Legacy Housing Corporation

Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation third quarter 2025 earnings conference 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kurt Hodgson, co-founder and executive chairman of the board. Please go ahead.

Good morning. This is Kurt Hodgson. I'm here with Kenny Shipley, my legacy co-founder and our interim CEO. Thanks for joining our third quarter 2025 conference call. Ron Arrington, our interim chief financial officer, will read the safe harbor disclosure before we get started.

Before we begin, I'm reminding our listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risk 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. 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 projection as to the company's future performance represents management's estimates as of today's call. Legacy housing assumes no obligation to update these projections in the future unless it is acquired by applicable law.

Thanks, Ron. As you can tell from the word interim appearing in two of our titles, we've had some senior turnover recently. Our prior CEO, CFO, and general counsel departed last month. Fortunately, Kenny and I have remained active in the business through these years and are excited to re-engage in the day-to-day operations of profitably manufacturing and selling mobile homes. Ron Arrington previously served as our CFO and has led our development team recently, so we haven't skipped a beat in that section. I'm going to turn the call over to Ron now for a review of our third quarter performance, after which I will speak briefly with our thoughts some additional corporate updates, and then we'll open the call up for questions. Ron? Thanks, Kurt.

Let's get straight to the numbers. Home sales decreased by 1.4 million, or 4.8% during the three months ended September 30, 2025, as compared to the same period last year. The decrease was primarily driven by decline in sales to mobile home park customers utilizing Legacy's commercial loan program, as well as a decline in sales to independent dealers participating in Legacy's inventory finance program. These drops were primarily offset by increased indirect sales to customers and revenues from Legacy's company-owned heritage outlets. Net revenue per unit increased approximately 8% to $68,500 from $63,500 year over year. At the end of the second quarter of 2025, Legacy increased prices to mitigate the impact increases in raw material costs and tariffs on Chinese goods. Kirk can speak later as to these other steps Legacy is taking address these challenges. Product sales remained relatively flat in the year-to-date comparison for 2025 versus 2024, declining slightly by 1.2 million or 1.3 percent. The sales mix changed with declines in direct sales and mobile home part sales offset by increase in company-owned retail store sales and dealer inventory finance program sales. The shift in mix along with price increase explains why Legacy's net revenue per unit increased 13% to $68,600. Consumer MHP and dealer loan interest income increased to $10.9 million. up 5.4 percent during the third quarter as compared to the prior year. This increase was primarily driven by increases in the consumer loan portfolio and higher interest rates from MHP loans converting to variable rates per their loan agreements. Consumer MPH and dealer loan interest increased to $32.4 million, up 5.3% for the nine months into September 2025, as compared to 2024. Over the prior 12 months, Legacy's consumer loan portfolio increased by $21.4 million, up to $188.1 million, up 12.8%. During the same period, Legacy's MHP note portfolio remained essentially unchanged at 201.5 million. Dealer inventory finance loans decreased 1.4 million to 30.3 million, down 4.4%. Other revenue consists primarily of contract deposit foreclosures, forfeitures, Dealer consignment sales, commercial lease rents, portfolio servicer revenue, and land sales revenue decreased by 3 million or 79% for the third quarter of 2025 compared to the third quarter of 2024. This decrease was primarily due to a significant land sale which occurred during the third quarter of 2024. as well as a decrease in portfolio servicer revenue between comparison periods. For the nine-month comparison period of third quarter 25 versus third quarter 2024, other revenues declined 4.1 million or 63.1 percent due to the aforementioned sale as well as a significant reduction of 2025 forfeiture income on MHP deposits for canceled contracts. The cost of product sales increased $1.6 million or 7.5% during the three months ended September 2025 as compared to the same period in 2024. same comparison period, product sales declined 1.4 million or 4.6%. This increase in cost of product sales is primarily related to a sizable increase in raw material cost and tariffs offset by a decrease in delivery, shipping, and setup cost as we ship fewer units. I know tariffs are of particular interest, so to put them in perspective, they add roughly $1,200 to the cost of a standard floor plan. Product gross margin was 20.28% for the third quarter of 2025, down from 29.2% for the third quarter of 2024. The cost of product sales increased $2.7 million or 4.3% for the nine months ended September 2025 compared to 2024. During the same period, product revenue decreased by 1.2 million or 1.3%. The increase in cost of product sales is primarily related to increases in raw material costs, tariffs, and delivery, shipping, and setup costs. by decrease in labor and factory overhead cost. Product gross margin was 27.7 for the nine months ended September 25, compared to 31.6 for 2024. Selling, general, and administrative expenses increased 1.3 million, or 20.6%, for three months ended September 25 compared to 24. The increase was a result of a $900,000 increase in legal expenses, a $500,000 increase in loan portfolio loss expenses, and a half million dollar increase in professional and consulting fees, partially offset by a $600,000 decrease in the company's self-insured health benefit plan. SG&A increased $2.7 million or 15.5% for the nine months ended September 2025 compared to 2024. The increase was primarily a result of a $1.7 million increase in loan portfolio expenses, $800,000 increase in legal costs, a $700,000 increase in service and warranty expenses, and a $400,000 increase in professional and consulting fees offset by a $700,000 decrease in the company's self-insured health benefit expenses and a $400,000 decrease in corporate and general payroll expenses. Other non-operating income decreased 6.9 million or 72.3% over the nine-month comparison period ending September 25 compared to September 2024. This was primarily due to a significant one-time transaction during the 2024 period. The two largest were a $4.9 million fair market value adjustment and long restructuring gains and a $2 million of liability accrual reverses related to various completed MHP contracts. So what's the bottom line for a tough quarter? Net income decreased 7.2 million or 45.3 percent to 8.6 million compared to 15.8 million in the third quarter of 2024. Net income margin was 21.4%, down from 35.7% for the third quarter of 2024. For the nine months ended September 25 compared to 24, net income declined 13 million or 28.7 to 33.6 million from 47.1 million. Net income margin was 26.6 for the nine months ended September 2025 compared to 36.3 in 2024. We ended the third quarter of 2025 with $13.6 million in cash. In July of 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 and currently has a zero balance. As of September 24, we've had approximately $570,000 in cash and equivalents and a balance of 2.6 on our line of credit. So you can see this, despite the lower sales and net margin, we've continued to strengthen our balance sheet. Legacies delivered a 9.5% return on shareholders' equity over the last four quarters ended September 25. And at the end of the third quarter, Legacies' book value per basic share outstanding was $21.85, an increase of $1.90 since the same period of 2024. I'll now turn things back over to Kirk.

