LGI Homes Q2 2025 Earnings Report

LGI Homes EPS Results

• Actual EPS: $1.36
• Consensus EPS: $1.21
• Beat/Miss: Beat by +$0.15
• One Year Ago EPS: $2.48

LGI Homes Revenue Results

• Actual Revenue: $483.49 million
• Expected Revenue: $546.96 million
• Beat/Miss: Missed by -$63.48 million
• YoY Revenue Growth: -19.80%

LGI Homes Announcement Details

• Quarter: Q2 2025
• Date: 8/5/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, August 5, 2025
• Conference Call Time: 12:30PM ET

LGI Homes (NASDAQ:LGIH) designs, constructs, and sells homes. It offers entry-level homes, such as attached and detached homes, and active adult homes under the LGI Homes brand name; and luxury series homes under the Terrata Homes brand name. The company also engages in the wholesale business, which include building and selling homes to large institutions looking to acquire single-family rental properties. It serves customers in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia, Pennsylvania, Maryland, and Utah. LGI Homes, Inc. was founded in 2003 and is headquartered in The Woodlands, Texas.

LGI Homes Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q2, LGI Homes closed 1,323 homes at an ASP of $365,000, driving $484 million in revenue and delivering an adjusted gross margin of 25.5% at the high end of guidance.
• Negative Sentiment: Elevated mortgage rates and economic uncertainty weighed on entry‐level buyers, contributing to a 32.7% cancellation rate versus 22.2% a year ago.
• Negative Sentiment: Limited visibility into Q4 led to narrow Q3 guidance of 1,100–1,300 home closings, an ASP of $360K–$365K and reduced gross margins of 21.5–22.5%.
• Neutral Sentiment: LGI ended the quarter with $1.7 billion in debt (45.8% debt to capital), $322.6 million in liquidity and repurchased $20.6 million of stock, with $157.3 million of buyback capacity remaining.
• Positive Sentiment: Backlog of 808 homes valued at $322.5 million and a 14% year-over-year increase to 146 active communities underpin near-term growth visibility.

Presentation

[Operator]

Welcome to the LGI Homes Second Quarter twenty twenty five 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'll turn the call over to Joshua Fatter, Executive Vice President of Investor Relations and Capital Markets.

[Joshua Fattor, EVP - IR & Capital Markets at 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 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 and are not guarantees of future performance.

[Joshua Fattor, EVP - IR & Capital Markets at LGI Homes]

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 be found in the press release we issued this morning and in our quarterly report on Form 10 Q for the quarter ended 06/30/2025 that we expect to file with the SEC later 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 Lieber, 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, Chairman & CEO at LGI Homes]

Thanks, Josh. Good afternoon and welcome to our second quarter earnings call. We delivered solid results last quarter despite a challenging market. While the desire for homeownership has proven resilience, elevated mortgage rates contributed to the affordability pressures weighing on entry level buyers. Additionally, heightened economic uncertainty has created a softer sales environment in which buyers are still exploring the idea of homeownership but are taking longer to make decisions and in some cases choosing to delay their purchases.

[Eric Lipar, Chairman & CEO at LGI Homes]

Despite these challenges, we remain confident in the long term outlook for the housing market driven by strong demographic trends and a persistent structural shortage of homes, a shortage that is being compounded as more buyers delay the purchase of their first home. It was against this backdrop that we delivered thirteen twenty three homes in the second quarter at an average sales price of $365,000 resulting in revenue of $484,000,000 Our financial results demonstrate our success of maintaining profitability by offering compelling but balanced financing incentives and offsetting their impact by raising prices in higher performing communities. These initiatives, along with the incremental profit captured on self developed lots, enabled us to deliver an adjusted gross margin of 25.5% of 190 basis points sequentially at the high end of the guidance range provided on our last call. On the cost side, we've been focused on driving operating efficiency and improving cost discipline. Additionally, we made progress optimizing our advertising investments and concentrating dollars on the channels that generate the highest number of leads.

