Q3 2024 Legacy Housing Corp Earnings Call

Operator: Thank you for standing by and welcome to the Legacy Housing Corporation's third quarter 2024 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded.

Thank you for standing by and welcome to the legacy Housing Corporation third quarter 2024 earnings call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if your question has been answered.

And you'd like to remove yourself from the queue simply press star one again.

Speaker Change: As a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Ducking Beach legacy housing President and Chief Executive Officer. Please go ahead Sir.

Operator: And now I'd like to introduce your host for today's program, Duncan Bates, Legacy Housing President and Chief Executive Officer. Please go ahead, sir.

Duncan Bates: Good morning. This is Duncan Bates, Legacy's President and CEO. Thanks for joining our third quarter 2024 conference call.

Speaker Change: Good morning. This is Duncan base legacy as President and CEO. Thanks for joining our third quarter 2024 conference call.

Max Africk: Max Africk, Legacy's General Counsel will read the safe harbor disclosure before getting started. Thanks, Duncan. Before we begin, I want to 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.

Speaker Change: <unk> legacy as general counsel or read the safe Harbor disclosure before getting started.

Speaker Change: Thanks, Duncan four we began I want to 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 that is contained in the private securities living.

Max Africk: Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Security Litigation Reform Act of 1995. Actual results may differ from management's current expectations. Any projections as to the company's future performance represent management's best estimates as of today, and Legacy assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Speaker Change: A form act of 1995 Act.

Speaker Change: Actual results may differ from management's current expectations any projections as to the Companys future performance represent management's best estimates as of today and legacy assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Duncan Bates: Thanks, Max. I'm joined today by Jeff Fiedelman, Legacy's Chief Financial Officer.

Max: Thanks Max.

I'm joined today by Jesse Adelman Legacies, Chief Financial Officer, Jeff will discuss our third quarter financial performance and I will provide additional corporate updates and open the call for Q&A Jeff.

Duncan Bates: Jeff will discuss our third quarter financial performance, then I will provide additional corporate updates and open the call for Q&A.

Jeffrey Fiedelman: Jeff. Thanks, Duncan.

Jeffrey Fiedelman: product sales consist. primarily consist of direct sales, commercial sales, inventory, finance, sales, and retail. product sales decreased 6.8 million for 18. during the three months ended September 30, 2020. compared to the same period in time. The decrease was driven by a decrease in unit volume shipped, primarily in direct sales, mobile home park. Decrease was partially offset by increased sales. For the three months ended September 30, 2024, our net revenue per product sold did not change significantly. prepared to the three months ended September 30. Consumer MHP and Dealer Loans Interest. increased $1.5 million, or $17.3 billion.

Thanks Duncan.

Speaker Change: Product sales consistent.

Primarily consist of direct sales commercial sales inventory finance sales in retail store sales.

Speaker Change: Product sales decreased $6 8 million or 18.

Speaker Change: During the three months ended September 32024, as compared to the same period in 2023.

Speaker Change: The decrease was driven by a decrease in unit volume shipped primarily in direct sales mobile home Park sales and inventory finance sales categories.

Speaker Change: The decrease was partially offset by increased sales at our company owned retail stores.

Speaker Change: For the three months ended September 32020 for our net revenue per product sold did not change significantly.

Speaker Change: Compared to the three months ended September 32023.

Speaker Change: Consumer and HP and dealer loans interest income increased one 5 million or 17, 3%. During the three months ended September 32024, as compared to the same period in 2023 due to growth in our loan portfolios.

Jeffrey Fiedelman: during the three months ended September 30. compared to the same period, 2023, due to growth in our... This increase was driven primarily by increased value. between September 30th, 2024 and September 30th. MHP Loan Portfolio increased by $22.0 million. Other revenue primarily consists of contract deposit for and other miscellaneous. decreased $0.4 million. during the three months ended September 30th, 2020. here to the same. This decrease was primarily due to a $2.4 million decrease in forfeited deposits and a $1.0 million decrease in dealer financing. partially offset by a $2.7 million increase in land. $0.3 million. Cost of product sales decreased 3.5% 13.9.

Speaker Change: The increase was driven primarily by increased balances in the MH P and consumer loan portfolios.

Speaker Change: Between September 32024 at September 32023.

Speaker Change: <unk> loan portfolio increased by 22.0 million.

Speaker Change: In our consumer loan portfolio increased by $15 6 million.

Speaker Change: Other revenue primarily consists of contract deposit forfeitures consignment fees commercial lease rents land sales service fees and other miscellaneous income and.