Thanks, Ron. So let's quickly discuss the market, followed by our financial performance updates on key issues and strategic initiatives. The latest data shows continued slowing in the industry as a whole, with the Texas Manufacturing Housing Association reporting a seasonally adjusted drop of 3.8% in August and down 6.1% on the raw total from September of 2024. Despite the continued housing affordability problem in our markets, macroeconomic headwinds, such as falling consumer confidence, large tariff rises necessitating price increases, are somewhat restraining growth. On the bright side, we held our big annual show in September in Fort Worth. The show was one of the most successful the company's ever had. Orders booked there will ensure markets Higher production rates for the fourth quarter over the third quarter and carrying on well into the first quarter of 26. The other end part customers order homes at our fall show. I'd kind of like to dive into some macro topics for a minute. So I think, you know, we're not happy with these results. And I think that probably explains why The changing of the guard, so to speak, happened last month. Our retail and dealer side of our business saw sales falling for the last year or more. Our community park side of the business saw sales falling for the last year or so. Heritage, our retail side, actually had increased sales. And our finance division continued to be Profitable, very much so. Low, but somewhat increasing charge-offs due to more foreclosures and lower resale prices. As of September 30, I think 99% of our mobile home notes or better were performing as agreed, and about 97.5% of our consumer loans were performing as agreed. And by that we mean, are they within 30 days of being current? We monitor these numbers monthly and are confident that our portfolios are very strong. We have began to feel the effects of ICE enforcement on our labor force and on customer demand and on the performance of our retail portfolio. I don't think it's real significant, but we definitely are feeling the effects of of fewer Hispanic customers in our market, particularly in Texas, but I think it's also true in the Southeast. We began hiring at key positions. We had kind of a lull in hiring. I think our past management can't really be credited with hiring anybody of consequence. We've already hired a new general manager for Fort Worth. If you know, Norm Newton is now with the company. It was released earlier. We're actively looking for a new CEO with industry experience. So our hiring is, since in the last few weeks when Kenny and I got back about, we're focusing on filling the seats with some quality people. Our working capital is too high. I've been noticing this in our financials for some time. We have too much raw material, probably double what we should have, and our finished inventory is also high. At any given time, we have as many as 200 houses in the yard, which is probably double what it should be. Our finished good inventory was $24 million, including work in progress at the end of the quarter. I think that's probably double what it should be. So if we can reduce our working capital, or let's say our unproductive working capital, that'll free up $10, $20 million to... to be reinvested into the business. We remain in a strong cash position. We'll be able to complete the AmeriCost purchase without incurring any debt. On a positive, I don't know who all is on the call and what their knowledge of Texas is, but the data centers in Texas are all underway. There's going to be At least 5,000 housing units probably created in the next 24 months to tend to those housing needs, almost all of which will come from the 30-plus manufacturing facilities located in the state of Texas, ours being a couple of those. So business in Texas, anyway, looks like it's going to be really good for the next year or two.

