Legacy Housing Corporation

Morning, ladies and gentlemen. Thank you for standing by. Welcome to Legacy Housing Corporation's second quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's 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, the Duncan Bates, President and Executive Officer. Please go ahead, sir.

Good morning. This is Duncan Bates, Legacy's President and CEO. Thanks for joining our second quarter 2023 conference call. Max Africk, Legacy's 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 risks 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. I will run through our prepared remarks. then open the call for Q&A. Product revenue decreased to 42.3 million or 23.2% in the second quarter of 2023 compared to the second quarter of 2022. The decrease primarily resulted from a 14.6 decrease in product sold and a 10.1% decrease in net revenue per product as customer demand shifted toward the lower end of our product line. Also, we did not convert any independent dealer consignment arrangements to floor plan financing agreements during this quarter as we did in the second quarter of 2022. According to Manufactured Housing Institute data, industry home shipments through May 2023 We're down 29% year to date. However, housing affordability in the U.S. continues to deteriorate and retail traffic in our industry is accelerating. One of the leading indicators that we track on the retail or dealer side of our business is loan applications. A few recent data points. Loan applications at Heritage Housing are company-owned retail stores hit a 12-month high in July 2023. Loan applications at Federal Investors, our consumer lending arm, were up 17.6% in the second quarter of 2023 compared to the second quarter of 2022. Also, applications surged 60.8% in July 2023 compared to July of 2022. On the community or park side of our business, sales to existing customers remain stable. Like other manufacturers, we have battled delayed shipments due to setup related issues. Our quote activity for new projects beginning late 2023 and early 2024 is strong. We rarely discuss Legacy's commercial product portfolio. Legacy has an extensive line of workforce housing solutions. Inquiries for our commercial products from customers in the energy, agricultural, film, and disaster relief industries are the highest I've seen since joining Legacy. Consumer and MHP loan interest income increased $8.5 million, or 13.2%, during the three months ended June 30th 2023 as compared to the same period in 2022. This increase was driven by increased balances in the MHP and consumer loan portfolios. Our financing businesses generate predictable recurring revenue and we continue to invest in them. Between June 30th, 2023 and June 30th, 2022, Our MHP note portfolio increased by $43.9 million and our consumer loan portfolio increased by $15.1 million. This is net of principal payments and loan loss allowances. Also, this does not include floor plan financing or development loans. I frequently field questions from investors about loan performance. The accountant's figures are in the filing, but the way that I think about delinquent accounts is over 30 days with no payments. At June 30th, 2023, over 99.5% of MHP notes and 98.5% of consumer loans were current. We monitor these numbers closely and are confident in the strength of our loan portfolios. Other revenue primarily consists of dealer finance fees and commercial lease rents, which increased to 1.8 million or 13.4% in the second quarter of 2023 compared to the second quarter of 2022. Selling general and administrative expenses decreased 6.3% during the three months ended June 30th, 2023 as compared to the same period in 2022. This decrease was primarily due to the decrease in consulting and professional fees and a decrease in warranty costs. Net income decreased 13% to $15 million in the second quarter compared to the second quarter of 2022. Legacy delivered a 17.3% return on equity over the last 12 months. At the end of the second quarter of 2023, Legacy's book value per basic share outstanding was 16.94%. an increase of 18.6% from the same period in 2022. We continue to hold pricing, reduce our raw material inventory, and reduce our SG&A. Legacy has not missed one production day at any manufacturing facility in 2023. Legacy's balance sheet is strong. We ended the quarter with $1.5 million in cash and $4.7 million drawn on our line of credit. On July 28, 2023, we closed a new revolving credit facility with Prosperity Bank. The facility is for $50 million with a $25 million accordion feature. It is secured by our consumer loan portfolio. Our team has been focused this quarter on internal strategic projects. A few examples. We're updating and adding more modern features to our products. We are revamping our sales processes and hiring additional talented sales professionals. We made a big push on social media and digital advertising and heritage housing and are beginning to see results. We also believe there is significant value to unlock on the land development side of our business. We are committed to these projects. and are hiring additional team members to prioritize and accelerate progress. In addition to internal projects, we are consistently evaluating inorganic growth opportunities. The new bank line gives us the flexibility to pursue these opportunities if they hit our return threshold. Operator, this concludes our prepared remarks. Please begin Q&A.

