Legacy Housing Corporation Aktie

Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation First Quarter 2026 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, Executive Chairman of the Board. Please go ahead.

Good morning. This is Curt Hodgson, Executive Chairman. I'm here with Jon Langbert, our Chief Financial Officer. Thanks for joining our first quarter 2026 conference call. Jon will now 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. We refer you to a more detailed discussion of the risks and uncertainties in the company's quarterly report on Form 10-Q filed yesterday with the Securities and Exchange Commission, and in our most annual -- most recent annual report on Form 10-K. Any projections as to the company's future performance represent management's estimates as of today's call. Legacy Housing assumes no obligation to update these projections in the future, unless otherwise required by applicable law.

Thanks, Jon. I'll turn the call over to Jon or back to Jon. now to walk you through the quarter's results, and then I'll come back with some thoughts on the business and a few corporate updates. After that, we'll open the call up to questions and answers. Jon?

Thanks, Curt. Let's get to the numbers. Total net revenue for the quarter was $34.4 million, down 3.7% from $35.7 million a year ago. Despite the modest top line decline, net income grew to $10.9 million from $10.3 million, and diluted EPS came in at $0.46, up from $0.41 in Q1 of '25. So revenue was a touch softer, but the bottom line was stronger, and I'll walk through how we got there.

Product sales were [ $21.6 billion ], down 11.3%. We shipped 312 units in the quarter versus 350 a year ago, with average revenue per unit essentially flat at roughly $69,100. The story underneath the headline number is really a mix story. Inventory finance sales were down about $7.6 million or 68% as our dealers continue to work through existing inventory on their lots. That decline was largely offset by strength across our other channels. Retail store sales nearly doubled, up 81% to $6.1 million, direct sales were up 80% to $2.7 million and commercial sales to mobile home parks grew 12% to $7.6 million.

The shift toward retail and direct selling reflects the strategy we've been executing, getting closer to the end consumer and expanding our company-owned distribution.

Loan portfolio interest income was $11.3 million, up 6.2% with essentially all of that growth coming from our consumer book. The consumer portfolio ended the quarter at $204.8 million, up modestly from year-end. Mobile home park notes finished at $199.5 million and dealer inventory finance receivables at $26.5 million.

On the expense side, cost of product sales was down 13.1%, broadly in line with lower volumes, and SG&A came in at $5.8 million, down 8.3%. The SG&A decline reflects lower payroll, health benefit and legal costs, partially offset by a higher loan loss provision and modestly higher property taxes. The net result is that even with revenue down a touch, we delivered net income growth of about 6% and EPS growth of around 12%, a function of slightly stronger gross margins, lower SG&A and a lower effective tax rate.

On taxes, our effective rate for the quarter was 16.1% versus 19.3% a year ago and the 21% statutory rate. The benefit reflects 2 items. First, the federal energy efficient home improvement credit, known as Section 45L, which provides a per-home tax credit for manufacturers who build homes meeting specified energy efficiency standards and which we've qualified for in a substantial portion of our production.

Second, a discount on transferable tax credits we purchased during the quarters -- during the quarter. As a reminder, the Section 45L credit terminates on June 30 of this year under last year's tax legislation. So we expect our effective rate to move closer to the statutory rate after that.

The balance sheet remains in excellent shape. We ended the quarter with $14.1 million in cash, up from $8.5 million at year-end on $7 million of operating cash flow. Inventories rose to $50.4 million from $39.9 million at year-end, primarily in finished goods. Curt will speak more about the inventory build and the data center project driving it in a moment.

Our $50 million Prosperity Bank revolver had less than $1 million drawn at quarter end, leaving roughly $49 million of available capacity, and we're in compliance with all our financial covenants.

Total stockholders' equity finished the quarter at $539 million, up from $528.6 million at year-end. We repurchased about 31,000 shares for roughly $600,000 during the quarter under our new $10 million authorization that the Board approved in February, leaving approximately $9.4 million available for future repurchases through February of 2029.

