Legacy Housing Corporation

Good day and thank you for standing by. Welcome to Legacy Housing Corporation second quarter 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll 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 turn the conference over to your speaker for today, Jon. Please go ahead.

Good morning, and thank you for joining Legacy Housing's second quarter 2026 conference call. I'm Jon Langbert, the Chief Financial Officer. Our CEO, Kenneth Shipley, is also on the line and will join me for the question and answer session following our prepared remarks. Before we get into the quarter, I want to briefly note a leadership change in July. Kurt Hodgson retired as executive chairman and from our board of directors after decades building legacy alongside Kenny from a Texas partnership into one of the largest producers of manufactured homes in the country. Kurt is the reason I joined Legacy. I've known him personally for more than 20 years, and I've learned an immense amount from him about this business and about business in general. So I'll always be grateful to him. Kenny continues to lead the company as Chief Executive Officer, and he'll share a few thoughts on Curt at the close of our prepared remarks. Before we begin those remarks, I'll read our Safe Harbor disclosure. 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. We refer you to a more detailed discussion of the risks and uncertainties in the company's quarterly report on Form 10-Q filed yesterday with the Securities and Exchange Commission and in our most recent annual report on Form 10-K. 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. With that, let's get into the numbers. Total net revenue for the quarter was $66.3 million, up 32.3% from $50.2 million a year ago. Net income grew to $23.5 million from $14.7 million, an increase of nearly 60%. and diluted earnings per share came in at 99 cents, up from 60 cents in the second quarter of 2025. Net income was a record for the company and I'll walk you through the drivers. Product sales were 53.8 million, up 40%. We shipped 718 units in the quarter versus 564 a year ago, up 27.3%. And net revenue per unit rose to roughly $74,900 Thank you for joining us. as our dealers continue to work through existing inventory on their lots and by modestly lowered direct and retail store sales. Loan portfolio interest income was $11.5 million, up 5.4%, with the growth driven primarily by our consumer book. At quarter end, the consumer loan portfolio stood at approximately $202.2 million, notes receivable for mobile home parks at approximately $209 million and dealer inventory finance receivables at approximately $23.2 million. On the expense side, cost of product sales rose 29.2% in line with higher unit volumes, including deliveries under the workforce housing order. Selling general and administrative expense was $6.9 million, up 21.1%, driven mainly by higher professional and consulting fees, higher heritage housing payroll, and higher service and warranty costs, partially offset by lower incentive compensation and property taxes. Beginning this quarter, we present the provision for loan loss as a separate line item rather than within SG&A. On that basis, the provision was a benefit of about $600,000 this quarter compared with an expense of $1.1 million a year ago, reflecting favorable portfolio performance. On taxes, our effective rate for the quarter was 11.2% versus 17.3% a year ago and the 21% statutory rate. The lower rate reflects the Federal Energy Efficient Home Tax Credit, known as Section 45L, as well as the reversal of certain uncertain tax position accruals during the quarter. As a reminder, the Section 45L credit terminated on June 30th of this year under last year's tax legislation, so we expect our effective tax rate to move closer to the statutory rate in the second half of the year. Our balance sheet remains in excellent shape. We ended the quarter with $29 million in cash, up from $8.5 million at year end, and we generated $24.4 million of operating cash flow in the first half of the year, up from $11 million a year ago. That increase was driven by our stronger earnings and by a $10.7 million increase in customer deposits, which includes the roughly $7.1 million non-refundable advance we received in the first quarter on that workforce housing order. Inventories rose to $43.9 million from $39.9 million at year end, primarily in finished goods to support continued production, including units remaining to be delivered under the workforce housing order. Our $50 million prosperity bank revolver had no borrowings outstanding at quarter end. We paid down the small balance carried at year end, leaving essentially the full facility available, and we remain in compliance with all financial covenants. Total stockholders' equity finished the quarter at $562.2 million, up from $528.6 million at year end, and book value per share was $23.64. credit quality across the loan portfolios remains solid. The clear highlight of the quarter was the start of deliveries under our large workforce housing order. This is a 380 unit contract and we shipped 113 units during the second quarter with deliveries expected to continue throughout the remainder of 2026. We're seeing significant interest in workforce housing across our markets in addition to our traditional oilfield housing, new opportunities tied to data center construction projects, and given the number of products underway or planned in our regions, we believe there is meaningful potential for additional orders of this type. We'd also credit our sales organization directly here. The team continues to raise its game, bringing in more and higher quality leads than we've worked in the past, and that is building an increasingly healthy order book heading into the second half. Our principal near-term constraint on converting that opportunity is securing and retaining enough trained labor and management is implementing new recruiting and retention programs to expand and stabilize our skilled workforce. Our loan portfolios continue to be a stable, growing source of interest income. Consumer loan portfolio interest income grew again this quarter. Credit quality remains solid across all portfolios, and we have not seen deterioration that would change our reserving posture. On capital allocation, with our balance sheet carrying $29 million of cash and essentially no debt, we remain well positioned to fund growth, and we continue to view share repurchases as a sensible use of capital when our stock trades near book value. One important development this summer came out of Washington. In July, the 21st Century Road to Housing Act was signed into law, the most significant federal housing affordability legislation in decades. and one that we view as meaningfully favorable to our industry. Among other things, it eliminates the longstanding permanent chassis requirement for HUD code homes, directs HUD to modernize construction standards, raises FHA-insured loan limits for manufactured housing, and reauthorizes grant funding that supports manufactured home communities. Taken together, we believe these measures should, over time, expand where our homes can be placed and improve financing access for our customers. It's still early and we don't know which of these changes we'll ultimately be able to take advantage of. Some of the new possibilities, such as building duplexes or two-story units, come with their own set of opportunities and challenges that we're still working through. What we can say is that there was nothing in this legislation that is negative for legacy. And the overall policy direction is clearly supportive of factory-built affordable housing, which is exactly the market we serve. Tariff rates were relatively stable this quarter, which helped us forecast input costs, and we received about $700,000 of tariff refunds following the Supreme Court's ruling on the IEEPA tariffs, which benefited gross margin. That said, effective rates on most Chinese origin goods remain well above pre-25 levels, and we continue to mitigate through supplier diversification, more domestic sourcing, and selective price adjustments. A quick update on the AmeriCasa litigation. By way of background, AmeriCasa is a manufactured housing business whose assets we acquired in late 2025. In March, we filed suit against the sellers over alleged misrepresentations and post-closing misappropriation of receipts connected to that acquisition. The case is now in the Texas Business Court and the sellers have filed counterclaims that we believe are without merit. It's early and we can't yet predict an outcome, but depending upon how it develops, there could be adjustments to the provisional acquisition accounting in a future period. Separately, we wrote off our roughly $560,000 minority investment in an affiliated entity, Corpus Americasa, during the quarter. The full detail is in notes 13, 16, and 17 and in the legal proceedings section of our 10Q. One other item. We hold a roughly $48.6 million note from a group of mobile home park borrowers that matured in July and was not repaid in full. Since quarter end, we've received a $2 million principal pay down and agreed to a modification, a short forbearance, an 18 month interest only period, and then amortizing payments at a market rate, along with additional collateral and an increased personal guarantee. Based on the collateral, we do not expect to recognize a loss and we're finalizing the documentation right now. This is covered in notes four and 17 of the 10Q. To sum up, this was a record quarter for net income at Legacy. Net revenue was up 32%, net income was up nearly 60% to a company record $23.5 million and diluted earnings per share was 99 cents. We generated $24.4 million of operating cash flow in the first half, and we ended the quarter with $29 million of cash, essentially no debt, $562 million of stockholders' equity, and a fully available revolver. The workforce housing order is delivering on schedule, our sales pipeline is building, and we see real opportunity ahead, including in workforce housing for data center projects. Our loan portfolios remain a dependable, growing source of interest income, and our balance sheet gives us the flexibility to invest behind that growth. As Kurt often reminded us, legacy has never had a losing quarter in its history, and the second quarter of 2025 keeps that streak going. We're grateful for the foundation Kurt and Kenny built, we're conservatively capitalized, and we're focused on long-term value creation as affordable housing becomes ever more important to U.S. consumers and policymakers. That concludes our prepared remarks. Before we move to questions, Kenny, our co-founder and chief executive officer, would like to say a few words.