Speaker Change: And decreased <unk> 4 million or eight 7% during the three months ended September 32024, as compared to the same period of 2023.

Speaker Change: This decrease was primarily due to a <unk> 4 million decrease in forfeited deposits and a 1.0 dollars decrease in dealer finance par.

Really offset by a $2 7 million increase in land sales and zero point $3 million increase in other miscellaneous revenue.

Speaker Change: The cost of product sales decreased $3 5 million or 13, 9% during the three months ended September 32024.

Jeffrey Fiedelman: during the three months ended September 30, 2020. as compared to the same period. Decrease in costs is primarily related to the decrease in housing prices. Gross profit margin was 29.2% of product. Tremonts ended September 30th, 20... compared to 32.9% during the three-month period. Inc. The cost of other sales increased $2.0 million during the three months ended September 30, 2012. The increase in costs is due to the sale of... Selling general and administrative expenses during the three months ended September 30, 2024 remained flat compared to the same period. We have a $0.6 million increase in payroll and health.

Speaker Change: As compared to the same period in 2023.

Speaker Change: The decrease in costs, primarily related to the decrease in units sold.

Speaker Change: Gross profit margin was 29, 2% of product sales during the three months ended September 32024.

Speaker Change: As compared to 32, 9% during the three months ended.

Speaker Change: September 32023.

Speaker Change: The cost of other sales increased 2.0 million during the three months ended September 32024, as compared to the same period in 2023.

Speaker Change: The increase in cost is due to the sale of land.

Selling general and administrative expenses during the three months ended September 32024 remained flat compared to the same period in 2023.

Speaker Change: We had a zero point $6 million increase in payroll and health care expense.

Speaker Change: <unk> <unk> 2 billion increase in marketing spec expense.

Jeffrey Fiedelman: $0.1 billion increase in other miscellaneous offset by a $0.3 million decrease in warranty. $0.2 million decrease in bad debt. $0.2 million decrease. Other income expense increased $3.5 million, or 781%, during the three months ended September 30, 2020. We had a decrease of $0.8 million in non-operating. an increase of $3.9 million in income and miscellaneous net, also primarily. miscellaneous net due to a gain on conversion of inventory. decreased at $0.1 million. an increase of $0.1 million in expense in miscellaneous debt related. net income decreased 1.8% to 15.8%. third quarter of 2020. compared to the third quarter.

Zero point $1 billion increase in other miscellaneous expense.

Speaker Change: Offset by a zero point $3 million decrease in warranty expense zero point $2 million decrease in loan loss provision.

Speaker Change: Zero point $2 million decrease in bad debt expense and a zero point $2 million decrease in professional fees.

Speaker Change: Other income expense increased $3 5 million or 781% during the three months ended September 32024, as compared to the same period in 2023.

We had a decrease of zero point $8 million and nonoperating interest income primarily as a result of the settlement agreement that we executed in the third quarter.

An increase of $3 9 million and income and miscellaneous net also primarily as a result of the settlement agreement.

Speaker Change: An increase of zero point $4 million in income.

Speaker Change: Miscellaneous net due to a gain on conversion of inventory finance loans.

Kris: Kris at zero point $1 billion in interest expense.

Kris: And an increase of <unk> $1 million in expense and miscellaneous net related to other expenses.

Kris: Net income decreased one 8% to $15 8 million in the third quarter of 2024 compared to the third quarter of 2023.

Jeffrey Fiedelman: Basic earnings per share decreased one cent per share, or 1.5%. start quarter of 2020. As of September 30, 2024, we had a prog- $0.6 million in cash. compared to $0.7 million. The Outstanding Balance of the Revolvers. September 30, 2020. November 31st, 2021.

Kris: Basic earnings per share decreased <unk> <unk> per share or one 5% and the <unk>.

Kris: Third quarter of 2024 compared to the third quarter of 2023.

Kris: As of September 32024, we had approximately zero point $6 million in cash.

Kris: <unk> <unk> 7 billion as of December 31, 2023.

Kris: The outstanding balance at the revolver as of September 32024, and December 31, 2023 was $2 1 million and $23 7 million respectively.

Jeffrey Fiedelman: At the end of the third quarter of 2024, Legacy's book value per basic share outstanding was $19.00. with an increase of 12.7% from the same period in 2023.

Kris: At the end of the third quarter 2024 legacy book value per basic share outstanding was $19 84.

Kris: An increase of 12, 7% from the same period in 2023.

