Legacy Housing Corporation

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Legacy Housing Corporation fourth quarter 2022 earnings conference call. At this time, all participants are on the list on only mode. After this biggest presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Mr. Duncan Bates, Residency Executive Officer. Please go ahead, sir.

Good morning, everyone. This is Duncan Bates, Legacy's President and CEO. Thanks for joining our call today. Max Zafric, Legacy's new General Counsel, will read the Safe Harbor Disclosure before getting started.

Max? Thanks, Duncan. Before we begin, may I remind our listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations. And therefore, we refer you to a more detailed discussion of the risk and uncertainties in the company's annual report filed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represent management's estimates as of today's call. Legacy Housing assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Thanks, Max. We're happy to have you on the team. I'll run through our prepared remarks on Legacy's 2022 financial performance and provide additional corporate updates. We will then open the call for Q&A. 2022 was a record year for Legacy Housing. Net revenue increased to $257 million in 2022, representing a 30.1% improvement over 2021. The increase resulted from several price increases implemented from 2021 to 2022, the conversion of certain independent dealer consignment arrangements to financing arrangements, offset by a decrease in shipments from our Eatonton, Georgia facility. As we discussed on the third quarter call, we delayed shipments and slowed production to improve the quality and consistency of homes manufactured at our plant in Eapton, Georgia. During the fourth quarter, we right-sized the workforce, brought in a third party to retrain the team in certain manufacturing stations, and significantly improved quality. Production is still below historical levels, but we are making progress without sacrificing quality. Interest revenue from the company's retail and commercial loan portfolios was $28.6 million for 2022, up 5% from 2021. The increase resulted from higher retail loan balances offset by lower commercial or MHP balances. Both the commercial and retail loan portfolios continue to perform well. Income from operations for 2022 was $78 million, an increase of 32.4% from 2021. This increase was primarily driven by price increases, the conversion of independent dealers from consignment to financing arrangements, and an increase in other revenue, offset by lower volume from Georgia, higher material and labor costs, and higher SG&A. We continue to hold pricing and reduce our raw material inventory. We are also looking at ways to reduce SG&A up this year due to salaries and incentive compensation, warranty costs, and professional fees. Net income of $67.8 million for 2022 was a 35.9% increase over 2021. Basic earnings per share grew to $2.78 in 2022, an increase of 35% from 2021. Legacy delivered a 19.6% return on equity over the last 12 months. For this calculation, I'm using the average 2022 shareholders' equity value. At the end of 2022, Legacy's book value per basic share outstanding was $15.69, an increase of 22.7% from 2021. We ended the year in a cash neutral position with $2.8 million in cash and $22.5 million drawn on our credit line. During the fourth quarter, We put 8.4 million of excess cash to work in treasuries yielding approximately 4.7%. Our backlog is healthy across all manufacturing facilities. We have a small manufacturing footprint and continue to run near capacity. As the market slows, we anticipate having orders to fill our three plants. I'm really excited for the next 18 to 24 months at Legacy. We've moved past the financial reporting issues and the foundation is stable. Looking at the 2022 balance sheet, we have essentially no debt and over $330 million of principal outstanding across our loan portfolios. These loan portfolios generate a tremendous amount of predictable cash flow. that we can reinvest at high rates of return to grow our book value. As the economy slows, we're seeing more and more opportunities to deploy capital. We are constantly evaluating these opportunities and will remain disciplined in our approach. Overall, we're focused on long-term capital appreciation and think that over the next six to 18 months, is a pretty opportunistic time to put money to work. Operator, this concludes our prepared remarks. Please begin the Q&A.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question coming from the line of Mincho would be Riley Yelena-Selfin.

Great. Hi, Duncan. Congratulations on a really strong quarter here and a strong year.

Hey, good morning. Thank you very much.

A couple of questions. Regarding your Georgia facility improvement, it sounds like the shipments have definitely improved in the fourth quarter. Can you talk a little bit about what the utilization rate was as you exited the year? And can you remind us what the historical kind of annual revenue is from that facility?

Yeah, sure, a couple thoughts. You know, first, as far as where we are with, you know, with production, you know, that plant historically has produced, say, five to six homes a day. We're still below where we'd like to be, but we're very cautious around, you know, around ramping up production until we're 100% positive that we're not going to have any quality issues going forward. So right now we're building three to four at that plant, so it's not significantly below the long-term average, but it has been a work in progress to get up to the historical production level. We don't publish revenue by manufacturing facility, but you could take production volume and just kind of use an average home price there.

Okay, definitely do that. Also, it looks like the number of home sections that were produced and shipped were either at a record or near record highs for the fourth quarter and for the full year. I was wondering if you could talk a little bit about that with respect to kind of labor availability. And given the current labor situation, do you expect that number to increase through 2023?

Yeah, you know, labor continues to be a problem for us. And I think a lot of other, you know, companies in the U.S. manufacturing space. That said, it's not as tight as it was. You know, we use just a very simple barometer of the labor market is when we walk into our Fort Worth plant in the morning, are there people, you know, who are waiting in the lobby for jobs? And I think through COVID, We didn't have anybody in the lobby and we're starting to see people who are ready to work. So labor does continue to be our constraint from a manufacturing standpoint, but I think it is loosening up and we'd like to continue to push production at all of these plants, but that really is the constraint.

Okay. And then my final question has to do with your mobile home parks. Just any update on the development in Texas? I know you were pretty close to kind of starting construction on the Del Valle units. Any updates there?

Yeah. You know, the developments continue to move forward. Frankly, they're slower than we would like. I mean, we've just been tied up and bogged down with so much work. you know, on the administrative front. You know, that said, we're getting toward a point where at least for phase one, you know, we can start to think about, you know, getting homes into that first phase. You know, but we're still, we're months out there. And, you know, that's the first one that we'll have come online, but we've got several others behind it. So, It's unfortunately slower than we would like. I think a lot of the other industry peers will talk about some of the just regulatory hoops that you have to jump through to actually get one of these turnkey, and it's significant. So making progress slower, but I think now that we're through some of the financial reporting issues, we're going to make a push there.

All right. It's understandable. Great. Good luck to you in 2023.

Thank you very much.

Thank you. And our next question coming from the line of Mark Smith with Lake Street Capital. Hi, guys.

First question for me, just want to look at the finance business just a little bit. And correct me if I'm wrong. It looks like you might not be keeping up with kind of the rising rate environment. Can you talk about, you know, if you guys are using the finance business really as a lever to kind of drive product sales?

Sure. You know, Mark, the nice thing about our finance business is it throws off so much cash that we're not borrowing to lend. You know, so if we were, if we had a, you know, warehouse facility and we were borrowing and the rate on that went up, pretty dramatically, we would be in a much different situation than we are today. So our strategy over the last year or so has been to keep our rates down and to keep our prices up. And certainly the financing programs at Legacy help drive sales for the business.

