LEGH - NASDAQ

Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Curt Hodgson, Co-Founder and Executive Chairman of the Board. Please go ahead.

Good morning. This is Curt Hodgson. I'm here with Kenny Shipley, my legacy Co-Founder and our interim CEO. Thanks for joining our third quarter 2025 conference call. Ron Arrington, our Interim Chief Financial Officer, will read the safe harbor disclosure before we get started.

Before we begin, I'm reminding 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. Therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report filed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represents management's estimates as of today's call. Legacy Housing assumes no obligation to update these projections in the future unless it is required by applicable law.

Thanks, Ron. As you can tell from the word interim, appearing in 2 of our titles, we've had some senior turnover recently. Our prior CEO, CFO and General Counsel departed last month. Fortunately, Kenny and I have remained active in the business through these years and are excited to reengage in the day-to-day operations of profitability -- of profitably manufacturing and selling mobile homes. Ron Arrington previously served as our CFO and has led our development team recently. So we haven't skipped a beat in that section. I'm going to turn the call over to Ron now for a review of our third quarter performance, after which, I will speak briefly with our thoughts and some additional corporate updates, and then we'll open the call up for questions. Ron?

Thanks, Curt. Let's get straight to the numbers. Home sales decreased by $1.4 million or 4.8% during the 3 months ended September 30, 2025, as compared to the same period last year. The decrease was primarily driven by a decline in sales to mobile home park customers utilizing Legacy's commercial loan program as well as a decline in sales to independent dealers participating in Legacy's inventory finance program. These drops were primarily offset by increase in direct sales to customers and revenues from Legacy's company-owned heritage outlets. Net revenue per unit increased approximately 8% to $68,500 and from $63,500 year-over-year. At the end of the second quarter of 2025, Legacy increased prices to mitigate the impact increases in raw material cost and tariffs on Chinese goods. Curt can speak later as to these other steps Legacy is taking to address these challenges. Product sales remained relatively flat in the year-to-date comparison for 2025 versus 2024, declining slightly by $1.2 million or 1.3%. The sales mix changed with declines in direct sales and mobile home park sales offset by increase in company-owned retail store sales and New York inventory finance program sales. The shift in mix along with price increase explains why Legacy's net revenue per unit increased 13% to $68,600. Consumer MHP and dealer loan interest income increased to $10.9 million, up 5.4% during the third quarter as compared to the prior year. This increase was primarily driven by increases in the consumer loan portfolio and higher interest rates from MHP loans converting to variable rates per their loan agreements. Consumer NPH and dealer loan interest increased to $32.4 million, up 5.3% for the 9 months ended September 2025 as compared to 2024. Over the prior 12 months, Legacy's consumer loan portfolio increased by $21.4 million, up to $188.1 million, up 12.8%. During the same period, Legacy's MHP note portfolio remained essentially unchanged at $201.5 million. Dealer inventory finance loans decreased $1.4 million to $30.3 million, down 4.4%. Other revenue consists primarily of contract deposit foreclosures -- forfeitures, dealer consignment sales, commercial lease rents, portfolio service revenue and land sales revenue decreased by $3 million or 79% for the third quarter of 2025 compared to the third quarter of 2024. This decrease was primarily due to a significant land sale, which occurred during the third quarter of 2024 as well as a decrease in portfolio service revenue between comparison periods. For the 9-month comparison period of third quarter '25 versus third quarter 2024, other revenues declined $4.1 million or 63.1% due to the aforementioned sale as well as a significant reduction of 2025 forfeiture income on MHP deposits for canceled contracts. The cost of product sales increased $1.6 million or 7.5% during the 3 months ended September 2025 as compared to the same period in 2024. During this same comparison period, product sales declined $1.4 million or 4.6%. This increase and cost of product sales is primarily related to a sizeable increase in raw material cost and tariffs offset by a decrease in delivery, shipping and setup costs as we ship fewer units. I know tariffs are a particular interest. So to put them in perspective, they had roughly $1,200 to the cost of a standard floor plan. Product gross margin was 20.28% for the third quarter of 2025, down from 29.2% for the third quarter of 2024. The cost of product sales increased $2.7 million or 4.3% for the 9 months ended September 2025 compared to 2024. During the same period, product revenue decreased by $1.2 million or 1.3%. The increase in cost of product sales is primarily related to increases in raw material costs, tariffs and delivery shipping and setup costs, offset by a decrease in labor and factory overhead cost. Product gross margin was 27.7% for the 9 months ended September '25 compared to 31.6% for 2024. Selling, general and administrative expenses increased $1.3 million or 20.6% for the 3 months ended September '25 compared to '24. The increase was a result of a $900,000 increase in legal expenses, a $500,000 increase in loan portfolio loss expenses and a $0.5 million increase in professional and consulting fees, partially offset by a $600,000 decrease in the company's self-insured health benefit fan. SG&A increased $2.7 million or 15.5% for the 9 months ended September 2025 compared to 2024. The increase was primarily a result of a $1.7 million increase in loan portfolio expenses, $800,000 increase in legal costs, a $700,000 increase in service and warranty expenses and a $400,000 increase in professional and consulting fees, offset by a $700,000 decrease in the company's self-insured health benefit expenses and a $400,000 decrease in corporate and general payroll expenses. Other nonoperating income decreased $6.9 million or 72.3% over the 9-month comparison period ending September '25 compared to September 2024. This was primarily due to a significant onetime transaction during the 2024 period. The 2 largest were a $4.9 million fair market value adjustment and loan restructuring gains and a $2 million of liability of accrual reverses related to various completed MHP contracts. So that's the bottom line for a tough quarter, net increase -- net income decreased $7.2 million or 45.3% to $8.6 million compared to $15.8 million in the third quarter of 2024. Net income margin was 21.4%, down from 35.7% for the third quarter of 2024. For the 9 months ended September '25 compared to '24, net income declined $13 million or 28.7% to $33.6 million from $47.1 million. Net income margin was 26.6% for the 9 months ended September 2025 compared to 36.3% in 2024. We ended the third quarter of 2025 with $13.6 million in cash. In July of 2023, we closed a new revolving credit facility with Prosperity Bank. The facility is for $15 million with a $25 million accordion feature. It is secured by our consumer loan portfolio and currently has a 0 balance. As of September '24, we had approximately $570,000 in cash and equivalents and a balance of [ $2.6 million ] on our line of credit. So you can see that despite the lower sales and net margin, we have continued to strengthen our balance sheet. Legacy has delivered a 9.5% return on shareholders' equity over the last 4 quarters ended September '25. And at the end of the third quarter, Legacy's book value per basic share outstanding was $21.85, an increase of $1.90 since the same period of 2024. I'll now turn things back over to Curt.