I'd like to discuss a little bit about the Maricasa acquisition.

We've known this partnership between Jeff Gainsborough and Norm Newton for at least a decade. They've been a customer of ours. They've had a portfolio with us the whole way. We're basically buying them out of everything they have in the mobile home business, and Norm Newton has agreed to come to work as director of revenue. for the company. He has particular expertise in passively, or should I say, absentee managing of dealerships, which has been a real challenge for us. He has a vibrant dealership that we're acquiring in Houston, and doesn't have an owner on the premises, and he's proven that his model works pretty good, and we hope to be able to use his model over our 12 other locations that we have at the retail level. We are acquiring some other things in this process. It's kind of a hodgepodge of things. The net result is about $9 or $10 million will be allocated among the retailership that we're acquiring in Houston, the nearshoring that we're affiliating with in Columbia, which I visited myself, and what we call the home FX model, which is norms proprietary system, including software, of managing retail locations remotely. So, we're looking forward to that, integrating that with our system so that we can do more retailing at our company stores. I think that the likelihood of that is extremely high. We continue to deliver strong operating margins and consistent profitability. In fact, we've never had a quarterly loss in our entire history, not just from the six years plus that we've been public, but for actually the 40 plus years that Kenny and I have maintained our partnership. The loan portfolios are on track to deliver about $40 million straight to the bottom line this year. As far as valuation, Kenny and I started this company In 97, with about $700,000, we took in about $60 million of outside money when we went public. And the combination of that has now grown to $522 million over the 20 plus years that we've done this. And we'll continue to grow that book of value. And that's pretty much after taxes. We make it, we save it, we invest it. And that's what we've always done. And that's the basic values that we'll be getting back to. I think we got a little distracted over the last couple of years, and we intend to get back to doing what we do, which is selling a good product for a fair price, financing it, and distributing it in a variety of ways. Our book value consists mostly of finance notes realized that that book value wasn't ever in place at any given time. It's what we evolved to. We basically finance notes to enhance our own yields, but we like to finance business from a return on investment point of view too. The norm portfolio that we're acquiring, which is a little over $10 million notes, bears interest at over 16%. And we have experience with his portfolios because we have one in common with him. It's always performed very well. And we expect that the portfolio we're acquiring from Norm will perform well and make everybody money. We publish our book value per share each quarter. As Ron mentioned, as of September 30, our book value is $21.85 per share. We've also bought back through time. I might be able to quantify this. I don't know. But I want to say it's somewhere in the neighborhood of $20 million or more of stock, which sits on our balance sheet as treasury stock. With our stock trading essentially the same price, we're looking at this changing the guard as an opportunity to maybe reinvigorate our growth and innovation, which should increase profit margins and create a stock premium. On the flip side, if the stock continues to trade somewhere around book value, we will use our own liquidity as usual to repurchase shares. So I think the bottom is fairly well protected. Subdue to our limitations of how much we can buy back in any given day. And as you know, with the new buyback laws, every time we buy back shares, we do pay, I think it's a 1% tax to the federal government. I believe we can continue building shareholders equity, even in this high interest slowing growth economy. And our share price will begin to reflect this. I think when we get the uncertainty behind us, we'll get back to some reasonable PE ratio. Any strategic moves are icing on the cake. In my opinion, this is a great time to be an owner of a legacy, particularly if you're in at today's price as you'll own part of a company that's never lost money in any year since its founding. As for affordability is now front and center in the U.S. in housing, we are positioned to provide that affordable housing to thousands of families over the coming years and For those of you that are not from Texas, Texas is a nice place to be right now. The economy is still doing great, and we haven't had any hiccups as far as the economy is concerned. I want to address a couple of questions on an email that was sent to me recently. We have a lot of real estate on our books. The Austin project is coming along nicely. It's a little slower than we like. We have three or four hurdles before we're up and running. The wastewater treatment plant needs to be installed, which will not happen until probably second quarter of 2026. We're also working on getting access from the state highways that adjoin our property. The infrastructure in the middle of the property is coming along really well and will be very far along by the time we solve those other two problems we're trying to negotiate. with the school system to put an elementary school in the middle of it, which would be the primary amenity of the parcel. As for other real estate we own, we are not. We have no shovels in the dirt anywhere else. It's all entitled to be mobile home properties. It's a little bit challenging when the property is worth two, three, four, five times more than you paid for it just because we bought it for $10,000 an acre or two. make a mobile home park out of it doesn't mean we would come to the same conclusion now that it's valued at $40,000 or $50,000 per acre, which is the case in several of our properties. We are entertaining and divesting ourselves of the property, of the properties. I would estimate of the picture seven remaining properties on the books besides Bastrop County, we probably have $4 to $5 million of property of gains should we choose to liquidate those properties, and if anything, that's on the low side. I was asked about the long-term margin targets for the industry. I think a lot of companies have been absorbing the increase in cost caused by tariffs and other factors. I think when they start looking at their financial statements like we just did ours, we'll probably all be in lockstep with each other too. slowly increase prices for the products that we're marketing right now. It's been pretty cutthroat from one manufacturer to the other, and I'm hoping that when people realize that the tariffs are not temporary, the labor increases that we've paid, or the labor wage increase that we're paying are not temporary, I think we probably need to reevaluate the operating margins in the industry as a whole. That's pretty much it. I can probably turn it over to question answers or questions.

