Q1 2024 Legacy Housing Corp Earnings Call
Good day and thank you for standing by welcome to the legacy Housing Corporation quarter, One 2024 earnings conference call.
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Now I'd like to hand, the conference over to your Speaker today Duncan Bates CEO. Please go ahead.
Good morning. This is Duncan Bates legacies, President and CEO. Thank you for joining our first quarter 2024 conference call.
Sure Afric legacy as General Counsel, who will read the safe Harbor disclosure before getting started Max.
Thanks Duncan.
Max: We began I'll remind our listeners that management's prepared remarks today will contain forward looking statements, which are subject to risks and uncertainties and management may make additional forward looking statements in response to your questions.
Therefore, the company claims the protection of the Safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995 actual results may differ from management's current expectations and any projections as to the company's future performance represent management's best estimates as of today's call.
Okay.
Thanks Max.
I'm joined today by Jeff. If you don't then legacies Chief Financial Officer, Jeff will discuss our first quarter performance, then I will provide additional corporate updates and open the call for Q&A.
Yes.
Thanks Duncan.
Product sales primarily consist of direct sales commercial sales inventory finance sales and retail store sales.
Product sales decreased $12 5 million or 28, 8% during the three months ended March 31, 2024 as compared to the same period in 2023.
This decrease was driven by a decrease in unit volume shipped primarily indirect sales mobile home park sales and inventory finance sales categories.
Greece was offset by increased sales at our company owned retail stores.
For the three months ended March 31.
'twenty 'twenty four our net revenue per product sold decreased primarily due to a shift in product mix to smaller units and to a large sale of homes from our leased home portfolio to a mobile home park customer at a lower average price than our typical new home.
Consumer M. H P. A to your inbound interest income increased $2 9 million or 38%. During the three months ended March 31, 2024 as compared to the same period in 2023 future growth in our loan portfolios.
This increase was driven by increased balances in the MH P consumer and dealer loan portfolios.
At March 31, 2024, and March 31, 2023, our MH P loan portfolio increased by $28 2 million.
Our consumer loan portfolio increased by $17 9 million and our dealer finance notes increased by $2 1 million.
Yeah.
Other revenue primarily consists of contract deposit forfeitures consignment fees commercial lease rents service fees and other miscellaneous income and decreased <unk> 1 million or three 1%. During the three months ended March 31, 2024 as compared to the same period in 2023.
This decrease was primarily due to a 1.0 million decrease in dealer finance fees, a 0.2 billion decrease in commercial lease rents, partially offset by a $1 1 million increase in forfeited deposits.
The decrease in cost.
Primarily related to the decrease in units.
Selling general and administrative expenses increased <unk> 5 million or eight 8%. During the three months ended March 31, 2024 as compared to the same period in 2023.
This increase was primarily due to a zero point $3 million increase in warranty costs zero point $1 million increase in legal expense.
<unk> $2 billion increase in professional fees and a net zero point $2 billion increase in other miscellaneous costs.
Really offset by <unk> 3 million decrease in loan loss provision.
Other income expense increased <unk> 4 million or 29, 9% during the three months ended March 31, 2024 as compared to the same period of 2023.
There was an increase of zero point $6 million and nonoperating interest income offset by an increase of <unk> 2 million and interest expense.
Net income decreased 7.0% to $15 1 million in the first quarter 2024 compared to the first quarter of 2023.
Basic earnings per share decreased five cents per share or seven 5% in the first quarter 2024 compared to the first quarter of 2022.
As of March 31, 2024, we had approximately zero point $6 million in cash compared to 0.7 million as of December 31, 2023.
Outstanding balance of the revolver as of March 31, 2024.
December 31, 2023 was $11 8 million to $23 7 million respectively.
At the end of the first quarter 2024 legacy book value per basic share outstanding was $18 46 and.
An increase of 13, 1% from the same period in 2023.
In November 2022, our board of directors approved a share repurchase program to authorized a repurchase of up to $10 million of the company's common stock.
