LGI Homes — Earnings Call Q3 2026

Operator: To the LGI Homes Third Quarter 26 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 will turn the call over to Joshua D. Fattor, Executive Vice President of Finance and Capital Markets. Joshua D. Fattor: Thanks, Sonya, and good afternoon. I will remind listeners that this call contains forward-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 should not place undue reliance on such statements, which reflect management's current views and are not guarantees of future performance. On this call, we will discuss non GAAP financial measures. These measures 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 period ended 09/30/2026, which will be filed with the SEC today. This filing will be accessible on the SEC's website and on the Investor Relations section of our website. I am joined today by Eric Thomas Lipar, LGI Homes chief executive officer and chairman of the board, and Charles Michael Merdian, chief financial officer and treasurer. I will now turn the call over to Eric. Eric Thomas Lipar: Thanks, Joshua. Good afternoon, and thank you for joining us. During the third quarter, our team continued to execute well today's highly competitive housing market, where affordability is stretched. We grew closings, total revenue, and homebuilding revenue compared to last year, while maintaining strong profitability expanding our community count, and strengthening our balance sheet. We delivered 1.22 thousand homes in the quarter, up over 10% from the prior year. Year to date, we delivered 3.58 thousand homes up over 4% compared to last year. Our average selling price was $368 thousand down slightly from the prior year primarily due to wholesale closings and geographic mix. Because of higher closings, homebuilding revenue and total revenue each increased 10% over the prior year. Profitability remained strong throughout the quarter. Our on-balance sheet, predominantly owned land strategy together with our in-house development capabilities, reflects the long term decisions we have made to set LGI apart from much of the industry. It remains a competitive advantage generating strong margins, while giving us flexibility to adapt to changing market conditions. Homebuilding gross margin was 20.2% and adjusted homebuilding gross margin was 23.7%. Both were up 40 basis points over the prior quarter in addition to being above the midpoint of the full year ranges we raised in August. Additionally, adjusted homebuilding gross profit dollars increased nearly 7% compared to last year reflecting higher closings, higher revenue, and our continued focus on balancing profitability and affordability. Our teams did an excellent job managing costs, while continuing to support future growth. SG&A expenses declined in absolute dollars from the prior year and improved 180 basis points relative to revenue. These results reflect the benefits of our scale, disciplined cost management, and focus on operating efficiency across the business. Community growth is a key driver of our results and an important part of our long term strategy. In August, we reached an all time high of 153 active communities and we ended the quarter with 151 an increase of over 7% compared to last year. That increase helped drive our year over year growth in closings and revenue and remains 1 of the best indicators of future growth because it expands our ability to serve more customers, and increase earnings over time. During the quarter, we averaged 2.6 home closings per community per month Our top markets by closings per community were Atlanta at 7.3, Charlotte at 3.7, Austin at 3.6, Fort Pierce in Southern California, each at 3.4 closings per community per month. These markets reflect strong execution by our local teams across both our retail and wholesale channels and are focused on delivering value to our buyers. We also continue to strengthen our balance sheet. During the quarter, we paid down over $36 million on our credit facility and reduced our net debt to capital ratio by 100 basis points sequentially bringing the total reduction to 24 basis points over the last year. In October, we completed an amendment and extension of our revolving credit facility which extends key lender support through 2030. Joshua will cover more details later in the call. As expected, the market became more challenging as the quarter progressed. Affordability remained in the defining story of the quarter. Net orders were 609 homes, down from 1.57 thousand homes last year. Our buyers make purchasing decisions based on the monthly payment so affordability is always front and center. At today's payments, a smaller pool of buyers can qualify, and those who do often need time to verify income, sell their existing home, or save for their down payment. We remain confident in the long term desire for homeownership. Our focus is on balancing sales pace and profitability and we are committed to doing both. To make homeownership attainable to the largest pool of buyers, we are leaning into incentives across our regions including closing cost assistance, buydowns, and forward rate commitments. We will use these tools with discipline, but we will not give up margins simply to chase volume. We also see a growing competitive advantage in our spec home model. As other builders move away from the spec business, we are well positioned with move in ready homes that give buyers certainty on price, payment, and timing and our scale and in-house development capabilities allow us to keep delivering them at profitable margins. Through our direct to consumer model, we work closely with buyers throughout the home buying journey, and we expect many of them to close over