The credit quality across our loan portfolios remain solid. At quarter end, more than 97% of both our consumer loans and our mobile home park notes were less than 30 days past due. We did increase loan loss reserves modestly in the quarter, reflecting continued portfolio growth and a slightly more conservative posture given the broader economic backdrop.

With that, I'll turn it back to Curt.

Thanks, Jon. Let me hit a few business topics like the operating environment, some specific business updates and a couple of items that warrant a closer look from this quarter. The Q1 environment was a continuation of what I've spoken for in the past. And inflation picked up a little bit during the quarter, and the [ Fed ] is now holding it's benchmark rates steady and the 30-year mortgage rates are staying above 6%.

Sustained higher borrowing costs continue to weigh on our consumer affordability, which affects our end consumers and particularly affects our park customers they're just trying to make a return on their investment and higher interest rates are making more difficult to do so. Tariffs became a meaningful theme during this quarter, and they continue to affect our cost structure. The Supreme Court ruled in February that the emergency tariffs imposed in 2025 were not authorized and U.S. Customs has begun winding down those duties. We are in the process of asking for $683,000 refund based on that Supreme Court decision.

Meanwhile, the U.S. Trade Representative kicked off new Section 301 investigations in March that could provide a different legal basis for tariffs going forward. And effective April 6, right after our quarter end, additional 232 duties were imposed on things like aluminum, steel, copper, which does affect our cost structure. The bottom line is combined effective tariff rates on most Chinese origin goods are still meaningful, and we're still absorbing real input cost pressures. On a few other specific items. On retail and dealer activity, the shift towards retail at our own company stores, we've been talking about is really showing up this quarter, and I think will continue to improve.

Our retail sales are up 81% year-over-year. Part of that increase came from buying Americasa last year, which we -- which sells our homes, but they also sell 3 other brands at that location. Across our 14 company-owned retail locations, we call it Heritage Housing, our Tiny House Outlet and Americasa, direct access to end consumers continues to be a meaningful part of our strategy. On our finance division, the loan portfolios continue to perform very well. Consumer loan portfolio interest grew. Credit quality is over 97% across all of our portfolios, and we haven't seen any deterioration that would require us to change our reserving posture beyond the modest increases that we've been making.

On capital allocation, we restarted share repurchases this quarter under the new $10 million authorization. And with our stock continuing to trade near book value, we view buybacks as a sensible use of our capital alongside reinvestment in the business. Let me talk a minute about the workforce housing orders that for the last 2 calls, I've mentioned. During this quarter, we received nonrefundable deposits of about $8 million from customers for large workforce housing orders. We started production on the orders in the first quarter, but had not made any deliveries from those orders in the first quarter.

Now that we're in the second quarter, I expect 200 to 300 units to be delivered on those fairly high-margin orders that we -- or deposits we have in place. And we should recognize substantially all of these workforce housing orders that we have in the calendar year 2026. Another topic I'd like to spend a minute on is the Americasa litigation. So we filed a lawsuit last month or in March, I guess it was. Our claims related to misrepresentations and omissions made in that acquisition. And we're early in the litigation. I'm not exactly sure where it will end up. But the litigation was necessary because the acquisition we made last year was not panning out as we expected, and I think it is because of things that were either not disclosed or erroneously disclosed during the due diligence period.

But the litigation is not really material to our consolidated financial position or our liquidity or even our operations. We're continuing to evaluate the facts and circumstances regarding that acquisition. And I just want everybody to know that it isn't going to be the savior to the company. But on the other hand, it's not going to be very deleterious either. So let's see now. Yes, one other item that's worth flagging. In 2024, we came to an agreement with borrowers under which we received [ Clear Tide ] the 2 mobile home communities and a new [ 48.6% ] kind of short-term $48.6 million promissory note bearing 7.9 per interest. This note matures in July.

