LGI Homes Q1 2026 Earnings Call - Backlog Hits Multi-Year High Amid Margin Beat

Operator: Welcome to LGI Homes’ first quarter 2026 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 a question-and-answer opportunity. At this time, I will turn the call over to Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets. Please go ahead.

Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets, LGI Homes: Thanks, and 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 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 and 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 period ended March 31, 2026 that will be filed with the SEC today. This filing will be accessible on LGI Homes and the SEC’s websites. 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, Chief Executive Officer and Chairman of the Board, LGI Homes: Thanks, Josh. Good afternoon, and welcome to our earnings call. The first quarter played out largely as we expected, reflecting disciplined execution across the organization and steady demand for our homes. As the quarter progressed, sales activity improved across most of our markets, enabling continued backlog growth and providing a solid foundation as we have transitioned into the spring selling season. During the quarter, we delivered a total of 916 homes. Of this total, 881 homes contributed directly to our revenue of $320 million. The remaining 35 closings were currently or previously leased homes, the gains from which were reflected in other income. Notably, our average selling price increased nearly 3% to approximately $363,000, demonstrating our ability to preserve pricing while continuing to support affordability through targeted price discounts and financing strategies.

We ended the quarter with 142 active communities and averaged 2.2 closings per community per month. This was consistent with the pace achieved last year and in line with our expectations for the period. During the first quarter, our top five markets on a closings per community basis were Charlotte with 4.6, Las Vegas with 3.2, Phoenix with 2.8, and Northern California and Seattle, each with 2.7 closings per community per month. Our gross margin before inventory-related charges of 20.2% and Adjusted gross margin of 23.4% were both modestly above the high end of our full-year outlook, highlighting the benefits of self-development, the durability of our operating model, and the strategic choices we continue to make around pricing, incentives, and inventory management. Sales activity during the quarter was positive.

Net orders were 1,221 homes, and our cancellation rate was 45.6%, driven by buyers who were ultimately unable to qualify for financing. Our backlog at quarter end was 1,699 homes, which represents a 63% increase year-over-year, a 22% increase sequentially. It marks the highest number of units in backlog since the first quarter of 2022. Before turning the call over to Charles, I want to emphasize our confidence in the long-term fundamentals of the housing market. The persistent undersupply of attainable housing, coupled with favorable demographic trends, continues to support a long runway of demand for homeownership. LGI Homes’ 100% spec entry-level focused business model centered on providing an affordable alternative to renting is purpose-built for this backdrop.

Underpinning that model is a strong low-cost land pipeline, which is nearly 100% on balance sheet, providing investors full transparency into our capital structure, driving margin durability by capturing the developer’s economic value, and minimizing reliance on external partners whose priorities may not align with the long-term value creation we’re focused on. These advantages underpin our confidence as we focus on execution today while investing to drive durable long-term growth for many years to come. With that, I’ll invite Charles to provide additional details on our financial results.

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: Thank you, Eric, and good afternoon. Revenue in the first quarter was $319.7 million, based on 881 homes closed at an average sales price of $362,924, up 2.9% year-over-year, primarily driven by geographic mix and a lower volume of wholesale closings. The 9% year-over-year decrease in revenue was driven by an 11.5% decline in closings, partially offset by higher ASP. Of our total closings, 111 were through our wholesale channel, representing 12.6% of total closings compared to 179 or 18% during the same period last year. Our first quarter gross margin was 18.7% in line with the guidance provided on our last call.

Gross margin, excluding impairment related charges, was 20.2% compared to 21% in the same period last year. The year-over-year decline was primarily attributable to financing incentives and discounts on older inventory, partially offset by the structural margin benefit of our self-developed lot positions and our disciplined approach to pricing. Adjusted gross margin was 23.4%, up 110 basis points sequentially in line with our result last year and above the guidance we provided on our last call. Adjusted gross margin excluded $10 million of capitalized interest and $389,000 related to purchase accounting. Combined selling general and administrative expenses totaled $60.5 million or 18.9% of revenue, an improvement of 200 basis points year-over-year.

