LGI Homes(US:LGIH)2026-02-17 18:32Financial Data and Key Metrics Changes - Revenue in Q4 2025 was $474 million, a 19.5% sequential increase driven by elevated sales activity [12] - Gross margin before inventory-related charges was over 19%, with an adjusted gross margin of over 22% [6][13] - Net income for Q4 was $17.3 million, or $0.75 per share, while excluding impairment-related charges, net income was $22.4 million, or $0.97 per share [15] Business Line Data and Key Metrics Changes - The company delivered 1,362 homes in Q4, with 1,301 contributing directly to revenue [5] - The average selling price of homes in Q4 was $364,000, slightly down compared to the previous year [12] - The wholesale business accounted for 12.1% of Q4 closings, generating significant revenue [12] Market Data and Key Metrics Changes - The cancellation rate increased to 43.3%, influenced by affordability pressures and economic uncertainty [9] - The backlog grew 133% to 1,394 homes, with a value exceeding $501 million, up 112% year-over-year [10] - The company ended the year with 144 active communities, averaging 3.1 closings per community per month in Q4 [8] Company Strategy and Development Direction - The company remains focused on managing costs, offering competitive financing options, and delivering affordable homes to first-time buyers [11] - Long-term outlook for the housing market remains positive, driven by supply-demand imbalance and favorable demographic trends [11] - The company plans to continue investing in people, land, and operating platforms to support long-term strategy [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the dynamic market environment, with affordability being a primary pressure point [5] - The expectation for 2026 includes closing between 4,600 and 5,400 homes, with stable selling prices [23] - Management indicated that incentives will continue to be utilized to support affordability while maintaining margin discipline [23] Other Important Information - The company ended the year with $1.7 billion of debt outstanding and a net debt to capital ratio of 43.2% [20] - Total liquidity at year-end was $335 million, including over $61 million in cash [20] - The average finished lot cost is approximately $70,000, representing about 21% of the average selling price [18] Q&A Session Summary Question: Drivers of sequential decline in gross margin in Q4 - Management indicated that the decline was due to increased incentives and discounts on aged inventory [26][27] Question: Closings outlook for 2026 - Management expects a similar closings pace in 2026, with wholesale closings projected to be 10%-15% of total closings [29][31] Question: Profitability on wholesale orders - Management stated that gross margins on wholesale sales are lower, but operating margins are similar to retail [36] Question: Community count growth expectations for 2026 - New community openings are expected to be weighted towards the back half of the year [38] Question: Cancellations and reasons for cancellation - The cancellation rate is elevated primarily due to financing challenges faced by buyers [44][45] Question: Mix of first-time versus move-up buyers - The proportion of move-up buyers is increasing due to elevated entry-level price points [50] Question: Current market conditions and discounting - Management noted that affordability pressures remain, with competitors also leaning into incentives [53][54] Question: Year-over-year decline in G&A - Management indicated that G&A run rate for 2026 is expected to be similar to 2025 [56]