Q2 2025 Legacy Housing Corp Earnings Call

Speaker #2: Ladies and gentlemen, thank you for standing by. Welcome to Legacy Housing Corporation's second quarter 2025 earnings call. At this time, all participants are in a listen-only mode.

Speaker #2: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone; you will then hear an automated message advising that your hand is raised.

Speaker #2: And to withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Duncan Bates, President and Chief Executive Officer.

Speaker #2: Please go ahead, sir.

Speaker #3: Good morning. This is Duncan Bates, Legacy's president and CEO. Thank you for joining our second quarter 2025 conference call. Max Africk, Legacy's general counsel, will read the safe harbor disclosure before getting started.

Speaker #3: Max?

Speaker #4: Thanks, Duncan. Before we begin, I'll remind our listeners that management's prepared remarks today may 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 #4: Actual results may differ from management's current expectations and Legacy assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Speaker #3: Thanks, Max. I'm joined today by Jeff Fiedelman, Legacy's chief financial officer. Jeff will discuss our second quarter financial performance, then I will provide additional corporate updates and open the call for Q&A.

Speaker #5: Thanks, Duncan. Product sales primarily consist of direct sales, commercial sales, inventory finance sales, and retail store sales. Product sales increased by $6.7 million, or 21.3%, during the three months ended June 30th, 2025, as compared to the same period in 2024.

Speaker #5: This increase was driven by an increase in unit volume shift primarily in inventory finance sales retail sales and mobile home park sales categories. For the three months ended June 30th, 2025, our net revenue per product sold increased by 10.5% as compared to the same period in 2024.

Speaker #5: The increase is primarily due to an increase in units sold to consumers which are sold at higher retail prices. Consumer MHP and dealer loans interest income increased 1.0 million or 10.6% during the three months ended June 30th, 2025, as compared to the same period in 2024.

Speaker #5: Between June 30th, 2025, and June 30th, 2024, our consumer loan portfolio increased by 24.6 million; our MHP loan portfolio increased by 20.3 million; and our dealer finance notes decreased by 0.5 million.

Speaker #5: Other revenue primarily consists of contract deposit forfeitures consignment fees, commercial lease rents, land sales, service fees, and other miscellaneous income. And decreased 0.1 million or 10.8% during the three months ended June 30th, 2025, as compared to the same period in 2024.

Speaker #5: This decrease was primarily due to a 0.2 million decrease in forfeited deposits, partially offset by a net 0.1 million increase in other miscellaneous revenue.

Speaker #5: The cost of product sales increased by $4.4 million, or 20.3%, during the three months ended June 30, 2025, as compared to the same period in 2024.

Speaker #5: The increase in costs is primarily related to the increase in units sold. Gross profit margin was 32.4% of product sales during the three months ended June 30th, 2025, as compared to 31.9% during the three months ended June 30th, 2024.

Speaker #5: The cost of other sales was 0.6 million during the three months ended June 30th, 2025. Selling general and administrative expenses increased 1.1 million or 19.1% during the three months ended June 30th, 2025, as compared the same period in 2024.

Speaker #5: We had a 1.1 million increase in warranty expense primarily due to an overaccrual in warranty costs in second quarter of 2024 that we reversed.

Speaker #5: And we also had a 0.5 million increase in repossessed home expense; a 0.2 million increase in bad debt expense; a 0.1 million increase in loan loss provision; offset by a 0.6 million decrease in legal expense; a 0.1 million decrease in property tax expense; and a net 0.1 million decrease in other miscellaneous expense.

Speaker #5: Other income decreased by $2.8 million, or 74.5%, during the three months ended June 30, 2024, as compared to the same period in 2023. We had a decrease of $0.5 million in non-operating interest income, reflecting a lower balance of other notes receivable.

Speaker #5: Two, a $2.5 million decrease in miscellaneous income primarily due to land sales and a reversal of accrued liabilities during the three months ended June 30, 2024, that did not occur during the three months ended June 30, 2025; and three, a decrease of $0.2 million in interest expense.