Selling expenses were $32.7 million or 10.2% of revenue compared to 12% in the same period last year. The decrease was primarily due to overall cost efficiencies in advertising spend. General and administrative expenses were $27.9 million or 8.7% of revenue compared to 8.9% in the same period last year. Other income was $4.9 million, driven primarily by the sale of 35 currently or previously leased homes and gains coming from the sale of finished lots and commercial land. Adjusted EBITDA increased 30% to $24.4 million, representing 7.6% of revenue compared to 5.3% in the first quarter of last year. Pre-tax net income was $4.3 million or 1.4% of revenue.

The effective tax rate in the first quarter was 50% above our outlook and reflects the timing impact of share-based compensation expenses that vested during the quarter. This impact is isolated to the first quarter, and we continue to expect our full year effective tax rate to be approximately 26.5% in line with our previously issued guidance. First quarter net income was $2.2 million or $0.09 per basic and diluted share. Excluding impairment related charges and associated tax impacts, net income was $5.6 million or $0.24 per basic and diluted share. Turning to our land position. At March 31st, we owned and controlled 59,028 lots, a decrease of 12.9% year-over-year and 3% sequentially.

The decrease reflects our continued strategy of aligning land investment with current sales trends, acquiring lots in markets where demand supports it, and moderating investment where inventory rebalancing is still underway. Of our total lots, 51,193 or 86.7% were owned and 7,835 lots or 13.3% were controlled. Of our owned lots, 34,168 were raw land or land under development, approximately 20% of which were in active development and 80% were in engineering or undeveloped land. Of the remaining 17,025 owned lots, 13,404 were finished vacant lots, and 3,621 were completed homes or homes under construction.

During the quarter, we started 1,137 homes to support the seasonal uplift in sales trends. I’ll now turn the call over to Josh for a discussion of our capital position.

Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets, LGI Homes: Thanks, Charles. We ended the quarter with $1.7 billion of debt outstanding, including $579 million drawn on our revolver, resulting in a debt-to-cap ratio of 44.8% and a net debt-to-cap ratio of 44%. The slight increase sequentially reflects our typical first quarter cadence as we invest in vertical construction ahead of the spring selling season. We remain focused on reducing leverage as we work through older inventory and selectively monetize lot positions with a long-term objective of maintaining a ratio of total debt-to-cap near the midpoint of our 35%-45% target range. Total liquidity at the end of the quarter was $355 million, including $61 million of cash on hand and $294 million available under our revolving credit facility.

We ended the quarter with over $2.1 billion in equity, equating to a book value per share of $90.50. At this point, I’ll turn the call back over to Eric.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Thanks, Josh. We are encouraged by what we’re experiencing in the market as we transition into the spring selling season. As always, affordability and consumer confidence remain important considerations for buyers, particularly in a volatile rate environment. However, despite an uptick in interest rates late in the quarter driven by geopolitical uncertainty, recent trends have remained healthy across most of our markets, suggesting many buyers are looking beyond short-term rate movements and focusing on value and the impact of the tools we’re using to support affordability. Buyers continue to inquire about homeownership and engage with our sales teams, and we are right on track to achieve the full-year guidance metrics we provided on our last call, including annual closings between 4,600 and 5,400 homes.

150 to 160 active communities by year-end, an average selling price between $355,000 and $365,000, and SG&A as a percentage of revenue between 15% and 16%. Based on first quarter margins exceeding the range of our previous guidance and our visibility into our growing backlog, we are raising our full year gross margin to a range between 18.5% and 20.5%, and Adjusted Gross Margin between 22% and 24%. We believe we are executing well on the elements of our business that we can control, and we’re positive about our ability to achieve our full year expectations. Finally, I want to thank our team members for their ongoing dedication to our company and our customers.

Being recognized for the 6th consecutive year as a Top Workplaces USA employer based on direct employee feedback is a significant honor and underscores the strength of our culture as experienced by our people. Thank you for your hard work and for ensuring that LGI Homes is providing the best customer experience in the industry. We’ll now open the call for questions.

Operator: Thank you. If you’d like to ask a question, please press star one one. If your question has been answered and you’d like to remove yourself from the queue, please press star one one again. Our first question comes from Trevor Allinson with Wolfe Research. Your line is open.