time. Some buyers work with our teams for months to get through the process and enter their new home. We continue to see interest in homeownership and our job is to remain disciplined while adapting our sales and financing strategies production plans, and product offering to current conditions. While affordability matters, we are not simply stripping features from our homes to cut prices. We continue to deliver high quality homes with strong fit and finish, backed by best in class customer service, from the first interaction through closing and beyond. We believe this commitment contributes to high customer satisfaction, low warranty costs, and long term value for customers and shareholders alike. We are also placing renewed emphasis on the experience beyond the home itself from the moment you arrive at 1 of our communities to the green space, amenities, and walkability that make it a place to call home. We are pleased with the financial results we delivered in the third quarter and we are focused on achieving our full year closings objective while maintaining strong profitability in this challenging environment. With that, I will turn the call over to Charles to discuss our financial results in greater detail. Charles Michael Merdian: Thank you, Eric, and good afternoon. Our third quarter results reflect strong operating execution. Growth in closings, revenue and earnings along with meaningful margin and cost improvements demonstrate the strength of our model even as higher interest rates weighed on current period orders. We delivered a total of 1.22 thousand homes in the quarter, an increase of 10.4% compared to last year. Of these homes, 1.19 thousand were new homes, an increase of 11.6% from last year. The remaining 33 closings were currently or previously leased homes, the gains from which reflected in other income. Homebuilding revenue was $437.5 million at an average sales price of $368 thousand. Including a combined $7 million from lot sales and leasing total revenue was $444.5 million an increase of 10.2%. Wholesale revenue during the quarter was $80.8 million up 48.3% from $54.5 million in the same period last year. Our third quarter homebuilding gross margin was 20.2%, and adjusted homebuilding gross margin was 23.7% both above the midpoint of the full year ranges we raised in August and both up 40 basis points compared to the prior quarter. Adjusted homebuilding gross margin excludes $14.7 million capitalized interest, and $449 thousand related to purchase account. Cost discipline was a continuing theme during the quarter. Combined selling, general, and administrative expenses totaled $62.1 million or 14% of total revenue, a 180-basis point improvement over the prior year. Our ongoing initiatives allowed us to grow total revenue more than 10% while reducing SG&A expenses by 2.5% in absolute dollars. Selling expenses were $35.8 million. Or 8% of total revenue. Down 80 basis points from the same period last year. The improvement was primarily due to higher revenue and lower operating costs partially offset by higher commissions, increased spending on advertising to drive leads. General and administrative expenses were $26.3 million. A decrease of 6% year over year and 8% sequentially. The decrease is primarily due to ongoing efficiency initiatives. As a percentage of revenue, G&A expenses decreased 100 basis points to 5.9% compared to the same period last year. Other income was $6.2 million driven primarily by income from our joint ventures and gains on the sale of currently or previously leased homes. Adjusted EBITDA totaled $52.7 million or 11.9% of total revenue up 150 basis points year over year and 50 basis points sequentially. Pretax income was $33.3 million or 7.5% of total revenue, and net income was $24.6 million, up 24.6% year over year. And we delivered $1.05 per basic and diluted share compared to $0.85 last year. Net orders in the third quarter were 609 homes, down 61.2% from 1.17 thousand homes during the same period last year. The year over year decline reflects the increase in affordability pressures during the quarter, compounded by the significant strength in sales activity during the third quarter of last year. Our cancellation rate was 53.8% compared to 33.6% last year. And as we have discussed on prior calls, the elevated cancellation rate reflects ongoing affordability pressures the timing effect of slower sales activity this quarter compared to the prior quarter, and a broader sales funnel as we work to generate incremental orders. We ended the quarter with 685 homes in backlog, valued at $273.7 million representing decreases of 47.5%, 45.1%, respectively. Turning to our land position. Our land strategy continues to emphasize flexibility. As of September 30, total owned and controlled lots were 58.4 thousand. Down 6.7% year over year and up 1.7% sequentially. Our owned lot position declined for the sixth consecutive quarter to 50.3 thousand down from a peak of 61.9 thousand in the second quarter of 2022. Controlled lots increased 18.1% to 8.13 thousand as we identified more attractive land opportunities including finished lot deals available on takedowns and smaller projects that meet our underwriting criteria at today's absorption levels. In total, dollars invested in real estate inventory decreased $160 million year over year primarily due to a 23.3% reduction in the number of completed homes reflecting active inventory management and balanced home starts. We recorded no inventory impairments during the third quarter. Continue to evaluate our communities each quarter based on sales pace, pricing, incentives, margins, and other relevant market conditions. And based on these assessments, the