We repurchased 91187 shares for $1 9 billion in the open market. During the three months ended March 31 2024.
Between April one and May nine 2024, we repurchased 170 342 shares for $3 5 million in the open market as of today, we have a remaining authorization of approximately $4 6 million.
Max: Yeah.
Thanks, Jeff.
I wanted to add some color on the markets and provide other corporate updates.
As discussed sales were down during the first quarter.
But they also are improving as housing affordability remains at a multi decade low with no signs of changing.
First on the dealer side, our current business is heavily dependent on dealers seasonality impacted dealer sales during the first quarter, but it started to accelerate late February.
Reorder rates are still lower than we would like due to higher inventory carrying costs.
Sales at our company owned retail stores are also improving.
To drive dealer sales, we launched a new special this week that includes concessions on popular home models initial feedback has been positive.
On the community our park side of our business.
Our parts business is slower and has been impacted by high interest rates.
Similar to other real estate asset classes.
It's a driven M&A transaction volume down and called New development.
We are gaining momentum in the part sales with smaller units.
400 to 600 square foot tiny homes, and small HUD code single Wides low monthly payments through our financing program allow.
Max: Allow part customers to make money, bringing these homes in nearly all markets.
We held our spring shell and eat into in Georgia in late April for dealer in part customers. It was our first show in Georgia. Since 2020, we are still rounding out orders, but to show its very successful over the past 18 months, we've spent a tremendous amount of time improving product quality.
At our <unk> plant.
Houses look great and the changes were well received by customers.
This show allowed us to clear finished goods inventory at the plant and build a nice backlog.
Despite lower volumes during the quarter, we carefully manage factory overhead and expenses.
Gross margins were higher than average during the first quarter due to a large sale of leased homes to our community owner. We continue to model. We continue to monitor product gross margins closely and see manufacturing efficiencies improve when we ramp production.
For some for a corporate update.
Speaker Change: Since our last earnings earnings call, we have repurchased over 260000 shares of common stock at an average price of $20.56 repurchases were limited by restricted by trading restrictions and a narrow open window between year end and first.
Quarter.
We utilized 54% of our 10 million dollar repurchase authorization.
Board will increase the authorization as needed.
Legacy business fundamentals have not changed the market is slower but improving over 2023.
Was confusion with our fourth quarter numbers and the stock traded down to liquidation value. We will continue to repurchase shares of aggressively when this happens.
We've continued to add team members in key areas of our business. The land developments are progressing and we are evaluating proposals to.
Sell or partner on some of the properties there is significant value to unlock on our balance sheet driving earnings growth and realizing this value is management's top priority. Operator. This concludes our prepared remarks.
Please begin the Q&A.
Thank you.
To ask a question. Please press star one one on your telephone and wait for your name to be announced towards the draw. Your question. Please press star one one again.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Alex Rygiel from B Riley Securities.
Thank you.
Hey, good morning.
So it sounds like heading into the second quarter unit volumes going to be picking up from the first quarter is that a fair.
Conclusion to come yet.
It's fair we're shipping a lot of houses right now.
Excellent.
Speaker Change: Then as it relates to sort of inventory on the yard where does where does that stand.
Yes.
Struggled with that.
And our Georgia plant for a few quarters now.
And that was the key or one of the key reasons for having a Georgia shell, which was the first show that we've had since 2020 and so we're starting to ship that product now.
Our goal is to have most of it cleared out.
By that by the end of the second quarter.
That is super helpful and then a little bit of directional guidance on the consumer and EM HP loan interest.
<unk> stepped up in the first in the fourth quarter kind of step down in the first quarter.
What's sort of the normal run rate there at the moment.
Speaker Change: Yes, there are some key I mentioned the confusion in the fourth quarter.
Obviously, we don't report fourth quarter numbers, but when I think when investors backed into the fourth quarter numbers they were surprised by.
Moving around.
Speaker Change: Revenue from <unk>.