Thanks, Ron. So let's quickly discuss the market, followed by our financial performance and updates on key issues and strategic initiatives. The latest data shows continued slowing in the industry as a whole with the Texas Manufactured Housing Association reporting a seasoning adjusted drop of 3.8% in August, and down 6.1% on the raw total from September of 2024. Despite the continued housing affordability problem in our markets, macroeconomic headwinds, such as falling consumer confidence, large tariff rises necessitating price increases are somewhat restraining growth. On the bright side, we held our big annual show in September in Fort Worth. The show was one of the most successful that the company has ever had. Orders booked there will ensure higher production rates for the fourth quarter over the third quarter and carrying on well into the first quarter of '26. Dealer and park customers ordered homes at our Fall show. I'd kind of like to dive into some macro topics for a minute. So I think we're not happy with these results, and I think that probably explains why the changing of the guard, sort of speak, happened last month. Our retail and dealer side of our business saw sales falling for the last year or more. Our community park side of the business saw sales falling for the last year or so. Heritage, our retail side actually had increased sales and our finance division continued to be profitable, very much so low, but somewhat increasing charge-offs due to more foreclosures and lower resale prices. As of September 30, I think 99% of our mobile home notes are better were performing as agreed and about 97.5% of our consumer loans were performing as agreed and by that, we mean are they within 30 days of being current. We monitor these numbers are monthly and are confident that our portfolios are very strong. We have begun to feel the effects of ICE enforcement on our labor force and on customer demand and on the performance of our retail portfolio. I don't think it's real significant but we definitely are feeling the effects of fewer Hispanic customers in our market, particularly in Texas, but I think it's also true in the Southeast. We began hiring at key positions. We had kind of a lull in hiring. I think our past management can't really be credited with hiring anybody of consequence. We've already hired a new General Manager for Fort Worth. We're -- as you know, Norman Newton is not with the company. He was released earlier. We are actively looking for a new CEO with industry experience. So our hiring is since in the last few weeks when Kenny and I got back about, we're focusing on filling the seats with some quality people. Our working capital is too high, and I've been noticing this in our financials for some time. We have too much raw material, probably double of what we should have and our finished inventory is also high. At any given time, we have as many as 200 houses in the yard, which is probably double of what it should be. Our finished good inventory was $24 million, including work in progress at the end of the quarter. I think that's probably double of what it should be. So if we can reduce our working capital or, let's say, our unproductive working capital, that will free up $10 million, $20 million to be reinvested into the business. We remain in a strong cash position. We'll be able to complete the AmeriCasa purchase without incurring any debt. On a positive, I don't know who all is on the call and what their knowledge of Texas is, but the data centers in Texas are all underway. There's going to be at least 5,000 housing units probably created in the next 24 months to tend to that -- to those housing needs, almost all of which will come from the 30-plus manufacturing facilities located in the state of Texas, ours being a couple of those. So our business in Texas anyway looks like it's going to be really good for the next year or 2. I'd like to discuss a little bit about the AmeriCasa acquisition. We've known this partnership between Jeff Gainsborough and Norman Newton for at least a decade. They've been a customer of ours. They've had a portfolio with us the whole way. We're basically buying them out of everything they have in the mobile home business and Norman Newton has agreed to come to work as a Director of Revenue for the company. He has particular expertise in passively or should I say, absency managing of dealerships, which has really -- been a real challenge for us. He has a vibrant dealership that we're acquiring in Houston and it doesn't have an owner on the premises and he's proven that his model works pretty good, and we hope to be able to use his model over our 12 other locations that we have at the retail level. We are acquiring some other things in this process. It's kind of a hodgepodge of things. The net result is about $9 million or $10 million will be allocated among the retailership that we're acquiring in Houston, the nearshoring that we're affiliating with in Colombia, which I visited myself and the what we call the home FX model. which is Norm's proprietary system, including software of managing retail locations remotely. So we're looking forward to that, integrating that with our system so that we can do more retailing at our company stores. I think that the likelihood of that is extremely high. We continue to deliver strong operating margins and consistent profitability. In fact, we've never had a quarterly loss in our entire history, not just from the 6 years plus that we've been public, but for the -- actually, the 40-plus years that Kenny and I have maintained our partnership. The loan portfolios are on track to deliver about $40 million straight to the bottom line this year. As far as valuation, Kenny and I started this company in '97 with about $700,000. We took in about $60 million of outside money when we went public and the combination of that has now grown to $522 million over the 20-plus years that we've done this, and we'll continue to grow that book value. That's pretty much after taxes. We make it. We say that we invested, and that's what we've always done, and that's the basic value that we'll be getting back to. I think we got a little distracted over the last couple of years, and we intend to get back to doing what we do, which is selling a good product for a fair price, financing and distributing it in a variety of ways. Our book bag consists mostly of finance notes realize that, that book value wasn't ever in place at any given time. It's what we evolve to. We basically finance notes to enhance our own yields, but we like to finance business from a return on investment point of view, too. The Norm portfolio that we're acquiring, which is a little over $10 million notes, carries interest at over 16%. And we have experience with his portfolios because we have 1 in common with them. It's always performed very well. And we expect that portfolio we're acquiring from Norm will perform well and make everybody money. We published our book value per share each quarter. As Ron mentioned, as of September 30, our book value is $21.85 per share. We've also bought back through time. Ron might be able to quantify this, I don't know, but I want to say it's somewhere in the neighborhood of $20 million or more of stock, which sits on our balance sheet as treasury stock. With our stock trading essentially the same price, we're looking at this changing the guard as an opportunity to maybe reinvigorate our growth and innovation, which should increase profit margins and create a stock premium. On the flip side, if the stock continues to trade somewhere around book value, we will use our own liquidity as usual to repurchase shares. So I think the bottom is fairly well protected subject to our limitations of how much we can buy back in any given day. And as you know, with the new buyback laws, every time we buy back shares, we do pay, I think it's a 1% tax to the federal government. I believe we can continue building shareholders' equity even in this high interest slowing growth economy and then our share price will begin to reflect this. I think when we get the uncertainty behind us, we'll get back to some reasonable PE ratio. Any strategic moves are icing on the cake in my opinion, this is a great time to be an owner of a legacy, particularly if you're in at today's price as you'll part of the company that's never lost money in any year since its founding. As for affordability is now front and center in the U.S. in housing. We are positioned to provide that affordable housing to thousands of family over the coming years. And for those of you that are not from Texas, Texas is a nice place to be right now. The economy is still doing great. And we haven't had any hiccups as far as the economy is concerned. I want to address a couple of questions on e-mail that was sent to me recently. We have a lot of real estate on our books. The Austin project is coming along nicely. It's a little slower than we like. We have 3 or 4 hurdles before we're up and running. The wastewater treatment plant needs to be installed, which will not happen until probably second quarter of 2026. We're also working on getting access from the state highways that adjoin our property. The infrastructure in the middle of the property is coming along really well and will be very far along by the time we solve those other 2 problems. We are trying to negotiate with the school assistant to put [indiscernible] in the middle of it, which will be the primary amenity of the parcel. As for other real estate we own, we are not -- we have no shovels in the dirt anywhere else. It is all entitled to be mobile home properties. It's a little bit challenging when the property is worth 2, 3, 4, 5x more than you paid for it. Just because we bought it for $10,000 an acre to make a mobile home park out of it doesn't mean we would come to the same conclusion now that it's valued at $40,000 or $50,000 per acre, which is the case in several of our properties, we are entertaining divesting ourselves of the properties. I would estimate of the 6 or 7 remaining properties on the books besides faster accounting, we probably have $4 million to $5 million of gains should we choose to liquidate those properties. And if anything, that's on the low side. I was asked about the long-term margin targets for the industry. I think a lot of companies have been absorbing the increase in costs caused by tariffs and other factors. I think when they start looking at their financial statements like we just did ours, we'll probably all be in likestep with each other to slowly increase prices for the products that we're marketing. Right now has been pretty cut throw from 1 manufacturer to the other. And I'm hoping that when people realize that the tariffs are not temporary, the labor increases that we've paid, labor wage increase that we're paying are not temporary. I think we probably need to reevaluate the operating margins in the industry as a whole. That's pretty much it. I can probably turn it over to question and answers or questions.

[Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities.

Appreciate the color and thanks for taking questions. Maybe start with the AmeriCasa, the AmeriCasa asset purchase. Just talk to their revenue model, what are the features of the FutureHomeX platform? And how is their software expected to enhance sales growth?

Well, we weren't really looking at their financials on the purchase. We were intrigued by the HomeX product. We've experimented a little bit with it, several of our dealers are using it. They pay a royalty to use it. If we can find a way to manage these locations remotely, whether it be from Dallas or Houston or Bogota, then we will solve a lot of the mystery. Our manufacturing peer group all maintain their own retail locations, and they struggled with how to get volumes up as well. Industry-wide, I would guess that the average retail location that is affiliated with the manufacturer sells 2, 3, 4 mobile homes per month. 2 is maybe breakeven, 3 is profitable, 4 is highly profitable. So basically, we're just trying to get our sales up on a location basis, the primary reason we made a deal with Norm was to have access to that remote management technology. And I think that's it. As far as there's 1 lot in Houston, it shines, he sells roughly 10, 12 hours a month, every month, which is more than double what we sell at our locations and Kenny and I have both visited it, is pretty impressive in that front. I mean, are we paying a little bit of premium, it kind of depends on what the management system is worth. If it is worth say, $5 million, which is what I kind of put on, I would look at it as though we paid a fair market value for all the assets we're acquiring from -- on the AmeriCasa thing. Of course, we won't know until we integrate it with our own model to see what it is, but I'm very optimistic that, that acquisition is going to help us sell more direct to retail consumers.

