development spend as we are bringing on the communities that we just delivered in addition to the new communities that we expect to deliver into 2026.
Development timelines continue to be elongated and take longer to get a development from initial completion of engineering and design to getting the community ready and onboarded and ready for sales teams to be active.
So I think in the first quarter, what you see is just the lower absorption rate kind of impacts that from a timing standpoint. So as absorptions start to reaccelerate in the back half of the year, you'll see us recover more cash than we're reinvesting because our communities are delivering the sections.
The timing of the next section is being pushed out and re-evaluated. That just takes some time for that to happen. So two things, adjust the cash flow spend and then make sure we can get the homes delivered and into the sales process, and that just takes a little bit longer than I think it sees in a single quarter.

Kenneth Zener

Really appreciate that. And then I guess given your comment about gross margins going up partly due to higher volume, could you refresh us on what costs you have, I guess, in gross margin as a percent of sales? Is it like 3% if sales are fixed in that hogs line? And then what do you expect your year-end inventory units to be? Thank you very much.

Charles Merdian

Yeah, great questions, Ken. So included in gross margins, you're going to have capitalized overhead as the primary variable. So if you've got lower volume, the amount of dollars that come through related to construction, related costs, that's typical when absorptions are lower, the percentage of revenue that is allocated based on the construction dollars is typically going to be higher. So that levels out through the year. That is not unique to 2025. That's really been the case why we guide to lower gross margins.

Kenneth Zener

Do you have a number for that? Do you have a number for that, for the 4% per year we could do the modeling ourselves?

Charles Merdian

Yeah, I'm going to say over time it's going to be somewhere around 30 basis points to maybe up to 50 basis points in improvement directly related to absorptions, but obviously going to be tied to how much volume comes through and then staffing levels per community make a difference as well, but around 30 basis points to 50 basis points.

Kenneth Zener

Okay, and then year-end inventory thoughts? Thank you.

Charles Merdian

Yeah, year-end inventory, I think we're trending to we ended first quarter at about 4,200 units, so I'd say we're probably going to be somewhere in that range. A lot of it is going to depend on timing of 2026 openings and what that outlook looks like, but I'd say we'd end the year somewhere similar to where we are today, maybe a little bit more balanced in terms of we would expect our completed homes and WIP to be a little bit more balanced, 60/40, rather than we're a little bit heavier in completed units at the moment, but that is also typical in the first quarter as we move into the summer.

Kenneth Zener

Thank you.

Operator

Jay McCandless, Wedbush.

Jay McCandless McCandless

Hey, guys. Thanks for taking my questions. The first one I had, you called out, I think, wholesale at roughly 18% of closings this quarter, and I think that's probably the highest number you all have had in at least the last five or six quarters. Is there enough demand in the wholesale channel that if you needed to lean into that, the buyers are there to support that large of a percentage?

Eric Lipar

Yeah, Jay, I think it's very market specific. And then that 18% number was on a pretty low overall volume number. So it certainly wasn't the biggest wholesale number we've had in our history as an absolute number, I don't believe.
So I would say the wholesale appetite for houses, there's still a significant bid-ask-spread difference. But the business is there for the right price, also very market specific and even sub-market specific.

Jay McCandless McCandless

Okay. And then it was nice to see liquidity went up sequentially from the fourth quarter and also like to see in the stock buyback. Could you tell us how much you have outstanding on the repurchase authorization right now?

Joshua Fattor

Hey, Jay, this is Josh. Yeah, we currently have $177 million, still outstanding on that. You saw that we did about $3.1 million. Last quarter was about 41,000 shares. Probably worth hitting on the point that to the comment that Charles made earlier, right, when you're seeing a 2.2 absorption pace and that's going to, delineate where your underwriting criteria is for that period, makes it a little bit more compelling for you to be going out and using some of that cash to buy back shares.
There's obviously a nice arbitrage on that. So you should expect for us to put a higher priority on share repurchases in the future as long as we're, I think today, trading at a 36% discount to the book value we just reported. And so that's a compelling investment for our business.

Jay McCandless McCandless

Thanks. And then one more, if I may. Eric, I know you said at the beginning that the full year volume guidance was predicated on a slow start to the year. And I know a couple other people have asked about this, but maybe could you talk about where some of the openings are going to happen in the rest of the year?
And are they in some of your higher volume markets or lower volume markets? Is there anything geographically besides just the volume of communities opening, maybe something geographically that's going to help you guys get to the full year closing guidance?

Eric Lipar

Yeah, I think it's more the absolute number, Jay, than the geography and also replacement communities. You know, we're talking about net new communities, a lot of replacement communities coming online. We are opening a number in the Carolinas, which is a higher volume community for us.
But we're also opening quite a few communities in the West Coast, which isn't necessarily higher volume, but certainly higher ASV and higher revenues. So we're excited about those openings as well.

Jay McCandless McCandless

Okay, great. Thanks, guys.

Operator

Alex Barron, Housing Research Center.

Alex Barron

Thank you, gentlemen. I wanted to ask some of your larger competitors who focus on specs and the affordable segment seem to be more focused on cutting prices these days? And I'm just wondering how you guys are responding to that and what criteria do you use when you think about the need to cut prices? That's my first question.
The other question is with regards to the forward commitment, what interest rate, generally speaking, are you guys offering to buyers through that incentive?

Eric Lipar

Yeah, it's a good question, Alex. I'll start with the rate question. We're buying down to the lowest fixed rate possible every week, so obviously that changes and there's some market dynamics to it.
Right now we are buying down, and most of our customers are in the mid-fives for the FHA rate with good credit, which we think we can sell a lot of houses at the mid-five rates, but it also comes into price and all the other incentives.
So, we're leaning into incentives. We think it's really compelling, the value and the offering we're having for consumers right now. Discounting houses is something we don't do a lot of unless it's a standing inventory house, and then once a house has been in inventory for a while, that's another tool that we have.
But our communities tend to be larger. They tend to have a couple hundred houses per community, and so we're a little bit more cautious on doing steep discounts to the price and in a lot of cases it's not necessarily as well.

Alex Barron

Got it. Thank you so much.

Eric Lipar

All right. Thank you.

Operator

Michael Rehaut, JP Morgan.

Mike Rehaut Richard

Thanks. Appreciate it. Just wanted to circle back to a couple of clarifying remarks, I guess, around margins. First off, you broke out the charge, I believe, of $8.6 million on the forward commitment expenses kind of one time. $6.5 million was in gross margin, I guess, through by virtue of the ASP. So there obviously we're just want to make sure I have it right that the remainder would be in SG&A, the $2.1 million.

Charles Merdian

Mike, this is Charles. Yes, that's correct -- $6.5 in revenue and $2.1 in SG&A.

Mike Rehaut Richard

$6.5 in revenue and $2.1 in SG&A. Okay. And then secondly, again, just any thoughts around 2Q, 3Q, 4Q, gross margin cadence would be helpful for modeling?

Eric Lipar

Well, I think it's going to ramp up as we go because of volume component, and Charles already talked about that, 30 basis points to 50 basis points with that. And then we gave our annual guidance of 24% to 25.5% is where we're comfortable for the year-end range.

Mike Rehaut Richard

Okay. All right. So I'll work it that way. Thanks very much.

Operator

Thank you. At this time, I am not showing any further questions.

Eric Lipar

Thanks, everyone, for participating on today's call and your continued interest in LGI Homes.

Operator

This concludes LGI Homes' first quarter 2025 conference call. Have a great day.