We've been in contact with the borrower, and they've now made all required payments under that bridge loan, if you will. And we are not talking to them about [ we're now Brown Kyle ], talking about taking a partial payment and renewing it. We're talking about what possible lending that we are willing to do on a going-forward basis. And we still believe that there won't be any negative effect from this note. But we are in the process of negotiating and you never know how it might turn out.

A couple of other closing thoughts that are really short. Q1 was a solid quarter, especially in light of the management transition that happened in the fourth quarter. Net income was up over 6%. And on a diluted earnings per share basis, it was up 12%, down somewhat because of our share repurchases and somewhat by the exit of executives that no longer have stock options. Our balance sheet is in great shape, $14 million of cash, essentially no debt. And I'm proud to say $539 million of stockholders' equity and an undrawn revolver. People look at us and say, "My gosh, you have a clean balance sheet." We also are a one entity company, no subsidiaries. And I think that is a very attractive place to be. The workforce housing orders are encouraging, especially here in Texas. The strength in our retail and direct sales reflects the strategy that we've been pursuing. Loan portfolios continue to be stable and a growing earnings engine.

Georgia continues to be a big question mark. We've managed to keep it running, but we don't have any workforce housing orders yet in Georgia. So we're relying on the old-fashioned selling to dealers and selling to parks and selling through our company stores. That does not have enough volume to keep us running at profitable production. As I've said before, Legacy has never had a quarterly loss in our entire history and Q1 of 2026 has kept that streak going as will Q2. We're conservatively capitalized, focused on long-term value creation confident in our ability to weather some near-term volatility while positioning for long-term growth as housing affordability becomes more and more important to U.S. consumers and policymakers, especially if interest rates remain at 6% or above.

Operator, that concludes our prepared remarks. Please open up the line for questions and answers.

[Operator Instructions]

And our first question comes from Alex Rygiel of Texas Capital Securities.

Curt, I always appreciate your broader perspective on the economy and broader housing market trends. I'm curious in your views, how you think that has changed over the last 3 months?

Well, on the 10,000-foot view, Alex, our demographics are not all that healthy. For the first year in history last year, we had more people moving out of the country than moving into the country, and our birth rate is below 2. So on a 10,000-foot view, we don't need a lot of new bedrooms. We already have all we need. So growth is basically geographically very particular. We got growth in states like Texas and Florida, and we don't have growth in states like Indiana and Ohio.

Fortunately, we do business south of the Mason-Dixon line. So we still have a growing demographic in the states that we do business. And as an aside, Kenny and I got into this business in 1980. And from 1980 to 1982, 2 young men that weren't living through it have read the historic books. That was the highest interest rate environment in the history of our company, where the prime rate of interest got all the way, I believe it was to 18%. And those were very good years in the mobile home business because high interest rates locks consumers out of traditional site-built housing. Buying a $500,000 house at a 10% mortgage rate is prohibitive to almost anybody in this economy, which brings them down just as it did in 1980 and 1982 to things that we sell.

So higher interest rates are not a bad fact to the manufactured housing industry. If anything, they're a good fact. But we still struggle on where you're going to put them. We don't have a lot of vacant spaces in big cities. We don't have very many mobile home parks coming online, although as you know, we're trying to do things in Texas. But we don't have a good answer to where are we going to put them. Lots of headwinds. And the industry itself has not grown in filling that void, and they haven't grown on providing a neighborhood solution as the traditional homebuilders have, of which I know you follow many of them.

So even though that we have what should be tailwinds, we haven't done a very good job as an industry of imitating the site-built housing people and selling community solutions as opposed to, say, a Jim Walter solution for those of you that are my age, where we're just providing a house and somebody else has to put in the garage, somebody else has to put in the landscape, somebody else has to put in the culvert system and the fence. We basically are providing part of the solution, but not all the solution, whereas when you follow your site builders, they are solving almost all of the neighborhood problems. And we're trying to morph into that with our with our huge development outside of Austin, which has got a lot of good news this week if anybody was paying attention. Within 4 miles of our location, we have thousands of jobs that have just been announced in the future.

