Ladies and gentlemen, thank you for standing by. Welcome to Legacy House Corporation Second Quarter 2025 Earnings Call. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Duncan Bates, President and Chief Executive Officer. Please go ahead, sir.

Good morning. This is Duncan Bates, Legacy's President and CEO. Thank you for joining our second quarter 2025 conference call. Max Africk, Legacy's General Counsel, will read the safe harbor disclosure before getting started. Max?

Thank you, Duncan. Before we begin, I'll remind our listeners that management's prepared remarks today may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Actual results may differ from management's current expectations, and 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 second quarter financial performance, then I will provide additional corporate updates and open the call for Q&A.

Thanks, Duncan. Product sales primarily consist of direct sales, commercial sales, inventory finance sales, and retail store sales. Product sales increased $6.7 million or 21.3% during the 3 months ended June 30, 2025, as compared to the same period in 2024. This increase was driven by an increase in unit volumes shipped, primarily in inventory finance sales, retail sales, and mobile home park sales categories. For the 3 months ended June 30, 2025, our net revenue per product sold increased by 10.5% compared to the same period in 2024. The increase is primarily due to an increase in units sold to consumers, which are sold at higher retail prices. Consumer MHP and dealer loans interest income increased $1.0 million or 10.6% during the 3 months ended June 30, 2025, as compared to the same period in 2024. Between June 30, 2025, and June 30, 2024, our consumer loan portfolio increased by $24.6 million. Our MHP loan portfolio increased by $20.3 million, and our dealer finance notes decreased by $0.5 million. Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees, and other miscellaneous income and decreased $0.1 million or 10.8% during the 3 months ended June 30, 2025, as compared to the same period in 2024. This decrease was primarily due to a $0.2 million decrease in forfeited deposits, partially offset by a net $0.1 million increase in other miscellaneous revenue. The cost of product sales increased $4.4 million or 20.3% during the 3 months ended June 30, 2025, as compared to the same period in 2024. The increase in cost is primarily related to the increase in units sold. Gross profit margin was 32.4% of product sales during the 3 months ended June 30, 2025, as compared to 31.9% during the 3 months ended June 30, 2024. The cost of other sales was $0.6 million during the 3 months ended June 30, 2025. Selling, general and administrative expenses increased $1.1 million or 19.1% during the 3 months ended June 30, 2025, as compared to the same period in 2024. We had a $1.1 million increase in warranty expense primarily due to an over-accrual in warranty costs in the second quarter of 2024 that we reversed. We also had a $0.5 million increase in repossessed home expense, a $0.2 million increase in bad debt expense, a $0.1 million increase in loan loss provision, offset by a $0.6 million decrease in legal expense, a $0.1 million decrease in property tax expense, and a net $0.1 million decrease in other miscellaneous expense. Other income decreased $2.8 million or 74.5% during the 3 months ended June 30, 2024, as compared to the same period in 2024. We had a decrease of $0.5 million in non-operating interest income, reflecting a lower balance of other notes receivable; a $2.5 million decrease in miscellaneous income, primarily due to land sales and a reversal of accrued liabilities during the 3 months ended June 30, 2024, that did not occur during the 3 months ended June 30, 2025; and a decrease of $0.2 million in interest expense. Net income decreased 9.2% to $14.7 million in the second quarter of 2025 compared to the second quarter of 2024. The basic earnings per share decreased 9.0% to $0.61 per share in the second quarter of 2025 compared to the second quarter of 2024. As of June 30, 2025, we had approximately $2.6 million in cash compared to $1.1 million as of December 31, 2024. We drew a small amount on the revolver in the second quarter. The outstanding balance of the revolver was $0.1 million as of June 30, 2025, and was $0 as of December 31, 2024. At the end of the second quarter of 2025, Legacy's book value per basic share outstanding was $21.32, an increase of 11.2% from the same period in 2024. Finally, we repurchased 260,635 shares of common stock for $5.8 million during the 3 months ended June 30, 2025. As of June 30, 2025, we had a remaining authorization of approximately $8.1 million on our share repurchase program.