values remain in line with the amounts carried on our balance sheet. The primary reason for this is our lot basis. Most of our land is self developed was acquired selectively. Of our owned lots, 34.1 thousand or approximately 2 thirds are in raw or under development. And 79% of those are in engineering or held as undeveloped land. Where little capital is invested. A significant proportion of our inventory dollars are concentrated in the lots closest to sale. For example, completed homes and homes under construction make up just 7.5% of our owned lots but 28% of our $3.5 billion of inventory. Of the remaining 16.2 thousand owned lots, 12.4 thousand were finished vacant lots, and 2.15 thousand were related to completed homes and information centers. We started 1.21 thousand homes in the third quarter and finished September with 1.63 thousand homes under construction. I will now turn the call over to Joshua for a discussion of our capital position. Joshua D. Fattor: Thanks, Charles. Our capital position continued to strengthened during the quarter supported by debt reduction, improved leverage metrics, and the recast of our revolving credit facility. We ended the quarter with $1.54 billion of debt outstanding, including $411 million drawn on our revolver. As Eric highlighted, our debt to capital ratio decreased to 41.7% and our net debt to capital ratio was 40.6%. Compared to the same time last year, our net debt to capital ratio was down 420 basis points. Further strengthening our balance sheet and enhancing our flexibility to opportunistically pursue land and other strategic investments that we believe will drive future shareholder value. The recent amendment and extension of our revolving credit facility established total commitments of approximately $1.2 billion, and extended key lender support through October 2030. Following the amendment, approximately $96 million of commitments mature in 2028, $215 million mature in 2029, and the remaining $855 million are now committed through 2030. Along with extending the duration, the amendment also approved the facility through several favorable borrowing base and covenant changes. Most notably, it brings our interest coverage covenant in line with current market terms. This more flexible framework enhances the overall utility of the facility to support our long term strategy, while maintaining our disciplined approach to balance sheet management. We ended the quarter with $447.7 million of liquidity, including $69.4 million cash on hand and $378.3 million available to borrow on our facility. As of September 30, our stockholders' equity was approximately $2.2 billion and book value per share was $92.84. At this point, I will turn the call back over to Eric. Eric Thomas Lipar: Thanks, Joshua. We are pleased with our financial performance this quarter and remain confident in our ability to navigate the current market. Buyers continue to inquire about homeownership, and engage with our sales teams even with mortgage rates still at elevated levels. Our focus remains on maintaining profitability, balance sheet strength, disciplined capital allocation, and growing our community count, while helping more families achieve the dream of homeownership as we close out the year. Pending verification of fundings, we expect to announce that we closed 300 homes in October. Based on these latest results, we are narrowing our full year closing guidance to between 4.6 thousand and 4.8 thousand homes. The revised range reflects the closings currently in backlog our inventory available to close, and our current expectations for sales and cancellation activity during the balance of the year. Outside of closings, we are reaffirming the rest of our full year guidance. We continue to expect full year average selling price to range between $360 and $370 thousand SG&A as a percentage of revenue between 15-16%, homebuilding gross margin between 19% and 21%, and adjusted homebuilding gross margin between 22.5% and 24.5%. We continue to expect to end the year with 150 to 160 and active communities. Looking further out, based on our current view of the communities we expect to open over the next year, we expect to be active in more than 180 communities by the end of 27 an increase of approximately 20% compared to our community count today. These openings deepen our geographic footprint and expand our selling capacity but we will continue to pace development and home starts based on market level demand and expected returns. Much of the capital needed to support these openings has already been invested, which should allow us to grow our community count without requiring incremental debt specifically to fund these openings. These communities were underwritten at today's absorption pace, and we expect them to deliver similar absorptions and margins to what we are experiencing today. Finally, I would like to recognize our employees for their continued hard work commitment to our customers. Earlier this quarter, LGI Homes was recognized by US News and World Report as 1 of the best companies to work for. This recognition reflects the culture we have built over many years, and the dedication of our employees across the country. Great customer experiences begin with engaged employees who take pride in their work. The quality of our homes, the experience we provide our customers, and the strength of our operating performance all start with our people. As we head into the final stretch of 2026, our priorities are clear. Protecting profitability, managing inventory and starts, and ensuring a great customer experience. With a growing community base and experienced teams across our markets, we believe LGI Homes