Speaker #5: Net income decreased 9.2% to $14.7 million in the second quarter of 2025, compared to the second quarter of 2024. Basic earnings per share decreased 9.0% to 61 cents per share in the second quarter of 2025, compared to the second quarter of 2024.

Speaker #5: As of June 30, 2025, we had approximately $2.6 million in cash, compared to $1.1 million as of December 31, 2024. We drew a small amount on the revolver in the second quarter.

Speaker #5: The outstanding balance of the revolver was 0.1 million as of June 30th, 2025, and was zero as of December 31st, 2024. At the end of the second quarter of 2025, Legacy's book value per basic share outstanding was $21.32, an increase of 11.2% from the same period in 2024.

Speaker #5: Finally, we repurchased 260,635 shares of common stock for $5.8 million during the three months ended June 30th, 2025. As of June 30th, 2025, we had a remaining authorization of approximately 8.1 million on our share repurchase program.

Speaker #3: Thanks, Jeff. I'm pleased with our second quarter results. Our focus has remained on product sales. While there's still uncertainty in the market and weakness and certain geographies and channels, we are seeing positive signs from the changes we've made.

Speaker #3: Earlier this year, we took a hard look at historical sales data and simplified our product line. That process had its challenges, but some of the adjustments are paying off.

Speaker #3: As Jeff mentioned, product sales increased 21.3% during the second quarter, compared to the same period in 2024. That growth was primarily driven by dealer activity.

Speaker #3: Product sales were up 58% sequentially over the first quarter 2025, inventory finance sales or floor plan sales to independent dealers increased 4.9 million or 53.3% compared to the second quarter of 2024.

Speaker #3: Retail sales or sales from our company-owned retail stores rose 2.9 million or 64.2% over the same period. These gains reflect stronger demand across our dealer channel and our continued traction from our product line simplification efforts.

Speaker #3: Commercial sales or sales to community owners increased 5.3% during the three months ended June 30th, compared to the same period in 2024. Our community customers continue to face headwinds including elevated interest rates, higher operating costs, and budget constraints among renters.

Speaker #3: Despite these challenges, we're encouraged by ongoing discussions with both new and existing community owners regarding large orders, which should support volume growth and this channel.

Speaker #3: Product growth margins were 32.4% in the second quarter of 2025. I'm proud of our team's strong execution in maintaining healthy margins during a rapidly evolving environment for materials and labor costs.

Speaker #3: We remain disciplined in our pricing strategy and continue to manage expenses carefully to protect profitability. Our top priority for the remainder of 2025 is continuing to build our backlog, which should support increased production volume in the coming quarters.

Speaker #3: We expect higher output out of our Texas plants where demand remains stronger while activity in the Southeast is comparatively slower. We continue to actively manage our loan portfolios.

Speaker #3: Since the since the second quarter of 2024, our retail loan portfolio has grown by 24.6 million, while our MHP loan portfolio has grown by 20.3 million.

Speaker #3: Reflecting strong demand in our dealer channel, retail loan fundings were up 49% in the first half of 2025 compared to the same period in 2024.

Speaker #3: There were no material land sales during the second quarter of 2025, but we will continue to evaluate opportunities to monetize non-core land when pricing reflects underlying value.

Speaker #3: In the second quarter 2024, we completed a non-core land sale that generated a meaningful profit creating a challenging year-over-year comparison for this quarter's earnings.

Speaker #3: We are focused on completing phase one of Falcon Ranch, our 1,100-lot development in Bastrop County. Phase one includes 115 lots, with roads and utilities already complete.

Speaker #3: The final remaining project, a bridge, is currently under construction. At the same time, we're making progress on Phase Two, where utilities are now in place and roadwork is underway for the first 350 lots.

Speaker #3: Over the last 18 months, we repurchased over 552,000 shares of common stock in the open market for an aggregate cost of $11.9 million, reducing our outstanding share count by over 2%.

Speaker #3: These repurchases reflect our continued confidence in the long-term value of the business and our disciplined approach to capital allocation. With no debt and over 10 million in cash on the balance sheet today, we remain well-positioned to continue repurchasing shares.

Speaker #3: We are keeping our eyes on the road to housing act, which passed the Senate Banking Committee and is awaiting a full Senate vote. The bill reauthorizes HUD's price program, which provides grants to improve infrastructure like water and sewer systems and manufactured housing communities.