[Eric Lipar, Chairman & CEO at LGI Homes]

These and other initiatives enabled the company to deliver a pretax net income margin of 8.7% and earnings per share of $1.36 We ended the second quarter with 146 active communities, a 14% increase over the prior year. During the second quarter, our top markets on a closings per community basis were Atlanta with 6.8, Nashville with 5.4, Wilmington with 5.3, Richmond with 4.7 and Charlotte with 4.5%. Congratulations to the teams in these markets on their strong performance last quarter. We're pleased with our second quarter performance and remain focused on continued improvement. Our teams across the country remain committed to converting leads and delivering an exceptional customer experience, and we expect to see ongoing progress in the coming quarters.

[Eric Lipar, Chairman & CEO at LGI Homes]

One final highlight. On May 15, we held our annual Service Impact Day. Nationwide, our teams volunteered more than eight thousand five hundred hours working with over 60 organizations around the country. We're grateful to our nonprofit partners for their indispensable work and for allowing us to contribute to their projects. We're equally proud of our employees whose generosity and community spirit made this year's Service Impact Day a success.

[Eric Lipar, Chairman & CEO at LGI Homes]

With that, I'll invite Charles to provide additional details on our financial results.

[Charles Merdian, CFO & Treasurer at LGI Homes]

Thanks, Eric, and good afternoon. Revenue in the second quarter was $483,500,000 based on thirteen twenty three homes closed at an average sales price of $365,446 The 19.8% year over year decrease in revenue was driven by a 20.1% decline in home closings and was slightly offset by a 0.4% increase in our average sales price. The modest increase in our ASP was driven by geographic mix, partially offset by a higher percentage of wholesale closings in the second quarter. Of our total closings, two thirty seven homes were sold through our wholesale channel, representing 17.9% of closings compared to 7.1 last year. Although demand has tapered recently, the wholesale channel continues to be a compelling way to balance our completed home inventory.

[Charles Merdian, CFO & Treasurer at LGI Homes]

Despite early indications that tariffs would negatively affect margins, their impact in the second quarter was minimal. Our second quarter gross margin was 22.9 compared to 21% in the prior quarter and 25% during the same period last year. Sequentially, gross margin dollars were up over 50%. The year over year decrease as a percentage of revenue was primarily due to a higher percentage of wholesale closings and to a lesser extent, higher lot costs and higher capitalized interest as a percentage of revenue, as well as reduced operating leverage when compared to last year's performance. Adjusted gross margin was 25.5% compared to 23.6% in the prior quarter and 27% during the same period last year.

[Charles Merdian, CFO & Treasurer at LGI Homes]

Adjusted gross margin excluded $11,800,000 of capitalized interest charged to cost of sales and $1,000,000 related to purchase accounting, together representing two sixty basis points compared to 200 basis points last year. Combined selling, general and administrative expenses for the second quarter totaled $71,000,000 or 14.7% of revenue. Selling expenses were $41,600,000 or 8.6% of revenue compared with 8.8% in the same period last year. The decrease was primarily related to more efficient advertising spend. General and administrative expenses were $29,400,000 or 6.1% of revenue, compared to 5.1% in the same period last year.

[Charles Merdian, CFO & Treasurer at LGI Homes]

Pretax net income was $42,000,000 or 8.7 percent of revenue, and our effective tax rate was 25% compared to 23.8% in the same period last year. For the quarter, we generated net income of $31,500,000 or $1.36 per basic and diluted share. Gross orders in the second quarter were sixteen twenty and net orders were ten ninety one. Net orders declined sequentially, reflecting a muted demand environment throughout most of the second quarter. However, we are encouraged by more recent trends, notably in the June and continuing into July, which point to an improving sales environment as we transition into the second half of the year.

[Charles Merdian, CFO & Treasurer at LGI Homes]

Our cancellation rate in the second quarter was 32.7% compared to 22.2% in the same period last year, reflecting the slower sequential sales pace during the quarter. We ended the second quarter with eight zero eight homes in our backlog, representing $322,500,000 in value. Of those homes, 91 or 11.3% of our total backlog were related to wholesale contracts with institutional buyers compared to 181 or 13% in the same period last year. Turning to our land position. At June 30, portfolio consisted of 64,756 owned and controlled lots, a decrease of 7.4% year over year and 4.5% sequentially.