Certainly, 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. Please stand by while we compile the Q&A roster. And our first question coming from the line of Alex Rector with B Riley Security. C line is open.

Hey, Alex. Good morning, Duncan. How are you?

I'm good. How are you doing? Well, a couple of quick questions here. So do you have any sales remaining to be booked from transitioning from that consignment program?

Yeah, we have about 120 or so houses that are still on the old consignment program.

And what is the timeframe or timeline look like for converting those?

You know, I think we'd like to do it by year end. There's some, you know, these are kind of the final holdout of dealers. So it's taken a little bit of time to work through this.

And then you brought up an interesting point as it relates to inquiries for commercial product being very, very high. Can you remind us... You know, when these commercial orders come in, I suspect they're kind of fairly large in size from time to time. So maybe talk about how big some of these could be.

Yeah, you know, there's two pieces. I mean, we've got some dealers in Texas, you know, that have relationships with, say, larger oil field services or E&P companies or agricultural businesses that And, you know, they're selling lower volume, just, you know, two here, three there, four there. But we are seeing some inquiries from larger products, you know, that I would say are closer to, you know, sales that we would see on the community or park side of our business. So, you know, they range from us selling a couple of these things, you know, to potentially selling hundreds of these things. And we've got, you know, a lot of quotes out now we're trying to reel people in and, um, it'd be great if something hits.

And lastly, um, where's the Georgia plant as it relates to production levels and that an opportunity to, uh, utilize that facility for these commercial opportunities.

We have built this product in Georgia. You know, we didn't, I didn't comment on Georgia in our prepared remarks because frankly, we feel great about, you know, where that plant spent, uh, where it sits today. You know, we've made a tremendous amount of, or we've implemented a tremendous amount of changes there. We've got a new sales manager, new general manager. We've shifted people around. We've hired a lot of people. Um, right now we're running three to four a day. at Georgia. And, you know, our hope is to continue to ramp that up as, you know, as, as depending on demand. So Georgia is in a good spot and, you know, now we've just got to get out and keep, keep selling.

That's great. Thank you.

Thanks Alex.

Thank you. And our next question coming from the line of, Mark Smith with Lake Street Capital. Your line is now open.

Hey, Duncan. First off, can you just walk us through a little bit more in-depth sales mix, both channel and kind of price points, kind of where things changed, where the headwinds are, maybe where emphasis is to drive maybe better sales in different channels?

Yeah, sure. I'll try to I'll try to take that a couple pieces at a time. I mean, if you look at the queue, the price or the revenue per product sold is down, and that contributes to the decline in sales in addition to just lower volume. And I think what's happened is we build a great park model home. some large customers that continue to take a lot of these. And so, you know, they're just, we're selling lower, you know, we're selling park model homes and we're selling less optioned homes to dealers as they start to build inventory again.

And I think you said in your prepared remarks that As we look at kind of a standard consumer home, are you seeing more demand at those lower price points than the higher price points?

Yeah, absolutely. I think this consumer with inflation has been hit pretty hard. And although chattel rates have not gone up as much as traditional mortgages, just with inflation and every other aspect of their lives, you know, they're looking at a little bit lower end or less optioned homes than they were 12 months ago. Okay.

And that leads to my next question. As we think about, you know, both loan portfolios, consumer and MHP, you know, any thoughts around rates? It looks like it came up a little bit here in the quarter of you know, can you take more or, you know, can we reach a breaking point where you just can't, you know, raise rates anymore?