is well positioned to navigate current conditions and create long term value. We will now open the call for questions. Operator: As a reminder, to ask a question, you will need to press *11 Our first question will come from the line of Trevor Allinson of Wolfe Research. Your line is open, Trevor. Trevor Allinson: Hi, good afternoon. Thank you for taking my questions. I see you guys are maintaining your full year gross margin guidance but the full year number does imply a pretty wide range as you get to Q4 So help us dial in that number a little more closely? How are you expecting 4Q gross margin compares to 3Q? And then how many of your roughly 1.3 thousand Q4 closings do you guys need to sell and close intra-quarter in Q4? Eric Thomas Lipar: Yeah. Thanks, Trevor. This is Eric. I can talk first about the sales? You know, orders as expected, slowed in September, so October closings like we talked about. Are approximately 300 So we will need a similar sales pace, which has been fairly slow to get the low end of our closing range, 4.6 thousand to 4.8 thousand. So we are we are comfortable in number. And I think at this point, you know, we wanted to keep a wide range on gross margin. We have yet to make. The wholesale as a percentage of how many closings is still a little bit to be determined. But I think overall, we expect gross margins to be similar in Q4 to Q3 and similar in Q4 to Q3. Okay. Thanks for that, Eric. And then a second question kind of around pace and price. You talked about leaning back into incentives. Clearly, orders were pressured in the quarter. But then you also mentioned protecting profitability a number of times. So how should we think about the balance there? Is there certain absorption pace that you guys are trying to get back to Just trying to think about know, what you think is the right balance of pace and price for you guys here, and what is a more challenging environment with higher rates? Yeah. Great question, Trevor. I think all of us are looking at this issue, and we, like a lot of others, are really looking at it community by community. You know, our sales pace is strong in some of our communities, and some of our communities, we would like to have a stronger pace. I think overall, we have been leaning into incentives, all along. And with the interest rates spike we saw over the last 60 days, it is just more expensive to get the same rate So that is what we are balancing community by community across the country. Thank you for all the color. Good luck moving forward. Thank you. Operator: And our next question will come from the line of Alex Rygiel. of Texas Capital Securities. Your line is open, Alex. Alex Rygiel: Thank you. Nice quarter, gentlemen. Couple of quick questions here. First, for clarification, you just mentioned you could be active in 180 communities. By the end of 2027. Is that sort of, like, the gross number or the net number? How many communities might you be closing out of such that of at year-end 2027, What is sort of that active community count number on a net basis? Eric Thomas Lipar: Yeah. Great question, Alex. This is Eric. I can start. Charles can add to it or Joshua if they choose to. But the 180 is what I would consider a net number. I do not have in front of me how many communities will be closing out, but we expect to end 2026 with between 150 and 160 active selling communities. And in 2027, we are very confident in having more than 180 active communities opening at the end of 2027. And that does not include any other finished lot opportunities we buy over the next quarter or 2, and we are starting to see more and more of those opportunities. And also does not include any M&A that would happen over the next 12 months. that is what I would just add. Sorry. Joshua D. Fattor: Alex, I would just add, right, a lot of those, we emphasized in the scripted portion, just a lot of those dollars have already been invested. So those are dollars that are sitting on our balance sheet for the vast majority of that upfront on a lot of these projects or development deals that were purchased few years back and are now coming to fruition. Alex Rygiel: And then secondly, the cadence of those do you see it sort of being equally weighted throughout the year, or is there a greater weighting either in the front end or the back end of the year? Eric Thomas Lipar: No. We think it is gonna be pretty equally weighted throughout the year. Perfect. And then secondly, have you seen any competitors pull back on their spec strategy, and is that what is kind of giving you increased confidence here? Yeah. Alex, this is Eric. I do not know if we have seen it in the field more so than hearing about it through the builder's commentary on earnings calls, etcetera. We are very confident in our spec strategy. With our customer being the first time home buyer, the majority of that customer base is currently paying rents. And we have found over the years when that customer is looking to inquire about homeownership is usually at the end of the lease, maybe getting out of a roommate or a parent's situation, and having available homes for that customer to move into is the correct strategy at the first time home buyer market, and we are comfortable with that. Perfect. Thank you. Good luck. Thank you. Thank you. Operator: Star 1 on your telephone and wait for your names to be announced. Our next question will come from the line of Jay McCanless of Citizens Bank. Your line is open. Jay McCanless: First question, just if we could talk about the decline in orders versus last year. I mean, it is sounds from the outside looking in that you guys got a little more aggressive in terms of opening the funnel and just had