Okay. Perfect. And then just looking at if production looked really solid, you know, from, from unit sales this, this quarter, can you just talk about kind of where the production was versus kind of, you know, inventory you had a little bit more at the end of Q3, you know, so just kind of Wayne, you know, what you were able to move through from an inventory standpoint versus kind of production, uh, here during Q4.

Yeah. I mean, you know, we had talked about, I think on the last call, especially in Georgia, We had an issue where we had a lot of homes that were stuck in the yard and we weren't able to ship. So during the fourth quarter, we were able to work through a lot of those. And that certainly helped us. But we are constrained from a manufacturing standpoint. That said, I think heading into a slowdown, I'd much rather have three plants that I'm trying to feed than 40. So I think, you know, overall we're pretty well positioned going forward.

Okay. And that's kind of my next question was just, you know, how you feel about, you know, manufacturing today. You know, do you have the labor materials, the things that you want to continue as we look at Q1, you know, and into 23 to be able to kind of produce at the levels that you'd like?

Yeah, I think from, you know, we'd always like, an abundance of, uh, of skilled labor, but I think, you know, what we've, the teams that we have now are doing a good job. Um, you know, from a, a material standpoint, you know, the, the supply chains have really loosened up. Um, and. You know, our, one of the challenges that we've been working through is, yeah, you went through two years where your purchasing department, you know, did everything that they possibly could. to get materials. And now that, you know, materials are abundantly available and prices are coming down, you know, we're really working to try to get the biggest discounts that we can. But, you know, we're not having any of the issues that we had during COVID or, you know, with appliances and other things not being readily available.

Okay. The last question for me, kind of big picture, you know, just You guys give some great data in your 10K on kind of the industry and affordable housing, but any other insights you can give on, you know, kind of what you're seeing from a demand perspective, you know, especially with kind of a squeeze consumer out here, you know, are you continuing to see improved demand for affordable housing?

You know, Mark, it's a really interesting time right now, right? You've got stick built home prices, know near all-time highs uh rates obviously moved up very quickly and underwriting standards have tightened you know so i mean if you look at some of those stats around you know average stick built home price across the country i mean it's a it's a pretty big number and when you think about our product right it's significantly less expensive um i think the you know From a demand standpoint, we have two channels of our business. We either sell through to a retail customer, through independent dealers, or through our company-owned dealerships, or we sell to manufactured housing community owners. I'd say on the dealer side, dealers do have a lot of inventory right now. and the demand is slower from the dealer channel. I think since like over the last probably three to six months, traffic at those dealerships has picked up, but the conversions to home sales are not as high as we'd like to see them. On the community side, there's just a lot of people, there's a lot of capital that came into the space. And so we continue to see pretty good demand from a lot of our large historical customers that are either developing new communities or doing some infill or expansion. But overall, I think demand is certainly slowing. That said, we feel pretty good with three plants about you know, being able to have the orders to keep these things, you know, going at, say, similar production capacity.

Excellent. Thank you.

Sure. Thanks, Mark.

Thank you. And as a reminder, to ask a question, please press star 1-1. And our next question coming from the line of Tim Moore from EF Hutton Group. Your line is open.

Thanks, and congratulations on the very strong sales quarter beat in December and for the year. Very impressive margin expansion. I know the team's working and putting in a lot of hours. Duncan, I was just wondering, you know, you briefly mentioned the backlog. What is the current backlog, you think, in terms of visibility on monthly sales? Is it something like five months going out, maybe?

You know, Tim, we don't publish a backlog. we do have several months of backlog. I think one of the challenges going forward is having customers actually accept their orders. And so even though you've got backlog, we're pushing people who've ordered homes to get them scheduled and take the homes when they come offline. But again, small manufacturing footprint even if things slow down you know i think we'll be able to uh you know to to continue to cut deals you know where we're selling 20 30 or you know 100 200 homes at a time and and and keep these you know facilities close to capacity that's helpful to hear you know how should we think maybe

About the gross margin possibility for this year, I saw that it looked like the fourth quarter gross margin was 40%. Should we kind of go off of that, just kind of thinking about modeling going forward and if your prices have held up pretty well? Just trying to get a sense of maybe what you're thinking from utilization and the margin profile for the year.

You know, it's tough to say. I think there's a lot of dynamics that are in play right now. We have been able to hold prices firm and we have, I think, started to benefit from material prices coming down. That said, if demand really does slow down, we'll have to think hard about pricing. But certainly, we're trying to buy materials for as cheap as we possibly can. And, you know, we're trying to hold pricing firm. So I think I'll have a better view kind of by, you know, end of next quarter when we talk about that. But I'd say, you know, for now, it's about the same.

Good. Good. That's helpful to hear. You know, you mentioned, which I think we're all aware of, that the independent dealer channels had some destocking going on and, you know, we've seen the walk-in traffic, you know, fall, I guess, the last few months just in general for the industry. How's the walk-in traffic holding up at your company-owned retail locations? And are you guys doing anything to maybe create more digital leads or digital generations to kind of get more consumers in your stores?

Yeah, a couple thoughts on that. I mean, you know, Kenny and I spend a lot of time talking about foot traffic and conversions at the retail stores. You know, we have seen an uptick in foot traffic. Really, you know, the issue is on the converting that foot traffic to sales. And I don't think it's something, you know, that's necessarily unique to our retail stores as it is, you know, across the industry where, you know, given the price of our product, people are interested in it. but you know they they I think a lot of people are hesitant to pull the trigger right now given so much uncertainty in the overall economy so you know foot traffic has picked up we're working on things to convert more of the the traffic to sales you know historically we have not had a big you know online presence I think we've certainly on the heritage side ramp that up with an additional hire who's working on marketing for Heritage. But I think, again, now that we're through a lot of the financial reporting issues, I'm looking forward to, in addition to growth, really focusing on how we can improve the business and You know, from a marketing standpoint, we think that there's a pretty good opportunity there. It's just, you know, having the bandwidth to actually work with our team and get it done.

That's helpful, Collar. I appreciate that. You know, another question I had was I'm just wondering, you're doing a good job on getting the quality assurance back on track with the Georgia plant. Have you and the board thought about maybe adding a head of operations to maybe visit all three plants? every couple of weeks to just ensure the efficiency is in quality control?

You know, not at this time. We do have, we have really good, you know, general managers at all of these plants. And as you know, you know, me, Kurt and Kenny are all heavily involved and this thing moves pretty quickly. We're not scheduling a lot of meetings. It's a lot of direct phone calls and, you know, we can make changes quickly. You know, we do operate in a very highly regulated industry. And, you know, so there's a code that we strictly build to. And it's just, you know, given some of the labor challenges and turnover, sometimes you have issues there, like we had in Georgia. But, I feel good about, you know, where the team is now. We've had a lot of people step up. And I think, you know, if we can continue to grow and especially expand the manufacturing footprint, then, you know, maybe at that time a hire, you know, like that or an internal person moving into that role may make sense. But I think for the three plants right now, we feel pretty good about the management team that we have in place.