Speaker #3: It also removes the federal requirement for a permanent chassis lowering build costs and allowing for more flexible home designs. If passed, the bill should support growth in both home sales and community development.

Speaker #3: Operator, this concludes our prepared remarks. Please begin the Q&A.

Speaker #2: Thank you. And as a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced.

Speaker #2: And to withdraw your question, please press star 11 again. The first question comes from Rohit Seth with B Raleigh Securities. Your line is open.

Speaker #6: Hi. Thanks for taking my estion. So good order flow coming in through the second quarter, good rebound in volumes. Just curious what you're seeing as we enter July, August.

Speaker #6: Have you seen the same momentum continue? And is it coming from the same channels? Just get a sense of how you see the rest of the year.

Speaker #3: Yeah. We, hey, Rohit. you know, we're ally, we're happy with the second quarter performance. Obviously, the, you know, the dealer side of our business really drove the, you ow, the, the, the revenue growth.

Speaker #3: Mm-hmm. continue to see that, you know, this quarter, and, you know, we're eing signs of life on the community side. I think the, you know, the difficult thing has been, you know, the prices for mobile home parks have gone up pretty dramatically.

Speaker #3: You've got increased financing costs. You got, you know, homes are more expensive. Operating costs are higher. And you've got a, you've got a renter that, you know, can only afford so much.

Speaker #3: And so I think, you know, there, there is a shift to, you ow, smaller houses. And we're having some success in that. but we really, you know, we need to land a couple of these large orders to really see an uptick in that side of our business for the rest of the year.

Speaker #6: Yeah. And then on the Bastrop, it looks like you're making some progress there. Do you think you'll be selling plots there by the fourth quarter?

Speaker #6: Is this something happening in '25, or is this more 2026?

Speaker #3: You know, that's the, that's the goal. I mean, the final piece of this thing is we've got to build a bridge. And the bridge is under construction.

Speaker #3: you know, and it's well underway. but, you know, ultimately, roads are and utilities are all in phase one. you got to complete the bridge to, you know, connect it, to the, you know, infrastructure outside of the, the, the community.

Speaker #3: And it's not, you know, I wouldn't say we're crossing any waterway. How did, but it's certainly a project. So, the goal is to get that done.

Speaker #3: There's a way to, you know, shortcut kind of, you know, starting to sell lots; that's something we're looking at. You know, where we can go ahead and plat, before the, before the bridge is done.

Speaker #3: But, you know, we're just well underway on construction there. So, you know, the goal is certainly to sell lots as soon as possible.

Speaker #3: There's a lot of demand down there. we've a dealer on site who's, you know, who's been doing, you know, really well with, with sales this year.

Speaker #3: And, you know, what's been interesting for me to watch is, we're really gaining ground on Phase Two, where you've got all the utilities in, and we're putting the roads down for the first 350 rental lots.

Speaker #3: So, good progress. We've made a couple of key hires down there. You know, we've got the cash to push this thing forward.

Speaker #3: And, we're working as, as hard as we can to get it open.

Speaker #6: Yeah. Fantastic. if I can squeeze one last one in on the SG&A line, it's running up a little bit, higher than, you know, as a percentage of sales.

Speaker #6: And, is this like the new normal or, at least for the year? And just any sense of kind of the trajectory on SG&A?

Speaker #3: No. I think SG&A will kind of dip back in mind to where it's, where it's been. We had some kind of wonky comparisons with, you ow, year over year accruals, for things like warranty expense and, you ow, legal expense and, and others that, you know, shifted that upward.

Speaker #6: All right. Fantastic. Thank you. I'll pass it on.

Speaker #3: Thanks.

Speaker #2: And the next question will come from Alex Raggiel with Texas Capital Securities. Your line is open.

Speaker #7: Thank you. Good morning, Duncan.

Speaker #3: Hey, good morning, Alex.

Speaker #7: As it relates to being encouraged by discussions with community owners for large orders, what are the primary items that are either sparking these interests or maybe keeping them on hold until an order?