Speaker Change: The loan portfolios and so it makes it a little different or difficult to compare.
Speaker Change: But right now I mean, we're we're over $10 million I think we're pretty consistently be over $10 million in interest revenue quarter for.
Speaker Change: For all of 2024.
Speaker Change: Moving forward.
Excellent. Thank you very much.
Thanks, Alex.
Thank you one moment for next question.
Our next question comes from the line of Mark Smith from Lake Street.
Hey, guys.
I wanted to start just on the loan portfolio.
Can you just give any more detail on that.
<unk> loans.
And litigation happening with one borrower within MH P. I know some of those move to current assets any additional insights into that.
Speaker Change: Yes.
This is obviously active litigation and with a long term customer and so we've got a disclosure in the file but.
I'll summarize that for you.
Now.
We have a we have a part customer that we've worked with for over 13 years and he has built a nice portfolio of communities.
<unk>, which we financed.
Over 1000 mobile homes.
And we accelerated a large portion of these notes.
Just due to due to slow payment or nonpayment.
And as you can imagine.
It's taken.
Lot of my time, and the teams time to work through this situation.
This is a situation that can be resolved outside of the courtroom.
But our duty.
As officers of this company is to to protect our collateral and so were pursuing the collateral right now.
The collateral is comprised of over 1000 mobile homes.
Were the principal outstanding is 50% or less of the replacement cost.
And that's excluding.
Equity for.
Sure.
This setup.
And building the pads. We've also got first liens on several mobile home parks in this portfolio and there is limited outstanding debt and the notes or are cross collateralized and personally guaranteed.
<unk> by multiple individuals.
Some of which have pretty significant net worth.
Enter.
And can be held joint and several.
Liability for for these debts and so we've spent a ton of time on this with our auditors.
We valued.
All the collateral and we think that there is.
A significant amount of equity into this portfolio.
And so we haven't although these notes are in default and there.
When we accelerated them, they're accruing interest at 17, 5%.
Most of which has been offset by an accrual.
But.
Our goal is to resolve this relatively quickly but ultimately if we've got to go take all the collateral.
Currently.
Taking action to do that and you'll see another disclosure, where we actually during the first quarter foreclosed on.
One mobile home Park.
That I think at the price that we're into it there is there's there are significant.
Upside value and so we'd like to resolve it but if we keep if we need to take everything.
Sure.
We'll do that.
Protect protect our shareholders and our investment.
Okay.
The MH portfolio has always been really solid.
Speaker Change: Ralph I think viewed from the outside.
Has anything changed fundamentally within that portfolio or is this is this just kind of a one off situation with this one borrower.
I think it's a unique situation and obviously the size is unique.
But nothing's changed in that portfolio, we've had situations over the last few years that we've.
That we've worked through and we've been able to recover all of our all of our principal outstanding.
And in most cases, the accrued interest as well and so I don't see this as well.
Is any different than those other situations except for <unk>.
It's a larger chunk.
Okay.
Looking at product sales you just talked about.
Volumes looking better here into Q2, I'm curious on kind of selling price and mix.
Given the mix shift back to some higher priced homes or is it still staying at some smaller lower priced homes.
Yes.
It's still I'd say, it's still at lower priced homes.
We seem to be really competitive from.
From a price standpoint on the smaller homes.
And I think just housing affordability, whether it stick built or its or its factory built.
It's a problem.
And we're selling it's not only on the part side, where we're selling smaller units.
Also selling a lot of smaller units.
On the dealer side of our business and that's.
It's an area, where we're really competitive.
Doesn't help our average selling price, but but I think that we will continue to.
Be able to to drive volume and on both sides of the business.
We've had sales whether it's at the edge.
At the Georgia show or the dealer sale that I just mentioned.
Debt.
That will drive volumes kind of throughout the year I mean, we're we're expecting a better year this year than last year, but it's.
It's a tricky market and so we're just we're managing it closely and we're.
And.
Adjusting as we need to and watching our expenses and.