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Daniel Moore with CJS Securities. Your line is now open.

morning Kurt morning Ron appreciate the color and thanks for taking questions maybe start with the America Casa the America Casa asset purchase just talk to you know their revenue model what are the features of the future home X platform you know and how's their software expected to enhance sales growth well we weren't really looking at their financials on the purchase

We were intrigued by the Home X product. We've experimented a little bit with it. Several of our dealers are using it. They pay a royalty to use it. If we can find a way to manage these locations remotely, whether it be from Dallas or Houston or Bogota, then we will have solved a lot of the mystery. Our manufacturing peer group all maintain their own retail locations, and they struggle with how to get volumes up as well. Industry-wide, I would guess that the average retail location that is affiliated with a manufacturer sells two, three, four mobile homes per month. Two's maybe break-even, three's profitable, four's highly profitable. So basically, we're just trying to get our sales up on a location basis. The primary reason we We made a deal with Norm was to have access to that remote management technology. And I think that's it. As far as his one lot in Houston, it shines. He sells roughly 10, 12 houses a month, every month, which is more than double what we sell at our locations. And Kenny and I both visited it. It was pretty impressive in that front. I mean, are we paying a little bit of It kind of depends on what the management system is worth. If it's worth, say, $5 million, which is what I kind of put on it, I would look at it as though we have paid fair market value for all the assets we're acquiring from the American asset thing. Of course, we won't know until we integrate it with our own model to see what it is, but I'm very optimistic that that acquisition is going to help us sell more direct to retail consumers.