Yeah, you know, our strategy for the past a little over 12 months has been hold price firm and hold rates, you know, hold rates firm. Now, that said, you know, there's some there's some nuances on either side of the business. On the consumer loan portfolios, I mean, we've held our base rates, but the rates are subject to our underwriting process. And so that really depends on the consumer's credit quality. On the MHP side of the business, our financing program has a base rate and then it flips to variable. And so, you know, we've held the base rates consistent. Over the next, say, 24 months, you're going to see a lot of these flip to variable and you've got community customers that when that flip happens will be, you know, inclined to to refi their projects and pay us off. Okay.

And the last question for me, you know, you said that kind of the park and land development projects are, you know, something that you're focused on now. Any update on where these projects stand today? Any goalposts we should be looking for over the next couple quarters?

Yeah, you know, we've had so much going on over the last 12 months. Uh, where I feel like, you know, we've, we finally got the foundation stable and, you know, we've had issues at the Georgia plant. We've obviously the markets slowed down. I mean, we're, we're spending all of our time, you know, focused on the business and, um, you know, as we move forward, we've, we've got to accelerate, you know, these legacy projects. And so a big topic internally. uh, was land development this quarter and actually putting together a plan on, you know, for what, for what we're, we're going to do going forward. So right now we're in the process of assembling a team. We're committed to these projects. They haven't, you know, they haven't stalled. I think, I think we just feel like they're not moving as quickly, uh, as, as they need to. You know, we're primarily focused on, you know, the kind of, I'd say the crown jewel of this portfolio, which is Bastrop County. And, you know, we're making good progress now on phase one. And, you know, I'd hope, I think I need another, say another month or two to put out, you know, some actual goalposts, but that certainly is the game plan.

Okay. Thank you.

Thanks, Mark.

Thank you. And our next question coming from the lineup, Tim Moore with EF HUD. You want to jump in?

Thanks. I'm talking to a few of my prepared questions already asked, but I actually have four remaining ones. Okay. You mentioned that legacy, and it's pretty obvious and a great attribute. You've held kind of the base interest rate pretty much the same on like you know, the steep 3% rise in single family mortgage rates, you know, over the past year and a half or so. You know, you mentioned the green shoots in loan applications in July, and that was terrific. Sounds like walk-in traffic's better at the retail locations and up a lot. My question is, you know, I'm just trying to pinpoint the possible conversion of timing for how many months it might take from loan applications to to convert to an order, you know, to, to ship lead time when you can actually book revenues, you know, is that something like three months, you know, in other words, you know, if there is an inflection point and I'm not putting words in your mouth for July and maybe that's continuing in August, you know, does that convert something like October, November sales?

Yeah.

You know, I, I wish I had a crystal ball and, you know, could tell you exactly when that, It's happening. The dealer channel of our business has been pretty slow for a few quarters. The consumer backed off. You had dealers that had a lot of inventory and then saw their consignment or floor plan financing arrangements or interest rates go up pretty significantly. But what we're hearing from our customers now and what we're seeing at our own stores is there does seem to be a pickup in that channel. You have dealers that are selling homes, reordering homes, and you've got a lot of foot traffic at the dealer level, and obviously we're seeing it in the loan applications. I think it's going to be... you know, a, uh, a steady progression. Like, I don't think you just overnight, there's this, you know, huge, huge boom on the dealer side of the business, but it does feel like we're getting some momentum. Dealers are clearing out their inventory. They're starting to reorder. And, you know, we've seen, uh, we've seen an uptick in applications, but we've also seen an uptick in the credit quality of those applications. Seems like there's consumers out there that maybe are dropping down into this category and are able to put up larger down payments than we've seen historically. So, you know, we're monitoring it closely. We'll, you know, we hope it continues and we'll obviously, you know, we'll keep the market updated quarterly as we see things.

Great, Duncan. That's really good color and Nice to see the credit quality increase on the applications. How are, you know, how's the demand and the interest levels from the park operators? I know that's, you know, held up pretty good. How's that been doing the last few months?

