LGI Homes Q4 Earnings Call Highlights

Key Points

• LGI delivered 1,362 homes in Q4 (1,301 recognized in revenue), reported its highest closings-per-community pace, and saw backlog surge 133% to 1,394 homes with net orders up 39%, although cancellations rose to 43.3% as many buyers face financing hurdles.
• Margins were pressured by incentives and price reductions to clear aged inventory — fourth-quarter gross margin excluding inventory charges fell to 19.2% (adjusted gross margin 22.3%), and the company recorded a $6.7 million inventory impairment.
• LGI ended the year with $1.7 billion of debt, $335 million total liquidity and ~60,842 controlled lots, plans to monetize older lots to reduce leverage toward a 35%–45% target, and guided 2026 to 4,600–5,400 closings with gross margin of 18%–20% (adjusted 21%–23%).

LGI Homes NASDAQ: LGIH executives emphasized disciplined execution and a continued focus on affordability as the homebuilder reported fourth-quarter and full-year 2025 results, while also outlining an outlook that assumes market conditions in 2026 will look “very similar” to 2025.

Fourth-quarter results and operational pace

CEO Eric Lipar said the company delivered 1,362 homes in the fourth quarter. Of those, 1,301 homes contributed to reported revenue of $474 million, while 61 homes were currently or previously leased homes with profits reflected in other income. Lipar also noted the company closed its 80,000th home in December.

LGI ended 2025 with 144 active communities and averaged 3.1 closings per community per month in the fourth quarter, which management called its highest pace of the year. On a closings-per-community basis during the quarter, the company’s top markets were Charlotte (6.0), Northern California (5.8), Las Vegas (4.6), and Atlanta (4.2).

Margins pressured by incentives and aged inventory actions

Management said gross margin performance was resilient relative to expectations but came in below prior guidance ranges due to the impact of incentives and price reductions tied to older inventory. Lipar attributed fourth-quarter margin pressure to the company “leaning into incentives” and clearing aged inventory using interest-rate buydowns, forward commitments, discounts, and pricing adjustments to remain competitive and support affordability.

CFO Charles Merdian reported fourth-quarter gross margin excluding inventory-related charges of 19.2%, down from 22.9% in the prior-year quarter. He cited financing incentives, discounts on older inventory, a higher percentage of wholesale closings, and higher borrowing costs as key drivers, partially offset by what he described as a structural margin benefit from self-developed lots. Adjusted gross margin was 22.3%, excluding $14.4 million of capitalized interest and $609,000 related to purchase accounting.

The company recorded an inventory impairment charge of $6.7 million tied to four underperforming communities impacted by slower-than-modeled pace, financing incentives, and price discounts on aged inventory. Merdian said the company regularly reviews inventory and, “at this time,” analysis did not indicate future impairments “meaningfully different” from the fourth-quarter amount.

Orders, backlog growth, and elevated cancellations

Lipar said the homebuying process has been extended as many buyers need more time to save for down payments, strengthen credit, or sell existing homes. As a result, the company’s cancellation rate rose to 43.3%, and management expects the dynamic to persist “for the foreseeable future.” In Q&A, Lipar said the main reason for cancellations has not changed and is “strictly the ability to get financing,” adding that LGI is spending more time with customers who may need additional weeks to address debt, down payments, or credit scores.

Despite higher cancellations, Lipar said net orders increased 39% year-over-year in the quarter. Backlog rose 133% to 1,394 homes, with backlog value exceeding $501 million, up 112% from the prior year. Management said those totals included an agreement with a wholesale buyer to acquire 480 homes delivering throughout 2026; excluding that agreement, backlog was still up 53% from the end of 2024.

Management added that January leads and retail net orders were up slightly compared to a softer year-ago period, but said it expects first-quarter results to be similar to last year as it monitors backlog “pull-through” and cancellation trends.

Full-year 2025 financial summary and land position

For full-year 2025, LGI delivered 4,788 homes, including 103 currently or previously leased homes. A total of 4,685 homes contributed to reported revenue of $1.7 billion. The company’s average selling price for the year was $364,000, roughly in line with the prior year. Full-year gross margin excluding inventory-related charges was 21.1%, and adjusted gross margin was 24%.