Really helpful. And just making sure I heard correctly, the size of the chattel mortgage loan portfolio that you're acquiring, I heard the 16%. Was it $30 million? Or was that off, I'm sorry.

The portfolio -- the deal is when we close we'll acquire all loans in that portfolio that are current defined by within 30 days of currency. And we think the face value of that part of the transaction will be $10.8 million, plus or minus a couple of hundred thousand. And the effective interest rate or the interest rate on that is just over 16%, pretty similar to our portfolios. It's almost exact and that piece is right up our rally. We can absorb it rather easily, and I have confidence that it will be accretive to our financials.

Got it. And then you mentioned in the press release you expect normal production out of the Texas manufacturing facilities through year-end. Obviously, great to hear the encouraging show that you had at the end of September in Fort Worth. What does kind of normal mean maybe relative to Q4 last year and just talk about what your expectations are from the Georgia plant as well over the next quarter or 2?

I don't have Q4 in front of me from last year, but I think we'll be through most of the Q4, which now, of course, we're a month into, I think we'll average 6 to 7 in Texas per day and probably 2 to 3 in Georgia. So let's call it company-wide 8 to 10 and I don't really know I'd have to dig out to see how we did in Q4 last year. 8 to 10 is profitable, so 1 shareholder elegantly pointed out, it doesn't look like the production of sales of mobile home has made money in Q3, and that is correct. But in Q4, that part of the business should contribute pretty nicely to our earnings and the first quarter looks even better than that.

Perfect. And then lastly, you mentioned that the industry pricing have you taken or plan to take additional price increases? I know it's a tough environment, but to offset some of the increase in raw material costs and tariffs over the next 1, 2, 3 quarters? And I'll jump back in queue.

Well, we went first. We had announced price increase in June, and I think we were first in the industry to do it. And it may have dissuaded some of our regular buyers from buying. But since then, our competitors have joined into slight price increases we're talking overall, probably 3%, 4% has been the price increases. But again, we're all trying to use up excess capacity, 34 plants operating in the State of Texas, probably only 3 or 4 of them operating at capacity. So we do get out on pricing and financing features and all sorts of things, I mean I heard recently have a manufacturer that was offering 1 year free flooring dealers if they buy a house, we're concerned about profitability. We were able to make hay while the sun shines during COVID, but we don't intend to give it back by building them all a home unless we can make a margin on it. It's tempting to say, okay, let's just keep the factory running or whatnot, but we're not going to be giving back this tangible book value we have. I don't see the market declining, especially in Texas with the data center workforce housing lift that we're going to be having in the next 24 months. I am a little more concerned about Georgia and where its -- where its unit sales are going to come from in the Southeast.

Our next question comes from the line of Alex Rygiel with Texas Capital Securities.

A couple of quick questions here. So are you looking at other acquisitions at this time? And can you talk a bit about expanding your company-owned retail stores?

Well, I mean, I would say that if we do any acquisitions, it will dovetail well with the one we just did. And the one we just did is designed to increase our ability to profitably distribute through company stores. So I think you hit the nail on the head, Alex, that there is an acquisition that would probably be retail centers in our market areas. The independent dealers are getting difficult to make money on. And besides that, a lot of them are aging out. There are [indiscernible] ages, very few retail centers independent retailers are owned by anybody under 50 years old. So that [indiscernible] competitors and then may be more of a push to Internet sales, we may be emphasizing used out sales. But yes, we want to be more in the retail business than we have in the past, very small percentage of revenue has been from our own retail centers, and I would hope to grow that to maybe as much as 50% by the end of next year.

Very helpful. And then secondly, can you talk a little bit more about your kind of consumer loan portfolio and how it's performed kind of more recently how the trends have been playing out over the last few months and if there's been any kind of notable change there?