So that particular location, I'm very confident of, and we've made very little progress on our other land holdings. I know it went above and beyond answering your question, but at least I did answer your question. Anything else, Alex?

Yes, that was very helpful. Historically, the company has seen some positive seasonality after tax season. Since we're past that, can you kind of comment on demand in April and early May?

Sure. I mean I don't know if we can stomach much more demand in Texas. With all our orders we already have in place, we're probably already out to August or September. We'd have to bump somebody in the line to take more orders. And we did get a little seasonality bump in Georgia, the way we're able to turn the spigot back on. But we don't have much backlog in Georgia.

So without the data centers and without the oilfield boom, which Georgia doesn't participate in hardly at all in either of those, good old-fashioned mobile home business, the street dealers and the parks is rather tepid. And I don't mind going on record on this thing. And I think followers of my peer group are already figured that out based on the punishment that they gave the stock prices this week. But I did notice before the call that our stock was actually up on what I consider fair but not great reports. But we're in good shape as a company, and our next 2 quarters should be pretty dog on impressive based on houses already built in our yard that we're starting to ship to these major, major customers in Texas. So that's what I see.

To answer your question, in summary, traditional demand is not great, but nontraditional demand like data centers and oilfield is as good as I've seen it ever since Rita and Katrina in 2005. So a lot of good news, but a little bit of bad news.

And then one last question. As it relates to the workforce housing order that you have, that's fantastic. But kind of turning the page, how do future prospects look? And when might we hear about other sort of big orders into this market?

In Texas, we're working several big orders. I mean, huge orders. And none of them have turned into deposit yet, but we're working that angle. So the big 7 companies that are involved in data centers are making a multitrillion dollar commitment to this space. Compared to say the stimulus that was given to the economy after COVID, the U.S. government because in size, the stimulus that these 7 are giving the economy is comparable to the stimulus that the U.S. government gave a few years back in COVID, which was significant stimulus.

So let's take a data center manufacturer. He is putting on his balance sheet an asset, but he's putting on my balance sheet income as well as everybody in the construction business in this region. So the fact that income is going to be up for everybody in this region is a pretty remarkable amount of stimulus. There's a little bit of that going on, on a nationwide basis, including Georgia and even on a worldwide basis. But in our market, Texas and Louisiana, there is so much data center business that is actually going to happen by these 7 companies investing mega capital. I think we're good probably all the way through '27 and maybe beyond that. So business is good in Texas. That's all I can tell you.

[Operator Instructions] And our next question comes from Mark Smith of Lake Street.

I wanted to ask just for a little more detail, if you can, Curt, on this workforce housing deal. Just maybe any more insight you can give us on kind of the size and maybe the timing of revenue recognition as we work through the year.

Yes, I can do that. I would guess that we have already had somewhere around 600 units with deposit in this category out of Texas, which was about half of our entire production last year in Texas, maybe even more than half. The orders actually started in December, but they weren't ready for the houses, but we needed the orders, so we build them anyway.

Of the 600, at least half of them will be shipped in Q2, with the remaining being shipped in Q3 and Q4. So that's kind of where we're at. And remember, to Alex's question, Mark, I tipped the hand and said we are in the process of taking even more orders. I mean, think of the double whammy we have here, Mark. We got data center all over the state of Texas, and we got West Texas crude selling at nearly $100 a barrel, which we have historically always gotten orders whenever there is a boom in the oilfield.

I don't know, if you can tell me when the Iran war is going to be over and what's going to happen to oil prices, I might have a different opinion. But if this $90 to $100 barrel holds, we're not only going to have lots of orders for data centers. We have -- we're going to have lots of orders for the Permian Basin as well. And it will lift all boats. I mean every manufacturer is going to get a benefit. We're not uniquely qualified. There's 34 operating plants in the state of Texas. But we're all going to rise together, and we won't need independent dealers like we have in the past. We won't even need our own company stores. We keep growing them, but I would rather build a cash sale to Google than create too much inventory in my company stores in a rather tepid work business climate.