[Charles Merdian, CFO & Treasurer at LGI Homes]

Of those lots, 53,555 or 82.7% were owned and 11,201 lots or 17.3% were controlled. Of our owned lots, 37,374 were raw land or land under development, 22% of which were in active development that we expect to deliver over the next several years. The remaining 16,181 owned lots were finished, and of those finished lots, 12,145 were vacant and 4,036 were related to homes under construction. The total number of homes under construction was down 13.6% year over year and 4.4% sequentially as we continue to focus on rebalancing inventory in select markets to meet current sales trends. During the quarter, we started eleven thirty five homes and ended June with fifteen twelve homes in progress.

[Charles Merdian, CFO & Treasurer at LGI Homes]

We expect to continue to moderate starts in the coming quarters to align the current pace of sales, ensuring efficient inventory levels. I'll now turn the call over to Josh for a discussion of our capital position.

[Joshua Fattor, EVP - IR & Capital Markets at LGI Homes]

Thanks, Charles. We ended the quarter with $1,700,000,000 of debt outstanding, including $662,600,000 drawn on our revolver, resulting in a debt to capital ratio of 45.8 and a net debt to capital ratio of 45%. As inventory levels decrease and development spend trends down in the coming quarters, we expect to reduce our overall leverage.

[Joshua Fattor, EVP - IR & Capital Markets at LGI Homes]

Total liquidity at the end of the quarter was $322,600,000 including $59,600,000 of cash and $263,000,000 available under our credit facility. During the quarter, we repurchased 367,568 shares of our common stock for $20,600,000 and had 157,300,000 remaining under our repurchase authorization. At June 30, our stockholders' equity was $2,100,000,000 and our book value per share was $89.22 an increase of 9% compared to the same period last year. At this point, I'll turn the call back over to Eric.

[Eric Lipar, Chairman & CEO at LGI Homes]

Thanks, Josh. The softer demand conditions experienced throughout most of the second quarter materialized into weaker July closings than previously anticipated. Later today, we plan to issue a press release announcing that we closed three eighty two homes in the month of July across 143 active communities. As Charles noted, lead and order trends picked up near the June, driven by several new sales initiatives and July sales trended positively in the right direction. Turning to our outlook.

[Eric Lipar, Chairman & CEO at LGI Homes]

Our spec driven business model in today's environment make visibility into the fourth quarter a challenge. As a result, we're limiting our guidance to the third quarter at this time and intend to reintroduce annual guidance when market conditions stabilize. Based on our current backlog and view of the inventory available to close for Q3 twenty twenty five, we expect to close between eleven hundred and thirteen hundred homes at an ASP between 3 and $60,000 to $365,000 in approximately 145 communities. We expect a slight reduction in gross margins as we offer compelling incentives and additional discounts to move aged inventory. Therefore, third quarter gross margin is expected to range between 21.522.5%, and adjusted gross margin between 2425%.

[Eric Lipar, Chairman & CEO at LGI Homes]

Finally, SG and A expense will range between 1516%, and we expect our tax rate to be approximately 24.5%. I want to close by thanking all of our LGI Homes employees across the country. Your relentless focus on connecting directly with motivated buyers while sustaining our profitability was instrumental to our performance last quarter. I'm grateful for your continued dedication to our company and the customers we serve. We'll now open the call for questions.

[Operator]

Our first question will come from Trevor Allinson of Wolfe Research. Your line is open, Trevor.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Hi, good morning. Thank you for taking my questions. First one is on pace and price. You guys have been very clear in the past talking about a need to get paid on gross margin line and your gross margin was certainly better than we were anticipating in the quarter. At the same time, your absorption pace on orders fell to about 2.5.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

So the question is, is there a minimum absorption pace where it doesn't make sense for you guys to drop below that number even in an elastic market and you need to step on incentives a bit to maintain that certain level? What is that level for you guys?

[Eric Lipar, Chairman & CEO at LGI Homes]

Yes. Hey, Trevor, this is Eric. Thanks for the question. I think we analyzed it community by community across The United States. Certainly orders in Q2 was not where we want them to be.