That makes sense. I remember... And I enjoyed meeting Marco at your Fort Worth plant in late August. I was very impressed by him. Just maybe switching gears, talking now that you've been there nine months and we're up to speed on the accounting enhancements and the Georgia facility coming along with the quality insurance, are you now getting any more time to look for acquisition targets?

We're getting there. You know, one of the founders, Kenny Shipley, always says that the best deals come to you. And I think what's been interesting over the last, really over the last month, maybe month and a half, is, you know, as other manufacturers slow down and financing in certain areas of our business becomes less attainable, I mean, we are really seeing a lot more opportunities than we have in years. And the key is when we're allocating capital, we're very return focused. We're focused on the bottom line and growing book value and continuing to reinvest our money at attractive rates of return. And if you look at the returns on the loan portfolio, they're pretty significant. And so as we look at opportunities, there's a high bar there. And so we've got to make sure that we're meeting and exceeding those return thresholds to actually deploy capital outside of the loan portfolios. But a long way of saying we're seeing more opportunities, we're spending more time on them, and we think that over the next 12 months is a pretty interesting time to put money to work because we are long-term focused.

Great. And that's really helpful color and clarification on the capital allocation strategy. That's it for my questions. Thanks a lot.

Yep. Thanks, Tim.

Thank you. And our next question coming from the line of DeForest Hinman. You want to stop in?

Hey, thanks for taking the questions. A couple things. Can you just give us an update on a strategy for the owned manufactured housing parks? Because in the 10K, we can see, I think, two of the larger parks, the acreage owned actually decreased. So I don't know if that's, you know, we're developing the the pads and we're selling the pads or we're developing the pads, putting units on it and then selling them. I believe in the past there was some discussion about operating these parks and generating a rental stream and it's even laid out where we can see the dollar amount of leased homes has actually, I think, declined from some previous levels. Give us an update on, you know, what exactly is the strategy with the park development?

Yeah, happy to. You know, a couple, there are a few questions in there. I'll try to take them. And if I miss something, just remind me. But, you know, first on the acreage change, I don't know. I'll have to follow up with you on why the acreage would change. We haven't. purchased any additional land since last quarter and we also haven't sold any additional land or any land since last quarter so I'll have to follow up with you on why the acreage changed you know overall we you know we do think that that that potentially owning and operating these communities could be a good you know long-term or could provide long-term consistent cash flows. That said, the development of them has, you know, has taken longer than expected. And I mentioned earlier that, you know, the regulatory hurdles that you have to jump through and the time that these regulators take to make decisions is, you know, it's really, it's mind-boggling. And, you know, for the past couple years, we've had enough orders to external customers where we haven't needed to, even if the communities were ready, we haven't needed to put homes on them because we were at capacity and selling to other customers. But I think ultimately the communities provide us with a lot of optionality And, you know, there's, there's a lot of value to unlock there. And so, you know, one thing that's kind of top of our agenda is as we move into, you know, the middle part of the year is, you know, we've got the, we've got the properties are at various stages of development. You know, there's some that it probably makes sense for us to push through and finish. There's others and we've been approached by a lot of the larger community developers that may make sense to partner on and potentially be able to sell homes into and still retain some type of cash flow. And then there's some that we haven't made much progress on developing that there may be another buyer that's more suitable to combine this with additional land. and to build bigger communities. So I think overall we're still making progress, but the strategy we're diving into now on exactly what we want to do with each location. But we're in these things for the right. We bought the land right. We've been very frugal with how we've allocated capital to these projects.

and you know there is value to unlock here it's just figuring out what the right path forward is okay that's helpful i would just clarify my question on the acreage was i guess in the from 10k this year to 10k last year bastrop county texas acreage was down uh 32 acres and bexar county was down like 31. so i don't know if that was You know, we completed development, we placed units, someone approached us and we sold it. Is that what happened?

No, I need to check on it. I really, I don't know why it would have changed.

Okay.

That's the one where we really have made the most progress on. We've got phase one coming, but I don't know why it would have changed.

Okay, and then you mentioned some of the large community developers. You have mentioned that you're running at pretty high levels of capacity, but you might see some moderation. Given our our position in our outlook, is there any sense in approaching some of those larger developers and in saying, you know, look, we can allocate a certain percentage of our, you know, monthly, weekly, quarterly production to your, to you as a single customer. And, you know, then they can have a more consistent supply of units because a lot of things I've read makes it sound like there's, you know,

lots of demand on the park side and you know they're coming to market with a rental rate in many areas it's very attractively priced versus the competition sure you know we we think we build a a great park model home you know we buy materials and import materials and manufacture our own components that allows us to build these things for a great price and sell them at a great price even with a little bit of margin there. We have had several conversations with some of our larger customers about taking homes in quantity under, say, some type of supply agreement where we allocate a certain amount of production a month to, you know, to them at an agreed upon price. And so, yes, all those conversations are happening. We've got a great park sales team. And, you know, there are certainly customers that, or there are certainly, you know, developers that are focused on our core markets that we, you know, have not historically sold to And I've been involved in a lot of those meetings, and certainly we're trying to advance those. But if we can build the same home in large runs, I mean, that's certainly more efficient for us than throwing a bunch of double-wides in a line that slows us down just because they're more intricate. So, yes, that is top focus for a lot of people at the company.

Okay, thank you. And then my last question is just on any update on how we're looking at the shared purchase authorization from capital allocation perspective. It looks like there's a lot of opportunities that you've touched on. I believe it's a 10 million authorization. I mean, is that more, you know, opportunistic dry powder? And to some extent, maybe we were locked out of actually doing anything in the market as we've put, we're working on, you know, getting some of the administrative things addressed that you touched on. You know, just give us some color there and, you know, would that be, you know, something that could be utilized in 2023? Thank you.

Sure. Yeah, you know, it's certainly not just optics. I mean, that was something that when our last share repurchase program expired, I was pretty adamant about getting back in place. You know, we do trade, you know, we do trade at, I think, a pretty cheap valuation, you know, right now. And the way that I personally think about that share repurchase program, you know, every one of these calls, you know, we give – we give our tangible book value per share. And we think our book value is extremely, you know, conservative. I mean, we, the way that this business was built, it was started with, you know, $7 million and all the profits have been reinvested every single year for 18 years at a 10 to 20% return. And, you know, so we do have real assets that are unencumbered. And I think, You know, if depending on how the, you know, the stock market trades through the remainder of the year, you know, as we approach that book value per share number, you know, that may be, you know, deploying capital or by repurchase or repurchasing shares may be our greatest return opportunity from a capital allocation standpoint if we start trading down near that tangible book value per share number.

