Legacy Housing Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Senior Turnover: Prior CEO, CFO, and General Counsel departed; Kenny Shipley and Curt Hodgson reengaged in day-to-day operations of profitable mobile home manufacturing and sales.
• Market Conditions: Industry slowing with housing affordability issues and macroeconomic headwinds; Texas manufacturing facilities benefiting from data center growth.
• Financial Performance: Discussion of home sales, interest income, other revenue, cost of sales, SG&A, and net income trends.
• Strategic Initiatives: AmeriCasa acquisition to enhance retail sales via remote management technology; plans to reduce working capital by addressing excessive raw material and finished inventory; hiring new personnel, including a new General Manager for Fort Worth and seeking a new CEO; aim to grow company-owned retail stores to 50% of revenue by end of next year.
• Balance Sheet: Strong cash position ($13.6 million in Q3 2025), book value per basic share at $21.85, and plans to repurchase shares when favorable.

Segment Performance

• Home Sales: Decreased by $1.4 million or 4.8% in the 3 months ended September 30, 2025, compared to the same period last year. Net revenue per unit increased approximately 8% to $68,500 year-over-year. Year-to-date 2025 vs 2024, product sales declined slightly by $1.2 million or 1.3%, with net revenue per unit increasing 13% to $68,600 due to sales mix shift and price increase.
• Interest Income: Consumer MHP and dealer loan interest income increased to $10.9 million, up 5.4% in Q3 2025. Consumer NPH and dealer loan interest increased to $32.4 million, up 5.3% YTD 2025. Consumer loan portfolio increased by $21.4 million to $188.1 million (up 12.8%), MHP note portfolio unchanged at $201.5 million, dealer inventory finance loans decreased $1.4 million to $30.3 million.
• Other Revenue: Decreased by $3 million or 79% in Q3 2025 and $4.1 million or 63.1% YTD 2025, primarily due to a significant land sale in 2024 and reduced forfeiture income.
• Cost of Product Sales: Increased $1.6 million or 7.5% in Q3 2025 and $2.7 million or 4.3% YTD 2025, driven by raw material costs, tariffs, and partially offset by lower delivery costs. Product gross margin was 20.28% in Q3 2025 (down from 29.2% prior year) and 27.7% YTD 2025 (down from 31.6% prior year).
• SG&A Expenses: Increased $1.3 million or 20.6% in Q3 2025 and $2.7 million or 15.5% YTD 2025, due to higher legal, loan portfolio, and professional fees, partially offset by lower self-insured health benefit expenses.
• Net Income: Decreased $7.2 million or 45.3% to $8.6 million in Q3 2025 and $13 million or 28.7% to $33.6 million YTD 2025, with net income margin down from prior year figures.

Guidance

• Production: Texas manufacturing facilities expected to average 6-7 units per day, Georgia plant 2-3 units per day, company-wide 8-10 units per day.
• Retail Expansion: Expect retail sales to grow, with potential 50-100% increase in retail units sold in 2026 vs 2025; aim to have company-owned retail stores contribute 50% of revenue by end of next year.
• Acquisition Impact: Anticipate the AmeriCasa acquisition to positively impact retail sales and distribution, with expected integration of HomeX platform to enhance remote management of retail locations.

Risks

• Labor and Customer Demand: Effects of ICE enforcement on labor force and customer demand, particularly fewer Hispanic customers.
• Inventory Levels: High working capital due to excessive raw material and finished inventory, which needs to be reduced.
• Tariffs and Inflation: Fluctuating tariffs and inflationary pressures affecting cost of goods sold and margins.
• Southeast Market Challenges: Difficulties in the Southeast market due to changing mobile home park models and reliance on disaster relief for demand.

Question and Answer

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.