Legacy Housing Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Legacy Housing Corporation's second quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you would need to press star 11 on your telephone. You will then hear an automated message about your hand is raised. And to withdraw your question, please press star 11. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Duncan Bates, President and Chief Executive Officer. Please go ahead, sir.

Good morning. This is Duncan Bates, Legacy's President and CEO. Thank you for joining our second quarter 2025 conference call. Max Africk, Legacies General Counsel, will read the Harbor disclosure before getting started. Max. Thanks, Duncan.

Before we begin, I'll remind our listeners that management's prepared remarks today may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements and or some questions. Actual results may differ from management's current

Thanks, Max. I'm joined today by Jeff Feumann, Legacy's Chief Financial Officer. Jeff will discuss our second quarter financial performance, then I will provide additional corporate updates and open the call for Q&A.

Thanks, Duncan.

Our sales primarily consist of direct sales, commercial sales, inventory finance sales, and retail store sales. Product sales increased 6.7 million, or 21.3%, during the three months ended June 30, 2025, as compared to the same period in 2024. This increase was driven by an increase in unit volume shipped, primarily in inventory finance sales, retail sales, and mobile home park sales categories. For the three months ended June 30th, 2025, our net revenue per product sold increased by 10.5% as compared to the same period in 2024. The increase is primarily due to an increase in units sold to consumers, which are sold at higher retail prices. Consumer MHP and dealer loans interest income increased 1.0 million or 10.6% during the three months ended June 30, 2025, as compared to the same period in 2024. Between June 30, 2025 and June 30, 2024, our consumer loan portfolio increased by $24.6 million, our MHP loan portfolio increased by $20.3 million, and our dealer finance notes decreased by $0.5 million. Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees, and other miscellaneous income and decreased 0.1 million or 10.8% during the three months ended June 30th, 2025 as compared to the same period in 2024. This decrease was primarily due to a 0.2 million decrease in forfeited deposits partially offset by a net $0.1 million increase in other miscellaneous revenue. The cost of product sales increased $4.4 million, or 20.3%, during the three months ended June 30, 2025, as compared to the same period in 2024. The increase in costs is primarily related to the increase in units sold. Gross profit margin was 32.4% of product sales during the three months ended June 30th, 2025, as compared to 31.9% during the three months ended June 30th, 2024. The cost of other sales was 0.6 million during the three months ended June 30th, 2025. Selling general and administrative expenses increased 1.1 million or 19.1% during the three months ended June 30th, 2025 as compared to the same period in 2024. We had a 1.1 million increase in warranty expense primarily due to an over accrual and warranty costs in the second quarter of 2024 that we reversed. And we also had a 0.5 million increase in repossessed home expense a 0.2 million increase in bad debt expense, a 0.1 million increase in loan loss provision, offset by a 0.6 million decrease in legal expense, a 0.1 million decrease in property tax expense, and a net 0.1 million decrease in other miscellaneous expense. Other income decreased 2.8 million or 74.5% during the three months ended June 30th, 2024 as compared to the same period in 2024. We had a one decrease of 0.5 million in non-operating interest income reflecting a lower balance of other notes receivable. Two, a 2.5 million decrease in miscellaneous income primarily due to land sales and a reversal of accrued liabilities during the three months ended June 30, 2024 that did not occur during the three months ended June 30, 2025. And three, a decrease of $0.2 million in interest expense. Net income decreased 9.2% to $14.7 million in the second quarter of 2025 compared to the second quarter of 2024. Basic earnings per share decreased 9.0% to 61 cents per share in the second quarter of 2025 compared to the second quarter of 2024. As of June 30th, 2025, we had approximately 2.6 million in cash compared to 1.1 million as of December 31st, 2024. We drew a small amount on the revolver in the second quarter. The outstanding balance of the revolver was $0.1 million as of June 30, 2025, and was zero as of December 31, 2024. At the end of the second quarter of 2025, Legacy's book value per basic share outstanding was $21.32, an increase of 11.2% from the same period in 2024. Finally, we repurchased 260,635 shares of common stock for $5.8 million during the three months ended June 30, 2025. As of June 30, 2025, we had a remaining authorization of approximately $8.1 million on our share repurchase program.