Thanks, Jeff. I'm pleased with our second quarter results. Our focus has remained on product sales. While there's still uncertainty in the market and weakness in certain geographies and channels, we are seeing positive signs from the changes we've made. Earlier this year, we took a hard look at historical sales data and simplified our product line. That process had its challenges, but some of the adjustments are paying off. As Jeff mentioned, product sales increased 21.3% during the second quarter compared to the same period in 2024, and that growth was primarily driven by dealer activity. Product sales were up 58% sequentially over the first quarter of 2025. Inventory finance sales, or floor plan sales to independent dealers, increased $4.9 million or 53.3% compared to the second quarter of 2024. Retail sales, or sales from our company-owned retail stores, rose $2.9 million or 64.2% over the same period. These gains reflect stronger demand across our dealer channel and our continued traction from our product line simplification efforts. Commercial sales, or sales to community owners, increased 5.3% during the 3 months ended June 30 compared to the same period in 2024. Our community customers continue to face headwinds, including elevated interest rates, higher operating costs, and budget constraints among renters. Despite these challenges, we're encouraged by ongoing discussions with both new and existing community owners regarding large orders, which should support volume growth in this channel. Product gross margins were 32.4% in the second quarter of 2025. I'm proud of our team's strong execution and maintaining healthy margins during a rapidly evolving environment for materials and labor costs. We remain disciplined in our pricing strategy and continue to manage expenses carefully to protect profitability. Our top priority for the remainder of 2025 is continuing to build our backlog, which should support increased production volume in the coming quarters. We expect higher output out of our Texas plants where demand remains stronger, while activity in the Southeast is comparatively slower. We continue to actively manage our loan portfolios. Since the second quarter of 2024, our retail loan portfolio has grown by $24.6 million, while our MHP loan portfolio has grown by $20.3 million. Reflecting strong demand in our dealer channel, retail loan fundings were up 49% in the first half of 2025 compared to the same period in 2024. There were no material land sales during the second quarter of 2025, but we will continue to evaluate opportunities to monetize non-core land when pricing reflects underlying value. In the second quarter of 2024, we completed a non-core land sale that generated a meaningful profit, creating a challenging year-over-year comparison for this quarter's earnings. We are focused on completing Phase 1 at Falcon Ranch, our 1,100 lot development in Bastrop County. Phase 1 includes 115 lots, with roads and utilities already complete. The final remaining project, a bridge, is currently under construction. At the same time, we're making progress on Phase 2, where utilities are now in place and road work is underway for the first 350 lots. Over the last 18 months, we have repurchased over 552,000 shares of common stock in the open market for an aggregate cost of $11.9 million, reducing our outstanding share count by over 2%. These repurchases reflect our continued confidence in the long-term value of the business and our disciplined approach to capital allocation. With no debt and over $10 million in cash on the balance sheet today, we remain well positioned to continue repurchasing shares. We are keeping our eyes on the road to the Housing Act, which passed the Senate Banking Committee and is awaiting a full Senate vote. The bill reauthorizes HUD's price program, which provides grants to improve infrastructure like water and sewer systems and manufactured housing communities. It also removes the federal requirement for a permanent chassis, lowering build costs and allowing for more flexible home designs. If passed, the bill should support growth in both home sales and community development. Operator, this concludes our prepared remarks. Please begin the Q&A.

Please begin the Q&A.

So good order flow coming in through the second quarter, a good rebound in volumes. Just curious what you're seeing as we enter July and August; have you seen the same momentum continue? And is it coming from the same channels? Just to get a sense of how you see the rest of the year.

Yes, Rohit. We're really happy with the second quarter performance. Obviously, the dealer side of our business really drove the revenue growth. We continue to see that this quarter. We are seeing signs of life on the community side. I think the difficult thing has been the prices for mobile home parks have gone up pretty dramatically. You've got increased financing costs, homes are more expensive, operating costs are higher, and you've got renters that can only afford so much. I think there is a shift to smaller houses, and we're having some success in that. But we really need to land a couple of these large orders to see an uptick in that side of our business for the rest of the year.

