LGI Homes, Inc. (LGIH) Earnings

Management highlights

- Core Operational Performance • Delivered 1,440 total homes in Q2 2026, a 9% increase year-over-year; 2,356 year-to-date homes delivered, a 2% increase year-over-year. • Average selling price (ASP) for new homes increased to over $367,000, with the company offering targeted discounts on older inventory and financing incentives to preserve affordability. • Ended Q2 with 151 active communities, already hitting the low end of full-year 2026 guidance, a 3.4% increase year-over-year; this is on track to hit 152 active communities by July 2026, the highest count in company history. • Achieved an average of 3.2 closings per community per month, with top performing markets including Atlanta (5.0), Southern California (4.7), Charlotte (4.2), Las Vegas (3.9) and Albuquerque (3.8). - Land and Inventory Management • The land market is improving, with more opportunities available and improved transaction economics; more deals align with the company's disciplined underwriting, especially for projects brought to market later in development, reducing cost and demand uncertainty. • Ended Q2 with 57,406 total owned and controlled lots, a 11.4% decrease year-over-year and 2.7% decrease sequentially, marking the sixth consecutive quarter of lot position reduction to focus capital on high-demand, high-return markets. • 88% of total lots are owned, with the majority of owned lots in early-stage development requiring only modest per-lot investment; 26% of the $3.5 billion real estate inventory is allocated to completed/under-construction homes for near-term revenue conversion. - Balance Sheet and Capital Allocation • Paid down ~$130 million on its credit facility in Q2, reducing the leverage ratio by 220 basis points to 42.6%. Ended Q2 with $468 million in total liquidity, total debt of ~$1.6 billion, and stockholders' equity over $2.1 billion, with a book value per share of $91.73. • The company is positioned to evaluate opportunities in a more active M&A environment, with a focus on smaller, strategically aligned, culturally compatible, financially accretive acquisitions that strengthen existing market positions and create long-term shareholder value. • Continued success monetizing non-core and aged inventory to support deleveraging and balance sheet strength. - Organizational and Brand Updates • Invested in organizational capabilities, including strengthening sales leadership, expanding leadership development, and refining products, systems and sales support processes to sustain high customer satisfaction and low warranty costs, core brand differentiators for LGI Homes. • LGI Homes common stock began trading on NASDAQ Texas in July 2026, reflecting the company's roots and commitment to its home state of Texas.

Guidance

- Full year 2026 home closing guidance is maintained at 4,600 to 5,400 homes, with active community guidance maintained at 150 to 160 communities by year end; the company is well positioned to hit these targets after reaching 151 active communities by the end of H1 and 2,781 year-to-date closings through July 2026. - Full year average selling price (ASP) guidance was revised upward: the company raised the low and high end of the prior range by $5,000 each, resulting in a new full year ASP range of $360,000 to $370,000. - SG&A as a percentage of revenue guidance is maintained at 15% to 16%. - Full year home building gross margin and adjusted home building gross margin guidance were both revised upward by 50 basis points at the low and high end of prior ranges, marking the second consecutive quarter of upward margin guidance. The new ranges are 19% to 21% for GAAP home building gross margin, and 22.5% to 24.5% for adjusted home building gross margin.

Segment performance

LGI Homes operates two core revenue-generating segments: home building and other/land-leasing operations. For Q2 2026: 1. Home Building Segment: Generated $501.5 million in revenue, accounting for 97.2% of total Q2 revenue. 1,365 new home closings contributed to this segment, of which 295 closings (21.6% of total home building closings) came from the wholesale channel, up from 17.9% year-over-year. Home building gross margin was 19.8%, while adjusted home building gross margin was 23.2%. 2. Other Revenue Segment: Includes land/lot sales and leasing operations income, generating $14.5 million in revenue, accounting for 2.8% of total Q2 revenue. An additional $7.6 million in other income came from gains on the sale of 75 currently/previously leased homes, which is not included in segment revenue. Total combined Q2 2026 revenue was $516 million.

Risks & headwinds

- Ongoing macroeconomic headwinds include elevated mortgage rates, affordability pressures for home buyers, higher energy costs driven by the Middle East conflict, and increased customer payment sensitivity, which have negatively impacted demand. • Q2 2026 net orders fell 4.8% year-over-year to 1,039 homes, and the cancellation rate increased to 49.4% from 32.7% year-over-year, driven by extended buyer timelines to navigate financing qualification and affordability challenges. • The uncertain market environment created reduced engagement from wholesale partners for most of 2026, only beginning to improve after finalization of the Road to Housing Act.

Analyst Q&A

• Q: What is driving the second consecutive upward revision to gross margin guidance despite rising mortgage rates? /

  A: Management cites multiple factors: conservative initial guidance that built in uncertainty around required customer incentives, higher gross margins on new home closings as older inventory is cleared, lower year-over-year home construction costs, and embedded land development profits from the company's self-developed land model. Management notes margins remain lower year-over-year amid persistent headwinds from high rates and customer incentives, but progress has been better than expected.

• Q: How is improved land market pricing expected to flow through to earnings, and when will that impact be visible? /

  A: Most new land opportunities being evaluated are further along in the entitlement process, but still require 12 to 18 months of development before closing. The majority of these projects will impact community count and earnings starting in 2028. Near-term earnings continue to come from projects the company purchased several years ago.

• Q: Has the finalization of the Road to Housing Act generated tangible new wholesale demand, and can this help the company sell older inventory? /

  A: Uncertainty around the legislation suppressed wholesale partner activity for most of 2026, with most partners pausing new engagement. Now that the act is finalized, partners have re-engaged and resumed evaluating opportunities. While tangible contracts have not yet materialized, the renewed activity is positive for both moving older inventory and securing new delivery agreements heading into 2027.

• Q: What types of improved land opportunities is LGI currently seeing in the market? /

  A: In addition to the already noted increase in later-stage land parcels with more rational pricing, the company is now seeing more finished lot opportunities that can be converted to closings more quickly than raw land. Most available land parcels are smaller, and pricing reflects current market challenges for developers, creating accretive acquisition opportunities for LGI.