Q2 2023 Legacy Housing Corporation Earnings Call

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Okay.

Good morning, ladies and gentlemen, thank you for standing by welcome to the legacy Housing Corporation second quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be.

And answer session to ask a question during the session you will need to press star one on your telephone you will donnean automatic message advising Yohanan Suisse. Please note that today's conference is being recorded.

I'll now hand, the conference I'll, let you speak to Duncan President and Chief Executive Officer. Please go ahead Sir.

Good morning, This is Duncan Bates legacies, president and CEO .

Thanks for joining our second quarter 2023 conference call.

Max Afric Legacies General Counsel will read the safe Harbor disclosure before getting started.

Thanks, Duncan 40 begin may I remind our listeners that management's prepared remarks.

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 is contained in the private Securities Litigation Reform Act.

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.

Any projections as to the Companys future performance represent managements estimates as of today's call legacy housing assumes no obligation to update these projected in the future unless otherwise required by applicable law.

Thanks Max.

I will run through our prepared remarks and 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 products sold and a 10, 1% decrease in net revenue per product as customer Burke 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 <unk>.

Industry home shipments through May 2023 were down 29% year to date. However.

However housing affordability in the U S continues to deteriorate and retail traffic and our industry is accelerating.

One of the leading indicators that we track on the retail or dealer side of our business is loan applications.

Few recent data points loan applications at Heritage housing our company owned retail stores hit a 12 month high in July 2023.

Applications at federal investors, our consumer lending or were up 17, 6% in the second quarter of 2023 compared to the second quarter of 2022.

Also applications surged, 68% in July 2023, compared to July of 2022.

On the community or park side of our business sales to existing customers remained stable like other manufacturers, we have battled delayed shipments due to set up related issues, our quote activity for new projects beginning late 2023.

Early 2024 is strong.

We rarely discuss legacy commercial product portfolio.

He 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 M. H P 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 and then HP and consumer loan portfolios.

Our financing businesses generate predictable recurring revenue and we continue to invest in them.

Between June 32023, and June 32022 are in HP note portfolio increased by $43 9 million and our consumer loan portfolio increased by $15 1 million. This is net of principle payments and loan loss.

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Also this does not include floor plan financing or development laws.

I frequently field questions from investors about loan performance.

The accountants figures or in the filing but the way that I think about delinquent accounts over 30 days with no payments.

June 32023 over 99, 5% of MH P notes and 98, 5% of consumer loans were current we.

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 six 3% during the three months ended June 32023, 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 is book value per basic share outstanding was $16 nine four.

An increase of 18, 6% from the same period in 2022.

We continue to hold pricing.

Our raw material inventory.

And reduce our SG&A.

Legacy has not missed one production day at any manufacturing facility in 2023.

Legacy 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.

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 are updating and adding more modern features to our products. We are revamping our sales processes and hiring additional talented sales professionals we.

We've made a big push on social media and digital advertising as 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 thresholds.

Operator. This concludes our prepared remarks, please begin Q&A.

Certainly ladies and gentlemen to ask a question you wanted to press Star one one on your telephone and wait for your name to be announced.

<unk> will be compile the Q&A roster.

Okay.

First question coming from the line of.

Alex Rygiel with B Riley Securities. Your line is open.

Hey, Alex.

Good morning, Duncan how are you.

Good how are you.

Well a couple of quick questions here. So do you have any sales remaining could be bulks from transitioning from that consignment program.

Yes, 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.

I think we'd like to do it by by year end.

There is some.

The final hold out of dealers.

So it's taken a little bit of time to work through this.

And then you brought up an interesting.

As it relates to inquiries for commercial product being very very high can you remind us.

When these commercial orders come in I suspect there kind of a fairly large in size from time to time, So maybe talk about how big some of these could be.

Yes, there is.

There is two pieces I mean, we've got some dealers in Texas.

Will that have relationships with let's say larger oilfield services or E&P companies or agricultural businesses.

And they are selling lower volume.

Just.

To hear three therefore, there but.

But there is we are seeing.

Inquiries from from larger products that I would say are closer to sales that we would see on the on the community our park side of our business.

So they range from us selling a couple of these things.

To potentially selling hundreds of these things and we've got a lot of quotes out now we're trying to real people in and.

It would be great if something hits.

And lastly.

