LGI Homes, Inc. 2026 Q2 Earnings Call

Thanks. Good afternoon. I'll 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 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 on our quarterly report on Form 10-Q for the period ended June 30th, 2026 that 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'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.

Thanks, Josh. Good afternoon. Welcome to our earnings call. During the second quarter, our team delivered strong results while continuing to navigate a dynamic operating environment. We delivered a total of 1,440 homes during the quarter, an increase of 9% over the prior year. Of this total, 1,365 homes contributed directly to homebuilding revenue of $502 million, an increase of 4% compared to the prior year. The additional 75 closings were currently or previously leased homes, the gains from which were reflected in other income. Year-to-date, we have delivered a total of 2,356 homes, an increase of 2% over the same period last year, leaving us well-positioned to achieve our full-year closing guidance. Our average selling price for new homes increased to over $367,000, while we continue to support affordability through targeted price discounts on older inventory and financing incentives.

We ended the quarter with 151 active communities, already achieving the low end of our full-year guidance range just six months into the year and representing an increase of 3.4% from a year ago. We are beginning to see some improvement in the land market, with a broader set of opportunities becoming available and transaction economics improving. We are finding more deals where pricing and terms align with our disciplined underwriting standards, particularly as new projects are brought to market later in the development process. This provides greater certainty around cost and demand assumptions, enabling us to underwrite using today's market conditions and more readily achieve risk-adjusted returns. Beyond 2026, our development pipeline positions us well for additional community openings in 2027 and continued community count growth. As we continue to grow our community count, we've invested in the capabilities of our organization.

We've strengthened sales leadership, expanded leadership development initiatives, and continued refining our product along with the systems and processes that support our sales organization. We believe these capabilities will build upon our proven ability to deliver exceptional customer experience and high-quality homes, which together contribute to the strong customer satisfaction and low warranty costs that are hallmarks of the LGI Homes brand. During the quarter, we averaged 3.2 total closings per community per month. Our strongest performing markets on a closings per community basis were Atlanta at 5.0, Southern California at 4.7, Charlotte at 4.2, Las Vegas at 3.9, and Albuquerque at 3.8 closings per community per month. We delivered a homebuilding gross margin of 19.8% and an adjusted homebuilding gross margin of 23.2%, both of which were above the midpoint of the increased guidance range we provided on our last call.

Our predominantly self-developed, on-balance sheet land position remains an important advantage, supporting higher profitability and providing operational flexibility regardless of housing market conditions. Our adjusted EBITDA for the quarter was $59 million, or 11.4% of total revenue, reflecting prudent cost discipline, sound decision-making, and a sustained focus on the fundamentals. Demand for new homes during the second quarter was mixed but still proved more resilient than many would have expected. We ended the quarter with 1,298 homes of backlog, up 61% compared to the prior year. The increase reflects both continued interest in homeownership and a longer buying process as customers navigate affordability challenges and financing qualification requirements. In addition to delivering growth and solid profitability, we continue to strengthen our balance sheet. During the quarter, we paid down approximately $130 million on our credit facility, reducing our leverage ratio by 220 basis points to 42.6%.

This progress was driven by disciplined capital allocation, thoughtful management of our development investments, strategic balance sheet initiatives, and continued success monetizing non-core and aged inventory, positioning us to capitalize on opportunities as market conditions improve. As we look ahead, we believe our strong balance sheet, liquidity, and operating platform position us well to evaluate opportunities in an increasingly active M&A environment. Our focus continues to be on smaller strategic acquisitions that can enhance our existing platform and strengthen our position in attractive markets. Consistent with our approach to capital allocation, we remain focused on opportunities that are strategically aligned, culturally compatible, financially accretive, and capable of creating long-term shareholder value. Last week, members of our board had the opportunity to visit communities within our Charlotte operation and see firsthand the exceptional work being done by the team.

Charlotte continues to be one of our top-performing markets, driven by the team's relentless focus on execution, customer service, and operational excellence. Their impact on our overall success has been significant, and I want to congratulate and thank everyone in the Carolinas for their hospitality and continued commitment to delivering best-in-class results. Finally, on July 9th, LGI Homes common stock was listed and began trading on Nasdaq Texas. LGI Homes was founded in Texas, we're headquartered here in The Woodlands, and many of the families we've helped become homeowners call this state home. We're pleased to be one of the early companies on this new exchange and believe it's a good reflection of our ongoing commitment to our home state. I'll invite Charles to provide additional details on our financial results.

Thank you, Eric, and good afternoon. Total revenue in the second quarter was $516 million, including $501.5 million of homebuilding revenue generated from 1,365 new home closings and $14.5 million of revenue from the sale of land and lots and income from leasing operations. Of the 1,365 new home closings delivered during the quarter, 295 or 21.6% were through our wholesale channel, compared to 17.9% during the same period last year. Our homebuilding gross margin of 19.8% and adjusted homebuilding gross margin of 23.2% each exceeded the midpoint of the increased guidance range provided on our last call. Adjusted homebuilding gross margin excluded $16.5 million of capitalized interest and $544,000 related to purchase accounting. Combined selling, general, and administrative expenses totaled $72.7 million or 14.1% of total revenue, an improvement of 40 basis points year-over-year.

Selling expenses were $44.1 million or 8.6% of total revenue, compared to 8.5% in the same period last year. The increase was primarily due to higher overall spending to drive leads to our communities. General and administrative expenses were $28.6 million or 5.5% of total revenue compared to 6% in the same period last year, reflecting higher revenues and our continued focus on controlling costs, improving efficiency, and maintaining a disciplined operating structure. Other income was $7.6 million, driven primarily by the sale of 75 currently or previously leased homes. Adjusted EBITDA totaled $58.7 million, representing 11.4% of total revenue. Pre-tax net income was $36.6 million or 7.1% of total revenue. We generated net income of $27 million for the quarter, or $1.16 per basic and diluted share.

Net orders in the second quarter were 1,039 homes, a decrease of 4.8% from 1,091 homes during the same period last year, reflecting continued affordability pressures, higher mortgage rates, and elevated energy costs arising from the conflict in the Middle East. Our cancellation rate in the second quarter was 49.4% compared to 32.7% in the same period last year, driven by a wider pool of buyers needing more time to get across the finish line. We ended the quarter with 1,298 homes in backlog valued at $525.5 million, representing increases of 60.6% and 63% respectively. Turning to our land position. As of June 30th, we owned and controlled 57,406 lots, a decrease of 11.4% year-over-year and 2.7% sequentially. This marked our sixth consecutive quarter of reducing our lot position while focusing capital on markets where demand and returns support the additional investment.

Of our total lots, 50,522 or 88% were owned, and 6,884 lots or 12% were controlled. Of our owned lots, 33,775 were raw land or land under development.

19% of which were in active development and 81% were in engineering or undeveloped land. Although early stage lots represents two-thirds of our owned lot count, they require only modest investment per lot. In contrast, 26% of our $3.5 billion real estate inventory is invested in the 7% of lots that are homes in progress or completed, positioning us for near-term revenue conversion. Of the remaining 16,747 owned lots, 12,990 were finished vacant lots, and 1,858 were completed homes. During the quarter, we started 1,560 homes and ended June with 1,899 homes under construction. I'll now turn the call over to Josh for discussion of our capital position.