Thanks, Jeff. I'm pleased with our second quarter results. Our focus has remained on product sales. While there's still uncertainty in the market and weakness in certain geographies and channels, we are seeing positive signs from the changes we've made. Earlier this year, we took a hard look at historical sales data and simplified our product line. That process had its challenges, but some of the adjustments are paying off. As Jeff mentioned, product sales increased 21.3% during the second quarter, compared to the same period in 2024. That growth was primarily driven by dealer activity. Product sales were up 58% sequentially over the first quarter of 2025. Inventory finance sales or floor plan sales to independent dealers increased 4.9 million or 53.3% compared to the second quarter of 2024. Retail sales or sales from our company-owned retail stores rose 2.9 million or 64.2% over the same period. These gains reflect stronger demand across our dealer channel and our continued traction from our product line simplification efforts. Commercial sales or sales to community owners increased 5.3% during the three months ended June 30th, compared to the same period in 2024. Our community customers continue to face headwinds, including elevated interest rates, higher operating costs, and budget constraints among renters. Despite these challenges, we're encouraged by ongoing discussions with both new and existing community owners regarding large orders, which should support volume growth in this channel. Product gross margins were 32.4% in the second quarter of 2025. I'm proud of our team's strong execution and maintaining healthy margins during a rapidly evolving environment for materials and labor costs. We remain disciplined in our pricing strategy and continue to manage expenses carefully to protect profitability. Our top priority for the remainder of 2025 is continuing to build our backlog, which should support increased production volume in the coming quarters. We expect higher output out of our Texas plants where demand remains stronger while activity in the southeast is comparatively slower. We continue to actively manage our loan portfolios. Since the second quarter of 2024, our retail loan portfolio has grown by 24.6 million, while our MHP loan portfolio has grown by 20.3 million. Reflecting strong demand in our dealer channel, retail loan fundings were up 49% in the first half of 2025 compared to the same period in 2024. There were no material land sales during the second quarter of 2025, but we will continue to evaluate opportunities to monetize non-core land when pricing reflects underlying value. In the second quarter of 2024, we completed a non-core land sale that generated a meaningful profit creating a challenging year-over-year comparison for this quarter's earnings. We are focused on completing phase one of Falcon Ranch, our 1,100-lot development in Bastrop County. Phase one includes 115 lots, with roads and utilities already complete. The final remaining project, a bridge, is currently under construction. At the same time, we're making progress on phase two, where utilities are now in place and road work is underway for the first 350 lots. Over the last 18 months, we repurchased over 552,000 shares of common stock in the open market for an aggregate cost of $11.9 million, reducing our outstanding share count by over 2%. These repurchases reflect our continued confidence in the long-term value of the business and our disciplined approach to capital allocation. With no debt and over $10 million in cash on the balance sheet today, we remain well positioned to continue repurchasing shares. We are keeping our eyes on the Road to Housing Act, which passed the Senate Banking Committee and is awaiting a full Senate vote. The bill reauthorizes HUD's price program, which provides grants to improve infrastructure like water and sewer systems in manufactured housing communities. It also removes the federal requirement for a permanent chassis, lowering build costs and allowing for more flexible home designs. If passed, the bill should support growth in both home sales and community development. Operator, this concludes our prepared remarks. Please begin the Q&A.

Thank you. And as a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. The first question comes from Rohit Seth with B Raleigh Securities. Your line is open.

Hey, thanks for taking my question. So good order flow coming in through the second quarter, good rebound on volumes. Just curious what you're seeing as we enter July, August. Have you seen the same momentum continue? Is it coming from the same channels? Just get a sense of how you see the rest of the year.

Yeah. Hey, Rohit. You know we're really we're happy with the second quarter performance, obviously the you know the dealer side of our business really drove the you know the the the revenue growth. continue to see that you know this quarter, and you know we're seeing signs of life on the Community side, I think the you know the difficult thing has been. you know, the prices for mobile home parks have gone up pretty dramatically. You've got increased financing costs. You got, you know, homes are more expensive, operating costs are higher, and you've got a renter that, you know, can only afford so much. And so I think, you know, there is a shift to, you know, smaller houses, and we're having some success in that. But we really, you know, we need to land a couple of these large orders, you know, to really see an uptick in that side of our business for the rest of the year.