Okay. Thank you for the caller. I agree. The shares seem to be undervalued. Thank you.

Thank you. Appreciate the questions.

Thank you. Namshon, we have a follow-up question from Minchup with B. Riley. You want to open?

Great. Thank you for the follow-up real quick.

You know, I noticed that the ASP per home section was up in the fourth quarter during the third quarter. I just wanted to know if this was a function of MIGS or if you could explain Explain that difference. And just any thoughts on ASP going forward? I'm assuming for 2023, you know, kind of flat to down, but any details would be great.

Sure. You know, we've had seven price, or I'm sorry, I think 17 price increases through COVID. But we have not raised prices since, you know, kind of mid-year 2022. I think that that's a function of the price increases being fully implemented. Certainly, we'd like to hold prices. There's other manufacturers that we're seeing that have decreased prices. Look, we'd love to continue at this level, but we'll see ultimately what happens over the next couple quarters from a demand standpoint.

Right. And then just also in terms of your automation opportunities, can you talk to, you know, how much of your plant is currently automated, if any, and what your opportunities are, if this is something that you're going to focus on going forward?

Sure. You know, it's something that we talk about regularly. And I know if you look overseas where There's, I'd say, expanded code. We manufacture to a very strict code. There's oversee operations in countries where they have a, I'd say, more broad code, and they are highly automated. Our product is very manual right now, and there's really not much automation. And part of that is we don't have plants that are dedicated to building the same product over and over and over again. We'll stack production with orders as they come in. And so I think there probably are some automation opportunities. There's also, I think, opportunities to get down into regions that have a cheaper labor rate. And I thought the Solitaire deal with CABCO is pretty interesting, where that's the only HUD code manufacturer in Mexico. That's certainly something that we had our eye on. But I would see us going in that direction before we build a really state of the art, automated manufacturing plant.

Understood. Great. Thank you.

Thank you.

Thank you. And our next question coming from the line of Brian Glenn with Alcat Partners. Your line is open.

Hey, welcome, Max.

Thank you. Hey, Duncan.

Yeah. Hey, Duncan. Nice job, guys. Nice job, Ron. Yeah, it's great to see you guys working hard and getting some results. I had a quick question about in the K, there was a contingent repurchase agreement noted, and it looks like that number has gone up from, it was like 100,000, then 4 million, then 8 million. I know it's noted as immaterial. It's still immaterial. Is that, it looks like, is that strategic on your side to try to get more floor space? I know it's related to floor plan financing by a third party, or is that just the way the market's gone where you have to put that agreement in place?

Yeah, so the way that agreement works is, say we have an independent dealer that we sell homes to that uses, say, 21st for their floor planning. Since we are the manufacturer, we'll have an agreement with say, 21st, you know, to repurchase homes in certain circumstances. You know, I need to look at the movement in that as well. I can follow up. But I think a big component of it is, you know, there's two components of it. One, you know, dealers do have a lot of inventory right now, and it's not moving as quickly as I think they would like And the second is just home prices are up pretty significantly. And so both of those are driving that number. Now, why it went from a few hundred thousand to several million, I can follow up with you on. It may be that we have seen other companies that finance get really aggressive on terms. And you know, since we hold everything on our balance sheet, um, we're pretty conservative about what we will finance and what we won't finance. And so I really, that may be the, say the third, uh, the third reason. So, you know, increased home prices, more inventory on dealer lots, and then just, you know, other finance companies being more conservative. So they're, they're getting a larger piece of the business on the consignment side.

Sure, okay, that's helpful. And I would suspect it actually benefits you guys and larger operators more so than smaller ones because it gives you a chance just to use your balance sheet to handle that contingency. That's right. Yeah. And then my second question, I know someone asked this. You jumped into it a little bit. If we – so without talking about specific competitors, but if we grab some of your peers – which are publicly traded, so I know it's only a slice of the market. And if you just do, I mean, you can do the math any way you want, but if you jump into just their manufactured housing, try to come up with a cost of goods sold per home, sure, that includes depreciation. Maybe for them it includes depreciation on underutilized or underutilized facilities or facilities not running at full capacity. But regardless, the number's big. It's a substantial number in terms of what you guys can produce a home for. There's also an assumption in there about double versus single, if they disclose that breakdown or not. But either any way you slice it, it's a big number. And so that gap is really just you guys insourcing and being more vertically integrated. And I think probably a little bit for this product too, just being a slightly dialed down, still a high quality product. But can you elaborate on that?

Yeah, I'll try to give you some additional thoughts there. You know, we do pride ourselves on being vertically integrated and, you know, trying to buy materials and source materials from overseas and, you know, build our own components. I certainly think that's an advantage. You know, another advantage is, look, we've got two founders that probably have more invested at least on the manufacturing side of this industry than anybody else in the country and they've both been in it for you know over 40 years so you know a lot of thought and time and effort has gone into you know how do you build a great floor plan and a and a nice house that's going to last um efficiently and so i think you know we we may do a better job um you know, as far as like using the right materials in the right places. But I think the biggest component that you hit, and this is something that I want to make clear on this call, is, you know, I don't have to feed 30 or 40 plants. You know, I've got three plants and, you know, we know that they're profitable even at lower production levels. And, you know, historically, a lot of these plants with the right labor have you know, done significantly more in production than what we're currently doing. We'd love to ramp that up, and I think there's additional margin there, but it's really hard in today's labor environment. And, you know, as the market slows and people, you know, idle plants and don't have orders and, you know, companies, smaller businesses, you know, shut down, You can't get small fast enough. I think that some of the larger competitors could really struggle there where you've got 40 plants and there's more fixed costs than people realize. In a tight labor environment, you're moving pretty slow to get rid of your core team because it may be next to impossible to hire all those people back. So I think that, you know, just having a large manufacturing footprint could be pretty difficult in a down cycle.

Thanks. That's helpful. Great work. And, again, welcome, Max, and great work to you and Max and Ron and Curt and Kenny. Thanks. We really appreciate it.

Thank you. And I'm showing no further questions at this time. I would now like to turn the conference over to Mr. Duncan-Bates for any closing remarks.

Perfect. Thank you. Just two final comments. So first I want to thank everybody who joined today's call. You know, we really appreciate your interest in legacy and feel free to reach out with any follow-up questions. We've got some contact information in the press release and, and second, and, and, you know, most importantly, um, I want to thank the legacy team. You know, we've got 870 plus team members at our company. And, you know, all of them contributed to the results that we put out today, you know, in a day early after, you know, filing our last 10K five months late. So I want to thank everybody for their hard work. Everyone contributed here. And that's all. So, operator, this concludes our call.