Speaker #3: Well, you ow, we, we've got, a handful of, ou know, I would call them like large customers that we've worked with for a long period of time.

Speaker #3: And, you know, these guys tend to buy communities that, are in disrepair. And they fix them up. And they replace all the homes. And, you know, then they move to the next one.

Speaker #3: And so, you know, especially through like COVID, we had some, you know, some huge orders as these guys really expanded, and then they took a, you know, they took a breather.

Speaker #3: And so, you know, what we're seeing is we've got some large customers that have either, you know, purchased or have communities under contract where, you know, they'll need a decent amount of homes.

Speaker #3: And I, I ink, you know, on the, on the other side, on the new customers, I mean, we've been, for the past couple of years, you ow, we've been growing with some younger guys, as we replace, you know, the, you know, kind of the legacy customer base.

Speaker #3: And, you know, those guys may start by ordering six homes and then next year they order 20 homes. And, you know, you just keep, you keep growing with them, as they're portfolio builds.

Speaker #3: I think, you know, one change is that, it ems like the financing markets have opened up a little bit, right? So we're seeing, you ow, some payoffs on the, on the MHP portfolio.

Speaker #3: As, ou know, now we've got customers who have parks, you know, with newer houses in them and they're stabilized and they're, you know, they're monetizing those.

Speaker #3: And, you know, rolling those gains into new properties to do the same thing.

Speaker #7: Makes sense. And then, can you talk a bit about, average selling price? Are you surprised that it's holding up here? and any thoughts there around that?

Speaker #3: Yeah. I mean, the average selling price for the quarter, you know, we went, like on a quarter-over-quarter basis, from, say, $61,000 to $68,000.

Speaker #3: I think the bulk of that was just driven by, you know, the increase in, you know, sales through our company-owned retail stores. you know, but we, I think we were, you know, we were slower to raise, raise prices during COVID.

Speaker #3: you know, we've raised prices more aggressively, you ow, with, with, as we've figured out kind of the, you know, the, the impact of tariffs, on our costs.

Speaker #3: And so, you ow, I, I do, you know, I, I do expect it, to stay elevated, but certainly, you ow, there's a point where it's at the detriment of or to the detriment of, you know, volume through the plants.

Speaker #7: And then you talked a bit , Georgia being a little bit slower maybe in the second half. Any additional color on that?

Speaker #3: Yeah. The Southeast market just feels, you know, feels slow. I think, you ow, Calco, commented on that during their call. you ow, Florida's slower.

Speaker #3: we're seeing, you know, similar things in the Southeast. I an, we've got customers that are doing things. We've, you know, won some new customers over there.

Speaker #3: We've had some, you know, workforce housing builds over there. dealer base isn't as strong out of that plant. And so you're, you know, you're real, you're more reliant on, or we're more reliant on community customers.

Speaker #3: And, but it, it just seems a little bit slower than what we're eing in Texas.

Speaker #7: Understood. Thank you.

Speaker #3: Thanks, Alex.

Speaker #2: And the next question is going to come from Daniel Moore with CJS Securities. Your line is open.

Speaker #6: Morning, Duncan. Morning, Jeff. wanted to, so obviously you had a really nice jump in, in product sales in the quarter. The volume's up double digits.

Speaker #6: Year to date, we're, we're relatively flat. Just want to make sure and, and, and just kind of remind me, were, were there any sales that may have slipped from Q1 to Q2?

Speaker #6: or is it more demand actually improving, you ow, as we work through the year?

Speaker #3: You know, I think we had, we had some orders on the community side that slipped. I mean, first quarter wasn't our strongest performance from a product sales standpoint.

Speaker #3: But, you know, you see the, you know, community sales at ast quarter over quarter. are, you know, we're relatively flat. They were up, you know, 5% or so.

Speaker #3: So, you know, there were some, like, there were certainly some orders that slipped, but they were mainly on the, you know, mainly on the community side.

Speaker #3: I think, you know, we saw on the dealer side was, was actually some, you know, a little bit better strength. But, you know, the market's choppy.

Speaker #3: I mean, it's still like Parkside's slower than we'd like it to be, you know, certain geographies either, even within, you know, areas that we serve out of our Georgia plant or out of our Texas plants, seem to be slower than others.

Speaker #3: So, you know, we're cautiously optimistic on the year. But, you know, we continue to be here every day, working and trying to get houses built and shipped.

Speaker #6: Got it. And then specifically for retail, obviously retail stores had their highest order, you know, over $7 million in sales. It was the highest quarter that we've seen in multiple years.

Speaker #6: Is that a function, you know, I guess just talk to the sustainability of that and, and, and any update you can provide on how the estments you've been ing in retail salesforce are progressing.

Speaker #3: Yeah. I mean, the, the key to retail's, systems, processes, and, and people, and you need to get people, you know, selling houses and making commissions to retain them.

Speaker #3: And that, I think, that's something that we've, you know, we've struggled with for a while. We've got, you know, a pretty good team on the retail side.

Speaker #3: they had a great quarter. You know, we've got certain stores that are, performing better than others. And, you know, the focus right now is, and I'm bringing the underperforming stores up to, you know, some type of baseline.

Speaker #3: you ow, and continuing to perform at the stores that are doing, better. So, it was a good quarter for the retail team. I think it's at a, you ow, representative of what we can do, and, and we just gotta, we gotta keep, we gotta keep pushing forward on that.

Speaker #3: you know, July was a little bit slower, but, you know, not, not terrible either. So, I, I think some of these, you know, some of these changes are, are helping, but we still have a ways, ways to go.

Speaker #3: I mean, I, I really view that as an opportunity for us. and you see what it does if, if we can push more volume through that channel, you know, does help us on the, you know, on the revenue side and, and it's reflected in the average selling price.

Speaker #6: Helpful. One or two more. It just a little bit of, so on the gross margin side, overall, saw a little bit of pressure, you know, year over year.

Speaker #6: But then you called out, I think, you know, I'm pro product sales. Gross margin improved. So, just, I guess if I look at it holistically, we were at 47% for the company.

Speaker #6: Is that a, you know, would we expect that to be kind of a new level or improve as we move forward? Just to talk about the puts and takes there.

Speaker #3: Yeah. See, when I, when I, when I talk about gross margin, I'm really just looking at the, you know, the product gross margin. So product revenue and, and, the cost of goods sold.

Speaker #3: Mm-hmm. And so, in Q2 of '24, I've got 31.9%, you know, which we're, you know, jumped up to 32.4% for the second quarter of 2025.

Speaker #3: I think if you look at it as a whole, you ow, we had a bump in SG&A, due to, you know, some expenses, but also due to kind of some, you know, some mismatches of accruals.

Speaker #3: From the second quarter of 2024, that, you know, if you look at gross margin in total, it's lower for the second quarter. I, but I'm discussing just product gross margin.

Speaker #6: Makes sense. Lastly, I think you touched on this, but, you know, brought back 6 million of stock in the quarter, I ink 11 million year to date.

Speaker #6: But the stock's sitting here, you know, not too far above book value. is that, likely continued use of, capital and cash flow as we move ward?

Speaker #3: Yeah. I mean, we've got a way against other opportunities. And, you know, we're seeing a lot right now, especially on the lending side, you know, to put money to work.

Speaker #3: at, at good rates of return, you ow, the, the business is, you know, over the last 20 years, you know, generated, say, you ow, 15 or 10 to 15 percent after-tax returns pretty consistently.

Speaker #3: And so, you know, we're like, we obviously we're watching the stock, but we're going to be opportunistic buyers. We're not just going to buy stock just to buy it if we've got opportunities to deploy the capital elsewhere.

Speaker #6: Very good. Makes sense. I appreciate the color.

Speaker #3: Thanks, Dan.

Speaker #2: And the next question comes from Mark Smith with Lake Street. Your line is open.

Speaker #8: Hi, Duncan. one last first, just you're just talking products, margin a little bit. Would love to hear kind of your, your outlook as we think tariffs and some inflationary pressure.

Speaker #8: If you're seeing any items that are, that are moving higher, kind of our outlook here as we think about the half or even into next year.