We don't have much notable change, but there is anecdotal evidence. We had the benefit of everything that was on our books pre-COVID, was at prices substantially below current prices. So every mobile home loan on our books that was pre-Covid, I had the benefit of being right side up, so to speak, from a consumer's perspective. So every time one did repo, we actually made money on it. I mean if the guy owed $30,000 on his mobile home and turned it back to us, we sold it for $40,000. So for years, when we did repo one, it was actually kind of a windfall but since COVID those notes that have been created in the last 4 years don't have a corresponding benefit from price increases. So now when we repo a note that was made, say, in 2022, when we go to sell it, if they owe us $40,000, maybe we can only sell it for $35,000 and we have a little bit of impairment to take on it. So -- so the recovery rate on the repos is not as good as it once was. But let's just say, my opinion is more realistic that if that onetime nearly doubling of prices that we had during COVID kept us from having any losses when we did repossess something. And now as far as the percentage that are in trouble, and this is kind of the good news is we just don't have more than a couple of percent at the retail level that are problematic, which is still historically a low amount. Anecdotally, we're in Texas, I live here. Kenny lives here. And we all know somebody now that's subject to deportation or a relative that is subject to deportation. And a lot of our notes and a lot of our basic demand comes from and for lack of a better word, an immigrant market. So we're kind of expecting some difficulty there, but it hasn't shown up in the numbers yet.

That's good to hear. And then circling back to capital allocation. Through the years, like you mentioned, you have been a buyer of stock. Can you talk about that a little bit more? And also, have there been any insider repurchases? Or has there been an open period for insider purchases at all?

I haven't bought any, and I don't think Kenny has bought any. Unfortunately, from an insider point of view, that's pretty much the only visibility that we do on our Form 4s. In our circle of influence, which is not an insider, I do know of at least 1 party that's bought pretty heavily in the last couple of months. And I don't know of any party in my own circle that has been a seller at these levels ever since, say, December '24. I don't know anybody that's even considered being a selling -- seller that I have much influence over. So I would say at what level will we protect it? Well, I don't make the decision. Kenny doesn't make the decision. We kind of make a decision when we talk to each other, we do have the authority to make the decision. And as you know, the company can't -- for instance, we can't buy today, we're in blackout. . We could buy later in the week. It's always a little bit discretionary when we could buy. But when we're not in a blackout, I think you can assume any time that we think it's a good investment, we'll be there with our cash resources. Not only do we have cash in the bank today, but we have an unused $50 million loan that I think it's still pretty solid with price parity. So between -- and we cash flow money. All the improvements to our land in Bastrop County have all been paid for with free cash flow. And I think we're now pressing about $30 million of money we put into Bastrop counting. And I would guess by the time it's all said and done, we'll put another $20 million to $30 million into Bastrop County and then we'll have room for 1,100 mobile homes, be a thing of beauty. We'll probably keep a couple of days a month or 3 days a month active in 1 of our factories by satisfying that one property's demand.

Sorry. And 1 last question as it relates to Bastrop County. What's your best guess right now as to when you might start to sell homes?

We have 110 lots that were designed to be 3 simple lots that we would begin marketing as soon as we solve just 1 piece of the puzzle, and that's connecting to state highways on 1 side or the other. They would go under market. The beauty part about that is when we did this, we thought we'd be selling those things for $70,000 or $80,000 a piece. And the current value of those lots is retail is probably more like $120,000 or maybe even $130,000. So in a way, not selling them for $80,000 has yielded us an above average rate of return just by not selling them. But anybody has a lot, 0.75-acre lot in this market is getting well over $100,000 for a place to put a mobile home, sometimes $130,000. We're kind of expecting now to get $115,000, $120,000 when we go to market on those. And we'd like to get that going if nothing else to fill it up with Legacy that we build at our 2 plants in Texas.

Our next question comes from the line of Mark Smith with Lake Street.

First question for me. I just wanted to ask, you talked quite a bit about kind of demand and production in Texas. Curious if you can just give us your thoughts around kind of Georgia and the Southeast, how that market is doing and kind of how things are running at the plant?