Yeah, you know, it's slower than we'd like. It seems like a lot of these guys are facing, you know, pretty serious delays on the setup side. And I don't know if it's, you know, it doesn't seem like it's as much setup cruise as like, you know, getting, the utility operators to cooperate or the counties to cooperate with certificate of occupancies and things like that. We tend to serve, I think, a little bit different customer base than our larger competitors. Most of our customers on the park side are regional entrepreneurs. A lot of these guys sold you know, portions of their portfolios when the prices really went crazy last year. So, you know, we've got some big customers that are deploying capital now, you know, they're ordering houses fairly consistent consistently. Um, but you know, we are like, and we are making a sales push for, you know, for new customers, but it's a little bit slower than, than we'd like. Uh, and so we're, you know, I think, Just based on our quote activity, it feels like end of the year, early next year, that channel will gain traction like the dealer channel is now.

That's helpful color. Duncan, I have two more questions. Sure. How are the labor constraints of the three plants compared to maybe last summer? You mentioned you haven't missed one production day this year so far, which is phenomenal. and you're hiring more with the social media push, do you think, you know, let's just theoretically, you know, I'll throw it out there that maybe volumes start coming back pretty good, you know, in November, December, that you'll have enough labor in place and retained?

Yeah, you know, geez, labor, labor has been a challenge for a while, you know, all the way, all the way back through COVID. And, and I think, you know, for us and, For the other manufacturers, the constraint is not how much space you have or how big your yard is or how big your plant is. It really is a labor constraint. I mentioned this, I think, on another call, but this is a very simple parameter that we use to think about the labor market. At our Fort Worth plant, there's a waiting room on the front. If you talk to Curt and Kenny, they'll tell you through COVID, they didn't have a single person show up looking for a job. And we're consistently getting three, four, five people that come in each day and apply. So it does feel like the labor market's loosening up a little bit. And I feel much better about ramping up production now or over the next couple of quarters than I would during COVID.

Great, that's helpful. It's funny you mention that because I remember recall seeing three people filling out applications in your Fort Worth lobby when I was there doing a tour last August.

Exactly, exactly. And if there's nobody up there, that's a problem.

No, no, there was a line. That was a good barometer. That made me feel better, although then Georgia happened. But, you know, just one last question. Given the 50 million availability that you mentioned and, you know, the possible accordion, option feature if you take that up. Should we read into that at all that maybe, you know, now that some of the operational pickups are well behind you, Georgia's firing on all cylinders, the plants are doing well operationally, that there could be an acquisition or a vertical integration target on the near-term horizon?

You know, we're looking hard. The new bank line is we've been working on it for a little while. You know, I don't care what size business you're operating. Um, banks can be difficult to deal with now. And so it's actually, it's a $50 million line with a $25 million accordion feature. So we can take that up to 75 million. So we've got some, we've got some firepower. Um, the other thing that's interesting is it's, it's only secured by our consumer loan portfolio. And so we've got other assets out there unencumbered. We're looking. We've been focused internally. There's still a lot of work to do internally. But if the right opportunity comes up, we're ready to go. We've been looking at all types of things. So I think we're not going to chase something that's expensive. are risky. We're going to stay patient, continue to invest in our own business at high rates of return. And if something comes up that we really like, we're positioned to be aggressive on it.

Great. That's very helpful, Collar. And I always remember your ROI hurdle. I mean, you've done a great job reinvesting back in the business, and maybe you'll have some other external options. But that's it for my questions. And I hope that you, Kurt, Kenny, and the rest of the team have a wonderful summer.

And Ron. Yeah, thanks, Tim. Appreciate it. You too.

Thank you. And I'm not showing any further questions in the queue at this time. I would now like to turn the call back over to you, Mr. Bates, for any closing remarks.

Sure. A couple final remarks. I want to thank everybody who joined today's earnings call. We appreciate your interest in legacy housing. And then next, our annual fall show, which is Legacy's largest sales event, It's October 1st through the 3rd in Fort Worth, Texas. It's a great opportunity to see our new products and meet the team. And a link to the RSVP is on our website. Operator, this concludes our call.

Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect. Music. Thank you. So, Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Legacy Housing Corporation's second quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's 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, the Duncan Bates, President and Executive Officer. Please go ahead, sir.

Good morning. This is Duncan Bates, Legacy's President and CEO. Thanks for joining our second quarter 2023 conference call. Max Africk, Legacy's 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 risks 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. I will run through our prepared remarks. then open the call for Q&A. Product revenue decreased to 42.3 million or 23.2% in the second quarter of 2023 compared to the second quarter of 2022. The decrease primarily resulted from a 14.6% decrease in product sold and a 10.1% decrease in net revenue per product as customer demand shifted toward the lower end of our product line. Also, we did not convert any independent dealer consignment arrangements to floor plan financing agreements during this quarter as we did in the second quarter of 2022. According to Manufactured Housing Institute data, industry home shipments through May 2023 We're down 29% year to date. However, housing affordability in the U.S. continues to deteriorate and retail traffic in our industry is accelerating. One of the leading indicators that we track on the retail or dealer side of our business is loan applications. A few recent data points. Loan applications at Heritage Housing, our company-owned retail stores, hit a 12-month high in July 2023. Loan applications at Federal Investors, our consumer lending arm, were up 17.6% in the second quarter of 2023 compared to the second quarter of 2022. Also, applications surged 60.8% in July 2023 compared to July of 2022. On the community or park side of our business, sales to existing customers remain stable. Like other manufacturers, we have battled delayed shipments due to setup-related issues. Our quote activity for new projects beginning late 2023 and early 2024 is strong. We rarely discuss Legacy's commercial product portfolio. Legacy has an extensive line of workforce housing solutions. Inquiries for our commercial products from customers in the energy, agricultural, film, and disaster relief industries are the highest I've seen since joining Legacy. Consumer and MHP loan interest income increased $8.5 million, or 13.2%, during the three months ended June 30th 2023 as compared to the same period in 2022. This increase was driven by increased balances in the MHP and consumer loan portfolios. Our financing businesses generate predictable recurring revenue and we continue to invest in them. Between June 30th, 2023 and June 30th, 2022, Our MHP note portfolio increased by $43.9 million and our consumer loan portfolio increased by $15.1 million. This is net of principal payments and loan loss allowances. Also, this does not include floor plan financing or development loans. I frequently field questions from investors about loan performance. The accountant's figures are in the filing, but the way that I think about delinquent accounts is over 30 days with no payments. At June 30th, 2023, over 99.5% of MHP notes and 98.5% of consumer loans were current. We monitor these numbers closely and are confident in the strength of our loan portfolios. Other revenue primarily consists of dealer finance fees and commercial lease rents, which increased to 1.8 million or 13.4% in the second quarter of 2023 compared to the second quarter of 2022. Selling general and administrative expenses decreased 6.3% during the three months ended June 30th, 2023 as compared to the same period in 2022. This decrease was primarily due to the decrease in consulting and professional fees and a decrease in warranty costs. Net income decreased 13% to $15 million in the second quarter compared to the second quarter of 2022. Legacy delivered a 17.3% return on equity over the last 12 months. At the end of the second quarter of 2023, Legacy's book value per basic share outstanding was 16.94%. an increase of 18.6% from the same period in 2022. We continue to hold pricing, reduce our raw material inventory, and reduce our SG&A. Legacy has not missed one production day at any manufacturing facility in 2023. Legacy's balance sheet is strong. We ended the quarter with $1.5 million in cash and $4.7 million drawn on our line of credit. On July 28, 2023, we closed a new revolving credit facility with Prosperity Bank. The facility is for $50 million with a $25 million accordion feature. It is secured by our consumer loan portfolio. Our team has been focused this quarter on internal strategic projects. A few examples. We're updating and adding more modern features to our products. We are revamping our sales processes and hiring additional talented sales professionals. We made a big push on social media and digital advertising and heritage housing and are beginning to see results. We also believe there is significant value to unlock on the land development side of our business. We are committed to these projects. and are hiring additional team members to prioritize and accelerate progress. In addition to internal projects, we are consistently evaluating inorganic growth opportunities. The new bank line gives us the flexibility to pursue these opportunities if they hit our return threshold. Operator, this concludes our prepared remarks. Please begin Q&A.

