Legacy Housing Corporation (NASDAQ:LEGH) Q1 2024 Earnings Call Transcript May 10, 2024

Legacy Housing Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Legacy Housing Corporation Quarter One 2024 Earnings Conference 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. I would now like to hand the conference over to your speaker today, Duncan Bates, CEO. Please go ahead.

Duncan Bates: Good morning. This is Duncan Bates, Legacy's President and CEO. Thank you for joining our first quarter 2024 conference call. Max Africk, Legacy's General Counsel, will read the safe harbor disclosure before getting started. Max?

Max Africk: Thanks, Duncan. Before we begin, I will 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 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.

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

Jeff Fiedelman: Thanks, Duncan. Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales. Product sales decreased $12.5 million or 28.8%, during the three months ended March 31st, 2024, as compared to the same period in 2023. This decrease was driven by a decrease in unit volume shift, primarily in direct sales, mobile home park sales and inventory finance sales categories. The decrease was offset by increased sales at our company owned retail stores. For the three months ended March 31st, 2024, our net revenue per product sold decreased primarily due to a shift in product mix to smaller units into a large sale of homes from our leased home portfolio to a mobile home park customer at a lower average price than our typical new home.

Consumer MHP and dealer loans interest income increased $2.9 million or 38% during the three months ended March 31st, 2024, as compared to the same period in 2023 due to growth in our loan portfolios. This increase was driven by increased balances in the MHP, consumer and dealer loan portfolios. Between March 31st, 2024, and March 31st, 2023, our MHP loan portfolio increased by $28.2 million. Our consumer loan portfolio increased by $17.9 million and our dealer finance notes increased by $2.1 million. Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income and decreased $0.1 million or 3.1%, during the three months ended March 31st, 2024, as compared to the same period in 2023.

This decrease was primarily due to a $1.0 million decrease in dealer finance fees, a $0.2 million decrease in commercial lease rents partially offset by a $1.1 million increase in forfeited deposits. The cost of product sales decreased $8.5 million or 29.3% during the three months ended March 31st, 2024, as compared to the same period in 2023. The decrease in cost is primarily related to the decrease in units sold. Selling, general and administrative expenses increased $0.5 million or 8.8%, during the three months ended March 31st, 2024, as compared to the same period in 2023. This increase was primarily due to a $0.3 million increase in warranty costs, a $0.1 million increase in legal expense, a $0.2 million increase in professional fees and a net $0.2 million increase in other miscellaneous costs partially offset by a $0.3 million decrease in loan loss provision.

Other income expense increased $0.4 million or 29.9% during the three months ended March 31st, 2024, as compared to the same period in 2023. There was an increase of $0.6 million in non-operating interest income offset by an increase of $0.2 million in interest expense. Net income decreased 7.0% to $15.1 million in the first quarter of 2024 compared to the first quarter of 2023. Basic earnings per share decreased $0.05 per share or 7.5% in the first quarter of 2024 compared to the first quarter of 2023. As of March 31st, 2024, we had approximately $0.6 million in cash compared to $0.7 million as of December 31st, 2023. The outstanding balance of the revolver as of March 31st, 2024, in December 31st, 2023, was $11.8 million and $23.7 million, respectively.

At the end of the first quarter 2024, Legacy's book value per basic share outstanding was $18.46, an increase of 13.1% from the same period in 2023. In November 2022, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $10 million of the company's common stock. We repurchased 91,187 shares for $1.9 million in the open market during the three months ended March 31st, 2024. Between April 1st and May 9th, 2024, we repurchased 170,342 shares for $3.5 million in the open market. As of today, we have a remaining authorization of approximately $4.6 million.

Duncan Bates: Thanks, Jeff. I want to add some color on the market and provide other corporate updates. As discussed, sales were down during the first quarter, but they also are improving as housing affordability remains at a multi decade low with no signs of changing. First, on the dealer side, our current business is heavily dependent on dealers. Seasonality impacted dealer sales during the first quarter, but started to accelerate late February. Reorder rates are still lower than we would like due to higher inventory carrying costs. Sales at our company owned retail stores are also improving. To drive dealer sales, we launched a new special this week that includes concessions on popular home models. Initial feedback has been positive.

On the community or park side of our business, our park business is slower and has been impacted by high interest rates, similar to other real estate asset classes. Rates have driven M&A transaction volume down and cooled new development. We are gaining momentum in the park sales with smaller units. 400 square foot to 600 square foot tiny homes and small HUD code single wide, low monthly payments through our financing program allow park customers to make money renting these homes in nearly all markets. We held a spring show in Eatonton, Georgia in late April for dealer and park customers. It was our first show in Georgia since 2020. We are still rounding out orders, but the show was very successful. Over the past 18 months, we've spent a tremendous amount of time improving product quality at our Eatonton plant.

The houses look great and the changes were well received by customers. The show allowed us to clear finished goods inventory at the plant and build a nice backlog. Despite lower volumes during the quarter, we carefully managed factory overhead and expenses. Product gross margins were higher than average during the first quarter due to a large sale of leased homes to a community owner. We continue to monitor product gross margins closely and see manufacturing efficiencies improve when we ramp production. For corporate updates, since our last earnings call, we repurchased over 260,000 shares of common stock at an average price of $20.56. Repurchases were limited by restrict -- by trading restrictions and a narrow open window between year end and first quarter.

We utilized 54% of our $10 million repurchase authorization. The Board will increase the authorization as needed. Legacy's business fundamentals have not changed. The market is slower but improving over 2023. There was confusion with our fourth quarter numbers and the stock traded down to liquidation value. We will continue to repurchase shares aggressively when this happens. We've continued to add team members in key areas of our business. The land developments are progressing and we are evaluating proposals to sell or partner on some of the properties. There is significant value to unlock on our balance sheet, driving earnings growth and realizing this value as management's top priority. Operator, this concludes our prepared remarks. Please begin the Q&A.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Alex Rygiel from B. Riley Securities.

See also

15 Fastest-Growing Cities in Canada and

50 Most Glamorous Cities in the World.

To continue reading the Q&A session, please click here.