Speaker #3: Yeah. As you can imagine, there's a lot of moving parts. you know, I think from, ou know, the inner the, you know, the tariffs and the impact on international goods, you know, we've adjusted our pricing accordingly.

Speaker #3: but you've got, you know, you've got moving, like, moving, commodity prices, in other materials. I an, you've seen kind what lumber futures have crept up.

Speaker #3: OSB's been low. You know, steel's been, you ow, relatively flat. and, but, you ow, what's, what I don't think is going lower, lower labor costs.

Speaker #3: And so that's, you know, something that we're keeping an eye on. I think there's a balance between price and volume.

Speaker #3: And, you know, that's like, you, you gotta keep, ou gotta keep the plants running. You gotta keep, you ow, you can't be underabsorbed on labor.

Speaker #3: But certainly the, you know, the input prices on, you know, most of these products that we buy to assemble houses are going up.

Speaker #6: Yeah. and, and back to to pricing a little bit and the ASP. It sounds like it was, it was largely a function of, of the sales mix.

Speaker #6: but, but can you quantify or talk to maybe over the last six months any, any kind of pricing action that you guys have taken?

Speaker #3: Yeah. I mean, we've, we've had, you know, we've had a uple of price increases this year. We started in February. you know, we had a, one that I'd say it's more material, kind of, you know, mid to late, June.

Speaker #3: And, it's, you know, it's something that we're, like, we're keeping an eye on. but it's also a difficult time right now. I an, there just seems to be a lot of moving, you know, moving pieces with, commodity prices.

Speaker #3: I think with a little bit higher prices, it does give you some flexibility. You know, to run, like, you know, to put the advertising machine to work and do some, you know, sales and other types of incentives.

Speaker #3: especially as we head into our fall show coming up in September.

Speaker #6: Fair. And, and the last one for me, just, just curious your thoughts around kind consumer behavior. You know, and if you're seeing a difference out there between kind of the, the renter and how they're holding up, versus kind of a, a homeowner or home buyer, any differences there in, in if there's some pressure on renters, if that's maybe hurting the, the MHP market a bit.

Speaker #3: I, you know, I think the renters, I, I, I think the renters are, you know, fairly, maybe not tapped out, but they're certainly price sensitive.

Speaker #3: and, you ow, if, if you're, if you're mobile home park model, you know, is showing that you're going , you know, continue to raise, rents and, you ow, costs of everything else have gone up, all your operating costs, you know, homes are more expensive.

Speaker #3: financing's more expensive. You know, I think it, I think it does put pressure on the, on the community operators where, you know, the spread, isn't as great as it was a few years ago, which is, you ow, shifting a lot of these guys to smaller houses that they can rent at, you ow, similar prices.

Speaker #3: And keep them, you ow, keep the monthly payments affordable. I think, you know, the, the second quarter, obviously, dealer business performed a little bit better.

Speaker #3: but I wouldn't say that, you know, demand is off the charts on the, on the dealer business. You know, right now, I mean, think it's, it's spotty.

Speaker #3: Customers are price conscious. And, you know, but compared to a stick-built home, I mean, you're, you ow, you're, you're, you're so much more affordable.

Speaker #3: And although the, you know, the next few quarters could be choppy, you know, I really don't think that, you know, the affordable housing crisis is fixed in this industry or fixed, you know, in this country without this industry.

Speaker #3: And so, the, you know, some of the, some of the work at the, you know, legislative level is, you know, is pretty encouraging. Where there's been a lot of talks, you know, for years about regulatory reform to the HUD code.

Speaker #3: And, you ow, you're starting to actually see some traction given, you know, how bad the affordability problem is in this country. And so, you know, I, I don't think it, like, there's we're, we're cautiously optimistic, but I think longer term, our outlook is, is pretty strong.

Speaker #6: Excellent. That's helpful. Thank you.

Speaker #3: All right. Thank you.

Speaker #2: I show no more further questions in the queue. I would now like to turn the call back over to Duncan for closing remarks.

Speaker #3: Thank you for joining today's earnings call. We appreciate your interest in Legacy Housing. We're hosting our fall show in Fort Worth on September 27th and 28th.

Speaker #3: Feel free to register on our website. Operator, this concludes our call. Thank you.