Duncan Bates: Thanks, Jeff. Legacy's 2024 fall show in late September was a huge success. We hosted a record number of customers and wrote orders that extended the backlog into the first quarter of 2025. During the fourth quarter, we increased production at both Texas plants. At the fall show, we showcased significant updates to interior and exterior home finishes to appeal to younger homebuyers. The changes were very well received by both dealer and community customers. We are building and shipping these orders now. Third quarter shipments came in lower than we would have liked. Given the marketing around the product updates, many of our customers elected to see the changes in person and order at the show.

Jeff: Thanks, Jeff.

Speaker Change: Legacy 2020 for fall show in late September was a huge success, we hosted a record number of customers and road orders that extended the backlog ended the first quarter of 2025 during.

Speaker Change: During the fourth quarter, we increased production at both Texas plants.

Speaker Change: It defaults show, we showcased significant updates to interior and exterior finishes to appeal to younger homebuyers. The changes were very well received by both dealer and community customers.

Speaker Change: We are building in shipping these orders now.

Speaker Change: Third quarter shipments came in lower than we would have liked given the marketing around the product updates many of our customers elected to see the changes in import and person and order at the show.

Duncan Bates: We continue to build the team, including onboarding a senior sales manager for the Texas plants in late September. Despite slower sales in the third quarter, we're moving in the right direction. Product sales for October 2024 were up 27% over September of 2024. We continue to hold pricing which has contributed to a slower recovery than our peers. Our dealer business across most of the network is good. We are pushing the team to add new independent dealers across the manufacturing footprint. South Texas, Florida, and the Carolinas are top areas of focus. We view retail finance as a leading indicator on the dealer side.

Speaker Change: We continue to build the team, including Onboarding, a senior sales manager for the Texas plants in late September.

Speaker Change: Despite slower sales in the third quarter, we are moving in the right direction product sales for October 2024 were up 27% over September of 2024, we continue to hold pricing, which has contributed to a slower recovery than our peers.

Speaker Change: Our dealer business across most of the network is good we're pushing the team to add new independent dealers across the manufacturing footprint, South, Texas, Florida, and the Carolinas or top areas of focus we view retail finance is a leading indicator on the dealer side a couple of recent.

Duncan Bates: A couple of recent data points. Applications were up 16% for the third quarter of 2024 compared to the third quarter of 2023. October 2024 retail finance fundings were the highest recorded since December 2020. Our community business is improving slowly. High interest rates continue to depress transaction volume. We are receiving more inbound requests and think the community business will continue to improve in 2025. During the quarter, we secured several meaningful orders on the community side. We continue to have success selling HUD tiny homes to RV park investors, transitioning these assets from seasonal to year-round occupancy. I view this as a growth opportunity and highly encourage any of the community customers listening to explore the economics of this strategy.

Speaker Change: Data points.

Speaker Change: Applications were up 16% for the third quarter of 2024 compared to the third quarter of 2023.

Speaker Change: <unk> 2024 retail finance fundings were the highest recorded since December 2020.

Speaker Change: Our community business is improving slowly hi.

Speaker Change: High interest rates continue to depress transaction volumes, we are receiving more inbound requests and thank the community business will continue to improve in 2025.

Speaker Change: During the quarter, we secured several several meaningful orders on the community side. We continue to have success selling HUD tiny homes to RV Park investors transitioning these assets from seasonal to year round.

Speaker Change: Occupancy I view this as a growth opportunity and highly encourage any of the community customers listening to explore the economics of this strategy.

Duncan Bates: Our lending portfolios continue to grow. Over the last 12 months, interest revenue from MHP, retail finance, and floor plan financing is up 33.9%. Our delinquencies remain low, and recovery rates are strong. Product gross margins were 29.2% for the third quarter of 2024. Underabsorbed labor, given the lower production levels, drove the decline. We continue to watch labor closely and expect margins to normalize with production improving. We are also keeping an eye on material price fluctuation. We sold excess land in Horseshoe Bay during the third quarter for $2.7 million. As I mentioned on the last call, investors will continue to see land sales as we shift our focus to the core property.

Speaker Change: Our lending portfolios continue to grow over the last 12 months interest revenue from MH P retail finance and floor plan financing is up 33, 9%, our delinquencies remain low and recovery rates are strong.

Speaker Change: Product gross margins were 29, 2% for the third quarter of 2024.

Speaker Change: Under absorbed labor given the lower production levels drove the decline we continue to watch labor closely and expect margins to normalized with production improving we're also keeping an eye on material price fluctuations.