Hey, thanks, Jon. I want to say a few words about my friend and business partner for more than 40 years, Curt Hodgson. For just about the entire time that me and Curt were together, Most people didn't even know our last names. I think they just either knew us as Kurt and Kenny or Kenny and Kurt. But Kurt swore up and down for the whole time that he was done at 70. I think we just got lucky and we squeezed out an extra couple of years out of him. And it, of course, it paid off. Anything Kurt did was profitable. Kurt and I built the business from the ground up and we did hands-on operations over the years. And the two of us personally climbed in and out of, I mean, literally thousands of units. I'm really proud of everything that me and Kurt's built together. And we've manufactured for FEMA shelters, for families, hurricane victims, We've built for everything that you could build for in this industry. And we've had our hands in every part of this industry, whether it was mobile home parks or trucking or building or selling. We've done it all. Many of the first-time homebuyers who would have never had an opportunity to own a home has gotten that opportunity from our finance programs that we We've put in place. That's the legacy that Kurt leaves behind, and it's a good one. And he's earned this retirement chance, and man, everybody at Legacy wishes him the very best. I hope he's happy in his and his retirement and we're still friends and I've just got the most respect you could ever have for anybody. I've got that for Curt and I'd like to maybe he's on listening, he probably is, thanking for everything he's done for the company and for me personally. So he's been a great friend. That's pretty much sums it up for me, but we're gonna continue to work legacy and make it profitable. Thank you very much.