Trevor Allinson, Analyst, Wolfe Research: Hi, good afternoon. Thank you for taking my questions. First one’s on gross margin, better than you guys were anticipating. You’re raising your full year guidance as well, so that’s encouraging, heading in the right direction. You talked about some strategic decisions around pricing incentives. Can you just talk about what drove the better gross margin than what you were anticipating and what’s driving your improved outlook for the year?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Trevor, thanks. This is Eric. I can start. I think the driver gross margin, a couple different things. One is we’re seeing cost relief consistently throughout the quarter. The team’s doing a great job of reducing our older inventory, so our newer inventory that’s closing in the quarter. We were able to push pricing in a number of select communities across the country in the quarter. Also, you know, geographic mix always plays a part in gross margin as well. Because of the success in the first quarter, we thought it was prudent to raise gross margin for the year and are comfortable with that new range.

Trevor Allinson, Analyst, Wolfe Research: Okay. Thanks for that, Eric. Second is on demand trends through the quarter. Sounds like those were still relatively healthy. Did you see any impact in March as rates went up and you had the Iran conflict really start to take off? How has demand trended so far in April, perhaps relative to seasonality? I’m not sure if I heard an April closings number, as well as any color so far on how April is shaping up as well.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Yeah, sure. This is Eric again. I can start with that. You know, January and February were tougher closing months. You know, March recovered based on the strength of February sales, and then that strength continued into March. We anticipate closing between 400 and 450 in April. It’s still a little early. We’re waiting for all of our final underwriting and mortgage commitments to get everything scheduled over the next couple days here. Should be, you know, similar to March, similar to last year, and somewhere in that 400-450 range for the month of April. I would say sales trends in April have been similar to March. There does not seem to be an impact because of war or higher rates.

There’s a little bit of seasonality built in, but we continue to spend money on marketing. We’re continuing to seeing demand. Our teams continue to do a great job with that customer experience, working with them on their affordability, working with them on down payment, paying off debt, whatever is needed to get them into the house. It’s still a challenging time, but our teams are doing a great job, dealing with those challenges of affordability and really working hard and producing results, I think relative to, the last couple of years are more positive.

Trevor Allinson, Analyst, Wolfe Research: Thanks for all the color, and good luck moving forward.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Thank you. Appreciate it.

Operator: Thank you. Our next question comes from Michael Rehaut with JPMorgan. Your line is open.

Michael Rehaut, Analyst, JPMorgan: Hi, good afternoon. Thanks for taking my questions. Just also obviously gonna be a lot of focus on the gross margin. Just to kind of revisit that, if I may, Eric, I think you cited cost relief, some pricing power, and some mix. I just wanted to clarify, are those factors all kind of what played out to the upside relative to your original expectations in the when you provided guidance for the quarter? Or was there one particular factor that was more kind of drove the upside versus others?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: No, I think it’s all played a factor, Michael. Also, you know, the way we usually focus on guidance, we want to be conservative with our guidance. We weren’t sure going into the year, where gross margin was gonna be exactly. It was probably a conservative guide to start with, we hope it’s still conservative, but comfortable with the number for now. Also a lot of, you know, a lot of on our gross margin, and, we’ve been talking about the strength of our balance sheet, the value of our land. You know, LGI does a lot of self-development across the U.S., so our gross margin should be higher than our peer group.

We have to make sure we’re capturing that developer profit inside of that gross margin, as well as providing incentives to our customers to keep up with the competition. We’re still leaning into incentives, but increasing gross margin at the same time.

Michael Rehaut, Analyst, JPMorgan: No, I appreciate that. I guess, you know, also as we kind of think about the rest of the year for this metric, I believe you took up the adjusted gross margin outlook to a range of 22%-24%. In the 1st quarter, excluding purchase accounting, you were, you know, closer to the high end of that range, you know, 23.4%.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Right.

Michael Rehaut, Analyst, JPMorgan: How should we think about the second quarter? How should we think about the second quarter coming up? Are there any factors that might kind of push you more towards the middle of the range, which would imply maybe the rest of the year on average being slightly below the first quarter?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Yeah, obviously, it’s going to depend on. We’re still selling a lot of houses for the second quarter. It’s going to depend on mix, going to depend on other factors on pricing. You know, generally, we expect the second quarter Adjusted Gross Margin to be similar to first, which is why it’s right in the middle or just above the mid part of our range on our annual guidance.