Speaker Change: We sold excess land in Horseshoe Bay during the third quarter for $2 7 million as I mentioned on the last call investors will continue to see land sales as we shift our focus to the core properties.

Duncan Bates: Legacy is now operating two mobile home parks that were deeded to us under the settlement agreement. The parks combined have 275 spaces and occupancy rates of approximately 35 percent. Brand new homes were already on site. We hired a manager in the corporate office to oversee these projects. We're renting homes now to increase occupancy before monetizing. As Jeff mentioned, the settlement agreement resulted in a one-time gain during the third quarter. We believe there is still meaningful upside to realize when we sell the properties over the next couple quarters.

Speaker Change: Legacy is now operating two mobile home parks that were needed to us under the settlement agreement.

Speaker Change: The parks combined have 275 spaces and occupancy rates of approximately 35%.

Speaker Change: New homes were already onsite, we hired a manager in the corporate office to oversee these projects were renting homes now to increase occupancy before monetizing as Jeff mentioned the settlement agreement resulted in a onetime gain during the third quarter. We believe there is still meaningful upside to realize.

Speaker Change: When we sell the properties over the next couple of quarters.

Duncan Bates: A few updates on land development. In Bastrop County, our 1100 pad development near Austin, the roads and utilities are nearly complete for phase one. We anticipate selling lots during the first half of 2025. We are starting the roads in phase two now and will provide additional updates next quarter. In Horseshoe Bay, we own 300 developed mobile home lots. A market study estimated that the lots are worth approximately three times the value on our balance sheet.

Speaker Change: A few updates on land development.

Speaker Change: And bass dropped county, or 1100 pad development near Austin, the roads and utilities are nearly complete for phase one we anticipate selling lots during the first half of 2025.

Speaker Change: We are starting the roads in phase III now and we'll provide additional updates next quarter.

Speaker Change: In Horseshoe Bay, we own 300 developed mobile home lots.

Speaker Change: Market study estimated that the lots are worth approximately three times the value on our balance sheet.

Duncan Bates: This quarter, we're opening our first new company owned dealership since the post IPO build out. The sales lot is near the Horseshoe Bay land and we will begin selling land and homes in the first half of 2025. We are making progress on our retail business and view our independent dealer network as a path to expand our company-owned footprint as some business owners approach retirement age. I continue to believe in the long-term fundamentals of this business. We are seeing more coverage of factory built housing in the media and hear talks of regulatory reform. The affordable housing crisis is not solved without our industry.

Speaker Change: This quarter, we are opening our first new company owned dealership since the post IPO build out the sales lot is near the Horseshoe Bay land and we will begin selling land and homes in the first half of 2025.

Speaker Change: We are making progress on our retail business and view, our independent dealer network as a path to expand our company owned footprint as some business owners approach retirement age I continue to believe in the long term fundamentals of this business. We are seeing more coverage of factory built housing in the media.

Speaker Change: And here talks of regulatory reform the affordable housing crisis is not solved without our industry.

Duncan Bates: Operator, this concludes our prepared remarks.

Speaker Change: Operator. This concludes our prepared remarks, please begin the Q&A.

Operator: Please begin the Q&A.

Operator: Certainly. And our first question for today comes from the line of Daniel Moore from CJS Securities.

Speaker Change: Certainly and our first question for today comes from the line of Daniel Moore from CJS Securities. Your question. Please.

Daniel Moore: Your question, please.

Daniel Moore: Thank you, Duncan. Thanks, Jeff, for all the color and taking the questions.

Thank you Duncan Thanks, Jeff for all the color and taking my questions.

Daniel Moore: I'm going to start with.

Daniel Moore: Good morning. Appreciate the color on October.

Speaker Change: Hey, maybe to start with if you could.

Speaker Change: Good morning.

Duncan Bates: You know, maybe just talk about your expectations for production rates, you know, across your three plants for the December quarter, in light of, you know, relative to Q3, in light of the strength and orders that you've seen during the fall show, and, you know, it sounds like you intend to ramp production rather than let backlogs build, but any detail or color there would be really Yeah, absolutely. You know, Dan, we were looking for a catalyst to ramp production up. And we've been trying to build our backlog. You know, third quarter was was lighter than than we would have liked, but we created a lot of excitement around the fall show, which was at the end of September.

The color on October.

Speaker Change: Maybe just talk about your expectations for production rates across your three plants for the December quarter.

Speaker Change: In light of relative to Q3 and.

In light of the strength in orders that you've seen during.

Speaker Change: During the fall show in.