It's going to take it one quarter at a time.
Uh huh.
Perfect last question for me.
Brought up the backlog and your commentary just curious any additional insight into kind of where the backlog is today and kind of your comfort level with that.
Yes, I mean, our goal really is building our backlog.
We've held production.
Yes.
Speaker Change: Pretty consistent rates for the last two quarters, but there they are well below where we'd like to be.
And the goal has been.
Build a backlog and you can start ramping production because we don't want to.
Don't want to ramp too early and we've made that mistake before.
So.
We're a few weeks out across all plants.
In an ideal world I would like to be.
Eight to 10 weeks out, but we're not there yet.
But I think first quarter and just given.
That the dealer side of the business is stronger.
We saw the impacts in the first quarter.
The seasonality.
And as we get into.
The spring selling season that should improve in and that combined with some.
With some sales and concessions.
And to build the backlog and ultimately ramp up production, where we can get some efficiencies on the manufacturing side.
Excellent. Thank you.
Thanks Mark.
Thank you one moment for our next question.
Our next question comes from the line of Jay Mccanless from Wedbush.
Hey, Hey, Jay Thanks for taking my questions Hey, Duncan.
So kind.
Kind of falling on the last question.
With the downward price mix Youre seeing at this point is it possible you think this year that you guys could sell more products, but still be down in revenue just because of that sales mix, where you're thinking that dollar revenue is going to be up year on year for 24 versus 23.
I think I'll have better better insight into that next quarter.
We.
We're trying to sell as much as we can I mean sales are.
Are the top focus right now and we're pushing the team.
Pretty hard.
We have seen.
A move to toward R. R.
Our smaller products. So it certainly could be the case, where you sell more units, but your but your revenue is down.
That said I really feel like from an internal sales sentiment standpoint.
That some time kind of like last summer.
End of last summer really felt like the trough for me and it's been.
We've hit some air pockets.
We felt like we really had sales move in after this show last October and then you start to see the part customers back up.
Where they're having challenges with.
Utilities are with municipalities and it delayed shipments but.
It feels like things are smooth sales are below where we want where we want them to be but we've made some adjustments that we should start to see the benefits of it.
In the second quarter.
Okay great.
And really good performance on the gross margin this quarter, how sustainable do you think that is in.
Speaker Change: Anything that we need to be mindful of either from a lumber price increase or anything of that nature.
Yes, gross margins, where our product gross margins were high this quarter and they were impacted by.
We've got a we've got a lease.
Speaker Change: Portfolio, where we actually lease homes in mobile home parks, we don't offer that program anymore.
But we had a sale of.
A large chunk of leased homes.
To that community owner.
In the first quarter, and so that skewed gross margins to the upside.
I think our goal is to hold them.
We watch it very closely.
But this quarter was.
Significantly higher than the last few years, so I think we will.
We'll revert toward the average of say the last four quarters.
But if we can we can get production up we'll pick up some efficiencies and we still haven't used the price lever.
But we've held prices at the detriment of volume and used financing concessions.
But if if we do need to use the price lever.
To drive volume that will have an impact on gross margins, but it won't be it won't be drastic I think it'll be offset by some manufacturing efficiencies.
Sure.
Currently not absorbing all the overhead and pushing that through cost of goods sold.
Speaker Change: But actually I was going to be our next question Duncan I was going to ask you about have you been able to hold price. It sounds like you have what I guess, if youre holding price what are you seeing from some of your competitors that are that can build maybe not all the way down to the some of the prices you guys can do but in that lower call. It lower priced single section homes.
What are you seeing out of them.
Yes, I think the guys with.
With a without a balance sheet and with.
So how much of a backlog I mean, mainly independent players we have.
Certainly seen price decreases there.
Thank you.
Just given the consolidation in the industry.
Got rational competitors.
But we've seen we've seen some some lower pricing here within the past two weeks that surprised us.
I think alright.
I know, we're really competitive on the tiny homes in the smaller single Wides.