Okay. And then on the backdrop, it looks like you're making some progress there. Do you think you'll be selling plots by the fourth quarter? Is this something happening in '25? Or is this more in 2026?

That's the goal. I mean the final piece of this is we've got to build a bridge. The bridge is under construction and it's well underway. But ultimately, roads and utilities are all in Phase I. You have to complete the bridge to connect it to the infrastructure outside of the community. It's not that we're crossing any waterway, but it's certainly a project. The goal is to get that done. There's a way to shortcut starting to sell lots; that's something we're looking at where we can go ahead and start before the bridge is completed. But we're well underway on construction. So the goal is to sell lots as soon as possible. There's a lot of demand down there. We've got a dealer on site who's been doing really well with sales this year. What's been interesting for me to watch is that we're gaining ground on Phase 2 where you've got all the utilities in and we're putting the roads down for the first 350 rental lots. So good progress. We've made a couple of key hires down there, we've got the cash to push this thing forward, and we're working as hard as we can to get it open.

Fantastic. If I could squeeze one last one in on the SG&A line, it's running up a little bit higher than as a percentage of sales. Is this like the new normal? Or at least for the year? Any sense of the trajectory on SG&A?

No. I think SG&A will dip back in line to where it's been. We had some kind of unusual comparisons with year-over-year accruals for things like warranty expense and legal expense that shifted that upward.

And the next question will come from Alex Rygiel with Texas Capital Securities.

As it relates to being encouraged by discussions with community owners for large orders, what are the primary items that are either sparking these interests or keeping them on hold until an order?

Well, we've got a handful of large customers that we've worked with for a long period of time. These customers tend to buy communities that are in disrepair, fix them up, and then replace all the homes before moving to the next one. Especially through COVID, we had some huge orders as these guys really expanded. Then they took a breather. What we're seeing is we have some large customers that have either purchased or have communities under contract where they'll need a decent amount of homes. On the other side, with new customers, we have been growing with some younger clients as we replace the legacy customer base. Those clients may start by ordering six homes, and the next year, they order 20 homes. You keep growing with them as their portfolio builds. One change is that it seems like the financing markets have opened up a bit, right? So we're seeing some payoffs on the MHP portfolio as we have customers who have newer houses in those parks, and they're stabilized and monetizing those, rolling gains into new properties.

Makes sense. Can you talk about the average selling price? Are you surprised that it's holding up here? Any thoughts around that?

Yes. I mean the average selling price for the quarter went from $61,000 to $68,000 on a quarter-over-quarter basis. I think the bulk of that was just driven by the increase in sales through our company-owned retail stores. We were slower to raise prices during COVID and have been more aggressive as we've figured out the impact of tariffs on our costs. I expect it to stay elevated, but certainly, there’s a point where it could be to the detriment of volume through the plants.

You talked a bit about Georgia being slower in the second half; any additional color on that?

Yes, the Southeast market just feels slow. I think Cavco commented on that during their call; Florida is slower as well. We are seeing similar things in the Southeast. We've got customers doing things, and we've won new customers there. We've had some workforce housing builds, but our dealer base isn't as strong out of that plant. So we’re more reliant on community customers, but it just seems a little slower than what we're seeing in Texas.

And the next question comes from Daniel Moore with CJS Securities.

You had a nice jump in product sales in the quarter, with volumes up double digits, yet year-to-date were relatively flat. Were there any sales that may have slipped from Q1 to Q2, or is it more demand actually improving as we work through the year?

I think we had some orders on the community side that slipped. The first quarter wasn't our strongest product sales performance. Community sales were relatively flat, up about 5% or so quarter over quarter. So there were certainly some orders that slipped, but they were mainly on the community side. What we saw on the dealer side was actually a little bit of better strength. The market is still choppy. It's still slower than we would like, and certain geographies serving out of our Georgia plant or Texas plants seem to be slower than others. So we're cautiously optimistic on the year, but we are here every day working to get houses built and shipped.

