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?

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.

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?

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 3 months ended March 31, 2024, as compared to the same period in 2023. This decrease was driven by a decrease in unit volumes shipped primarily in direct sales, mobile home park sales and inventory finance sales categories. The decrease was offset by increased sales in our company-owned retail stores. For the 3 months ended March 31, 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 3 months ended March 31, 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 31, 2024 and March 31, 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 3 months ended March 31, 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 3 months ended March 31, 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 3 months ended March 31, 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 3 months ended March 31, 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 31, 2024, we had approximately $0.6 million in cash compared to $0.7 million as of December 31, 2023. The outstanding balance of the revolver as of March 31, 2024 and December 31, 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 3 months ended March 31, 2024. Between April 1 and May 9, 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.

Thanks, Jeff. I want to add some color on the markets 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 to 600 square foot tiny homes and small HUD-Code Single Wides. 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. This 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 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 is management's top priority.

Our first question comes from Alex Rygiel from B. Riley Securities.

So it sounds like heading into the second quarter, unit volumes going to be picking up from the first quarter. Is that a fair conclusion to come...

Yes, that's fair. We're shipping a lot of houses right now.

And then as it relates to sort of inventory on the yard, where does that stand?

We've faced challenges at our Georgia plant for several quarters now. This was one of the main reasons for hosting a Georgia show, which was our first since 2020. We're starting to ship that product now, and our objective is to clear most of it out by the end of the second quarter.

Can you provide some guidance on the consumer and MHP loan interest, which increased in the fourth quarter and decreased in the first quarter? What is the current normal run rate for that?

Yes. I mentioned some confusion regarding the fourth quarter. Although we do not report fourth quarter numbers, I believe that when investors analyzed the fourth quarter figures, they were caught off guard by some shifts in revenue from the loan portfolios. This makes it a bit challenging to make comparisons. Currently, we are exceeding $10 million, and I anticipate we will consistently generate over $10 million in interest revenue each quarter throughout 2024.

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

I wanted to start just on the loan portfolio. Can you just give any more detail on that, the default loans in litigation happening with the one borrower within MHP? I know some of those moved to current assets. Any additional insights into that?

Yes, this is an active legal matter involving a long-term customer. We have a park customer we've been working with for over 13 years, and we've financed over 1,000 mobile homes in their portfolio. We accelerated a significant portion of these loans due to slow or non-payments, which has consumed considerable time for me and the team. We believe this issue can be resolved outside of court. However, as company officers, we must protect our collateral, which includes over 1,000 mobile homes where the outstanding principal is 50% or less of replacement costs, not including the equity for setup and building pads. We also hold first liens on several mobile home parks in this portfolio, and the debt is limited. The notes are cross-collateralized and personally guaranteed by several individuals, some of whom have substantial net worth and are jointly liable for these debts. We've dedicated a lot of time to this with our auditors, valuing all the collateral, and we believe there is considerable equity in this portfolio. While the notes are in default and accruing interest at 17.5%, most of that has been offset by an accrual. Our goal is to resolve this quickly, but we are prepared to take all necessary actions to secure the collateral if needed. Additionally, in the first quarter, we foreclosed on one mobile home park, which we believe has significant upside value. We are keen to reach a resolution, but we will take necessary steps to protect our shareholders and our investment if that becomes necessary.

Okay. The MHP portfolio has always been really solid and safe, I think viewed from the outside, has anything changed fundamentally within that portfolio? Or is this just kind of a one-off situation with this one borrower?

Yes, I believe this is a unique situation. The size is certainly notable, but there have been no changes in that portfolio. Over the past few years, we've encountered similar situations that we've successfully navigated, allowing us to recover all of our principal and, in most cases, the accrued interest too. Therefore, I don't view this as different from those prior instances, apart from the fact that it involves a larger amount.

Okay. Looking at product sales, you just talked about unit volumes looking better here into Q2. I'm curious on kind of selling price and mix. Are you seeing the mix shift back to some higher-priced homes? Or is it still staying at some smaller lower-priced homes?

Yes. We are still focused on lower-priced homes, and we remain competitive in the smaller home market. Housing affordability is a challenge, whether for traditional or factory-built homes. We are selling a significant number of smaller units not just in our parks but also through our dealer operations. While this does not improve our average selling price, I believe we can continue to drive volume. Both sides of our business have seen sales, such as at the Georgia show and the dealer sale I mentioned, which will help maintain volume throughout the year. We anticipate a better year compared to last year, but it's a challenging market. Therefore, we are closely managing the situation, making adjustments as needed, keeping a close watch on expenses, and planning to take it one quarter at a time.

Last question for me. You brought up the backlog in your commentary. Just curious any additional insights into kind of where the backlog is today and kind of your comfort level with that?

Yes. Our main objective is to build our backlog. We have maintained production at fairly consistent levels for the past two quarters, but they are still lower than our desired targets. The strategy has been to build the backlog before we start increasing production, as we want to avoid the mistakes we've made in the past by ramping up too soon. Currently, we are a few weeks behind across all plants. Ideally, I would prefer to be 8 to 10 weeks ahead, but we haven't achieved that yet. However, I believe that the first quarter, along with the stronger performance from the dealer side of the business, has shown the effects of seasonality, and as we approach the spring selling season, I expect improvements. Combined with some sales and concessions, we are hopeful to build the backlog and eventually increase production to achieve greater efficiencies in manufacturing.