Ladies and gentlemen, that's our conference for today. Thank you for your participation. You may now disconnect. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial star 1 1. you Thank you. Thank you. Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Legacy Housing Corporation fourth quarter 2022 earnings conference call. At this time, all participants are on the list on only mode. After this biggest presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Mr. Duncan Bates, Residency Executive Officer. Please go ahead, sir.

Good morning, everyone. This is Duncan Bates, Legacy's President and CEO. Thanks for joining our call today. Max Africk, Legacy's new General Counsel, will read the Safe Harbor Disclosure before getting started.

Max? Thanks, Duncan. Before we begin, may I remind our listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from management's current expectations And therefore, we refer you to a more detailed discussion of the risk and uncertainties in the company's annual report filed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represent management's estimates as of today's call. Legacy Housing assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Thanks, Max. We're happy to have you on the team. I'll run through our prepared remarks on Legacy's 2022 financial performance and provide additional corporate updates. We will then open the call for Q&A. 2022 was a record year for Legacy Housing. Net revenue increased to $257 million in 2022, representing a 30.1% improvement over 2021. The increase resulted from several price increases implemented from 2021 to 2022, the conversion of certain independent dealer consignment arrangements to financing arrangements, offset by a decrease in shipments from our Eatonton, Georgia facility. As we discussed on the third quarter call, we delayed shipments and slowed production to improve the quality and consistency of homes manufactured at our plant in Eapton, Georgia. During the fourth quarter, we right-sized the workforce, brought in a third party to retrain the team in certain manufacturing stations, and significantly improved quality. Production is still below historical levels, but we are making progress without sacrificing quality. Interest revenue from the company's retail and commercial loan portfolios was $28.6 million for 2022, up 5% from 2021. The increase resulted from higher retail loan balances offset by lower commercial or MHP balances. Both the commercial and retail loan portfolios continue to perform well. Income from operations for 2022 was $78 million, an increase of 32.4% from 2021. This increase was primarily driven by price increases, the conversion of independent dealers from consignment to financing arrangements, and an increase in other revenue, offset by lower volume from Georgia, higher material and labor costs, and higher SG&A. We continue to hold pricing and reduce our raw material inventory. We are also looking at ways to reduce SG&A up this year due to salaries and incentive compensation, warranty costs, and professional fees. Net income of $67.8 million for 2022 was a 35.9% increase over 2021. Basic earnings per share grew to $2.78 in 2022, an increase of 35% from 2021. Legacy delivered a 19.6% return on equity over the last 12 months. For this calculation, I'm using the average 2022 shareholders' equity value. At the end of 2022, Legacy's book value per basic share outstanding was $15.69, an increase of 22.7% from 2021. We ended the year in a cash neutral position with $2.8 million in cash and $22.5 million drawn on our credit line. During the fourth quarter, We put 8.4 million of excess cash to work in treasuries yielding approximately 4.7%. Our backlog is healthy across all manufacturing facilities. We have a small manufacturing footprint and continue to run near capacity. As the market slows, we anticipate having orders to fill our three plants. I'm really excited for the next 18 to 24 months at legacy we've moved past the financial reporting issues and the foundation is stable looking at the 2022 balance sheet we have essentially no debt and over 330 million of principal outstanding across our loan portfolios these loan portfolios generate a tremendous amount of predictable cash flow that we can reinvest at high rates of return to grow our book value. As the economy slows, we're seeing more and more opportunities to deploy capital. We are constantly evaluating these opportunities and will remain disciplined in our approach. Overall, we're focused on long-term capital appreciation and think that over the next six to 18 months, is a pretty opportunistic time to put money to work. Operator, this concludes our prepared remarks. Please begin the Q&A.

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question coming from the line of Mincho would be Riley Yelena-Selfin.

Great. Hi, Duncan. Congratulations on a really strong quarter here and strong year.

Hey, good morning. Thank you very much.

A couple of questions. Sure. A couple of questions. Regarding your Georgia facility improvement, it sounds like the shipments have definitely improved in the fourth quarter. Can you talk a little bit about what the utilization rate was as you exited the year? And can you remind us what the historical kind of annual revenue is from that facility?

Yeah, sure, a couple thoughts. You know, first, as far as where we are with, you know, with production, you know, that plant historically has produced, say, five to six homes a day. We're still below where we'd like to be, but we're very cautious around, you know, around ramping up production until we're 100% positive that we're not going to have any quality issues going forward. So right now we're building three to four at that plant. So it's not significantly below the long-term average, but it has been a work in progress to get up to the historical production level. We don't publish revenue by manufacturing facility, but you could take production volume and just kind of use an average home price there.

Okay, definitely do that. Also, it looks like the number of home sections that were produced and shipped were either at a record or near record highs for the fourth quarter and for the full year. I was wondering if you could talk a little bit about that with respect to kind of labor availability. And given the current labor situation, do you expect that number to increase through 2023?

yeah you know labor continues to be a problem for us um and i think a lot of other you know companies in the u.s manufacturing space that said it's not as tight as it was um you know we use just a a very simple barometer the labor market is when we walk into our fort worth plant in the morning or there are people you know who are waiting in the lobby for jobs and i think through cove We didn't have anybody in the lobby and we're starting to see people who are ready to work. So labor does continue to be our constraint from a manufacturing standpoint, but I think it is loosening up and we'd like to continue to push production at all of these plants, but that really is the constraint.

okay and then my final question has to do with your mobile home parks just any update on the development in texas i know you were pretty close to kind of starting construction on the uh the del valle units any updates there yeah you know the the developments continue to move forward um frankly they're slower than we would like i mean we've just been we've been tied up and bogged down with with so much work

on the administrative front. That said, we're getting toward a point where at least for phase one, we can start to think about getting homes into that first phase. But we're still, we're months out there, and that's the first one that we'll have come online, but we've got several others behind it. It's unfortunately slower than we would like. I think a lot of the other industry peers will talk about some of the just regulatory hoops that you have to jump through to actually get one of these turnkey, and it's significant. So making progress slower, but I think now that we're through some of the financial reporting issues, we're going to make a push there.

All right. It's understandable. Great. Good luck to you in 2023.

Thank you very much.

Thank you. And our next question coming from the line of Mark Smith with Lake Street Capital. Hi, guys.

First question for me, just want to look at the finance business just a little bit. And correct me if I'm wrong. It looks like you might not be keeping up with kind of the rising rate environment. Can you talk about, you know, if you guys are using the finance business really as a lever to kind of drive product sales?

Sure. You know, Mark, the nice thing about our finance business is it throws off so much cash that we're not borrowing to lend. You know, so if we were, if we had a, you know, warehouse facility and we were borrowing and the rate on that went up, pretty dramatically, we would be in a much different situation than we are today. So our strategy over the last year or so has been to keep our rates down and to keep our prices up. And certainly, the financing programs at Legacy help drive sales for the business.