So again, the theme remains the same. And if you've been following these calls because I know you've been on them Mark, all I'm doing is backing up what I already predicted 2 calls ago and with real numbers. So we're in good shape for a long time, and it's going to show up beginning in Q2, blossom in Q3 and Q4. And we may have 3 of the best quarters coming up in front of us. But I don't like to overpromise and underdeliver. You know me for probably 8 or 9 years, and you know that I'm pretty conservative in these projections. But I know what's in fact, and it would be nonsensical for me to not reveal it, but we're going to have good 3 quarters starting in Q2.

Okay. Perfect. The other one was just -- it was pretty impressive cut in SG&A this quarter, and I know there's obviously been some changes there. But can you just talk maybe about the sustainability of SG&A, if there's other further cuts or maybe if we -- with the orders coming in, if there's some stuff that you need to add?

Well, I wish this is a video call because you'd see a picture of me with machete. I've just begun to cut SG&A. And not everybody is supportive of that. But come on now, we're basically -- we have $500 million worth of money invested in paper. That doesn't take any SG&A or hardly any. And I'm tired of SG&A growing in the company when the rest of the company is not growing.

So I would expect to see further declines in SG&A. And I don't know how much we can get it down to because as Jon correctly pointed out, SG&A is not just sales, general and administrative. It includes things like warranty. It includes things like reserves and provisions for loan losses. This all gets put in SG&A. And -- but from a pure people and expense, the S and the G and the A, I would expect further declines. But I don't know what our auditors are going to require for loan provisions that I think are nonsensical. And I don't know what skeletons are going to come up in the warranty department from yesteryear because we build some stuff that has been a legal issue.

So part of our SG&A is still going to go down while part of it may not. So I would expect maybe a 10% reduction by the end of the year in SG&A.

Okay. And then you spoke earlier about inflationary pressures, tariffs, whatnot. Do you think your SG&A cuts? And then is there -- is that enough to make up for maybe some of the inflationary pressures that you could see? And is there anywhere that you can cut kind of within the COGS to get the product costs down?

Yes, but I got to go back to 10,000-foot view. So the problem in the industry is, all of the major manufacturers have been trying to build a cheaper product. And any time they can take $10 out, they consider it a triumph. And the natural result of that is the product isn't all that desirable. It doesn't have basic features like, say, medicine cabinets. And we've taken a different tack. We're going to not build the cheapest product possible and build to the middle of the market.

And just recently, we've begun to prove that theory out at the retail level with our own company stores. But we are not going to spiral this into who can sell the cheapest one for the lowest margin because that's a recipe for failure. We're going to abandon that philosophy and concentrate on the middle market. So I kind of danced around your question, and I'm not even sure I can remember what the question was because I got off on a different subject. But the low-end nature of our product is not where I think this market needs to go. This market needs to do more like the site-build housing and sell more of a turnkey solution to housing and get off the idea that the guy has to buy his own medicine cabinet, if you know what I mean. So that I think was a little probative of what you asked, but maybe I went too far. I don't know, let me know. Anything, Mark?

No, that hit a lot of it. Maybe just another part of it to ask is just with changes in immigration and kind of your own workforce, are you seeing pressure on labor and your ability to kind of hit your production goals?

As the younger generation would say, Mark, 100%. I mean, deportations have hurt our sales to the Spanish market. And I think that's unfortunate, but it's okay. The interesting fact is our retail portfolio, which is 70% Hispanic is behaving incredibly well. So we haven't experienced a big uptick repossessed a little bit. I would say we're now repossessing in roughly 4% per year. But that is the historical norm in this industry. When we were repoing at only 2% per year, it was because there was a quantum leap in prices during COVID and everybody was right-side up in what they owed on their mobile home. But those increases in prices ended 4 years ago.