Okay. And then on the bass drop, it looks like you got making some progress there. Do you think you'll be selling plots there by the fourth quarter? Is this something happening in 25 or is this more 2026?

TAB, Mark McIntyre, You know that's the that's the goal, I mean the final piece of this thing is we've got to build a bridge and the bridge is under construction. TAB, Mark McIntyre, You know it's well underway. TAB, Mark McIntyre, But you know, ultimately roads are in utilities are all in phase one. TAB, Mark McIntyre, You gotta complete the bridge to you know connected. TAB, Mark McIntyre, To the you know infrastructure outside of the Community. and it's not you know i wouldn't say we're like crossing any waterway i did and um but it's certainly a project so the goal is to get that done there's a way to you know shortcut kind of you know starting to sell lots that's something we're looking at you know where we can go ahead and plat before the uh before the bridge is done um but you know we're we're just well underway on construction there so You know, the goal is certainly to sell lots as soon as possible. There's a lot of demand down there. We've got a dealer on site who's, you know, who's been doing really well with sales this year. And, you know, what's been interesting for me to watch is like, we're really gaining ground on phase two, where you've got all the utilities in and we're putting the roads down for the first 350.

rental lot so good progress we've made a couple key hires down there um you know we've got the we've got the cash to push this thing forward and uh we're working as as hard as we can to get it open yeah fantastic if i can squeeze one last one in on the sgna line it's running up a little bit higher than you know as a percentage of sales and uh is this like the new normal or um at least for the year Just any sense of kind of the trajectory on SG&A?

No, I think SG&A, I'll kind of dip back in line to where it's been. We had some kind of wonky comparisons with, you know, year-over-year accruals for things like warranty expense and, you know, legal expense and others that, you know, shifted that upward.

All right. Fantastic. Thank you, Pastor.

Thanks. And the next question will come from Alex with Texas Capital Securities. Your line is open.

Thank you. Good morning, Duncan.

Hey, good morning, Alex.

As it relates to being encouraged by discussions with community owners for large orders, what are the primary items that are either sparking these interests or maybe keeping them on hold until an order?

Well, you know, we've got a handful of, you know, I would call them like large customers that we've worked with for a long period of time. And, you know, these guys tend to buy communities that are in disrepair and they fix them up and they replace all the homes and, you know, then they move to the next one. And so, You know, especially through like COVID, we had some, you know, some huge orders as these guys really expanded. And then they took a, you know, they took a breather. And so, you know, what we're seeing is we've got some large customers that have either, you know, purchased or have communities under contract where, you know, they'll need a decent amount of homes. And I think, you know, on the other side, on the new customers, I mean, we've been for the past couple years, you know, we've been growing with some younger guys as we replace, you know, the, you know, kind of the legacy customer base. And, you know, those guys may start by ordering six homes and then next year they order 20 homes. And, you know, you just keep growing with them as their portfolio builds. I think, you know, one change is that it seems like the financing markets have opened up a little bit, right? So we're seeing, you know, some payoffs on the MHP portfolio as, you know, now we've got customers who have parks, you know, with newer houses in them and they're stabilized and they're, you know, they're monetizing those and, you know, rolling those those gains into new properties to do the same thing.

Makes sense. And then can you talk a bit about average selling price? Are you surprised that it's holding up here? And any thoughts around that?

um yeah i mean the the average selling price for the quarter you know we went like on a quarter quarter over quarter basis from say 61 000 to 68 000 i think the bulk of that was just driven by you know the increase in you know sales through our company-owned retail stores um you know but we I think we were, you know, we were slower to raise prices during COVID. You know, we've raised prices more aggressively, you know, with, as we figured out kind of the, you know, the impact of tariffs on our costs. And so, you know, I do, you know, I do expect it to stay elevated, but certainly, you know, there's a point where it's at the detriment of, or to the detriment of, you know, volume through the plants.