LGI’s wholesale business represented a larger portion of annual closings. Merdian said the company closed 737 homes through wholesale in 2025, representing 15.7% of total closings and generating more than $230 million of revenue, compared to 9.2% and $164 million in 2024. In Q&A, management reiterated that wholesale revenue is recorded in home sales revenue, while gains from currently or previously leased homes are reflected in other income.

Full-year selling, general and administrative expenses were $273.8 million, or 16.1% of revenue, a 150-basis-point increase from 2024 driven by fewer closings and a higher average community count. In the fourth quarter, SG&A was $65.6 million (13.8% of revenue), with G&A down year-over-year due primarily to compensation-related adjustments. When asked about the durability of the reduction, management said the fourth quarter was “more bonus driven,” while still expecting annual run rate to be similar year over year.

Other income was $5.5 million in the fourth quarter and $18.7 million for the year. Merdian said full-year other income was driven by the sale of nearly 550 lots, 103 leased homes, commercial property, and income from joint ventures.

LGI reported full-year net income of $72.6 million, or $3.13 per basic share and $3.12 per diluted share. Excluding impairment-related charges, net income was $77.6 million, or $3.35 per basic share and $3.34 per diluted share. Fourth-quarter net income was $17.3 million, or $0.75 per share, and $22.4 million, or $0.97 per share, excluding impairment-related charges. Merdian said the effective tax rate in the quarter was 27.9%, above the company’s outlook due to higher state income tax rates and the impact of impairments.

On land strategy, Merdian described the on-balance sheet land portfolio as a “key strategic advantage,” citing operational flexibility and profitability support. He said the average finished lot cost across controlled lots was approximately $70,000, and lot cost represented about 21% of average selling price last year. At year-end, LGI owned and controlled 60,842 lots, down 14.2% year over year, reflecting what management called discipline in capital allocation.

Balance sheet position and 2026 guidance

Executive Vice President Joshua Fattor said LGI ended the year with $1.7 billion of debt outstanding, including $528 million drawn on its revolver, and reduced its net debt-to-capital ratio by 160 basis points in the fourth quarter to 43.2%. Total liquidity was $335 million, including more than $61 million of cash and $274 million of revolver availability. Fattor said the company expects to work through older inventory, selectively monetize certain lot positions, and use proceeds to reduce debt as it progresses toward the midpoint of its 35% to 45% target leverage range.

Looking to 2026, Lipar said guidance reflects current demand trends, elevated starting backlog, and what the company believes is attainable if market conditions remain generally consistent with recent experience. Key elements of the outlook include:

• Closings: 4,600 to 5,400 homes
• Active selling communities at year-end: 150 to 160
• Average sales price: $355,000 to $365,000
• Gross margin: 18% to 20%
• Adjusted gross margin: 21% to 23%
• SG&A: 15% to 16%
• Tax rate: approximately 26.5%

Lipar said the company expects to continue using incentives—including closing costs, interest rate buydowns, and discounts on older inventory—to support affordability. In response to analyst questions, he said upside to margin guidance would likely require lower incentives or lower costs (including land development, impact fees, and construction costs), and noted the mix of wholesale closings can also influence margins.

On wholesale expectations, Lipar said the company anticipates wholesale closings representing 10% to 15% of 2026 closings and that the company feels “really good” about 10% given orders already in backlog. He added that new wholesale orders were “somewhat on pause” while the company sought more clarity on policy discussions related to institutional buyers.

Management also said community openings are expected to be more weighted toward the back half of the year, while reiterating confidence in its year-end community count target.

About LGI Homes NASDAQ: LGIH

LGI Homes, Inc NASDAQ: LGIH is a residential homebuilder primarily focused on serving first-time and first-time move-up homebuyers in the United States. The company specializes in the acquisition, development and sale of affordable single-family homes and townhomes. LGI Homes operates through an integrated model that encompasses land sourcing, lot development, home construction, and post-closing customer support including warranty services.

In addition to its core homebuilding activities, LGI Homes offers ancillary services to streamline the homebuying process for its customers.

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