OK. Perfect. And then just looking at if production looked really solid, you know, from, from unit sales this, this quarter, can you just talk about kind of where the production was versus kind of, you know, inventory you had a little bit more at the end of Q3, you know, so just kind of Wayne, you know, what you were able to move through from an inventory standpoint versus kind of production, uh, here during Q4.

Yeah. I mean, you know, we had talked about, I think on the last call, especially in Georgia, We had an issue where we had a lot of homes that were stuck in the yard and we weren't able to ship. So during the fourth quarter, we were able to work through a lot of those. And that certainly helped us. But we are constrained from a manufacturing standpoint. That said, I think heading into a slowdown, I'd much rather have three plants that I'm trying to feed than 40. So I think, you know, overall we're pretty well positioned going forward.

Okay. And that's kind of my next question was just, you know, how you feel about, you know, manufacturing today. You know, do you have the labor materials, the things that you want to continue as we look at Q1, you know, and into 23 to be able to kind of produce at the levels that you'd like?

Yeah, I think from, you know, we'd always like, an abundance of, uh, of skilled labor, but I think, you know, what we've, the teams that we have now are doing a good job. Um, you know, from a, a material standpoint, you know, the, the supply chains have really loosened up. Um, and you know, our, one of the challenges that we've been working through is, yeah, you went through two years where your purchasing department, you know, did everything that they possibly could. to get materials. And now that, you know, materials are abundantly available and prices are coming down, you know, we're really working to try to get the biggest discounts that we can, but, you know, we're not having, we're not having any of the issues that we had during COVID or, you know, with appliances and other things not being readily available.

Okay. The last question for me, kind of big picture, you know, just You guys give some great data in your 10K on kind of the industry and affordable housing, but any other insights you can give on, you know, kind of what you're seeing from a demand perspective, you know, especially with kind of a squeeze consumer out here, you know, are you continuing to see improved demand for affordable housing?

You know, Mark, it's a really interesting time right now, right? You've got stick built home prices, you know, near all-time highs. Rates obviously moved up very quickly, and underwriting standards have tightened. You know, so, I mean, if you look at some of those stats around, you know, average stick-built home price across the country, I mean, it's a pretty big number. And when you think about our product, right, it's significantly less expensive. I think the, you know, From a demand standpoint, we have two channels of our business. We either sell through to a retail customer, through independent dealers, or through our company-owned dealerships, or we sell to manufactured housing community owners. I'd say on the dealer side, dealers do have a lot of inventory right now. and the demand is slower from the dealer channel. I think since over the last probably three to six months, traffic at those dealerships has picked up, but the conversions to home sales are not as high as we'd like to see them. On the community side, there's just a lot of people. There's a lot of capital that came into the space. And so we continue to see pretty good demand from a lot of our large historical customers that are either developing new communities or doing some infill or expansion. But overall, I think demand is certainly slowing. That said, we feel pretty good with three plants about you know, being able to have the orders to keep these things, you know, going at, say, similar production capacity.

Excellent. Thank you.

Sure. Thanks, Mark.

Thank you. And as a reminder, to ask a question, please press star 1-1. And our next question coming from the lineup, Tim Moore from EF Hutton Group. Your line is open.

Thanks, and congratulations on the very strong sales quarter beat in December and for the year. Very impressive margin expansion. I know the team's working and putting in a lot of hours. Duncan, I was just wondering, you briefly mentioned the backlog. What is the current backlog, you think, in terms of visibility on monthly sales? Is it something like five months going out, maybe?

You know, Tim, we don't publish a backlog. you know, we have, we do have several months of backlog. I think, you know, one of the, one of the challenges going forward is, you know, having customers actually accept their orders. And so even though you've got backlog, you know, we're, we're, we're pushing people who've ordered homes to get them scheduled in, you know, and take the homes when they come offline, you know, but again, small manufacturing footprint, even if things slow down, I think we'll be able to continue to cut deals where we're selling 20, 30, or 100, 200 homes at a time and keep these facilities close to capacity.

That's helpful to hear. How should we think maybe about the gross margin possibility for this year. I saw that the look like the fourth quarter gross margin was 40%. Should we kind of go off of that? Um, just kind of thinking about modeling going forward and if your prices have held up pretty well, um, just trying to get a sense of maybe what you're thinking from utilization and the margin profile for the year.

You know, it's, it's tough to say. Um, I think there's a lot of dynamics that are in play right now. We have been able to hold prices firm and we have, I think, started to benefit from material prices coming down. That said, if demand really does slow down, we'll have to think hard about pricing. But certainly, we're trying to buy materials for as cheap as we possibly can. And, you know, we're trying to hold pricing firm. So I think I'll have a better view kind of by, you know, end of next quarter when we talk about that. But I'd say, you know, for now, it's about the same.

Good. Good. That's helpful to hear. You know, you mentioned, which I think we're all aware of, that the independent feeler channels had some destocking going on, and we've seen the walk-in traffic fall, I guess, the last few months just in general for the industry. How's the walk-in traffic holding up at your company-owned retail locations, and are you guys doing anything to maybe create more digital leads or digital generations to kind of get more consumers in your stores?

Yeah, a couple thoughts on that. I mean, you know, Kenny and I spend a lot of time talking about foot traffic and conversions at the retail stores. You know, we have seen an uptick in foot traffic. Really, you know, the issue is on converting that foot traffic to sales. And I don't think it's something, you know, that's necessarily unique to our retail stores as it is, you know, across the industry where, you know, given the price of our product, people are interested in it. but you know they they I think a lot of people are hesitant to pull the trigger right now given so much uncertainty in the overall economy so you know foot traffic has picked up we're working on things to convert more of the the traffic to sales you know historically we have not had a big you know online presence I think we've certainly on the heritage side ramp that up with an additional hire who's working on marketing for Heritage. But I think, again, now that we're through a lot of the financial reporting issues, I'm looking forward to, in addition to growth, really focusing on how we can improve the business and You know, from a marketing standpoint, we think that there's a pretty good opportunity there. It's just, you know, having the bandwidth to actually work with our team and get it done.

That's helpful, Collar. I appreciate that. You know, another question I had was I'm just wondering, you're doing a good job on getting the quality assurance back on track with the Georgia plant. Have you and the board thought about maybe adding a head of operations to maybe visit all three plants? every couple of weeks to just ensure the efficiencies and quality control?

You know, not at this time. We do have, we have really good, you know, general managers at all of these plants. And as you know, you know, me, Kurt and Kenny are all heavily involved and this thing moves pretty quickly. We're not scheduling a lot of meetings. It's a lot of direct phone calls and, you know, we can, we can, uh, make changes quickly. Um, you know, we do operate in a, a very highly, uh, regulated industry and, you know, so there is a, there's a, there's a code that we strictly build to, and it's just, you know, given some of the labor challenges and turnover, sometimes you have, you have issues there and, uh, like we had in Georgia, but, I feel good about where the team is now. We've had a lot of people step up. And I think if we can continue to grow and especially expand the manufacturing footprint, then maybe at that time, a hire like that or an internal person moving into that role may make sense. But I think for the three plants right now, we feel pretty good about the management team that we have in place.