Really helpful. And just making sure I heard correctly, the size of the chattel mortgage loan portfolio that you're acquiring, I heard 16%. Was it $30 million or was that off? I'm sorry.

The portfolio, the deal is when we close, we will acquire all loans in that portfolio that are current, defined by within 30 days of currency. And we think that the face value of that Part of the transaction will be $10.8 million, plus or minus a couple hundred thousand. And the effective interest rate or the interest rate on that is just over 16%. Very similar to our portfolios. It's almost exactly on that piece. It's right up our alley. We can absorb it rather easily, and I have confidence that it'll be accretive to our financials.

Got it. And then you mentioned in the press release you expect normal production out of the Texas manufacturing facilities through year end. Obviously, you know, great to hear the encouraging show that you had at the end of September in Fort Worth. What does kind of normal mean maybe relative to, you know, Q4 last year? And just talk about what your expectations are from the Georgia plant as well over the next quarter or two.

I don't have Q4 in front of me from last year, but I think we'll be through most of the Q4, which now, of course, we're a month into. I think we'll average six to seven in Texas per day and probably two to three in Georgia. Let's call it company-wide eight to ten and I don't really know. I'd have to dig out to see how we did in Q4 last year. 8 to 10 is profitable, as one shareholder eloquently pointed out. It doesn't look like the production and sales of mobile homes made money in Q3, and that is correct. But in Q4, that part of the business should contribute pretty nicely to our earnings, and the first quarter looks even better than that.

Perfect. And then lastly, you mentioned the industry pricing. Have you taken or plan to take additional price increases? I know it's a tough environment, but to offset some of the increase in raw material costs and tariffs over the next one, two, three quarters. And I'll jump back in queue. Thank you.

I don't know. Well, we went first. We had an off-price increase in June, and I think we were first in the industry to do it. And it may have dissuaded some of our regular buyers from buying. But since then, our competitors have joined in to sliding price increases. We're talking overall probably 3%, 4% has been the price increases. But again, we're all trying to use up excess capacity. 34 plants operate in the state of Texas, probably only three or four of them operating at capacity. So we duke it out on pricing, financing, features, and all sorts of things. I heard recently of a manufacturer that was offering one-year free flooring dealers if they buy a house. We're concerned about profitability. We were able to make hay while the sun shines during COVID, but we don't intend to give it back by building a mobile home unless we can make a margin on it. It's tempting to say, okay, let's just keep the factories running or whatnot, but we're not going to be giving back this tangible book value we have. I don't see the market declining, especially in Texas, with the data center workforce housing lift that we're going to be having in the next 24 months. I am a little more concerned about Georgia and where its unit sales are going to come from in the southeast.

Very good. I'll jump back in and follow up. Thank you.

Thank you. Our next question comes from the line of Alex Rigel with Texas Capital Securities. Your line is now open.

Good morning, Kurt and Ron. How are you?

Hi, Mr. Rigel. How are you?

Doing well. Thanks. A couple quick questions here. So are you looking at other acquisitions at this time? And can you talk a bit about expanding your company-owned retail stores?

Well, I mean, I would say that if we do... any acquisitions, it will dovetail well with the one we just did. And the one we just did is designed to increase our ability to profitably distribute through company stores. So I think you hit the nail on the head, Alex, that if there is an acquisition, it would probably be retail centers in our market areas. Independent dealers are getting difficult to make money on, and Besides that, a lot of them are aging out. They're people. They're big, big, former-type ages. Very few retail centers, independent retailers, are owned by anybody under 50 years old.

So that distribution is being able to come to the stores, not just the stores, but competitors.

And it may be more of a push to Internet sales. We may be emphasizing used house sales. But, yeah, we want to be more on the retail business than we have been in the past. A very, very small percentage of our revenue has been from our own retail centers, and I would hope to grow that to maybe as much as 50% by the end of next year.

Very helpful.

And then secondly, can you talk a little bit more about your kind of consumer loan portfolio and how it's performed kind of more recently, how the trends have been playing out over the last few months, and if there's been any kind of notable change there?