Certainly, ladies and gentlemen, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. And our first question coming from the line of Alex Rector with B Riley Security. C line is open.

Hey, Alex. Good morning, Duncan. How are you?

I'm good. How are you doing? Well, a couple of quick questions here. So do you have any sales remaining to be booked from transitioning from that consignment program?

Yeah, we have about 120 or so houses that are still on the old consignment program.

And what is the timeframe or timeline look like for converting those?

You know, I think we'd like to do it by year end. There's some, you know, these are kind of the final holdout of dealers. So it's taken a little bit of time to work through this.

And then you brought up an interesting point as it relates to inquiries for commercial product being very, very high. Can you remind us... You know, when these commercial orders come in, I suspect they're kind of fairly large in size from time to time. So maybe talk about how big some of these could be.

Yeah, you know, there's two pieces. I mean, we've got some dealers in Texas, you know, that have relationships with, say, larger oil field services or E&P companies or agricultural businesses that And they're selling lower volume, just two here, three there, four there. But we are seeing some inquiries from larger products that I would say are closer to sales that we would see on the community or park side of our business. So they range from us selling a couple of these things you know, to potentially selling hundreds of these things. And we've got, you know, a lot of quotes out now. We're trying to reel people in, and it'd be great if something hits.

And lastly, where's the Georgia plant as it relates to production levels? And is that an opportunity to utilize that facility for these commercial opportunities?

We have built this product in Georgia. You know, we didn't, I didn't comment on Georgia in our prepared remarks because frankly, we feel great about, you know, where that plant spent, uh, where it sits today. You know, we've made a tremendous amount of, or we've implemented a tremendous amount of changes there. We've got a new sales manager, new general manager. We've shifted people around. We've hired a lot of people. Um, right now we're running three to four a day. at Georgia. And, you know, our hope is to continue to ramp that up as, you know, as, as depending on demand. So Georgia is in a good spot and, you know, now we've just got to get out and keep, keep selling.

That's great. Thank you.

Thanks Alex.

Thank you. And our next question coming from the line of, Mark Smith with Lake Street Capital. Your line is now open.

Hey, Duncan. First off, can you just walk us through a little bit more in-depth sales mix, both channel and kind of price points, kind of where things changed, where the headwinds are, maybe where emphasis is to drive maybe better sales in different channels?

Yeah, sure. I'll try to Tad Piper- Try to take that a couple pieces of time, I mean if you, you know you look at the queue the. Tad Piper- The price or the revenue per product sold is is down, and you know that contributes to the decline in sales, in addition to just lower volume. Tad Piper- And you know I think what what's happened is we you know we we build a great park model home we've got. some large customers that continue to take a lot of these. And so, you know, they're just, we're selling lower, you know, we're selling park model homes and we're selling less optioned homes to dealers as they start to build inventory again.

And I think you said in your prepared remarks that As we look at kind of a standard consumer home, are you seeing more demand at those lower price points than the higher price points?

Yeah, absolutely. I think this consumer with inflation has been hit pretty hard. And although chattel rates have not gone up as much as traditional mortgages, just with inflation and every other aspect of their lives, you know, they're looking at a little bit lower end or less optioned homes than they were 12 months ago.

Okay. And that leads to my next question. As we think about, you know, both loan portfolios, consumer and MHP, you know, any thoughts around rates? It looks like it came up a little bit here in the quarter of You know, can you take more or, you know, can we reach a breaking point where you just can't, you know, raise rates anymore?