That makes sense. I remember... And I enjoyed meeting Marco at your Fort Worth plant in late August. I was very impressed by him. Just maybe switching gears, talking now that you've been there nine months and we're up to speed on the accounting enhancements and the Georgia facility coming along with the quality insurance, are you now getting any more time to look for acquisition targets?

We're getting there. You know, one of the founders, Kenny Chipley, always says that the best deals come to you. And I think what's been interesting over the last, really over the last month, maybe month and a half, is, you know, as other manufacturers slow down and financing in certain areas of our business becomes less attainable, I mean, we are really seeing a lot more opportunities than we have in years. And the key is when we're allocating capital, we're very return focused. We're focused on the bottom line and growing book value and continuing to reinvest our money at attractive rates of return. And if you look at the returns on the loan portfolio, they're pretty significant. And so as we look at opportunities, there's a high bar there. And so we've got to make sure that we're meeting and exceeding those return thresholds to actually deploy capital outside of the loan portfolios. But a long way of saying we're seeing more opportunities, we're spending more time on them. And we think that over the next 12 months is a pretty interesting time to put money to work because we are long-term focused.

Great. And that's really helpful color and clarification on the capital allocation strategy. That's it for my questions. Thanks a lot.

Yep. Thanks, Tim.

Thank you. And our next question coming from the line of DeForest Hinman. You want to stop in?

Hey, thanks for taking the questions. A couple things. Can you just give us an update on a strategy for the owned manufactured housing parks? Because in the 10K, we can see, I think, two of the larger parks, the acreage owned actually decreased. So I don't know if that's, you know, we're developing the the pads and we're selling the pads or we're developing the pads, putting units on it and then selling them. I believe in the past there was some discussion about, you know, operating these parks and generating a rental stream. And, you know, it's even laid out where, you know, we can see the number, the dollar amount of leased homes is actually, I think, declined from some previous levels. So can you just

us an update on you know what exactly is the strategy with the the park development yeah happy to um you know a couple there are a few questions in there i'll try to i'll try to take them and and uh if i miss something just remind me but you know first on the on the acreage change i do i don't know i'll have to follow up with you on why the acreage would change we haven't purchased any additional land since last quarter and we also haven't sold any additional land or any land since last quarter so I'll have to follow up with you on why the acreage changed you know overall we you know we do think that that that potentially owning and operating these communities could be a good you know long-term or could provide long-term consistent cash flows. That said, the development of them has, you know, has taken longer than expected. And I mentioned earlier that, you know, the regulatory hurdles that you have to jump through and the time that these regulators take to make decisions is, you know, it's really, it's mind-boggling. And, you know, for the past couple years, we've had enough orders where, you know, to external customers, you know, where we haven't needed to, even if the communities were ready, we haven't needed to put homes on them because we were at capacity and selling to other customers. You know, but I think ultimately, you know, the communities provide us with a lot of optionality And, you know, there's, there's a lot of value to unlock there. And so, you know, one thing that's kind of top of our agenda is as we move into, you know, the middle part of the year is, you know, we've got the, we've got the properties are at various stages of development. You know, there's some that it probably makes sense for us to push through and finish. There's others and we've been approached by a lot of the larger community developers that may make sense to partner on and potentially be able to sell homes into and still retain some type of cash flow. And then there's some that we haven't made much progress on developing that there may be another buyer that's more suitable to combine this with additional land. and to build bigger communities. So I think overall, we're still making progress, but the strategy we're diving into now on exactly what we want to do with each location. But we're in these things for the right. We bought the land right. We've been very frugal with how we've allocated capital to these projects.

and you know there is value to unlock here it's just figuring out what the right path forward is okay that's helpful i would just clarify my question on the acreage was i guess in the from 10k this year to 10k last year bastrop county texas acreage was down uh 32 acres and bexar county was down like 31. so i don't know if that was You know, we completed development, we placed units, someone approached us and we sold it. Is that what happened?

No, I need to check on it. I really, I don't know why it would have changed.

Okay.

That's the one where we really have made the most progress on. We've got phase one coming, but I don't know why it would have changed. Okay.

Okay. And then you mentioned some of the large community developers. You have mentioned that you're running at pretty high levels of capacity, but you might see some moderation. Given our our position in our outlook, is there any sense in approaching some of those larger developers and in saying, you know, look, we can allocate a certain percentage of our, you know, monthly, weekly, quarterly production to your, to you as a single customer. And, you know, then they can have a more consistent supply of units because a lot of things I've read makes it sound like there's, you know,

lots of demand on the park side and you know they're coming to market with a rental rate in many areas it's very attractively priced versus the competition sure you know we we think we build a a great park model home you know we buy materials and import materials and manufacture our own components that allows us to build these things for a great price and sell them at a great price even with a little bit of margin there. We have had several conversations with some of our larger customers about taking homes in quantity under, say, some type of supply agreement where we allocate a certain amount of production a month to them at an agreed upon price. And so, yes, all those conversations are happening. We've got a great park sales team and there are certainly customers that, or there are certainly developers that are focused on our core markets that we have not historically sold to And I've been involved in a lot of those meetings, and certainly we're trying to advance those. But if we can build the same home in large runs, I mean, that's certainly more efficient for us than throwing a bunch of double-wides in a line that slows us down just because they're more intricate. So, yes, that is top focus for a lot of people at the company.

Okay, thank you. And then my last question is just on any update on how we're looking at the shared purchase authorization from a capital allocation perspective. It looks like there's a lot of opportunities that you've touched on. I believe it's a 10 million authorization. I mean, is that more, you know, opportunistic dry powder? And to some extent, maybe we were locked out of actually doing anything in the market as we've put uh we're working on you know getting some of the uh administrative things uh addressed that you touched on uh you know just just give us some color there and you know would that be you know something that could be utilized in uh 2023 thank you sure yeah you know it's it's it's certainly not just optics i mean that was something that

when our last share repurchase program expired, I was pretty adamant about getting back in place. You know, we do trade, you know, we do trade at, I think, a pretty cheap valuation, you know, right now. And the way that I personally think about that share repurchase program, you know, every one of these calls, you know, we give... we give our tangible book value per share. And we think our book value is extremely, you know, conservative. I mean, we, the way that this business was built, it was started with, you know, $7 million and all the profits have been reinvested every single year for 18 years at a 10 to 20% return. And, you know, so we do have real assets that are unencumbered. And I think, You know, if depending on how the, you know, the stock market trades through the remainder of the year, you know, as we approach that book value per share number, you know, that may be, you know, deploying capital or by repurchase or repurchasing shares may be our greatest return opportunity from a capital allocation standpoint if we start trading down near that tangible book value per share number.

