LGI Homes (NASDAQ:LGIH) reported higher third-quarter closings, revenue and earnings, while citing affordability pressures and elevated mortgage rates as headwinds for new orders. The homebuilder narrowed its full-year closing outlook and said it expects to expand its active community count to more than 180 by the end of 2027.
“During the third quarter, our team continued to execute well in today’s highly competitive housing market, where affordability is stretched,” Chief Executive Officer and Chairman Eric Lipar said on the company’s third-quarter conference call.
LGI delivered 1,222 homes during the quarter, a 10.4% increase from a year earlier. Of that total, 1,189 were new-home closings, up 11.6% year over year, while the other 33 represented currently or previously leased homes.
Revenue, Margins and Earnings Rise
Homebuilding revenue increased to $437.5 million, with an average selling price of $367,962. Total revenue, including $7 million from lot sales and leasing operations, rose 10.2% to $444.5 million.
Wholesale revenue climbed 48.3% from the prior-year period to $80.8 million. Lipar said the company’s average selling price of about $368,000 declined slightly from the prior year primarily because of wholesale closings and geographic mix.
Homebuilding gross margin was 20.2%, while adjusted homebuilding gross margin was 23.7%. Both measures increased 40 basis points from the second quarter and were above the midpoint of the full-year ranges that LGI had raised in August. The adjusted measure excludes $14.7 million of capitalized interest and $449,000 related to purchase accounting, according to Chief Financial Officer and Treasurer Charles Merdian.
Combined selling, general and administrative expenses fell 2.5% in absolute dollars to $62.1 million, or 14% of revenue, improving by 180 basis points from a year earlier. Merdian said the company’s efficiency initiatives helped it grow revenue while reducing operating costs, although higher commissions and advertising spending partly offset those improvements.
Net income rose 24.6% year over year to $24.6 million, or $1.05 per diluted share, compared with $0.85 per share in the prior-year quarter. Adjusted EBITDA totaled $52.7 million, or 11.9% of total revenue.
Orders Decline as Affordability Pressures Build
Despite higher closings, third-quarter net orders declined 61.2% to 609 homes from 1,570 homes in the prior-year period. The cancellation rate increased to 53.8% from 33.6% a year earlier.
Merdian attributed the decline to affordability pressures, slower sales activity compared with the prior quarter and strong order activity during the third quarter of the previous year. The company ended the quarter with 685 homes in backlog valued at $273.7 million, down 47.5% in units and 45.1% in value from a year earlier.
Lipar said buyers remain focused on monthly payments and may require additional time to verify income, sell an existing home or save for a down payment. LGI is using closing-cost assistance, mortgage-rate buydowns and forward rate commitments to support demand, though he said the company does not intend to sacrifice margins simply to pursue volume.
“Our focus is on balancing sales pace and profitability, and we are committed to doing both,” Lipar said. During the question-and-answer session, he added that the company is evaluating incentives and pricing on a community-by-community basis, particularly following a rise in mortgage rates over the prior 60 days.
LGI averaged 2.6 closings per community per month during the quarter. Its strongest markets by closings per community included Atlanta at 7.3, Charlotte at 3.7, Austin at 3.6, and Fort Pierce and Southern California at 3.4 each.
Land, Inventory and Balance Sheet
The company ended the quarter with 151 active communities, up more than 7% from a year earlier, after reaching an all-time high of 153 communities in August. LGI expects to finish 2026 with 150 to 160 active communities and said it expects to operate in more than 180 communities by the end of 2027.
Lipar said the anticipated 2027 community count is a net figure and does not include potential future finished-lot acquisitions or mergers and acquisitions. He said planned openings are expected to be relatively evenly distributed through 2027, with many concentrated in Texas, California and Atlanta.
LGI’s total owned and controlled lot position was 58,400 as of Sept. 30, down 6.7% from a year earlier but up 1.7% sequentially. Owned lots declined for the sixth consecutive quarter to 50,270, while controlled lots rose 18.1% sequentially to 8,130 as the company identified more finished-lot opportunities.
Real estate inventory investment declined $160 million year over year, driven primarily by a 23.3% reduction in completed homes. The company recorded no inventory impairments during the quarter.
LGI reduced borrowings on its credit facility by more than $36 million during the quarter. Total debt was $1.54 billion, including $411 million drawn on its revolver. Its net debt-to-capital ratio declined to 40.6%, down 420 basis points from a year earlier.
In October, the company amended and extended its revolving credit facility, establishing about $1.2 billion in total commitments and extending key lender support through October 2030. LGI ended the quarter with $447.7 million of liquidity, including $69.4 million in cash and $378.3 million available under the facility.
Guidance Narrowed for Closings
LGI said it expects to report approximately 300 home closings for October, pending verification of fundings. Based on current backlog, available inventory and expected sales and cancellation activity, the company narrowed its full-year closing forecast to 4,600 to 4,800 homes.
The builder reaffirmed the remainder of its full-year guidance, including an average selling price of $360,000 to $370,000, SG&A expenses of 15% to 16% of revenue, homebuilding gross margin of 19% to 21%, and adjusted homebuilding gross margin of 22.5% to 24.5%.
When asked about fourth-quarter profitability, Lipar said LGI expects gross margins to be similar to third-quarter levels, though wholesale volume and the number of homes sold and closed within the quarter remain variables.
About LGI Homes (NASDAQ:LGIH)
LGI Homes, Inc is a homebuilder that designs, constructs and sells single-family homes in planned residential communities across the United States. The company primarily serves entry-level and first-time homebuyers, while also offering homes for move-up buyers and active-adult customers. Its communities typically feature standardized home designs, modern amenities and financing-related support intended to simplify the homebuying process.
Founded in 2003, LGI Homes has expanded from its original Texas operations into numerous housing markets throughout the South, Southwest and other high-growth regions.