And then you talked a bit about Georgia being a little bit slower maybe in the second half. Any additional color on that?

Yeah, the southeast market just feels slow. I think CAVCO commented on that during their call. Florida's slower. We're seeing similar things in the southeast. I mean, we've got customers that are doing things. We've won some new customers over there. We've had some workforce housing builds over there. Alex Sarkissian, dealer base isn't as strong out of that plant so you're you know you're you're more reliant on. Alex Sarkissian, or we're more reliant on Community customers and, but it just seems a little bit slower than what we're seeing in Texas.

Alex Sarkissian, Understood, thank you.

Alex Sarkissian, Thanks Alex.

And the next question is going to come from Daniel Moore with CJS Securities. Your line is open.

Morning, Duncan. Morning, Jeff. Obviously, you had a really nice jump in product sales in the quarter, volumes up double digits. Year-to-date, we're relatively flat. Just want to make sure and just kind of remind me, were there any sales that may have slipped from Q1 to Q2? Or is it more demand actually improving, you know, as we've worked through the year?

You know, I think we had some orders on the community side that slipped. I mean, first quarter wasn't our strongest performance from a product sales standpoint. But, you know, you see that, you know, community sales at least quarter over a quarter are – you know, were relatively flat. They were up, you know, 5% or so. So, you know, there were some, like there were certainly some orders that slipped, but they were mainly on the, you know, mainly on the community side. I think, you know, we saw on the dealer side was actually some, you know, a little bit better strength. But, you know, the market's still choppy. I mean, it's still like Parkside's slower than we'd like it to be. You know, certain geographies, even within, you know, areas that we serve out of our Georgia plant or out of our Texas plants seem to be slower than others. So, you know, we're cautiously optimistic on the year. But, you know, we continue to be here every day working and trying to get houses built and shipped.

Got it. And then specifically for retail, obviously retail stores hit their highest order. over $7 million in sales, highest quarter that we've seen in multiple years. Is that a function? I guess just talk to the sustainability of that and any update you can provide on how the investments you've been making in retail sales force are progressing.

Yeah, I mean, the key to retail systems, processes, and people, and you need to get people you know, selling houses and making commissions to retain them. And I think that's something that we've, you know, we've struggled with for a while. We've got, you know, a pretty good team on the retail side. They had a great quarter. You know, we've got certain stores that are performing better than others. And, you know, the focus right now is bringing the underperforming stores up to, you know, some type of baseline, you know, and continuing to perform at the stores that are doing better. So it was a good quarter for the retail team. I think it's a, you know, representative of what we can do, and we just got to keep pushing forward on that, you know, July was a little bit slower, but not terrible either. So I think some of these changes are helping, but we still have a ways to go. I really view that as an opportunity for us. And you see what it does if we can push more volume through that channel.

know does help us on the you know on the revenue side and and it's reflected in the average selling price helpful one or two more just a little bit of so on the gross margin side uh overall saw a little bit of pressure you know um your uh but then you called out i think you know product sales gross margin improved so just I guess if I look at holistically, we were at 47% for the company. Would we expect that to be a kind of new level or improve as we move forward? Just to talk about the puts and takes there.

Yeah, see, when I talk about gross margin, I'm really just looking at the product gross margin, so product revenue and the cost of goods sold. And so in Q2 of 24, I've got 31.9%, you know, which were, you know, jumped up to 32.4% for the second quarter of 2025. I think if you look at it as a whole, you know, we had a bump in SG&A due to, you know, some expenses, but also due to kind of some, you know, some mismatches of accruals

uh from the second quarter of 2024 that you know if you look at gross margin in total um it's lower for the second quarter i but i'm i'm discussing just product gross margin makes sense lastly i think you touched on this but you know bought back six million stock in the quarter i think 11 million year to date but the stock sitting here you know not too far above book value um is that uh likely continued use of capital and cash flow as we move forward?