Michael Rehaut, Analyst, JPMorgan: Okay, great. One more, if I could. The cancellation rate being, you know, somewhat elevated the last couple of quarters, I’m just curious on you know, what impact that might have on the operations. You know, certainly, you know, this quarter, you were able to achieve a solid gross margin above guidance. So that’s certainly a positive. Anything we should think about in terms of maybe, any impact, potentially negative or not, of the, you know, 40% plus can rates that we’ve seen for a couple quarters now?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Yeah, I think the emphasis should be on our closing guide. The closing guide remains same. Our backlog is the highest since 2022, which we’re excited about. From this point forward, it’s really just managing the pipeline. Because of the, you know, challenging affordability situations and the challenging absorption rate, you know, we have been working with customers. We’ve had a lot more flexibility of keeping the customers on the houses longer as they’re saving up for down payment or working on paying off some debt, working on their credit scores. We think that’s been a positive strategy and a great customer experience, as well as benefiting LGI Homes. As that backlog has grown, that may not be a tool that’s needed.

We’ll look at that and analyze that community by community across the U.S. We need to continue to work with those customers, continue to follow up. You know, our team of 400 plus salespeople across the U.S., that’s one of the benefits of LGI and our strength is we have the team in place to keep in contact with these customers because we are still dealing with an affordable, affordability-challenged markets. We believe we’re up for that challenge. The team’s doing a great job. The leadership’s doing a great job. We anticipate cancellation rate remaining elevated for the last couple years based on historicals, but we think that’s a positive and necessary for this point in the cycle.

Michael Rehaut, Analyst, JPMorgan: Great. Thanks so much.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: You’re welcome. Thank you.

Operator: Thank you. Our next question comes from Alex Rygiel with Texas Capital Securities. Your line is open.

Alex Rygiel, Analyst, Texas Capital Securities: Thank you. Backlog has increased sequentially. Has the time to close on this also increased and/or do you see any evidence that time to close could be improving?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: I am going to say generally, yes, Alex. We do not have the information in front of us, but time to close with customers, you know, saving for down payment as an example, is going to be elevated. The other thing that is happening in our business, which is positive, is sales relative to the amount of houses we had under construction is increasing. We are selling more customers further out, and customers that are going on houses that are under construction or going on houses that are permits in hand or permits pending that we have not started construction on. That is going to lengthen the time under contract to close, but we also think that is positive as well.

Alex Rygiel, Analyst, Texas Capital Securities: To kind of sort of follow up on that, are you still seeing an improvement in the move-up buyers?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Yeah, I think the overall business is so focused on the entry-level buyer, it’s tough to judge. We are, we are seeing success in our Terrata brand. It’s about 10% of our community count, you know, nationwide, around 15 communities. The overall market, like we said in our scripted remarks, is still a, still a challenging market. We’re dealing with some economic uncertainty, some consumer confidence. All those headwinds are still there. I think where our optimism comes from is relative to expectations. We feel really good where we are, and we feel really good with our guidance for the year.

Alex Rygiel, Analyst, Texas Capital Securities: Thank you.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: You’re welcome.

Operator: Thank you. Our next question comes from Jay McCanless with Citizens Bank. Your line is open.

Jay McCanless, Analyst, Citizens Bank: Hey, good afternoon, everyone. The first question I had, really good gains in the Northwest average sales price, up 7%, the West was up 5%. Was this more of a one-off thing, or is this representative of what you have sitting in backlog right now and maybe help you guys get to the high end of that ASP guide for the year?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: I think it’s community by community specific, Jay. We’ve opened up some new communities, I think the whole industry is gonna be, you know, facing this. As new communities come online, our lot cost is gonna be higher. That’s directly gonna have an impact on ASP. There is gonna be a geographical mix component in our average ASP for the year. Certainly the West has the highest average sales price, a percentage how the West compares to the rest of the company for the year will certainly dictate where we are in the ASP range or even exceeding it.

Jay McCanless, Analyst, Citizens Bank: Mm-hmm. I guess that’s kind of my next question then. If you think about the price cost right now, it sounds like you guys are seeing a little lower direct cost, but what were you seeing for land and especially with the lumber prices starting to move up, how are you feeling about that for the balance of the year?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: I haven’t seen a lot of land development cost increases. You know, and house cost increases, you know, with oil where it is right now, we don’t expect our house costs to go down. You know, we don’t really forecast costs going down over the next few quarters or year or, you know, 3-5 years from now. We tell all of our employees we believe house prices are going up, ’cause every component of building a house and developing land is likely to be higher over the next few quarters and next few years. That’s gotta continually drive our ASP higher. You got anything to add to that, Charles?