Like you probably got this Mark from my mood when you -- when I say just a minute ago or my tone of voice. I am not that confident in the Southeast and know that we can carry on at 2 or 3 a day, but that's a very large manufacturing facility and doesn't really make sense at 2 or 3 a day. So we've got to find a way to develop distribution in that market. The mobile home park model is not as good as it was. People now are paying a lot more for the house. They're paying a lot more for the home. They're paying a lot more to set it up. They're paying more hook it up the utilities. And unfortunately, the rents that they typically get when they put 1 of their mobile home parks haven't increased accordingly. So the model is not as solid as it was, say, 5 years ago, which was a big part of what we built in the market when everybody built filling up a bunch of mobile home parks in a model that did make sense. When all those prices were down and the rents were pretty much the same as they are today. So the underlying demand in the Southeast has got to be to the guy who's going to live in rural America or some sort of opportunistic disaster housing, which is oftentimes happen in that market that we participated in. If you assume that park sales is going to be much lower than historically -- than it has been historically, demand has to come from direct consumer sales for privately owned land or from some sort of disaster relief. So if you can tell me how many hurricanes there will be in the Southeast next year, I could probably give you a pretty good feel for how good the markets are going to be. But -- and that's really kind of the demand there. As you know, the Southeast doesn't have the tailwinds that Texas has but it has better tailwinds than many parts of the country. So the demographics in all those states that we serve in the Southeast are still positive. And we know it's not because of birth rate. it's positive because people are still moving to Georgia and there's still moving to North Carolina and they're still moving to Florida. So there's an immigration from 1 part of the United States to another that goes on in that market. So we get some positive demographics there. And we sell to operators that are taking advantage of that. I talk to them all the time. They're struggling to make the economics work. Now if interest rates come down a little bit and there are models instead of being, say, at a 6% cap rate or at a 5% cap rate, then they can make more sense out of it. And we've had a nice reduction in as it relates over the last month or so, they actually punished mobile home stocks because they thought that would make site-built housing more attractive and maybe it does. But it sure helps communities that are trying to make sense out of community-owned rentals and community-owned mobile homes. When their rate -- their borrow rate goes down a point, it really helps their model quite a bit. So I know this didn't address the answer that you want or a specific answer. But I think I made it clear that there's only 2 ways to really do well in the Southeast, the community model and disaster relief housing, as the likelihood that all those plants in the Southeast, which there's roughly 20 operating in that market that we compete against, there's not enough demand at the retail level to keep 20 factories working. So I can see the industry as a whole, making some difficult decisions in the Southeast absent getting some disasters next year that they give us more tailwinds.

Okay. And then I did want to ask about gross profit margin. I know you don't give guidance, but just kind of any insight you can give us on the outlook there, maybe where the pressures are coming? I know you discussed tariffs, but I guess maybe 2 things here. Do you think that you've seen kind of topped out the inflationary pressure, whether it's from tariffs or anything else? And then two, do you think that you've taken ample price to cover the pressure that you've seen or could see?

Well, I think the price increase that we did are going to cover the effects of tariffs, in particular. And the world believes that tariffs are a one-time inflationary event. And if that's the case, then the price increases may be over. But we've also increased our line workers' wages by 10% this year. And we've -- obviously, the Chinese imports have gone from a 25% tariff to as of what time is it 10:00 -- no, 11:00. As of 11:00 a.m. today, the tariff rate currently is 45%, but that could change by 2:00 this afternoon. So I mean, it moves around. So the net result of our cost of goods sold on just what happened last week, decreasing the tariff from 55% to 45%. Our cost of goods sold will go down roughly $1 million with just that 1 happening just like they went up before when they went up that much. I don't really look at an inflation as something that either does happen or doesn't happen, it's 70 years old, I can remember $0.04 stamps, I can remember $0.29 gasoline. I think inflation is inevitable. At what pace, that's the only thing that we might disagree on. But I would guess that our average wholesale price now is about $60,000 per floor. And I think that if I was to give the same earnings call, say, 24 months from now or 2 years from now, I think that would be -- it's going to be closer to closer to $70,000 than $60,000. The margins are real simple. Financial statements sometimes make it seem more complicated. You got a selling price, you got materials, you've got labor, you've got allocable overhead. On the materials side, all factories are pretty similar. I would say 80% of the capacity buys their materials within a few percentage points of each other's. Labor, there's quite a disparate labor deal kind of depending on the complexity of the product you're building. If you're building a very simple product, you might get labor all the way down to $4 or $5 a square foot. And if you're very complex product, you're going to get labor in the $10 to $15 range per square foot. And the only thing that could help that, the more you build that's exactly the same, the more productive the assembly line gets. As far as allocable overhead, that's very specific about what we're allowed to do on a GAAP basis, purchasing agent can be allocated but a CEO can't. So while our gross margin may be suffering a little bit over the next 12 months, our net margin because now we're talking about eliminating SG&A or controlling SG&A. While the founders were gone, SG&A went up. I think Ron was very clear in his outline on that. With SG&A up 15%, 16% at a time when sales were down, I think you will see the immediate reversal of that trend and some relief in probably the fourth quarter followed by a significant release in the first quarter on SG&A as a percentage of sales. I hope that puts a little color on your question.