Yeah, you know, our strategy for the past a little over 12 months has been hold price firm and hold rates, you know, hold rates firm. Now, that said, you know, there's some there's some nuances on either side of the business. On the consumer loan portfolios, I mean, we've held our base rates, but the rates are subject to our underwriting process. And so that really depends on the consumer's credit quality. On the MHP side of the business, our financing program has a base rate and then it flips to variable. And so, you know, we've held the base rates consistent. Over the next, say, 24 months, you're going to see a lot of these flip to variable and you've got community customers that when that flip happens will be, you know, inclined to to refi their projects and pay us off. Okay.

And the last question for me, you know, you said that kind of the park and land development projects are, you know, something that you're focused on now. Any update on where these projects stand today? Any goalposts we should be looking for over the next couple quarters?

Yeah, you know, we've had so much going on over the last 12 months. where I feel like, you know, we finally got the foundation stable. And, you know, we've had issues at the Georgia plant. Obviously, the market's slowed down. I mean, we're spending all of our time, you know, focused on the business. And, you know, as we move forward, we've got to accelerate, you know, these legacy projects. And so a big topic internally is, was land development this quarter and actually putting together a plan for what we're going to do going forward. So right now, we're in the process of assembling a team. We're committed to these projects. They haven't stalled. I think we just feel like they're not moving as quickly as they need to. You know, we're primarily focused on, you know, the kind of, I'd say the crown jewel of this portfolio, which is Bastrop County. And, you know, we're making good progress now on phase one. And, you know, I'd hope, I think I need another, say another month or two to put out, you know, some actual goalposts, but that certainly is the game plan.

Okay. Thank you.

Thanks, Mark.

Thank you. And our next question coming from the lineup, Tim Moore with EF HUD. You want to jump in?

Thanks. I'm talking to a few of my prepared questions already asked, but I actually have four remaining ones. Okay. You mentioned that legacy, and it's pretty obvious and a great attribute. You've held kind of the base interest rate pretty much the same on like you know, the steep 3% rise in single family mortgage rates, you know, over the past year and a half or so. You know, you mentioned the green shoots in loan applications in July, and that was terrific. Sounds like walk-in traffic's better at the retail locations and up a lot. My question is, you know, I'm just trying to pinpoint the possible conversion of timing for how many months it might take from loan applications to to convert to an order, you know, to ship lead time when you can actually book revenues, you know, is that something like three months? You know, in other words, you know, if there is an inflection point, and I'm not putting words in your mouth, for July, and maybe that's continuing in August, you know, does that convert something like October, November soon?

Yeah, you know, I wish I had a crystal ball and, you know, could tell you exactly when that is happening. The dealer channel of our business has been pretty slow for a few quarters. The consumer backed off. You had dealers that had a lot of inventory and then saw their consignment or floor plan financing arrangements or interest rates go up pretty significantly. But what we're hearing from our customers now and what we're seeing at our own stores is there does seem to be a pickup in that channel. You have dealers that are selling homes, reordering homes, and you've got a lot of foot traffic at the dealer level, and obviously we're seeing it in the loan applications. I think it's going to be... a steady progression. I don't think you just overnight, there's this huge boom on the dealer side of the business, but it does feel like we're getting some momentum. Dealers are clearing out their inventory. They're starting to reorder. We've seen an uptick in applications, but we've also seen an uptick in the credit quality of those applications. It seems like there's consumers out there that maybe are dropping down into this category and are able to put up larger down payments than we've seen historically. So we're monitoring it closely. We hope it continues, and we'll obviously keep the market updated quarterly as we see things.

Great, Duncan. That's really good color. Nice to see the credit quality increase on the applications. How's the demand and the interest levels from the park operators? I know that held up pretty good. How's that been doing the last few months?