Speaker Change: It sounds like you intend to ramp production, rather than let backlogs bill, but any detail or color there would be really helpful.

Speaker Change: Yes, absolutely.

Dan: Dan we are looking for a catalyst.

To ramp production up.

Dan: And we've been trying to build our backlog.

Dan: Third quarter was was lighter than than we would have liked but we created a lot of excitement around the false show, which was at the end of September and I think as our sales team started seeing.

Duncan Bates: And I think as you know, our sales team started seeing, you know, the new colors and features in the houses and sharing those with customers ahead of the show, we had, you know, some customers that decided to wait in order at the show for delivery in the fourth quarter, even in the first quarter of next year. And so that delayed some shipments for us.

Dan: The new colors and features.

In the houses and sharing those with customers ahead of the show we had some customers that decided to wait.

And order at the show for delivery in the fourth quarter or even in the first quarter of next year and so that delayed some shipments for us I think the other thing we.

Duncan Bates: I think the other thing, you know, we continue to build the team here. And we've made over the last couple years, you know, several key senior hires. You know, what wasn't working for the two Texas plants is, you know, me overseeing the sales department and all my spare time. And so we've, you know, we've hired a senior sales manager there. And, you know, he's managing the team daily. And, you know, I think like pricing's had an impact. I mean, we haven't we haven't taken pricing down. I think some of our larger competitors have, you know, so ultimately we're building these show orders now.

Dan: We continue to build the team here and we've made over the last couple of years several key senior hires what wasn't working for the two Texas plants as EMEA overseeing the sales department and all my spare time and so we've we've hired a senior sales manager there and.

He is managing the team daily.

Dan: And I think like pricing has had an impact I mean, we haven't we haven't taken pricing down I think some of our larger competitors have.

So ultimately we're building these shareholders now we had a little bit of a delay in getting some of the new materials in but I certainly expect the fourth quarter from a product sales standpoint to be up over the third quarter.

Duncan Bates: We had a little bit of a delay getting some of the new materials in. But I certainly expect, you know, the fourth quarter from a product sales standpoint to be up over the third quarter.

Duncan Bates: Very helpful. And maybe just talk about how orders, you know, obviously give good detail around the show, and we can kind of see how things are trending in October, but just how have orders trended thus far into Q4, the momentum you've experienced in Q3 kind of carried over so far this quarter? Yeah, you know, I think we like Even since the show and writing all the orders at the show, we've had pretty steady sales. for the last couple of weeks that continue to take the backlog out, which is good. You know, production's still below where we'd like it to be, but better than Q3.

Speaker Change: Very helpful.

Speaker Change: And maybe just talk about how orders obviously you gave good detail around.

Speaker Change: The show.

Speaker Change: And we can kind of see how things are trending in October, but just how have orders trended thus far into Q4, the momentum you've experienced in Q3 kind of carried over so far this quarter.

Speaker Change: Yeah, I think we like even since the show in writing all the orders at the show we've.

Speaker Change: We've had pretty steady sales.

Speaker Change: For the last couple of weeks that continue to take the backlog out which is good.

Speaker Change: Production still below where we'd like it to be but better than Q3, and I think the <unk>.

Duncan Bates: And I think that, you know, the encouraging thing is we're starting to see the park customers come back. You know, that's been a space that, you know, kind of through COVID, right, the two founders really built the business on the park side. We had a good dealer network, and, you know, we've been struggling on the community side and are starting to see more inquiries and, you know, sign some meaningful deals, you know, not huge deals where you're selling hundreds of houses, but deals where we're selling, you know, 20 to 60, and that helps us out a little bit.

Speaker Change: Courage evening as we're starting to see the part customers come back.

Speaker Change: That's been a space that.

Speaker Change: Kind of through Covid right. The two founders really built the business on the park side, we had a good dealer network.

Speaker Change: And.

Speaker Change: We've been we've been struggling on the community side and are starting to see more inquiries and signed some meaningful deals not huge deals where youre selling hundreds of houses, but deals who are selling 20 to 60 and and that helps us out a little bit so.

Duncan Bates: So it's, you know, it's still, it's slower than we'd like, but it's certainly improving.

Speaker Change: It's still it's slower than wed like but its certainly improving.

Duncan Bates: Really helpful, and it doesn't sound like it, but just checking to see if there was any impact from the hurricanes down in the, you know, Georges and Carolinas. If not, as we look forward, do you see a potential opportunity either in terms of rebuild or FEMA replacement or? Yeah, absolutely. I, you know, we were fortunate where we, you know, we, we had some delayed shipments just, you know, go into customers in certain areas in the southeast from the storm. But as far as, you know, the plant and the inventory and our team there, you know, we luckily came out of it unscathed.