[Eric Lipar, Chairman & CEO at LGI Homes]

We always want more pace leading to our discussion on gross margin, we're forecasting slightly lower gross margin because we are leaning into incentives, especially on the older aged inventory. So it is a balance. And I think the other discussion on our gross margin is really capitalizing on all of our land development profit. We're in really good shape on our land positions, we feel we have a lot of good value there. So even though we're incentivizing heavily and pushing pace as much as we can, we still think our gross margin should be elevated compared to our peer groups that are more asset light.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Okay. Thanks for that, Eric.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

That was really helpful. And then second question, you talked about some encouraging trends in late June and throughout July. Can you put some numbers around what you're seeing? And then what do you think is driving Was it the decline in rates in late June? Or do you believe it's the actions that you guys are putting in place here to disperse some additional demand that's improving your sales trends here? Thanks.

[Eric Lipar, Chairman & CEO at LGI Homes]

Yeah. Yeah. Great question as well, Trevor. I think it's both. You know, in a better rate environment and certainly helping, especially last weekend we saw a material drop in rates, the ten year focused on driving through to the mortgage rates.

[Eric Lipar, Chairman & CEO at LGI Homes]

And also the team across the country is really doing a good job. We're really leaning into focusing on all of the digital leads that we receive and really following up those customers, make sure we're focused on the customers that are inquiring because demand is still there and really shutting out a lot of the noise in the market. So I think those two in combination, increased incentives on older inventory, really made it for a positive July. It's too early to tell. We haven't got everybody in July through loan application yet and got all the necessary approvals.

[Eric Lipar, Chairman & CEO at LGI Homes]

We can't give specific numbers, like that's also where we are on the guidance of 1,100 to 1,300 closings. The upside on that is going to come from a stronger July and a good start to sales in Q3.

[Trevor Allinson, Director - Equity Research at Wolfe Research LLC]

Okay, very helpful. Thank you for all the color and good luck moving forward.

[Eric Lipar, Chairman & CEO at LGI Homes]

Thanks, Trevor. Appreciate it.

[Operator]

Thank you. And our next question will be coming from Michael Rehaut of JPMorgan. Your line is open, Michael.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

Hi, everyone. Thanks for taking my question. A little bit choppy on my side, I hope you guys can hear me. This is Andrew Ozzi on for Mike. I I just like to follow-up a little bit on the June and July comment and, you know, kind of how you're encouraged, you know, that that comment in the press release.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

It it seems that sales pace would be relatively, you know, is are there any community count dynamics? Because if you if you kind of take sales if you take community count flat to up a bit, it seems that sales basis is relatively stable at these levels or or, you know, even even down a bit. So I just want to see if you can expand on that.

[Eric Lipar, Chairman & CEO at LGI Homes]

Yes, Andrew, this is Eric. Think I got the question. You were breaking up a little bit, more on the sales pace. And July, again, the numbers are just showing is better than June. Second quarter, sales and closing numbers certainly are not where we want them to be.

[Eric Lipar, Chairman & CEO at LGI Homes]

So we are, you know, watching every community, looking at incentives, looking at our aged inventory, and the results were just better in July. The team gets a lot of credit for that. We've really leaned into our training, read into the leadership and the overall news around tariffs and some of the uncertainty, maybe that's abated a little bit. We're not exactly sure, but the demand's there and orders were better in July.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

Thank you I appreciate that. Thanks for bearing with my poor connection. I guess one last one, if we haven't hit on it yet. The share repurchase was obviously nice to see.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

How do you expect that to trend for the rest of the year on these levels? Thank you.

[Joshua Fattor, EVP - IR & Capital Markets at LGI Homes]

Hey, you got Josh on the line. We're just kind of sticking to what we did during the quarter at this point. We have $157,300,000 remaining, and it's just going to be something that's constantly on our radar. Right now, if we're being honest, we're really focused on our overall leverage and debt outstanding. That's a priority for us right now.

[Joshua Fattor, EVP - IR & Capital Markets at LGI Homes]

We came in right at the top end of the guidance range we provided in the past, about 35% to 45%. That's really where we're going to be targeting our efforts at this point, but the share repurchases are always something that's on the table and the price is obviously at an extraordinary discount, which makes it very compelling.