You know, we don't have much notable change, but there is anecdotal evidence. We had the benefit of everything that was on our books pre-COVID was at prices substantially below current prices. So every mobile home loan on our books that was pre-COVID had the benefit of being right side up, so to speak, from a consumer's perspective. So every time one did repo, We actually made money on it. The guy owed $30,000 on his mobile home and turned it back to us. We sold it for $40,000. So for years, when we did repo one, it was actually kind of a windfall. But since COVID, those notes that have been created in the last four years don't have a corresponding benefit from price increases. So now when we repo a note that was made, say, in 2022, When we go to sell it, if they owe us $40,000, maybe we only sell it for $35,000 and we have a little bit of impairment to take on it. So the recovery rate on the repos is not as good as it once was. But let's just say, in my opinion, it's more realistic that that one time nearly doubling of prices that we had during COVID kept us from having any losses when we did repossess something. Now, as far as the percentage that are in trouble, And this is kind of the good news is we just don't have more than a couple percent at the retail level that are problematic, which is still historically a low amount. Anecdotally, we're in Texas. I live here. Kenny lives here. And we all know somebody now that's subject to deportation or a relative that is subject to deportation. And a lot of our notes and a lot of our basic demand comes from, for lack of a better word, an immigrant market. So we're kind of expecting some difficulty there, but it hasn't shown up in the numbers yet.

That's good to hear.

And then circling back to capital allocation through the years, like you mentioned, you have been a buyer of stock for, Can you talk about that a little bit more and also have there been any insider repurchases or has there been an open period for insider purchases at all?

I haven't bought any and I don't think Kenny's bought any.

Unfortunately, from an insider point of view, that's pretty much the only visibility that we do on our foreign force. in our circle of influence, which is not an insider, I do know of at least one party that's bought pretty heavily in the last couple months. And I don't know of any party in my own circle that has been a seller at these levels ever since, say, 7-24. I don't know anybody that's even considered being a seller that I have much influence over. So I would say At what level will we protect it? Well, I don't make the decision. Kenny doesn't make the decision. We kind of make the decision when we talk to each other. We do have the authority to make the decision. And as you know, the company can't, for instance, we can't buy today. We're in blackout. So we could buy later in the week. It's always a little bit discretionary when we could buy. But when we're not in a blackout, I think you can assume anytime that we think it's a a good investment, we'll be there with our cash resources. Not only do we have cash in the bank today, but we have an unused $50 million loan that I think is still pretty solid with prosperity. And we cash flow money. All the improvements to our land in Bastrop County have all been paid for with free cash flow. And I think we're now pressing about $30 million of money we've put into Bastrop County. And I would guess... By the time it's all said and done, we'll put another $20 or $30 million into Bastrop County, and then we'll have room for 1,100 mobile homes. It'll be a thing of beauty. We'll probably keep a couple days a month or three days a month active in one of our factories.

As I said, it's only that one property's demand. Sorry, one last question as it relates to Bastrop County.

What's your best guess right now as to when you might start to sell homes?

We have 110 lots that were designed to be pretty simple lots. We would begin marketing as soon as we solved just one piece of the puzzle, and that's connecting to the state highways on one side or the other. They would go on their market. The beauty part about that is when we did this, we thought we'd be selling those things for $70,000 or $80,000 a piece. And the current value of those lots is retail is probably more like 120 or maybe 120, 130. So in a way, not selling them for 80 has yielded us an above average rate of return just by not selling them. But anybody has a lot, a three-quarter acre lot, and this market is getting well over $100,000 for a place to put a mobile home, sometimes 130. We're kind of expecting now to get 115, 120. when we go to market on those. We'd like to get that going, if nothing else, to fill it up with legacies that we've built at our two plants in Texas.

Thank you.

Thank you. Our next question comes from the line of Mark Smith with Lake Street. Your line is now open.

Hi, guys. first question for me, just wanted to ask, you talk quite a bit about kind of demand and production in Texas. Curiously, if you could just give us your thoughts around kind of Georgia and the Southeast, how that market's doing and kind of how things are running at the plant.