Whereas the Georgia plant as it relates to production levels and that an opportunity to.

Utilize that facility for these commercial opportunities.

We have built this product in Georgia.

We didn't I didn't comment on GA in our prepared remarks because.

Frankly, we feel great about where that plant spent where it sits today.

We've made a tremendous amount of we've implemented a tremendous amount of changes there we've got.

New sales manager New General manager, we've shifted people around we've hired a lot of people.

Right now we're running three to four a day at Georgia.

And our hope is to continue to ramp that up.

As you know.

Ads as depending on demand.

So Georgia is in a good spot and 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 worse things changed where the headwinds are maybe where emphasis is too.

Drive maybe better ourselves in different channels.

Yes, sure I'll try to.

Trying to take that a couple of pieces at a time I mean, if you look.

Look at the Q.

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The price or the revenue per product sold as is.

Down and.

That contributes to the decline in sales in addition to just lower volume.

And I think.

But what's happened is we've.

Build a great Park model we've got.

Some large customers that continue to take a lot of these and so they're just we're selling lower where southern park model homes, and we're selling less optioned homes to dealers as they start to build inventory again.

Yes.

Alright.

And I think you said in your prepared remarks.

As we look at kind of a standard consumer home are you seeing more demand at those lower price points and you are the higher price points.

Yes, absolutely.

I think the.

This consumer with inflation and spend is.

Been hit pretty hard.

And although chattel rates have not gone up as much as traditional mortgages.

Just with inflation in every other aspect of their lives.

They're looking at.

A little bit lower slower and are less optioned homes than they were 12 months ago.

Okay.

And that leads to my next question as we think about both Laurent loan portfolios consumer and M. H P.

Any thoughts around rates it looks like it came up a little bit here in the quarter.

Can you take more or.

Is can you reach a breaking point, where you just can't raise.

Any more.

Yes.

Our strategy for the past.

Hello over 12 months has been.

Hold price firm.

And hold rates hold rates firm now that said there is.

There are some nuances on on either side of the business.

On the on the consumer loan portfolios I mean, we've held our base rates, but the rates are subject.

Our underwriting process.

And so.

That really depends on the consumer's credit quality.

On the on the MH side of the business.

Our financing program has has a base rate and then it flips to variable and so.

We've held the base rate.

Consistent.

Over the next say 24 months Youre going to see a lot of these flipped too.

To variable.

<unk> got community customers that when that flip happens.

They'll be inclined to.

To refi their projects and pay or pay us off.

Alright.

And the last question from me.

You said that kind of the park in land development projects or 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 of quarters.

Yes, we've had we've had so much going on over the last 12 months.

Where I feel like.

We finally got the foundation stable.

And we've had issues at the Georgia plant, we've obviously the markets slowed down.

We are spending all of our time.

Focused on the business and.

As we move forward, we've got accelerated.

These legacy projects and so a big topic internally.

Was land development this quarter and actually putting together a plan.

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 they have.

Haven't stalled I think I think we just feel like theyre not moving as quickly.

As as they need to.

We're primarily focused on.

I would say the crown jewel of this portfolio, which is backdrop county.

And we are made.

Making good progress now on phase one.

And.

I would hope.

I need another say another month or two to put out some actual goalposts, but that certainly is the game plan.

Yeah.

Okay.

Thanks Mark.

Thank you and our next question coming from the line of Tim Moore with <unk>. Your line is open.

Thanks, I'm talking to a few in my prepared questions already asked but I actually have four remaining ones.

Okay.

You mentioned that legacy and it's pretty obvious okay. Great attribute you've held kind of the base interest rate pretty much the same unlike the steep 3% rise in single single family mortgage rates.

Over the past year, and a half or so.

You mentioned, the green shoots and loan applications in July and it was terrific.

Sounds like walk in traffic is better at the retail locations and up a lot.

My question is I'm, just trying to pinpoint.

The possible conversion of timing for how many months it might take from loan applications.

Bert to an order.

Ship lead time, when you can actually book revenues is.

Is that something like three months in other words.

If there is an inflection point and I'm not putting words in your mouth for July and maybe Thats continuing in August .

Does that convert something like October and November sales.

Yeah.

I wish I had a crystal ball and yes.

Tell you exactly when that.

It's happening.

The dealer channel.

Okay.