[Andrew Azzi, Vice President at JP Morgan Chase & Co]

Appreciate that. Thank you. I'll pass it on.

[Eric Lipar, Chairman & CEO at LGI Homes]

Thank you.

[Operator]

And our next question will be coming from Kenneth Zener of Seaport. Your line is open, Kenneth.

[Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners]

Hello, everybody.

[Eric Lipar, Chairman & CEO at LGI Homes]

Hey, Ken.

[Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners]

Okay. Just seeing if I had a bad connection. The question about PACE, I think about PACE as starts given your focus on inventory units, which then you try to sell. It seems because 2Q orders or starts were pretty moderate, it's a two handle. Not a seasonality usually doesn't come into effect with you guys, but I mean, from a modeling perspective, can you see that running below two, which I was looking back at your history. I'm not sure I've even seen it so low. But I mean, you accept that running below two, the pace?

[Eric Lipar, Chairman & CEO at LGI Homes]

Well, that's not what we expect, Kenneth. I mean, we wouldn't expect that. We would expect Q2 to be the low on orders per community and closings per community. But, you know, that being said, you know, we never know what to expect. That's a little bit out of our control. But we would expect better results than that.

[Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners]

Okay. I mean, is very helpful that you're commenting on this. And then closings starts, where do you expect your kind of year end inventory units to be relative to the prior year? Is that something that you could see kind of being flat or you're down about 14% in the quarter second quarter. Does that tie off with how you're thinking your year end count will be?

[Charles Merdian, CFO & Treasurer at LGI Homes]

Ken, this is Charles. We will start fewer homes than we close in the third quarter. We'll evaluate on a month to month basis on where we start houses based on the specific markets. We ended the quarter with about 2,300 completed homes, which is more than we typically would carry given our order pace. So we're focused on selling out of those completed homes. Eric had mentioned incentives on aged inventory. That's going to help reduce the overall inventory levels down.

[Charles Merdian, CFO & Treasurer at LGI Homes]

And our target is between six and seven months supply. We're a little heavy at the end of this quarter. So we would expect to kind of end the year at about six to seven months based on 2026 expected closings is how we would think about it.

[Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners]

Okay. And then I believe in the guidance, you guys were like 160 community count fiscal year in 1Q guidance. And now you're giving 3Qs at 145. Am I tracking that correct?

[Eric Lipar, Chairman & CEO at LGI Homes]

Correct.

[Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners]

Does that I mean, there a few it's logical to assume you're not going to pop up, but then there's always community timing, which can be very random. Is there any kind of structural change that we should infer between where guidance is for 3Q and where it was at 4Q?

[Eric Lipar, Chairman & CEO at LGI Homes]

No structural change. Ken, I think we're just focused on Q3 guidance because that gives us the biggest visibility. You mentioned that there's always a lot of challenges with getting these new communities open from a timing standpoint and where our sales pace is at today. We're really analyzing whether we should open the community, possibly delay a community, which sales teams can be associated with the community. So we just got a lot better visibility into Q3 than Q4 at this time.

[Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners]

Right. And I do think one quarter forward is the proper way to do it. So I'm happy to see that in the press release. Thank you very much.

[Eric Lipar, Chairman & CEO at LGI Homes]

Thank you. You bet.

[Operator]

And our next question will be coming from Alex Rygiel of Texas Capital Securities. Your line is open, Alex.

[Alex Rygiel, MD & Head - Equity Research at Texas Capital Securities]

Thank you. Can you talk a little bit about the sale of finished lots moving forward?

[Eric Lipar, Chairman & CEO at LGI Homes]

The sale of finished lots to other developers or other builders, Alex, is that the question?

[Alex Rygiel, MD & Head - Equity Research at Texas Capital Securities]

Yes, yes. Should we expect the pace to be similar to the second quarter? Or do you see that increasing?

[Charles Merdian, CFO & Treasurer at LGI Homes]

Alex, this is Charles. I'll take it first. I think we were a little lighter in this quarter. I think our other income was pretty limited related to finished lot sales. We did close on a commercial track, which is in our quarter this quarter.