Yeah, I mean, we've got to weigh it against other opportunities. And, you know, we're seeing a lot right now, especially on the lending side, you know, to put money to work at good rates of return. You know, the business has, you know, over the last 20 years, you know, generated, say, you know, 15 or 10 to 15% after tax returns pretty consistently. And so, you know, we're like, we obviously we're, we're watching the stock, but we're going to be opportunistic buyers. We're not just going to buy stock just to buy it. If we've got opportunities to deploy the capital elsewhere.

Very good. Makes sense. Appreciate the color.

Thanks Dan.

And the next question comes from Mark. Smith with Lake Street. Your line is open.

Hi, Duncan. I wanted to ask first, you were just talking about products margin a little bit. We'd love to hear kind of your outlook as we think about tariffs and some inflationary pressure, if you're seeing any items that are moving higher, kind of your outlook here as we think about the second half or even into next year.

Yeah, as you can imagine, there's a lot of moving parts I think from the tariffs and the impact on international goods, we've adjusted our pricing accordingly. But you've got moving commodity prices in other materials. I mean, you've seen kind of Lumber futures have crept up. OSB has been low. Steel has been relatively flat. But what I don't think is going lower are labor costs. And so that's something that we're keeping an eye on. I think there's a balance between price and volume. You know, that's like you got to keep the plants running. You got to keep, you know, you can't be underabsorbed on labor. But certainly, you know, the input prices on, you know, most of these products that we buy to assemble houses are going up.

Yeah. And back to pricing a little bit and ASP. Sounds like it was largely a function of the sales mix. But can you quantify or talk to, maybe over the last six months, any kind of pricing action that you guys have taken?

Yeah, I mean, we've had a couple price increases this year. We started in February. We had one that I'd say is more material, kind of mid to late June. And, um, it's, you know, it's something that we're like, we're keeping an eye on, uh, but it's also a difficult time right now. I mean, there just seems to be a lot of moving, you know, moving pieces with, uh, commodity prices. I think with a little bit higher prices, it does give you some flexibility. you know, to run, like, you know, to put the advertising machine to work and do some, you know, sales and other types of incentives, especially as we head into our fall show coming up in September.

Okay. And the last one for me, just curious your thoughts around kind of consumer behavior, you know, and if you're seeing a difference out there between kind of the, the renter in how they're holding up, um, versus kind of a home owner, home buyer, uh, any differences there. And if there's some pressure on renters, if that's maybe hurting the MHP market a bit.

I, you know, I think the renters, um, I think the renters are, you know, fairly, maybe not tapped out, but they're, they're certainly price sensitive. Um, And, you know, if your mobile home park model, you know, is showing that you're going to, you know, continue to raise rents and, you know, costs of everything else have gone up, all your operating costs, you know, homes are more expensive, financing is more expensive. You know, I think it does put pressure on the community operators where, you know, the isn't as great as it was a few years ago, which is shifting a lot of these guys to smaller houses that they can rent at similar prices and keep the monthly payments affordable. I think the second quarter, obviously dealer business performed a little bit better um but i wouldn't say that you know demand is off the charts on the on the dealer business you know right now i mean i think it's it's spotty customers are price conscious and um you know but compared to a stick built home i mean you're you know you're you're you're so much more affordable and that although the you know the next few quarters could be choppy, you know, I really don't think that, you know, the affordable housing crisis is fixed in this industry or fixed, you know, in this country without this industry. And so the, you know, some of the work at, you know, legislative level is, you know, it's pretty encouraging where there's been a lot of talks you know, for years about regulatory reform to the HUD code. And, you know, you're starting to actually see some traction given, you know, how bad the affordability problem is in this country. And so, you know, I don't think it, like there's, we're cautiously optimistic, but I think longer term, our outlook is pretty strong.

Excellent. That's helpful. Thank you.

All right, thank you. I show no more further questions in the queue. I would now like to turn the call back over to Duncan for closing remarks.

Thank you for joining today's earnings call. We appreciate your interest in legacy housing. We're hosting our fall show in Fort Worth on September 27th and 28th. Feel free to register on our website. Operator, this concludes our call. Thank you.

Thank you. This does conclude today's conference call, and thank you for participating. And you may now disconnect.