Yeah, you know, it's slower than we'd like. It seems like a lot of these guys are facing, you know, pretty serious delays on the setup side. And I don't know if it's – you know, it doesn't seem like it's as much setup cruise as, like, you know, getting – the utility operators to cooperate or the counties to cooperate with certificate of occupancies and things like that. We tend to serve a little bit different customer base than our larger competitors. Most of our customers on the park side are regional entrepreneurs. A lot of these guys sold you know, portions of their portfolios when the prices really went crazy last year. So, you know, we've got some big customers that are deploying capital now, you know, they're ordering houses fairly consistent consistently. Um, but you know, we are like, and we are making a sales push for, you know, for new customers, but it's a little bit slower than, than we'd like. Uh, and so we're, you know, I think, Just based on our quote activity, it feels like, you know, end of the year, early next year, you know, these, like that channel will, you know, will gain traction like the dealer channel is now.

That's helpful color. Duncan, I have two more questions. Sure. How are the labor constraints of the three plants compared to maybe last summer? You mentioned you haven't missed one production day this year so far, which is phenomenal. and you're hiring more with a social media push, do you think, you know, let's just theoretically, you know, I'll throw it out there that maybe volumes start coming back pretty good, you know, in November, December that you'll have enough labor in place and retained.

Yeah. You know, geez, labor, labor has been a challenge for a while, you know, all the way, all the way back through COVID. And, and I think, you know, for us and, For the other manufacturers, the constraint is not how much space you have or how big your yard is or how big your plant is. It really is a labor constraint. I mentioned this, I think, on another call, but this is a very simple parameter that we use to think about the labor market. At our Fort Worth plant, there's a waiting room on the front, and If you talk to Curt and Kenny, they'll tell you through COVID, they didn't have a single person show up looking for a job. And we're consistently getting three, four, five people that come in each day and apply. So it does feel like the labor market's loosening up a little bit. And I feel much better about ramping up production now or over the next couple of quarters than I would during COVID.

Great, that's helpful. It's funny you mention that because I remember recall seeing three people filling out applications in your Fort Worth lobby when I was there doing a tour last August.

Exactly, exactly. And if there's nobody out there, that's a problem.

No, no, there was a line. That was a good barometer. That made me feel better, although then Georgia happened. But, you know, just one last question. Given the $50 million availability that you mentioned and, you know, the possible accordion, option feature if you take that up. Should we read into that at all that maybe, you know, now that some of the operational pickups are well behind you, Georgia's firing on all cylinders, the plants are doing well operationally, that there could be an acquisition or a vertical integration target on the near-term horizons?

You know, we're looking hard. The new bank line is we've been working on it for a little while. You know, I don't care what size business you're operating. Um, banks can be difficult to deal with now. And so it's actually, it's a $50 million line with a $25 million accordion feature. So we can take that up to 75 million. So we've got some, we've got some firepower. Um, the other thing that's interesting is it's, it's only secured by our consumer loan portfolio. And so we've got other assets out there unencumbered. We're looking. We've been focused internally. There's still a lot of work to do internally. But if the right opportunity comes up, we're ready to go. We've been looking at all types of things. So I think we're not going to chase something that's expensive. are risky. We're going to stay patient, continue to invest in our own business at high rates of return. And if something comes up that we really like, we're positioned to be aggressive on it.

Great. That's very helpful, Collar. And I always remember your ROI hurdle. I mean, you've done a great job reinvesting back in the business, and maybe you'll have some other external options. But that's it for my questions. And I hope that you, Kurt, Kenny, and the rest of the team have a wonderful summer. And Ron.

Appreciate it. You too.

Thank you. And I'm not showing any further questions in the queue at this time. I would now like to turn the call back over to you, Mr. Bates, for any closing remarks.

Sure. A couple final remarks. I want to thank everybody who joined today's earnings call. We appreciate your interest in legacy housing. And then next, our annual fall show, which is Legacy's largest sales event, is October 1st through the 3rd in Fort Worth, Texas. It's a great opportunity to see our new products and meet the team. And a link to the RSVP is on our website. Operator, this concludes our call.

Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect.