LEGH - NASDAQ

Hello, everyone, and welcome to the Legacy Housing Corporation Full Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Now, it's my pleasure to turn the call over to our CEO, Duncan Bates. Please proceed.

Good morning. This is Duncan Bates, Legacy's President and CEO. Thank you for joining our call to discuss Legacy's year-end 2024 results. Max Africk, Legacy's General Counsel will read the safe harbor disclosure before getting started. Max?

Thanks, Duncan. Before we begin, 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 that is 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. Legacy assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Thanks, Max. I'm joined today by Jeff Fiedelman, Legacy's Chief Financial Officer. Jeff will discuss our 2024 financial performance, then I will provide additional corporate updates and open the call for Q&A. Jeff?

Thanks, Duncan. Product sales decreased $15.8 million or 10.9% in 2024 as compared to 2023. This decrease was driven primarily by a decrease in unit volume shipped, primarily in direct sales and inventory finance sales categories. In 2024, our net revenue per product sold increased 1.9% as compared to 2023, primarily because of a moderate increase in unit prices. Consumer MHP and dealer loans interest income increased $3.8 million or 10.1% from 2023 to 2024 due to growth in our loan portfolios. This increase was driven primarily by increased balances in the MHP and consumer loan portfolios. Between December 31, 2024 and December 31, 2023, our consumer loan portfolio increased by $17.6 million. Our MHP loan portfolio increased by $24.5 million and our dealer finance notes balance did not change. The change in the balance of our MHP loan portfolio is primarily due to a settlement agreement we reached with a significant borrower as discussed in our 10-K. Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees and other miscellaneous income and increased $7.0 million or 106.3% from 2023 to 2024. This increase was primarily due to $8.9 million in land sales related to the Forest Hollow Mobile Home Community and the property in Marble Falls, Texas. $0.5 million in rental income from our Mobile Home park properties, partially offset by a $1.5 million increase -- $1.5 million decrease in forfeited deposits, a $0.6 million decrease in rental income from leased mobile homes and a $0.3 million decrease in other miscellaneous revenue. The cost of product sales decreased $9.6 million or 9.7% in 2024 as compared to 2023. The decrease in costs is primarily related to a decrease in units sold. Gross profit margin was 30.4% of product sales during 2024 as compared to 31% for -- 31.3% during 2023. The cost of other sales was $8.2 million in 2024 and primarily reflects the cost associated with our land sales. Selling, general and administrative expenses decreased $1.1 million or 4.4% in 2024 as compared to 2023. This decrease was primarily due to a $1.4 million decrease in warranty costs, a $0.4 million decrease in consulting and professional fees and a $0.4 million decrease in salaries and benefit costs, partially offset by a $0.4 million increase in real estate taxes and a net $0.7 million increase in other miscellaneous costs. Other income expense net increased by $8.3 million in 2024 as compared to 2023. We had an $8.5 million increase in miscellaneous net, primarily due to, one, gains related to the settlement agreement described -- discussed above; two, a gain on the sale of property in Georgia; three, gains related to properties acquired through foreclosure; and four, reversals of certain balance sheet liabilities. We had a $0.4 million decrease in interest income on other notes and a $0.2 million decrease in interest expense. Net income increased 13.2% to $61.6 million in 2024 compared to 2023. Basic earnings per share increased $0.32 per share or 14.3% in 2024 compared to 2023. As of December 31, 2024, we had approximately $1.1 million in cash compared to $0.7 million as of December 31, 2023. The outstanding balance of the revolver as of December 31, 2024 and December 31, 2023 was zero and $23.7 million respectively. At the end of 2024, Legacy's book value per basic share outstanding was $20.40, an increase of 13.9% from the year end of 2023.

Thanks, Jeff. Before I run through my notes, I want to acknowledge that there's a lot of noise and uncertainty in the market right now. Politics, tariffs, recession risks, interest rate considerations, etc. Many of the call participants are long-term investors in Legacy Housing. I don't know how 2025 will shake out, but I can assure you that our team will be in the office every day, managing the business closely and making adjustments as needed. We continue to believe in the long-term fundamentals of manufactured housing and the value proposition that Legacy Housing provides its customers. High quality, affordable homes combined with financing solutions that keep monthly payments low. Our target market of homebuyers consists of households with total annual income below $75,000, which comprised 47% of total U.S. households in 2023. This group, nearly half of all households in the United States has been severely impacted by increasing rental rates, higher prices for site-built homes, elevated mortgage rates and stagnant wage growth. A few data points from yesterday's 10-K filing. The average price for a new single family home in 2023 was $511,000, including the land compared to a manufactured home of $123,000. In 2005, 20 years ago, approximately 18% of new single family homes sold in the United States were under $150,000. Today, it's essentially zero. Legacy's average selling price in 2024 was approximately $61,000 per unit, up from $60,000 in 2023. The vast majority of Legacy's business is wholesale, but even with the retail markup and other expenses, our homes and financing solutions provide an affordable alternative to site-built homes, which a large portion of households in our country cannot currently afford. We continue to see coverage of factory-built housing in the media and hear positive talks of regulatory reform from the new administration. The affordable housing crisis is not solved without the manufactured housing industry. Dealer business across most of our footprint is healthy. We are moving out of a seasonally slow season. The team continues to sign new independent dealers in both our Texas and Southeast markets. Retail finance fundings in the first quarter of 2025 are tracking well ahead of the 8% growth we saw in 2024. Our community business is improving. As discussed on previous calls, higher interest rates have depressed community transaction volumes, which tends to drive demand for new park model homes. We are receiving more inbound requests for large orders and think the community business will continue to improve in 2025. Legacy's lending portfolios continue to compound. For 2024, interest revenue from MHP, retail and floor plan financing was $41.2 million compared to $37.2 million in 2023. Our delinquencies remain low, although, normalizing to pre-COVID levels and recovery rates are strong. In 2024, average interest rates for new retail loans were 1% higher than 2023. Product gross margins were 30.4% in 2024, under-absorbed labor given production, given lower production levels during the year impacted margins. We continue to watch labor closely and expect margins to normalize with production improving. We are also keeping a very close eye on material price fluctuations from the tariffs. We pushed through the first price increase since COVID in February of 2025. During the fourth quarter, Legacy sold one of the mobile home parks that was deeded to us under the settlement agreement. As Jeff mentioned, the sale resulted in a meaningful gain at year end. We are setting and renting homes in the second park now to increase occupancy before monetizing. A few updates on land development. We continue to focus on the properties in Austin. In Bastrop County, our 1,100 pad development near Austin, the roads and utilities are nearly complete in Phase 1. We still anticipate selling lots in Phase 1 this summer. As I mentioned during our last call, we own 300 developed lots -- mobile home lots in Horseshoe Bay, Texas. Our dealership nearby in Marble Falls, Texas, is now open and we are selling land and homes there. I'm proud of the team's progress this year. We finished 2024 with 33.5% GAAP net income margins, up from 28.8% in 2023. Over the last three years, we have increased book value by nearly 60% to $494 million. There's still a lot of work to do though. For 2025, we're focused on sales and specifically park sales in Texas and dealer sales in the Southeast, streamlining our product offering, systems, processes and employee retention at our retail business, continuing to monetize non-core assets and finishing construction and putting homes on our land in Austin. Legacy's integrated business model provides multiple avenues to generate returns for our shareholders regardless of economic conditions. We are currently in a meaningful net cash position and if our stock trades off this year, we will repurchase shares aggressively. Operator, this concludes our prepared remarks. Please begin the Q&A.

Thank you so much. [Operator Instructions] It comes from Mark Smith with Lake Street. Please proceed.

Hi, guys. I wanted to just dig in a little deeper on land sales during the quarter. If you can give a little more color on kind of the big sale, how it came about, why at that point to make that sale and then future ones potentially, the comment sounds like still trying to improve the other one before selling it. And then also just land acquisitions, I think that you guys may have bought some property in Texas during fourth quarter?

Yeah. Hey, Mark. Thanks for the question. There's only one land sale during the fourth quarter and that was the sale of a mobile home park from the settlement agreement in Beaumont, Texas, so that's the big sale. Obviously, throughout the year, we did monetize other land that we own some in Eatonton as well as down in Horseshoe Bay. And so we're looking at our portfolio closely. And if there are non-core assets and the price makes sense to monetize them, we'll be opportunistic with that going forward.

Okay. And did you guys purchase some land in Q4 in Texas?

We did not purchase the land. I think what the settlement agreement taught our team is how to foreclose on that. And so there's a meaningful portion of our loan portfolio on the MHP and specifically, we call it development loans, but other notes receivable that secured by land and if we're tracking borrowers down for payments or notes mature, then we're going to take that land back and we'll monetize it when the price makes sense. But there's a decent amount of equity in that portfolio as well. So when we sell it, the returns look pretty good.