Okay. Thank you for the caller. I agree the shares seem to be undervalued. Thank you.

Thank you. Appreciate the questions.

Thank you. Namshon, we have a follow-up question from Minchuk with B. Riley. You'll let us open.

Great. Thank you for the follow-up.

Real quick, you know, I noticed that the ASP per home section was up in the fourth quarter during the third quarter. I just wanted to know if this was a function of MIGS or if you could explain Explain that difference. And just any thoughts on ASP going forward? I'm assuming for 2023, you know, kind of flat to down, but any details would be great.

Sure. You know, we've had seven price, or I'm sorry, I think 17 price increases through COVID. But we have not raised prices since, you know, kind of mid-year 2022. I think that that's a function of the price increases being fully implemented. Certainly, we'd like to hold prices. There's other manufacturers that we're seeing that have decreased prices. Look, we'd love to continue at this level, but we'll see ultimately what happens over the next couple quarters from a demand standpoint.

Right. And then just also, in terms of your automation opportunities, can you talk to, you know, how much of your plant is currently automated, if any, and what your opportunities are, if this is something that you're going to focus on going forward?

Sure. You know, it's something that we talk about regularly. And I know if you look overseas where There's, I'd say, expanded code. We manufacture to a very strict code. There's oversee operations in countries where they have a, I'd say, more broad code. And they are highly automated. Our product is very manual right now. And there's really not much automation. And part of that is we don't have plants that are dedicated to building the same product over and over and over again. We'll stack production with orders as they come in. And so I think there probably are some automation opportunities. There's also, I think, opportunities to get down into regions that have a cheaper labor rate. And I thought the Solitaire deal with CAVCO is pretty interesting, where that's the only HUD code manufacturer in Mexico. That's certainly something that we had our eye on. But I would see us going in that direction before we build a really state of the art, automated manufacturing plant.

Understood. Great. Thank you.

Thank you.

Thank you. And our next question coming from the line of Brian Glenn with Alcat Partners.

Hey, welcome, Max.

Thank you. Hey, Duncan.

Yeah. Hey, Duncan. Nice job, guys. Nice job, Ron. Yeah, it's great to see you guys working hard and getting some results. I had a quick question about in the K, there was a contingent repurchase agreement noted, and it looks like that number has gone up from, it was like 100,000, then 4 million, then 8 million. I know it's noted as immaterial. It's still immaterial. Is that, it looks like, is that strategic on your side to try to get more floor space? I know it's related to floor plan financing by a third party, or is that just the way the market's gone where you have to put that agreement in place?

Yeah, so the way that agreement works is, say we have an independent dealer that we sell homes to that uses, say, 21st for their floor planning. Since we are the manufacturer, we'll have an agreement with say, 21st, you know, to repurchase homes in certain circumstances. You know, I need to look at the movement in that as well. I can follow up. But I think a big component of it is, you know, there's two components of it. One, you know, dealers do have a lot of inventory right now, and it's not moving as quickly as I think they would like. And the second is, you know, just home prices are up pretty significantly. And so both of those are driving that number. Now, why it went from a few hundred thousand to several, you know, several million, I can follow up with you on. It may be that, you know, we have seen other, you know, companies that finance, you know, get really aggressive on terms. And you know, since we hold everything on our balance sheet, um, we're pretty conservative about what we will finance and what we won't finance. And so I really, that may be the, say the third, uh, the third reason. So, you know, increased home prices, more inventory on dealer lots, and then just, you know, other finance companies being more conservative. So they're, they're getting a larger piece of the business on the consignment side.

Sure. Okay, that's helpful. And I would suspect it actually benefits you guys and larger operators more so than smaller ones because it gives you a chance just to use your balance sheet to handle that contingency. That's right. Yeah. And then my second question, I know someone asked this. You jumped into it a little bit. If we – so without talking about specific competitors, but if we grab some of your peers – which are publicly traded, so I know it's only a slice of the market. And if you just do, I mean, you can do the math any way you want, but if you jump into just their manufactured housing, try to come up with a cost of goods sold per home, sure, that includes depreciation. Maybe for them it includes depreciation on underutilized or underutilized facilities or facilities not running at full capacity. But regardless, the number's big. it's a substantial number in terms of what you guys can produce a home for. There's also an assumption in there about double versus single, if they disclose that breakdown or not, but either any way you slice it, it's a big number. And so that gap is really just you guys insourcing and being more vertically integrated. And I think probably a little bit for this product too, just being a slightly dialed down, still a high quality product. But can you elaborate on that?

Yeah, I'll try to give you some additional thoughts there. We do pride ourselves on being vertically integrated and trying to buy materials and source materials from overseas and build our own components. I certainly think that's an advantage. Another advantage is, look, we've got two founders that probably have more invested at least on the manufacturing side of this industry than anybody else in the country and they've both been in it for you know over 40 years so you know a lot of thought and time and effort has gone into you know how do you build a great floor plan and a and a nice house that's going to last um efficiently and so i think you know we we may do a better job um you know, as far as like using the right materials in the right places. But I think the biggest component that you hit, and this is something that I want to make clear on this call, is, you know, I don't have to feed 30 or 40 plants. You know, I've got three plants and, you know, we know that they're profitable even at lower production levels. And, you know, historically, a lot of these plants with the right labor have you know, done significantly more in production than what we're currently doing. We'd love to ramp that up, and I think there's additional margin there, but it's really hard in today's labor environment. And, you know, as the market slows and people, you know, idle plants and don't have orders and, you know, companies, smaller businesses, you know, shut down, You can't get small fast enough. I think that some of the larger competitors could really struggle there where you've got 40 plants and there's more fixed costs than people realize. In a tight labor environment, you're moving pretty slow to get rid of your core team because it may be next to impossible to hire all those people back. So I think that, you know, just having a large manufacturing footprint could be pretty difficult in a down cycle.

Thanks. That's helpful. Great work. And, again, welcome, Max, and great work to you and Max and Ron and Kurt and Kenny. Thanks.

We really appreciate it.

Thank you. And I'm showing no further questions at this time. I would now like to turn the conference over to Mr. Duncan-Bates for any closing remarks.

Perfect. Thank you. Just two final comments. So first I want to thank everybody who joined today's call. You know, we really appreciate your interest in legacy and feel free to reach out with any followup questions. We've got some contact information in the press release and, and second, and, and, you know, most importantly, um, I want to thank the legacy team. You know, we've got 870 plus team members at our company. And, you know, all of them contributed to the results that we put out today, you know, in a day early after, you know, filing our last 10K, five months late. So I want to thank everybody for their hard work. Everyone contributed here. And that's all. So, operator, this concludes our call.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.