Got it. Retail stores had their highest quarter with over $7 million in sales, which we've not seen in multiple years. Can you talk about the sustainability of that? How are the investments you’ve been making in the retail sales force progressing?

Yes, the key to retail is systems, processes, and people. You need to get people selling houses and making commissions to retain them. That's something we've struggled with for a while. We have a good team on the retail side. They had a great quarter. Some stores perform better than others. The focus now is on bringing the underperforming stores to a baseline and continuing to support the stores that are doing well. It was a good quarter for the retail team, reflecting what we can accomplish, though July has been a little slower, but not terrible either. Some of these changes are helping, but we still have work to do. I see that as an opportunity for us. If we can drive more volume to that channel, it helps our revenue, and it’s reflected in the average selling price.

Just a little on the gross margin side; we saw a little bit of pressure year-over-year. You called out that product sales gross margin improved. Would we expect that to be a new level or improve as we move forward?

When I talk about gross margin, I'm mainly looking at product gross margin, which jumped from 31.9% in Q2 of '24 to 34.3% for the second quarter of 2025. If you look at it as a whole, we had a bump in SG&A due to some expenses and mismatches in accruals from the second quarter of 2024. So looking at gross margin overall is lower for the second quarter, but I'm discussing just product gross margin.

You mentioned buying back $6 million of stock in the quarter and $11 million year-to-date. Given that the stock is sitting here not too far above book value, is continued capital use and cash flow expected moving forward?

Yes. We have to weigh it against other opportunities. We're seeing a lot right now, especially on the lending side, to put money to work at good returns. The business has generated 10% to 15% after-tax returns pretty consistently over the last 20 years. We are watching the stock, and we will be opportunistic buyers; however, we’re not just going to buy stock for the sake of it if we have opportunities to deploy the capital elsewhere.

The next question comes from Mark Smith with Lake Street.

Duncan, wanted to ask first about product margin. I’d love to hear your outlook on tariffs and some inflationary pressures. Are there any items that are moving higher? What’s your outlook here as we think about the second half or even into next year?

There are a lot of moving parts. With tariffs and their impact on international goods, we have adjusted our pricing accordingly. However, we're seeing moving commodity prices in other materials. Lumber futures have crept up; OSB has been low; and steel has remained relatively flat. I'm not optimistic about labor costs going lower, which is something we will keep an eye on. There's a balance between price and volume as you need to keep the plants running without being under-absorbed on labor. Input prices on most products we buy to assemble houses are rising.

Back to pricing a bit; it sounds like the ASP was largely a function of the sales mix. Can you quantify how pricing action has occurred over the last six months?

We've had a couple of price increases this year; we started in February and had another more significant one mid- to late June. We are cautiously monitoring the situation, but this is a challenging time with many moving pieces concerning commodity prices. Higher prices give us some flexibility to increase advertising efforts and sales promotions, especially with our fall show coming up in September.

Curious your thoughts around consumer behavior and the difference between renters and homeowners in how they're holding out. Is there any pressure on renters that may be affecting the MHP market?

I think renters are fairly price sensitive. If your mobile home park model shows that you're going to continue to raise rents but all your operating costs and home prices are increasing, it does put pressure on community operators, which is causing them to shift towards smaller houses so they can maintain affordable monthly payments. The second quarter saw dealer business perform somewhat better, but demand isn't exceptionally high now; it's quite spotty. Customers remain price conscious, but when compared to traditional stick-built homes, manufactured homes remain far more affordable. Although the next few quarters could be choppy, I don't think this affordable housing crisis can be resolved without our industry. Some legislative efforts are encouraging regarding regulatory reforms for HUD codes, and there is some positive momentum.

I show no further questions in the queue. I would now like to turn the call back over to Duncan for closing remarks.

Thank you for joining today's earnings call. We appreciate your interest in Legacy Housing. We're hosting our fall show in Fort Worth on September 27 and 28, and feel free to register on our website. Operator, this concludes our call. Thank you.

Thank you. This does conclude today's conference call, and thank you for participating. You may now disconnect.