Like, you probably got this, Mark, from my mood when I said just a minute ago or my tone of voice. I am not that confident in the southeast and know that we can carry on at two or three a day. But that's a very large manufacturing facility and doesn't really make sense at two or three a day. So we've got to find a way to develop distribution in that market. The mobile home park model is not as good as it was. People now are paying a lot more for the house. They're paying a lot more for the home. They're paying a lot more to set it up. They're paying more to hook it up to utilities. And unfortunately, the rents that they typically get when they put one in their mobile home parks haven't increased accordingly. So the model is not as solid as it was, say, five years ago, which was a big part of what we built in the market when everybody built, filling up a bunch of mobile home parks in a model that did make sense. when all those prices were down and the rents were pretty much the same as they are today. So the underlying demand in the southeast has got to be to the guy who's going to live in rural America or some sort of opportunistic disaster housing, which has oftentimes happened in that market that we participated in. If you assume that park sales is going to be much lower historically than it than it has been historically. The demand has to come from direct consumer sales for privately owned land or from some sort of disaster relief. So if you can tell me how many hurricanes there'll be in the southeast next year, I could probably give you a pretty good feel for how good the markets are going to be. And that's really kind of the demand there. As you know, the southeast doesn't have the tailwinds that Texas has. But it has better tailwinds than many parts of the country. So the demographics in all those states that we serve in the southeast are still positive. And we know it's not because of birth rate. It's positive because people are still moving to Georgia, and they're still moving to North Carolina, and they're still moving to Florida. So there's an emigration from one part of the United States to another that goes on in that market. So we get some positive demographics there. And we sell to operators that are taking advantage of that. I talk to them all the time. They're struggling to make the economics work. Now, if the interest rates come down a little bit and there are models instead of being, say, at a six-cap rate or at a five-cap rate, then they can make more sense out of it. And we've had a nice reduction in interest rates over the last month or so. They actually punished mobile home stocks because they thought that would make site-built housing more attractive, and maybe it does, but it sure helps communities that are trying to make sense out of community-owned rentals and community-owned mobile homes. When their rate, their borrow rate goes down a point, it really helps their model quite a bit. So I know this didn't address the answer that you want, a specific answer, but I think I made it clear that there's only two ways to really do well in the Southeast. the community model, and disaster relief housing. The likelihood that all those plants in the southeast, which there's roughly 20 operating in that market that we compete against, there's not enough demand at the retail level to keep 20 factories working. So I can see the industry as a whole making some difficult decisions in the southeast absent getting some disasters next year that They give us more tailwinds.

Okay.

And then I did want to ask about gross profit margin. I know you don't give guidance, but just kind of any insight you can give us on the outlook there, maybe where the pressures are coming. I know you discussed tariffs, but I guess maybe two things here. Do you think that you've seen kind of topped out the inflationary pressure, whether it's from tariffs or anything else? And then two, do you think that you've taken ample price to cover the pressure that you've seen or could see?

Well, I think the price increase that we did are going to cover the effects of tariffs in particular. And the world believes that tariffs are a one-time inflationary event. And if that's the case, then the price increases may be over. But We've also increased our line workers' wages by 10% this year. Obviously, the Chinese imports have gone from a 25% tariff to as of 11 a.m. today, the tariff rate currently is 45%. But that could change by 2 o'clock this afternoon. It moves around. The net result of our cost of goods sold on just what happened last week, decreasing the tariff from 55% to 45%, our cost of goods sold would go down roughly a million dollars with just that one happening, just like they went up before when they went up that much. I don't really look at inflation as something that either does happen or doesn't happen at 70 years old. I can remember $0.04 stamps. I can remember $0.29 gasoline. I think inflation is inevitable at what pace. That's the only thing that we might disagree on. But I would guess that our average wholesale price now is about $60,000 per floor. And I think that if I was to give this same earnings call, say, 24 months from now, two years from now, I think it's going to be closer to closer to $70,000 than $60,000. The margins are real simple. Financial statements sometimes make it seem more complicated. You've got a selling price, you've got materials, you've got labor, and you've got allocable overhead. On the material side, all factories are pretty similar. I would say 80% of the capacity buys their materials within a few percentage points of each other's labor. There's quite a difference But it is per labor deal, kind of depending on the complexity of the product you're building. If you're building a very simple product, you might get labor all the way down to $4 or $5 per foot. And if you're a very complex product, you're going to get labor in the $10 to $15 range per square foot. And the only thing that can help that, the more you build that's exactly the same, the more productive the assembly line gets as far as allocable overhead. That's very specific about what we're allowed to do on a GAAP basis. A purchasing agent can be allocated, but a CEO can't. So while our gross margin may be suffering a little bit over the next 12 months, our net margin, because now we're talking about eliminating SG&A or controlling SG&A, while the founders were gone, SG&A went up. I think Ron was very clear. is outlined on that. With SG&A up 15%, 16% at a time when sales were down, I think you will see the immediate reversal of that trend and some relief in probably the fourth quarter, followed by significant relief in the first quarter on SG&A as a percentage of sales. I hope that puts a little color on your question.