some bad timing maybe with the higher mortgage rates hitting at the same time you were trying to increase the orders. Is that the right way to look at that? Eric Thomas Lipar: That is, Jay. Yeah. Last year was a robust Q3. Got aggressive in writing orders. You know, I guess that strategy worked, and we are still fairly aggressive today and wanna have as many orders as we possibly can. But yeah, last quarter was a challenge from an orders perspective. I think somewhat as expected because of the higher rates. Okay. Alright. I just wanted to make sure we were thinking about that the right way. Jay McCanless: Second question, and you kind of talked about this earlier, Eric, but maybe could you talk about how old the current communities are that are in the field? Like, what percentage maybe of them were underwritten to the current incentives and levels and some of the, you know, pricing actions you are having to take. Just trying to get a sense of, you know, maybe 40-50% of the communities have been underwritten to current standards and what that might look like at that 180 communities next year. Eric Thomas Lipar: Yeah. it is a great question, Jay. We may have to, you know, handle that on a follow-up call and get some more information as far as the older age the communities, and Charles and Joshua can certainly add to that. You know, I. I would say, you know, the communities we bought that are larger communities that were very heavily doing land development, We are very comfortable on the gross margin. I think the slower absorption pace really impacts return on equity. And the newer communities that are opening as community count really is, they underwrote to today's gross margin and today's absorption pace. And a very respectful return on equity, let's say, yeah, the large land development projects the IRR return on equity has been impacted, but we are still very comfortable in overall gross margin. Charles Michael Merdian: Jay, I think I would kind of add on that, That some of the adjustments that we can make, even though the dollars spent on acquiring the land upfront and maybe developing section 1 and some of the upfront infrastructure have all been in place, but we have done a really good job of adjusting our future section sizes as we go through the engineering and development phase to adjust the original projected cash flows have now been paced back out, which is, helping to offset some of that slower absorption pace that we may have underwrote to at a higher pace. Jay McCanless: Got it. Okay. Then the next question I had, demand from the single family for-rent community, how is that trending? And are you seeing that pick up as the 10 years come back in some from the highs we saw in mid October. Eric Thomas Lipar: Yeah. I think it is I think it is getting better, Jay. They are all engaging with us. Once we got clarity, legislative clarity over the last 12 months. It was pencils down for the first half of the year. Now we are engaging with those buyers and really working through the bid-ask spread and working on orders for Q4 and into 2027. Okay. Great. that is all I had. Thanks, guys. You bet. Thank you. Operator: And our next question is coming from the line of Alex Barron of Housing Research Center. Your line is open, Alex. Alex Barron: Good afternoon, I guess. I wanted to ask. So regarding the orders and the current situation, have you guys adjusted anything since the quarter began in either, like, in incentives or in pricing to try to you know, boost your orders for the fourth quarter? Eric Thomas Lipar: Well, I think, Alex, you know, a couple things. 1 is we all want more orders. We are focused on making that decision community by community. We are also focused on taking a long term approach, not rash short term decisions with the interest rates spiking day to day. And the orders that are in the pipe, that is reflective in our adjusted guidance. So we have built that into our 4.6 thousand to 4.8 thousand. And then the orders coming in currently and what we sell over November and December is really going to be building on 2027. And we will get back with everybody on our expectations for 2027. Right now, we expect it to be, more of the same. 2027 compared to 2026 overall. Alex Barron: And in terms of the new communities that you guys are rolling out to get to the 180, is there anything different about them? You know, is there more concentration in a certain geography? Is there lower price point or higher price point, or are they pretty much similar to what you have in your current portfolio? Eric Thomas Lipar: I think for a price point, it is gonna be similar, you know, looking at the scheduled openings, you know, quite a few in Texas, quite a few in California, quite a few in Atlanta. You know, some of our top performing markets are where we are opening new communities and going deeper in those markets. So that probably balances out, as far as ASP goes. I think the other difference is a lot of these are finished lot opportunities that we did not necessarily develop that we are buying from developers. And, also, looking at, you know, all these communities, always looking at our product working on improving our product, and make sure the product is appropriate for the market and the community that we are going into. Okay. Best of luck. Thanks. Alright. Thank you. Thank you. Thank you. Operator: At this time, I am not showing any further questions. I would now like to turn the conference over to Eric Lipar for closing remarks. Eric Thomas Lipar: Yes. Thanks, everyone, for participating on today's call. For your continued interest in LGI Homes. Have a great day. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.