Speaker Change: Really helpful and it doesn't sound like it but just checking to see if there was any impact from the hurricanes.

Speaker Change: Georgia and Carolinas.

Speaker Change: If not as we look forward do you see potential opportunity either in terms of Rebuilder.

Speaker Change: A replacement or both.

Speaker Change: Yes, absolutely.

Speaker Change: We were fortunate where.

We.

Speaker Change: Had some delayed shipments just go into customers in certain areas in the southeast.

Speaker Change: The storm, but as far as the plant and the inventory and our team there.

Speaker Change: We Luckily came out of it unscathed.

Duncan Bates: I think the, you know, the hurricane rebuild work has been confusing. I, you know, there's been conversations with HUD and, you know, with other, with other providers of, say, temporary or workforce housing. There, you know, there doesn't seem like there's been any meaningful money that started to flow yet. But we certainly expect that, you know, going forward, there will be group rebuild work. And, you know, we're getting a lot of inquiries on our workforce housing products that we, you know, primarily build in Texas, but we can build in Georgia for, you know, temporary housing applications over in the Carolina.

Speaker Change: I think the the hurricane rebuild work has been confusing.

Speaker Change: Yes.

Speaker Change: There's been conversations with HUD and with other.

Speaker Change: With other providers of say temporary or workforce housing.

Speaker Change: It doesn't seem like there's been any meaningful money that started to flow yet, but we certainly expect that going forward. There will be group rebuild work and we're getting a lot of inquiries on our workforce housing products that we primarily built in Texas, but we can build on.

Speaker Change: Georgia.

Speaker Change: For Apple temporary housing applications over in the Carolinas.

Daniel Moore: Great, last one. I'll jump back in queue, but gross margins, as you pointed out, tick lower sequentially. Sounds like you'll get better absorption, you know, starting in Q4, so, you know, any more specificity in terms of what normalization looks like for margins, you know, as we think about Q4 and into the first half of next year.

Speaker Change: Great last one I'll jump back in queue, but gross margins as you pointed out tick lower sequentially.

Sequentially.

Speaker Change: It sounds like Youll get better absorption starting in Q4 so.

Speaker Change: Any.

Speaker Change: More specificity in terms of what normalization looks like margins as we think about Q4 and into the first half of next year. Thanks again.

Duncan Bates: Thanks again. Yeah, absolutely, Dan. You know, I think we'll get back to, you know, in the 30s and low 30s in first quarter, or I'm sorry, in the fourth quarter. You know, labor, labor's obviously markets not as tight as it was through COVID, but it's still pretty tight. And you want to hang on to your people. And, you know, so this was a quarter where just, you know, our production was down until we got, got through the show and really started building those orders. And I think we'll, you know, we'll normalize heading into the end of the year.

Speaker Change: Yes, absolutely Dan I think we will get back to.

Speaker Change: <unk>.

Speaker Change: Flow <unk> in first quarter or I'm, sorry in the fourth quarter.

Labor Labor is obviously the markets not as tight as it was through Covid, but it's still pretty tight and you want to hang on to your people.

Speaker Change: And so this was a quarter, where just our production was down until we got got through the show and really started building those orders.

Speaker Change: And I think we will we will normalize heading into the end of the year.

Duncan Bates: As you know, we ramp production up to, you know, and I think right size the team from a production standpoint.

Speaker Change: As we ramp production up to.

Speaker Change: I think right size the team from a production standpoint.

Daniel Moore: Perfect. Appreciate it. Appreciate the color.

Speaker Change: Perfect I appreciate that I appreciate the color.

Daniel Moore: Thanks, Sam.

Speaker Change: Thanks, Dan.

Operator: Thank you and our next question comes from the line of Mark Smith from Lake Street. Your question please.

Speaker Change: Thank you.

Speaker Change: Question comes from the line of Mark Smith from Lake Street. Your question. Please.

Mark Smith: Hey Duncan, I just wanted to check in first on the settlement agreement, if we've now kind of worked through everything there, if there's any kind of ongoing impact as we look at Q4. No, you know, we've worked through it. This was the last quarter of, you know, The moving pieces around getting the settlement agreement onto the book. We did realize a pretty meaningful gain during the quarter. You know, and ultimately...

Mark Smith: Hey, Duncan just wanted to check in first on the.

Speaker Change: Settlement agreement.