That's helpful. If I can squeeze in one more. I don't know if you're able to talk at all about numbers behind the acquisition and potential impact on the balance sheet just as far as the size of this acquisition.

It's simple. We're on a call that's available to the public. We didn't give much detail on Friday's announcements. But I don't mind telling you what it is. This is roughly a $22 million deal, all in, about half of which is retail paper, and the other half are the assets that I've described. We wouldn't be doing this if we didn't think it was going to have a positive aspect on the company. If I was just guessing, I would guess that our retail selling as a company, which is currently about 250, 300 units a year, I would expect that to be 50% higher, maybe 60% higher in 2026 than it was in 2025. If that doesn't come to pass, then the purpose of the acquisition didn't get accomplished. That's the jewel in it. Everything else we bought that pretty much we would be willing to pay on a one-off basis at any time. We have a 28% interest in a mobile home park as part of the deal. We know that market really well. It's worth a little over a million dollars or more to us. So a lot of what we acquired was hard asset value with the only uncertainty being how well can we integrate the Columbia, Columbia presence and the home X model into our retail system. If that turns out to be what I think it is, I would think our retail sales will go up by at least 50%. If we really perform well, it could even be double in 2026 relative to 2025. Let's face it, we make a lot more money when we can retail one than we can make one selling wholesale for $60,000 a floor. The margin in this industry is about 40, 50% up. So if we build it for 60, we retail it for 90. And the more that we can retail, the better. I think Ron mentioned that a good part of the reason why our average price per home went up is because we retailed a higher percentage of what we built in 2025 than we did in 2024. But it was just nominal compared to the leap that we're planning on taking with this acquisition. It's acquisition is pretty much what can we do at the retail level to improve that part of our distribution, filling in the gap that is kind of leaving us because of the park problems that I referred to earlier on the call.

And just confirming within that kind of increase within retail stores, that's including the site that you're buying in as your retail location, as well as kind of improvements in retail stores at the existing heritage sites today.

Correct. Yeah. We probably retailed, and I'm just guessing because I know we do monthly, so I'm going to go ahead and multiply by 12. I can still do that in my head. I'm going to guess we're at about 300 now. The Houston location itself should add 100 to that going forward, and then the integration of the systems into our existing retails should add another 100 to it, and on a good day, maybe even another 200. So what I'm saying is we should be up 60% in 26 versus 25 on the number of units we retail, and it could be as much as 100%. A little more guidance than what you asked for, but on the other hand, the press release on the acquisition was a little bit gray, let's put it that way. Now you have Colorado, and we haven't closed it yet, so you never know. It could blow up, but it's a binding contract. The contingencies are being put together, and we expect to close before Thanksgiving.

Excellent. That's very helpful. Thank you.

Thank you. This concludes the question and answer session. I would now like to hand the call back over to Kirk Hodgson for closing remarks.

Well, it was a much longer call than I expected. I had to ad lib a bunch of it, but I think I did a reasonable good job. I'd like to thank everybody who joined in today's earnings call. We appreciate your interest in our company and look forward to delivering you better results in the future than we did in this last quarter.

This concludes today's conference. Thank you for your participation. You may now disconnect.