That's helpful. If I can squeeze in one more. Just I don't know if you're able to talk at all about kind of numbers behind the acquisition and potential impact on the balance sheet just as far as the size of this acquisition?

It's simple. We're on a call that's available to the public. We didn't give much detail on Friday's announcement. But I don't mind telling you what it is. This is roughly a $22 million deal, all in, about half of which is retail paper and the other half are the assets that I've described. We wouldn't be doing this if we didn't think it was going to have a positive aspect on the company. I was just guessing I would guess that our retail selling as a company, which is currently about 250, 300 units a year, I would expect that to be 50% higher, maybe 60% higher in 2026 than it was in 2025. If that doesn't come to pass, then the acquisitions, the purpose of the acquisition, didn't get accomplished. It's really that -- that's the jewel. And then everything else we bought pretty much what we would be willing to pay on a one-off basis at any time. We have a 28% interest in the mobile home park. As part of the deal, we know that market really well, it's worth a little over $1 million or more to us. So a lot of what we acquired was hard asset value with the only uncertainty being how well can we integrate the Columbia presence and the HomeX model into our retail system. If that turns out to be what I think it is, I would think our retail sales will go up by at least 50%. And if we really perform well, it could even be double in 2026 relative to 2025. Let's face it, we make a lot more money whan we can retail one than we can make on selling it wholesale for $60,000. The margin in this industry is about 40%, 50% up. So if we build it for $60,000, we retail it for $90,000 and the more that we can retail the better. I think Ron mentioned that a good part of the reason why our average price per home went up is because we retailed a higher percentage of what we built in 2025 than we did in 2024. But it was just nominal compared to the leap that we're planning on taking with this acquisition. This acquisition is pretty much what can we do at the retail level to improve that part of our distribution filling the gap that is kind of leaving us because of the park problems that I referred to earlier on the call.

And just confirming within that kind of increase within retail stores that's including the site that you're buying in as your retail location as well as kind of improvements in retail stores at the existing heritage sites today?

Correct. Yes. We probably retail -- and I'm just guessing because I know we do monthly, so I'm going to go ahead and multiply by 12, I guess do that in my head. I'm going to guess we're about 300 now. The Houston location itself could add 100 to that going forward and then the integration of the systems into our existing retails should add another 100 to it. And on a good day, maybe even another 200. So what I'm saying is we should be up 60% in '26 versus '25 in the number of units we retail and it could be as much as 100%. There's a little more guidance than what you asked for, but on the other hand, the press release on acquisition was a little bit gray, let's put it that way. So now you have color on it. And we haven't closed it yet, so you never know it could blow up, but it's a binding contract. The contingencies are being put together and we expect to close before Thanksgiving.

This concludes the question-and-answer session. I would now like to hand the call back over to Curt Hodgson for closing remarks. .

Well, it's a much longer call than I expected. I had to have a bunch of it, but I think I did a reasonable good job. I'd like to thank everybody who joined in today's earnings call. We appreciate your interest in our company and look forward to delivering you better results in the future than we did in this last quarter.