Our next question comes from the line of Jay McCanless from Wedbush.

So kind of following on the last question. With the downward price mix you're seeing at this point, is it possible you think this year that you guys could sell more products but still be down in revenue just because of that sales mix? Or are you thinking that dollar revenue is going to be up year-on-year for '24 versus '23?

I expect to have a clearer perspective on that in the next quarter. Our priority is maximizing sales, and we're really pushing the team. We've observed a trend towards our smaller products, which means it's possible to sell more units while experiencing a decrease in revenue. That said, I believe that, from an internal sales sentiment perspective, the end of last summer felt like a low point. We've encountered some challenges, especially after last October's show, and now park customers are facing issues with utilities or municipalities that are causing shipment delays. However, it seems like things are stabilizing; sales are currently lower than our targets, but we’ve made some changes that should become beneficial in the second quarter.

And really good performance on the gross margin this quarter. How sustainable do you think that is? And anything that we need to be mindful of, either from a lumber price increase or anything of that nature?

Yes. Our product gross margins were high this quarter, influenced by a sale of a large portion of leased homes to a community owner in the first quarter. This sale skewed our gross margins upward. Our aim is to maintain these margins, which we monitor closely. This quarter's margins were significantly higher than in recent periods, so I expect them to return to the average of the last four quarters. However, if we can increase production, we can achieve greater efficiencies. We have yet to utilize price adjustments, as we've maintained prices even at the cost of volume and have relied on financing concessions. If we need to adjust prices to boost volume, it will affect gross margins, but I don't anticipate a drastic impact, as it should be balanced by manufacturing efficiencies where we are currently not covering all overhead costs in our cost of goods sold.

But actually, it was going to be on the next question, Duncan, I was going to ask you about, have you been able to hold price, sounds like you have what, I guess if you're holding price, what are you seeing from some of your competitors that can build maybe not all the way down to some of the prices you guys can do, but in that lower, call it, lower price single section home arena, what are you seeing out of them?

Yes. I think companies without a balance sheet and limited backlog, primarily independent players, have definitely experienced price declines. The consolidation in the industry has led to more rational competitors, but we've noticed some unexpected lower pricing in the last two weeks. I know we're very competitive in the tiny homes and smaller single wides. However, as we move to larger products, particularly at the dealerships, we see the effects of maintaining our prices compared to competitors who have reduced theirs. We're monitoring the situation closely. Our main goal is to increase our volume and build our backlog. Shipments during the second quarter are looking pretty strong so far.

So could you talk about, in the consumer book, we did see an increase both sequentially and year-on-year for delinquencies there. That's not uncommon. We're seeing that in the stick-built world too. But maybe could you talk about what type of stresses you're seeing on that portfolio? And if we do stay in this higher for longer environment, kind of what are some of the worst levels we've seen in that portfolio beginning of COVID or something like that as a frame of reference?

Yes, we view delinquencies a bit differently internally than the accounting perspective. For our retail loan portfolio, we assess the percentage of the portfolio that hasn’t received a payment in 30 days. Since bringing this servicing in-house around 2012, we’ve reduced the delinquency rate from nearly 6% to about 1.3% in 2021. Our program and team are performing exceptionally well. While delinquency rates and problematic accounts have risen slightly, they remain significantly lower than the national average. Certain aspects of our retail financing contribute to this success, including our requirement for substantial down payments, which some competitors have relaxed to attract customers. We also refrain from financing many additional items, which can complicate loans without providing much return. Additionally, our retail finance program includes a holdback with dealers that gives us extra security. All these factors help maintain our outperformance, and we’re closely monitoring the situation. Notably, our reserves decreased in the first quarter for the retail finance segment, primarily because we’ve observed that for homes sold before COVID, we’ve sometimes collected more on repossessions than the outstanding principal balances. I feel confident about our team and the portfolio's performance; even if delinquency rates rise slightly, it wouldn’t be a cause for concern unless they approached 5% or 6%, which is still a level we are well below.

Could we get an update on Bastrop and some of the other land parcels?

Yes. We hired an internal team. We've been working through the properties. Bastrop continues to progress. We're putting in the roads now Phase 1. We've got Phase 2 working as well. We've got a lot of utilities in there. We're building the water treatment plant. So there is a lot of focus on Bastrop. You'll see us continuing to invest capital there. Some of the other properties I talked about on either the last call or the call before, just working through where we are on those properties and ultimately determining the highest and best use for them and from a shareholders' standpoint. And so we've received some interesting proposals to sell certain properties or to partner on certain properties, and we're working through that now, and I think you'll start to see some movement during the second quarter on this.

At this time, I would like to turn the conference back over to Duncan Bates, CEO, for closing remarks.

I want to thank everybody for joining today's earnings call. We appreciate your interest in Legacy Housing. And if you have any questions on the quarter, feel free to give Jeff or me a call or shoot us an email. Thanks a lot. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.