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: Yeah. The other thing I would add, Jay, is, you know, we have 13,000 finished vacant lots, so the development costs that we’re seeing are really gonna affect, most of those communities will be 12-18 months out. Another reason why we feel very strongly about our balance sheet and our land in inventory, ’cause those costs are generally pretty locked already as those sections have been developed. We run about just above 20% of our ASP in finished lot costs, and feel pretty confident in that number going forward and, maybe some potential upside as we get into the later part of the year and next year.

Jay McCanless, Analyst, Citizens Bank: All right. Just two more for me. Eric, in your prepared comments, you talked about how the age of some of the specs you’re selling now are younger. Do you guys have any type of quantification around what the average age of your homes in the field are now maybe versus where they were a year ago?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: I don’t have anything quantifiable. Charles, you got anything to add?

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: I think what I would, what I would say is we’re running about 2,100 completed units right now, Jay. That’s a little heavier than we typically would like on our overall inventory. We have about 1,300 that we’ve started. We didn’t start a lot in January or February, but that trend is increasing as we’re kind of getting into the summer. I think as we continue to work on our older inventory, we would expect our completed inventory units to start to work their way down into a more balanced. Typically, we would wanna see about half of our inventory in complete and about half of our inventory in progress. Still a little bit heavier weighted to complete, but that’s been a focus that we’ve been working on, and we expect that to trend down.

Jay McCanless, Analyst, Citizens Bank: Okay. Great. Talk ahead. Thanks, guys.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Thank you.

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: You bet.

Operator: Thank you. Our next question comes from Alex Barron with Housing Research Center. Your line is open.

Alex Barron, Analyst, Housing Research Center: Hi, good afternoon. I just wanted to confirm, your order ASP seems to have gone up in the quarter. I’m just getting that from looking at the ASP in the, in the backlog relative to last quarter. I was just wondering what drove that. Do you guys have a big change in mix or were you just, you know, any other explanation there?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Yeah. I think the backlog ASP is elevated primarily because of the results in the West. In the West, we tend to sell further out, not as much spec inventory on the ground. That probably comes down a little bit in the future and consistent with our annual guidance for ASP.

Alex Barron, Analyst, Housing Research Center: Okay. Got it. In terms of the wholesale business, do you guys have any sort of breakdown as far as what % of the orders came from that versus just regular sales?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Yeah. I can start, and Charles can add to it. You know, the closings, the wholesale business is 12.6% of our closings in Q1. We may have to get back to you on the order number, unless you have it, Charles.

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: I would say the backlog at the end of the quarter is gonna have about just over 400 units.

Alex Barron, Analyst, Housing Research Center: Okay

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: related to wholesale. We had a fairly large transaction in the fourth quarter that we booked, and not a lot of activity in the first quarter. I would say the order activity in the first quarter was pretty limited from wholesale business, but we do have a decent backlog with the, you know, backlog over 400 is up 70% from last year, first quarter. We feel good about the units we have under contract going in. As the wholesale market kind of starts to evolve as the year goes on, we’ll kind of be able to evaluate where the full year results are gonna end up.

Alex Barron, Analyst, Housing Research Center: Okay. Do you guys have any guidance or suggestions how to think about the other income line item?

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Sure

Alex Barron, Analyst, Housing Research Center: how much visibility we have there.

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: Sure, Alex. It is pretty variable. This is Charles. I mean, I think over the last few quarters, we’ve been around the $5 million number, and that’s, you know, a combination of mix of selling lots and commercial land and also the results from our, the profit from our previously leased homes. There’s a potential for that one to bounce around a little bit. I think for modeling purposes, if you kind of look at what we’ve done over the last several quarters, then extend that out, that’s a reasonable guess at this point.

Alex Barron, Analyst, Housing Research Center: All right. Thank you so much.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Thank you.

Charles Merdian, Chief Financial Officer and Treasurer, LGI Homes: You’re welcome.

Operator: Thank you. At this time, I’m showing no further questions. I’d like to turn the call back over to Eric Lipar for closing remarks.

Eric Lipar, Chief Executive Officer and Chairman of the Board, LGI Homes: Thanks everyone for participating on today’s call, your interest in LGI Homes, and have a great day.

Operator: Thank you. This concludes LGI Homes’ first quarter 2026 conference call. Have a great day.