[Charles Merdian, CFO & Treasurer at LGI Homes]

It's pretty volatile or unpredictable, I guess, is maybe the best way to explain it. We have certain lots in select communities that we've identified that we have excess finished lot inventory, so we are evaluating each one of those on a community by community basis. So not really a lot that we can give in terms of guidance, in terms of how it may relate to profitability or cash flow generation, but it is something that we're working towards to make sure that that is helping to evaluate our leverage balance and inventory balances overall.

[Alex Rygiel, MD & Head - Equity Research at Texas Capital Securities]

And secondly, the cancellation rate in the quarter was a little on the high end. Can you talk about maybe what in particular impacted that in the current quarter? And if any actions have been taken to sort of diminish that?

[Charles Merdian, CFO & Treasurer at LGI Homes]

Yes, sure. Yes, think I'd start with the cancellation rate can be fairly up and down depending on timing of where gross orders come in at. We did have a declining gross order pace, which tends to inflate the cancellation rate when the trend turns. In other words, the cancellation rate tends to be a little bit lower when gross orders tend to accelerate. We also had a large wholesale contract that canceled.

[Charles Merdian, CFO & Treasurer at LGI Homes]

It was booked in the first quarter and then canceled in the second quarter, which was part of our first quarter backlog. So that had an impact on our overall cancellation rate. Without that cancellation, we would have been in the mid- to high 20s, which would have been more normalized.

[Alex Rygiel, MD & Head - Equity Research at Texas Capital Securities]

Helpful. Thank you.

[Charles Merdian, CFO & Treasurer at LGI Homes]

You bet. Thank you.

[Operator]

And our next question will be coming from Jay McCanless of Wedbush. Your line is open, Jay.

[Jay McCanless, MD - Equity Research at Wedbush Securities]

Hey, thanks for taking my questions. I guess the first one, could you talk about where incentives are as a percentage of ASP now versus this time last year?

[Eric Lipar, Chairman & CEO at LGI Homes]

Yeah, I think it's slightly higher, Jay. We could get those exact numbers for you because there's closing cost incentives, there's also price reductions. I would say it's 50 to 100 basis points higher than last year is what it feels like operationally.

[Jay McCanless, MD - Equity Research at Wedbush Securities]

And then the second question I had, when we look at the 15% to 16% for SG and A, is that just less revenue leverage? Or are you guys increasing the amount of co broker or other incentives that show up in the SG and A to get those specs sold?

[Charles Merdian, CFO & Treasurer at LGI Homes]

I can take it.

[Charles Merdian, CFO & Treasurer at LGI Homes]

This is Charles. I think coming off of 14.7% from this quarter, mean, I think the high end of the guidance range for the quarter at 1,300 kind of puts us at a similar ratio. Just factoring the extra 100 basis points if we come in at the bottom end of the range.

[Jay McCanless, MD - Equity Research at Wedbush Securities]

And then I know you guys pulled the fiscal twenty five guide, but I guess directionally, how are you all thinking about community count for the rest of this year and into '26? And community count is is a big piece of the revenue equation for you guys with your spec model.

[Eric Lipar, Chairman & CEO at LGI Homes]

Yeah, I think Jay this is Eric. Directionally it should be increasing. There's no question. Mean the communities that we had guided to before are still there, it's just a question of timing, decision on spending capital to get those communities open, looking at the marketing and taking it, you know, month by month and quarter by quarter, so we're real comfortable at the end of Q3 ending up at approximately 145, but also, growing community count into twenty twenty six.

[Jay McCanless, MD - Equity Research at Wedbush Securities]

Okay. And then the last one for me. Josh, you talked about doing some share repurchase this quarter, is good to see, but also about debt reduction. I guess, what takes precedent and where do you want the leverage ratio to be in the next couple of quarters?

[Charles Merdian, CFO & Treasurer at LGI Homes]

Jay, I think it's probably getting ahead of ourselves to say exactly where we want it to be.

