LGI Homes, Inc.

Results of Operations

The following table sets forth our results of operations for the years ended December 31, 2025, 2024, and 2023.

(1)Gross margin is home sales revenues less cost of sales.

(2)Calculated as a percentage of home sales revenues.

(3)Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define gross margin excluding inventory impairment as gross margin less inventory impairment charges. We define adjusted gross margin as gross margin excluding inventory impairment, less capitalized interest, and adjustments resulting from the application of purchase accounting included in the cost of sales. Our management believes adjusted gross margin is useful because it isolates the impact that capitalized interest, purchase accounting adjustments and inventory impairment have on gross margin. However, because adjusted gross margin excludes capitalized interest, purchase accounting adjustments and inventory impairment, which have real economic effects and could impact our results, the utility of adjusted gross margin as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted gross margin in the same manner that we do. Accordingly, adjusted gross margin should be considered only as a supplement to gross margin as a measure of our performance. Please see “—Non-GAAP Measures” for a reconciliation of adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable.

(4)EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales. We define adjusted EBITDA as EBITDA before inventory impairment, as applicable during a period. Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring. Accordingly, management believes that these measures are useful for comparing general operating performance from period to period. Other companies may define these measures differently and, as a result, our measures of EBITDA and adjusted EBITDA may not be directly comparable to the measures of other companies. Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, such as interest and taxes, necessary to operate our business. EBITDA and adjusted EBITDA should be considered in addition to, and not as substitutes for, net income in accordance with GAAP as a measure of performance. Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our use of EBITDA and adjusted EBITDA is limited as an analytical tool, and you should not consider these measures in isolation or as substitutes for analysis of our results as reported under GAAP. Please see “—Non-GAAP Measures” for reconciliations of EBITDA and adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Home Sales. Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the years ended December 31, 2025 and 2024, and our community count by reportable segmentas of December 31, 2025 and 2024, were as follows (revenues in thousands):

Home Sales Revenues. Home sales revenues for the year ended December 31, 2025 were $1.7 billion, a decrease of $497.1 million, or 22.6%, from $2.2 billion for the year ended December 31, 2024. The decrease in home sales revenues was primarily due to a 22.3% decrease in the number of homes closed and a decrease in the average sales price per home closed during the year ended December 31, 2025 as compared to the year ended December 31, 2024. The overall decrease in home closings was a result of a lower absorption rate, partially offset by a higher average community count, during the year ended December 31, 2025 as compared to the year ended December 31, 2024. The overall increase in average community count related to timing associated with new community openings, offset by the close out of some communities and transition between certain active communities during the year ended December 31, 2025 as compared to the year ended December 31, 2024. The average sales price per home closed during the year ended December 31, 2025 was $364,035, a decrease of $1,359, or 0.4%, from the average sales price per home closed of $365,394 for the year ended December 31, 2024. The decrease in the average sales price per home closed was primarily due to an increase in wholesale home closings and to a lesser extent geographic mix.

The overall decrease in absorption rate generally relates to the impact of ongoing affordability constraints, new community openings, and the overall increase in community count.

Included within our home sales revenues for the year ended December 31, 2025 was $230.3 million in wholesale revenues resulting from 737 home closings, representing 15.7% of the 4,685 total number of homes closed during the year ended December 31, 2025. Included within our home sales revenues for the year ended December 31, 2024 was $164.1 million in wholesale revenues resulting from 552 home closings, representing 9.2% of the 6,028 total number of homes closed during the year ended December 31, 2024. The increase in home closings as a percentage of revenues through our wholesale channel was primarily related to higher demand from our wholesale channel customers during the year ended December 31, 2025 as compared to the year ended December 31, 2024.

•Home sales revenues in our Central reportable segment decreased by $145.4 million, or 25.7%, during the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to a 23.7% decrease in the number of homes closed and a 2.6% decrease in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

•Home sales revenues in our Southeast reportable segment decreased by $66.0 million, or 12.3%, during the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to a 12.5% decrease in the number of homes closed, partially offset by an increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

•Home sales revenues in our Northwest reportable segment decreased by $69.4 million, or 26.9%, during the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to a 20.5% decrease in the number of homes closed and an 8.0% decrease in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

•Home sales revenues in our West reportable segment decreased by $85.4 million, or 18.1%, during the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to a 22.9% decrease in the number of homes closed, partially offset by a 6.2% increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

•Home sales revenues in our Florida reportable segment decreased by $130.8 million, or 35.5%, during the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to a 35.7% decrease in the number of homes closed, partially offset by a 0.4% increase in the average sales price per home closed. The decrease in home closings was the result of a lower absorption rate, partially offset by an increase in the average community count.