The dealer channel of our business has been pretty slow for a few quarters.

The consumer backed off you had dealers that were.

A lot of inventory and install.

They are their consignment or floor plan financing arrangements are interest rates go up pretty significantly.

And but what we're what we're hearing from our customers now and what we're seeing in our own stores as well.

There does seem to be a pickup.

In that channel you have dealers that are selling homes.

Ordering 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.

A steady progression like I don't think you just overnight.

Hume huge boom on the dealer side of the business, but it does feel like we're getting some momentum dealers or cleared out their inventory they are starting to re order.

And we have seen.

We've seen an uptick in applications, but we've also seen an uptick in the credit quality of those application. It seems like there is there's consumers out there that maybe are dropping down into this.

This category and are able to put up large.

Larger downpayments than we've seen historically, so we're monitoring it closely.

Well, we hope it continues and and.

Honestly, we will keep the market updated quarterly as we see things.

Great that's really good color and nice to see the credit quality to increase on the applications.

How is the demand and the interest levels from the park operators they know that.

It held up pretty good how's that been doing the last few months.

Yes.

It's slower than we'd like.

It seems like a lot of these guys are facing.

Pretty serious delays on the set upside and I don't know if its it doesn't seem like it's as much setup crews is like.

Getting.

The utility operators to cooperate or the counties to cooperate with certificate of occupancy is and things like that.

We tend to serve a I think a different a little bit different customer base and our larger.

Competitors I mean, most of our customers on the park side.

Our regional entrepreneurs.

And a lot of these guys sold.

Portions of their portfolios when the prices really went crazy last year. So we've got some big customers that are deploying capital now they're ordering houses fairly consistent consistently.

But we are like and we are making a sales push for.

For new customers, but it's a little bit slower than we'd like.

So we're I think.

Based on our quote activity it feels like.

<unk> ended the year.

Early next year these fees like that channel will gain traction like this but the dealer channel is now.

That's helpful color Dunkin', so two more questions sure.

How long are the labor constraints of the three plants compared to maybe last summer you mentioned that you haven't missed one production day. This year, so far which is phenomenal and you're hiring more with the social media push.

Thank you.

Theoretically I'll throw it out there that maybe volumes start coming back pretty good.

Remember December that Youll have enough labor in place and routines.

Yes.

She is labor.

Labor has been a challenge for.

A while all the way all the way back through Covid, and and I think for us.

For the other manufacturers at the the constrain is not how much space you have or how big your yard is or how big your plan is it really is a labor constrained.

And what I mentioned this I think on another call, but this is a very very simple parameter that we used to.

Think about the labor market is at our Fort worth plant, there's a there's a waiting room on that front.

And if you talk to Curt and Kenny they'll tell you through Covid didn't have a single person show up looking for a job and we are consistently getting.

345 people they come in in each.

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-19.

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

Exactly exactly and if there is nobody out there that's a problem.

No no there was a line that was a good barometer.

You feel better although the Georgia happened, but.

Just one last question.

Given that $50 million availability that you mentioned the possible accordion ops.

Option feature if you take that up.

Should we read into that at all that maybe.

But some of the operational pickups are well behind you Georges firing on all cylinders. The plants are doing well operationally that there could be an acquisition or vertical integration target on the near term horizon.

We're looking hard.

<unk>.

The New Bank line is.

We've been working on it for a little while I don't care what size business Youre operating.

Banks can be difficult to deal with now.

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.

We've got some we've got some firepower.

The other thing that's interesting is it it's only secured by our consumer loan portfolio.

And so we've got other other assets out there unencumbered.

<unk>.

We're really we're looking.

We're we've been focused internally there is still a lot of work to do internally.

And.

But with the right opportunity comes up we're ready to go I mean, we've been looking at all types of things.

So I think we're not going to chase something that's expensive.

Our risky we're going to 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'd really like we were positioned to be aggressive on it.

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

I appreciate it.

Tip.

Thank you and I'm not showing any further questions in the queue. At this time I will now I would like to turn the call back over to you Mr. <unk> for any closing remarks.

Sure a couple of 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 largest sales event is.

October 1st through the third and Fort worth Texas.

It's a great opportunity to see our new products and meet the team and are linked to the RSV RSVP is on our website.

Operator, this concludes our call.

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

Okay.

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