Okay. And that brings up a good point. Maybe if you can speak broadly about any concerns that investors may have around delinquencies, squeeze consumers, kind of a tough environment today on your ability to take back and kind of be covered if a loan goes bad, whether it's MHP or consumer?

Yeah. I think they're a little bit different between the two portfolios. So maybe we start on, on the retail loan portfolio. We've seen past due balances creep up a little bit, but it's certainly not to a point where we're concerned. And I think what's important to understand is there are several features of that loan portfolio that make the recovery really strong. I mean, one is, you've seen the prices of homes since COVID go up essentially 40%. And so if you got a meaningful down payment and somebody has made payments on homes for a period of time, when we're selling -- we're currently selling repos now for around 100% of the principal that's outstanding on those. The other piece is, there are features of that of those loans where we work with our dealers to make sure that we're able to repo houses and resell houses and the economics make sense. On the MHP side, and really, the key to both of these portfolios is keeping the monthly payments affordable. If a park owner is able to buy houses from us and finance them through us, and we keep their monthly payment low, then they're able to rent that house out to a renter and generate a profit. And as long as they get those houses set up, the numbers work. I think where people get into trouble is they take houses, they don't get them set up and they're paying us and not generating rental income. So we keep a close eye on that. And on the MHP side, there's a lot of levers for recovery. And obviously, this year we tested that in a big way and ultimately didn't flush a $1 of that through our income statement and we've had some significant gains as we've monetized those assets.

Okay. Next question for me is just looking at changing immigration policies, potential higher deportations. Curious any potential impact this could have both on customers and demand as well as maybe your labor market?

Yeah. I mean, as a public company, I mean, we've been e-verifying for years. So everyone we hire goes through that process. I think even with some of the economic indicators down, I think any manufacturer is struggling with labor. And so that's something that we continue to keep a close eye on, but aren't worried about that necessarily impacting our workforce. When we finance someone purchasing a home, the underwriting criteria requires certain things from these borrowers and these aren't people that came across the border and decided to buy a mobile home. These are people that have been in the country for years and they have stable jobs and they can afford that house. So while there is noise in the market and we haven't seen a material change in our business from the immigration policies.

Perfect. And last one for me. SG&A is certainly down at good healthy levels here. I'm just curious about sustainability and if there's anything we should have on our radar as far as maybe increasing SG&A expenses here in 2025?

Well, there's -- as you know, Mark, from covering us for a long time, SG&A is a hot topic with the Board and under -- always under a microscope. So we're going to continue to run the business the same way. And I don't see any material changes in SG&A.

Excellent. Thank you.

Yeah. Thanks, Mark.

Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed.

Hi. This is Will on for Dan. Can you talk about your expectations for production rates across your three plants for Q1 and first half of 2025?

Hey. Yeah. Well, like I mentioned in the prepared remarks, I wish I knew -- I wish I had a crystal ball for 2025, but there's obviously a lot of moving pieces. We've been really focused on ramping up production at our Texas facilities. We're heading into the spring selling season with a good backlog and are heading to a mobile home show next week, where we hope to continue to build that backlog. So our production is still not where we want it. I think -- but I think ultimately, we're moving in the right direction. Georgia is a little bit slower than we'd like. We've continue to grow the park side of the business in Georgia, the dealer side lags, but we're focused on building a backlog there and ramping production from the levels that we're at right now. But overall, I'm comfortable with it, but it's our number one focus right now is ramping up production and getting homes shipped.

Thank you. And then just and maybe you could add a little bit more color to backlogs exiting this quarter compared to last quarter and year-over-year?

Yeah. I mean, if you follow the company for the -- as you guys have for the past couple of years, it's been a little choppy, like we took pricing up with COVID. I think our prices were elevated when some of our competitors came off of pricing. And now with tariffs and with the labor market, that pricing is normalized and the backlog looks, looks pretty healthy. We don't report a backlog number, but certainly in Texas, we've got a – like, we've got a pretty meaningful backlog and in Georgia, we're working on it.

Thank you very much.

Thank you. [Operator Instructions] As I see no further questions in queue, I will turn the call back to Duncan Bates for his final comments.

Thank you for joining today's earnings call. We appreciate your interest in Legacy Housing. If you're in Biloxi for the Mobile Home show next week, please come by and see us. Operator, this concludes our call.