Cost of Sales and Gross Margin (home sales revenues less cost of sales). Cost of sales for the year ended December 31, 2025 was $1.4 billion, a decrease of $317.4 million, or 19.0%, from $1.7 billion for the year ended December 31, 2024. This overall decrease was primarily due to a 22.3% decrease in the number of homes closed. Gross margin for the year ended December 31, 2025 was $353.5 million, a decrease of $179.7 million, or 33.7%, from $533.3 million for the year ended December 31, 2024. Gross margin as a percentage of home sales revenues (inclusive of an inventory impairment charge) was 20.7% for the year ended December 31, 2025 and 24.2% for the year ended December 31, 2024. The decrease in gross margin as a percentage of home sales revenues during the year ended December 31, 2025 as compared to the year ended December 31, 2024 was primarily due to a lower average sales price per home closed, a higher number of wholesale closings, higher house costs, higher lot costs, higher capitalized interest and higher indirect overhead as a percentage of revenue, as well as an inventory impairment charge of $6.7 million, of which $3.9 million was related to our Florida reportable segment and $2.8 million was related to our Central reportable segment. This was partially offset by a decrease in warranty related costs as well as a decrease in sales incentives offered during the year ended December 31, 2025.

Selling Expenses. Selling expenses for the year ended December 31, 2025 were $162.1 million, a decrease of $37.8 million, or 18.9%, from $200.0 million for the year ended December 31, 2024. The decrease in selling expenses was primarily due to a decrease in the number of homes closed for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Sales commissions decreased to $66.4 million during the year ended December 31, 2025 from $95.8 million for the year ended December 31, 2024, primarily due to a decrease in the number of homes closed. Selling expenses as a percentage of home sales revenues were 9.5% and 9.1% for the years ended December 31, 2025 and 2024, respectively. The increase in selling expenses as a percentage of home sales revenues was primarily due to a decrease in home sales revenues during the year ended December 31, 2025 as compared to the year ended December 31, 2024.

General and Administrative. General and administrative expenses for the year ended December 31, 2025 were $111.6 million, a decrease of $9.6 million, or 7.9%, from $121.2 million for the year ended December 31, 2024. The decrease in general and administrative expenses was primarily due to a decrease in bonuses and indirect overhead costs, partially offset by an increase in other general and administrative expense. General and administrative expenses as a percentage of home sales revenues were 6.5% and 5.5% for the years ended December 31, 2025 and 2024, respectively. The increase in general and administrative expenses as a percentage of home sales revenues was primarily due to lower home sales revenues during the year ended December 31, 2025 as compared to the year ended December 31, 2024.

Other Income, Net. Other income, net of other expenses was $18.7 million for the year ended December 31, 2025, a decrease of $28.1 million from $46.8 million for the year ended December 31, 2024. The decrease in other income, net of other expenses, primarily reflected the decrease in the gain on sale of assets, income associated with our investment in unconsolidated entities, and the decrease in interest income.

Operating Income and Net Income before Income Taxes. Operating income for the year ended December 31, 2025 was $79.8 million, a decrease of $132.4 million, or 62.4%, from $212.1 million for the year ended December 31, 2024. Net income before income taxes for the year ended December 31, 2025 was $98.5 million, a decrease of $160.4 million, or 62.0%, from $258.9 million for the year ended December 31, 2024. The overall decreases in operating income and net income before income taxes were primarily due to overall lower home closings at a lower absorption rate, lower gross margin, the increase in other costs associated with the increase in average community count, and an inventory impairment charge during the year ended December 31, 2025 as compared to the year ended December 31, 2024. Our reportable segments contributed to net income before income taxes during the year ended December 31, 2025 as follows: Central - $23.8 million, or 24.1%; Southeast - $47.7 million, or 48.4%; Northwest - $3.2 million, or 3.2%; West - $33.5 million, or 34.0%; and Florida - $(6.5) million, or (6.6)%.

Income Taxes. Income tax provision for the year ended December 31, 2025 was $25.9 million, a decrease of $36.9 million, or 58.7%, from income tax provision of $62.8 million for the year ended December 31, 2024. The decrease in our income tax provision was primarily due to the overall decrease in net income before income taxes. The increase in our effective tax rate to 26.3% for the year ended December 31, 2025 from 24.3% for the year ended December 31, 2024 was primarily a result of an increase in the rate for state income taxes, net of the federal benefit, the compensation cost in excess of deductions for share-based payments, and the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended.

Net Income. Net income for the year ended December 31, 2025 was $72.6 million, a decrease of $123.5 million, or 63.0%, from $196.1 million for the year ended December 31, 2024. The decrease in net income was primarily attributed to overall lower number of homes closed, lower home sales revenues and gross margin, as well as an inventory impairment charge during the year ended December 31, 2025 as compared to the year ended December 31, 2024.