[Charles Merdian, CFO & Treasurer at LGI Homes]

I'll say that delevering is absolutely a focus for us, right? We're coming in, we've always measured this right on a net debt to cap ratio, and so we really did just sort of nail it right on the nose at 45% at the high end of the 35% to 45% range. And so we'd like to get that a little bit lower as we right size our inventory to the current environment. Obviously, we started fewer homes when we closed this past quarter, so that's a strategy we'll continue in the coming quarters as we rebalance that inventory. And I think the other stat I put in people's minds and this might help you for every 500 units, we lower the inventory that equates to about $100,000,000 less than completed inventory.

[Charles Merdian, CFO & Treasurer at LGI Homes]

And so that's capital that we can allocate into either one of those strategies.

[Jay McCanless, MD - Equity Research at Wedbush Securities]

That's great. Thanks guys.

[Operator]

Thank you. And our next question will be coming from Alex Barron of Housing Research Center. Your line is open.

[Alex Barron, President & Founder at Housing Research Center, LLC]

Yes, thank you. Yeah, hi guys. Historically, you guys have had probably one of the highest margins and highest sales pace in the group. And right now, I guess, obviously, the environment's a bit weaker, but I'm kind of wondering how you guys are thinking about going forward. It seems like you're still emphasizing margins, but I'm wondering if you guys are reconsidering whether maybe going forward, it's more of a matter of having slightly lower margins to kind of pick up the pace or how are you guys thinking about it right now?

[Eric Lipar, Chairman & CEO at LGI Homes]

Yes, I think, Alex, it's a great question and consistent with a couple of other questions we have, but margins is, you know, we spend a lot of money on land development, a lot of capital that we put into land development, and we believe in order to do that, you have to capture a respectable margin. And then it's all about pace. Mean, company is not focused on margin. Margin is a byproduct being in the real estate business, and you need to make an acceptable margin for the continuation of the business. But we are 100% focused on pace.

[Eric Lipar, Chairman & CEO at LGI Homes]

I think the pace relative to historical averages is all around affordability. Our average sales price is a lot higher than it used to be, taxes are higher, insurance is higher, the monthly payments is higher, rates are higher, and just a strain on affordability is what's driving the lower absorption pace. We're all dealing with it. Our particular buyer, which is probably at the lower end of the FHA spectrum and is currently paying rent, I guess feeling the strain more than some of the other buyer segments and has been over the last couple years, but we are 100 focused on pace.

[Alex Barron, President & Founder at Housing Research Center, LLC]

Got it. And in terms of affordability, is there anything you guys are thinking of doing differently, like maybe more attached housing or smaller, you know, square footage type houses or anything like that?

[Eric Lipar, Chairman & CEO at LGI Homes]

Absolutely, we're laser focused on affordability. I think the two components that comes into play on is the incentives to drive that rates lower and prices as much as we can while protecting that margin that we need to make for the continuation of our business. And then smaller square footages on the houses is something that we've employed over the last couple years. We're looking at our land development opportunities, future sections, whether we can do more attached product, whether we can do smaller lot size to get that developed finished lot cost as low as we possibly can, that leads into more housing affordability.

[Alex Barron, President & Founder at Housing Research Center, LLC]

Okay, great, Eric. Thank you and good luck.

[Eric Lipar, Chairman & CEO at LGI Homes]

Thanks, Alex. Appreciate it.

[Operator]

Thank you. This concludes our Q and A session. I would now like to turn the call back to Eric for closing remarks.

[Eric Lipar, Chairman & CEO at LGI Homes]

Thank you and thank you for participating in today's call and your continued interest in LJ Homes. Have a great day.

[Operator]

This concludes today's conference call. You may now disconnect.

Participants

Executives

• Joshua Fattor, EVP - IR & Capital Markets
• Eric Lipar, Chairman & CEO
• Charles Merdian, CFO & Treasurer

Analysts

• Trevor Allinson, Director - Equity Research at Wolfe Research LLC
• Andrew Azzi, Vice President at JP Morgan Chase & Co
• Kenneth Zener, Senior Analyst - Housing Sector at Seaport Research Partners
• Alex Rygiel, MD & Head - Equity Research at Texas Capital Securities
• Jay McCanless, MD - Equity Research at Wedbush Securities
• Alex Barron, President & Founder at Housing Research Center, LLC