Speaker Change: As you get into the larger product, especially at the dealers.
Our.
You see the impacts of us holding prices I think compared to other competitors that have dropped them.
But we're monitoring that very closely I mean, we'd like to get wed like to get our volume up.
Speaker Change: And that's the key goal right now is get built.
Build a backlog or continue to building the backlog and.
And get volume up and but shipments during the second quarter, we're looking pretty strong so far.
Good to hear.
Speaker Change: So could you talk about in the consumer book, we did see an increase both sequentially and year on year for delinquencies there.
That's that's not uncommon, we're seeing that and the stick built world too, but maybe could you talk about what type of stresses you're seeing on that portfolio.
If we do stay in this higher for longer environment kind of what are some of the worst levels. We've seen in that portfolio beginning of COVID-19 or something like that as a frame of reference.
Yeah, and look we think internally.
Sure.
A little bit different about.
Delinquencies compared to.
Speaker Change: The accounting for delinquencies and so when we think about our retail loan portfolio.
Look at what percentage of the portfolio have we not received a payment in 30 days.
And we started we brought this servicing.
In house.
Round 2012.
And at that time over 30 was running close to 6% and then you've seen us work that down to 2021 is close to one 3%. So just.
Speaker Change: We've got a great we've got a great program.
We've got a great team that services this.
I know that that delinquencies have.
Yes.
Defaults problematic accounts have increased slightly but theyre still well below the national average.
And there is there are certain elements of our retail financing program.
That contribute to this outperformance.
One of them I mean, we take real down payments I mean, we have across the board.
Have a minimum down payment and we've seen some of our competitors bend on that.
And it seems like a race to the bottom.
We also we don't finance.
A lot of extra as we don't finance Dexter septic tanks storage sheds.
And so.
A lot of those items right you get added on to the loan but you ask you don't you don't collect much from them.
And finally with our retail finance program, we have a hold back with our dealers that gives us some additional cushion.
Speaker Change: And I think all of these all of those items.
Contribute to the outperformance in <unk>.
We're monitoring it closely.
Youll see that the reserve actually came down.
In the first quarter on the retail finance side of the business.
And the reason for that is we do a look back when we calculate.
The reserve and in many cases were.
We are collecting more on the repos than the outstanding principal balances for homes that were sold pre COVID-19.
Speaker Change: Paid on for a few years and so.
Speaker Change: I feel I feel good about the team and the performance of the portfolio.
Even if it continue to creep up I wouldn't it wouldn't worry us.
I think if you started.
Got closer to five or 6% that's where.
We'd really we think there is a concern, but we're still well below that.
Okay, that's great.
And maybe if we could update on faster than some of the other parcels and land parcels.
Yeah, we hired an internal team working through the properties.
Bass dropped continues to progress we're putting in the roads.
Now phase one we've got phase two working as well we've got a lot of utilities in there we're building the water treatment plant.
So the there is a lot of focus on backdrop.
You'll see us continuing to invest capital there.
Some of the other properties I talked about on either the last call or the call before just working through where we are on those properties.
And ultimately determining the highest.
Speaker Change: And best use for them.
And for from a shareholder's standpoint, and so yes, we've received some interesting proposals.
To sell certain properties or to partner on certain properties and we're working through that now and I think youll start to see some movement.
During the second quarter on this.
Okay that sounds great. Thanks for taking my questions.
Yes, Thanks Jay.
Speaker Change: Thank you.
As a reminder to ask a question. Please press star one one on your telephone.
<unk> for your name to be announced to withdraw your question. Please press star one one again.
Please stand by while we compile the Q&A roster.
At this time I would now like to turn the conference back over to Duncan Bates CEO for closing remarks.
Okay.
I want to thank everybody for joining.
Today's earnings call. We appreciate your interest in legacy housing and if you have any questions on the quarter feel free to give Jeff or I, a call or shoot us an E mail. Thanks a lot.
This concludes today's conference call. Thank you for participating you may now disconnect.
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