Speaker Change: We've now kind of worked through everything there if theres any kind of ongoing impact as well.

Look at Q4.

Speaker Change: No we've worked through it this was the last quarter of <unk>.

Speaker Change: No.

Speaker Change: The moving pieces around getting the settlement agreement onto the onto the books.

Speaker Change: We did realize a pretty meaningful gain during the quarter.

Speaker Change: And ultimately.

Duncan Bates: The borrower's current, and we're now operating two parks that we've got our arms around, and we've got a team hired at the corporate level, and then new park managers on site. And so, there's some cleanup work to do, there's opportunities to take occupancy hire, and then I think we'll ultimately look to monetize these assets in the fairly near future. But as far as the moving pieces of getting the settlement agreement on the books, we are.

Speaker Change: The borrowers current.

Speaker Change: And we've we're now operating two parks.

Speaker Change: That we've got our arms around and we've got.

Speaker Change: A team hired at the corporate level and a new park managers.

On site and so.

Speaker Change: There is some cleanup work to do there is opportunities to take occupancy higher and then I think will ultimately look to monetize these assets in the fairly near future, but as far as the moving pieces of getting this settlement agreement on the books we are.

Speaker Change: We are complete.

Mark Smith: Perfect.

Duncan Bates: And then I did just want to ask about the big ramp in the MHP financing portfolio came up in size quite a bit. If you can just speak to kind of what what all happened there. Yeah, it was really from, you know, as part of the settlement agreement, the we had the borrower had, you know, MHP notes that were secured by home. And then there were also development loans as well. So, you know, we shifted with the settlement, we shifted some of the, you know, balances from the development loan portfolio over to MHP.

Speaker Change: Yes.

Perfect and then I just wanted to ask about the big ramp.

Speaker Change: In the MSP financing portfolio came up in size quite a bit if you can just speak to kind of what what will happen there.

Speaker Change: Yeah. It was really from as part of the settlement agreement.

Speaker Change: We had.

The borrower had.

Speaker Change: <unk> notes that are secured by homes and then there were also.

Speaker Change: Development loans as well so we shifted with the settlement we shifted.

Speaker Change: Some of the balances from the development loan portfolio over to MH.

Mark Smith: Perfect, thank you. Thank you.

Speaker Change: Okay.

Speaker Change: Perfect. Thank you.

Operator: And our next question comes from the line of Alex Rygiel from B Riley Securities. Your question, please.

Speaker Change: Thank you.

Speaker Change: And our next question comes from the line of.

Speaker Change: Alex Rygiel from B Riley Securities Your question. Please.

Alexander Rygiel: Thanks.

Alexander Rygiel: Good morning, Duncan. A couple quick questions. First, can you give us a clarification?

Thanks, Good morning, Duncan couple of quick questions.

Speaker Change: First can you can you give us a clarification did you say earlier that product sales gross margin will get back above 30% in the fourth quarter.

Duncan Bates: Did you say earlier that product sales gross margin would get back above 30% in the fourth quarter? I think we'd like to get to 30%. You know, we slid from 31 to 29 with the lower production in the in the fourth quarter. And so we'd like to get, you know, closer to where we were in the second quarter. I think the improving production helps, but there's also, you know, we're keeping an eye on the lumber and wood products, which I think, you know, been impacted after the hurricane.

Speaker Change: I think we'd like to get to 30%, we slid from 31% to 29 with the lower production in the.

Speaker Change: In the fourth quarter, and so we'd like to get closer to where we were in the second quarter.

Speaker Change: I think the improving production helps but there is also we're keeping an eye on the lumber and wood products.

Speaker Change: Which I think.

Speaker Change: Impacted after the hurricane so.

Duncan Bates: So that's the goal. But I, but, you know, the margin really slipped because of, you know, labor under absorption in the third quarter.

Speaker Change: Thats the goal, but but.

Speaker Change: The margin really slipped because of labor.

Labored under absorption in the third quarter.

Alexander Rygiel: couple.

Duncan Bates: And then how long might it take to increase the occupancy of the two owned parks to a level that's attractive to sell? You know, I think, you know, I think we can get there in a quarter, Alex, you know, in this, both of these parts had, you know, a lot of brand new homes that we had shipped. Some of which had been set up and not rented. Others that were on paths and utilities weren't connected. And so we've been, we're really focused on Beaumont, Texas. I think that's where the most upside is. And, you know, we've done a pretty good job so far with the new park manager leasing those those homes up.

Speaker Change: Helpful and then how long might it take to increase the occupancy at the two owned parks to a level.

<unk> to sell.

Alex Rygiel: I think I think we can get there in a quarter Alex.

Alex Rygiel: And that's both of these parks had a lot of brand new homes that we had shipped some of which had been set up and not rented.

Alex Rygiel: Others that we are.

We are on pads and utilities weren't connected and so we've been we're really focused on.

Alex Rygiel: On Beaumont, Texas, I think Thats, where the most upside is.

Alex Rygiel: And.

We've done a pretty good job so far with the New Park manager leasing knows those homes, so I'd like to get us.

Duncan Bates: So, you know, I'd like to get us. Yeah, somewhere between 50 and 70% occupancy before we, you know, before we ultimately monetize these. We'll just see how it goes.

Alex Rygiel: Somewhere between 50% and 70% occupancy before we before we ultimately monetize these and we'll just see how it goes.

Alexander Rygiel: That's all cool.

Alexander Rygiel: And then as it relates to the fall show, You know, it sounds like coming out of the fall show, you've got good visibility for backlog into 1Q25. You've increased production in your Texas plants. Does that all suggest that the show was better than you had expected or about the same?

Speaker Change: That's helpful and then as it relates to the fall show.

Alex Rygiel: <unk>.

Alex Rygiel: It sounds like coming out of the fall show you've got good visibility for backlog into one to 'twenty five.

Alex Rygiel: <unk> increased production in your Texas plants.

Speaker Change: Does that all suggest that the show was better than you had expected or about the same.

Duncan Bates: No, the show was the show would really was a big success. I mean, that's our, you know, that's our big sales event every year. And I think the difference this year is, you know, we made more updates to the houses this year than we probably had in the last 10 years combined. You know, so think, you know, new flooring options, wallboard, you know, cabinet colors, countertops, walk-in showers, the team really did a nice job, you know, on the interior and exterior finishes to modernize the product. And I think what was, you know, we really pushed that we got We got a lot of customers there.

Speaker Change: No. The show was the show would really was the big success. That's our that's our big sales event every year and I think the difference this year is.

We made more updates to the houses this year than we probably had in the last 10 years combined.

Speaker Change: New flooring options wallboard.

Speaker Change: Cabinet colors counter tops walk in showers, the team really did a nice job.

Speaker Change: On the interior and exterior interior.

Speaker Change: Finishes to modernize the product and.

Speaker Change: And I think what was we really pushed that we got.

Speaker Change: We got a lot of customers there, while there was great and.

Duncan Bates: Weather was great. And ultimately, we wrote a lot of orders. But I'd say 95% of the orders were for the updated finishes. And so it took us a little bit of time, or a couple weeks, to get all the orders. the new colors in, and then we started building them. So I think in the long term, you know, our customers were looking for us to update the product. We did. You know, the feedback was great. And you know, we're starting to get these homes out on dealer lots where they're selling them really quickly. And I think that, you know, that's, that's, there may have been, you know, a little pain kind of getting through the show and production in the third quarter.

Ultimately, we wrote a lot of orders, but the.

Speaker Change: <unk>.

Speaker Change: I'd say, 95% of the orders were for.

Speaker Change: The updated finishes and so we.

It took us a little bit of time, a couple of weeks to get all of the.

Speaker Change: The new colors, and then we started building them. So I think in the long term.

Speaker Change: Our customers were looking for us to update the product we did.

Speaker Change: The feedback was great and we're starting to get these homes out on dealer lots, where they're selling them really quickly and I think that that's that's.

Speaker Change: There may have been a little pain kind of get through the show in production in the third quarter, but for the long term it really sets us up nicely.

Duncan Bates: But for the long term, it really sets us up nicely.

Alexander Rygiel: That's great. Congratulations.

Operator: Thanks. Thank you.

Speaker Change: That's great congratulations thanks.

Operator: This does conclude the question and answer session of today's program.

Speaker Change: You.

Speaker Change: Thank you. This does conclude the question and answer session of today's program I'd now like to hand, the program back to Duncan beats for any further remarks.

Duncan Bates: I'd now like to hand the program back to Duncan Bates for any further remarks.

Duncan Bates: Sure.

Duncan Bates: Thank you for joining today's earnings call. We appreciate your interest in Legacy Housing.

Duncan beats: Sure. Thank you for joining today's earnings call. We appreciate your interest in legacy housing operator. This concludes our call.

Operator: Operator, this concludes our call. Thank you.

Operator: And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. Thanks for watching!

Speaker Change: Thank you and thank you ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.