So in 4 years, we've had no substantial increase in prices in this industry since COVID. And because the loans made then in '22, '23, '24, '25, we have consumers that aren't well covered by the value of their mobile home. And I think that's the reason why repossessions are increasing back to historical norms. Deportations are not affecting our loan portfolio, but they are affecting the sentiment of people on whether they want to buy a mobile home with this threat that some family member may be deported and they all want to go back home with them. So it has affected who we sell to retail and how we sell to them, but it has not affected our portfolio. I think that does answer your question. Correct.

That does.

I'm showing no further questions at this time. I'd like to turn it back to Curt Hodgson for closing remarks.

Sure. Thanks, everybody, who joined the call today. I appreciate your interest in our company, and that ends the call from my perspective.

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

Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation Q4 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Curt Hodgson, Executive Chairman.

Good morning. This is Curt Hodgson, Executive Chairman. I'm here with Jon Langbert, our Chief Financial Officer. Thank you for joining our fourth quarter and full year 2025 conference call. Jon will read the safe harbor disclosure before we get started.

Great. 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. We refer you to a more detailed discussion of the risks and uncertainties in the company's annual report filed yesterday with the Securities and Exchange Commission. Any projections as to the company's future performance represent management's estimates as of today's call. Legacy Housing assumes no obligation to update these projections in the future unless otherwise required by applicable law.

Thanks, Jon. I'm going to turn the call over back to Jon now for a review of our full year and fourth quarter 2025 performance, after which I will speak briefly with my thoughts and some additional corporate updates. Then we'll open the call up for Q&A.

Thanks, Curt. Let's get straight to the numbers. I'll cover the full year first, then give some color on how the fourth quarter shaped up specifically. For the full year ended December 31, 2025, total net revenue was $164.6 million compared to $184.2 million in '24, a decrease of $19.6 million or 10.7%. Product sales decreased $12.4 million or 9.6% to $116.9 million. We sold 1,703 units in '25, down from 2,129 in 2024, a decline of about 20%. However, net revenue per unit sold increased 13% to $68,700 from $60,800 in '24, as we implemented price increases to offset rising raw material costs and the impact of tariffs on goods imported from China.

Tariffs continue to add roughly $1,200 to the cost of a standard floor plan. The primary driver of the product sales decline was commercial sales to mobile home park customers, which fell $16.8 million or 30% as park operators scaled back orders due to capital caution following sharp cost inflation, already high occupancy rates and tighter financing conditions. Partially offsetting this were increases in direct sales of $2.3 million or 25%, and retail store sales of $2.5 million or 12.7% as we focused on growing our company-owned store network.

Consumer mobile home park and dealer loan interest income increased to $43.7 million, up $2.5 million or 6.1% compared to 2024. This increase was primarily driven by growth in the consumer loan portfolio. Our consumer loan portfolio grew $24.7 million to $203.6 million at year-end, up 14%. The mobile home park note portfolio decreased $9.1 million to $199.1 million, primarily due to parks paying off notes early.

Dealer inventory finance loans decreased to $28.4 million. Other revenue decreased $9.7 million or 71%, primarily due to an $8.8 million decrease in land sales, both of which were significant nonrecurring items in 2024 as well as a $1 million decrease in forfeited deposits.

On the cost side, cost of product sales decreased $5.2 million or 5.8% related to the lower unit volumes, though this was partially offset by higher raw material costs and tariff impacts. Product gross margin was 27.5% for the full year, down from 30.4% in 2024.

SG&A expenses increased $7.3 million or 33% for the full year. The primary driver was a $4.5 million increase in the loan loss provision reflecting our growing loan portfolios and a more conservative reserving posture. Additional increases included $1 million in legal costs and $0.5 million in warranty costs.

Other nonoperating income decreased $9.3 million versus 2024. This comparison is heavily influenced by a significant onetime gain that ran through 2024, specifically a gain related to a loan settlement agreement and a property sale in Georgia. Absent those items, the underlying comparison is more modest.

For the full year, net income was $41.8 million compared to $61.6 million in 2024, a decrease of $19.8 million or 32.2%. Net income margin was 25.4%, down from 33.5% in 2024. Diluted earnings per share were $1.74 compared to $2.48 in 2024.

From a balance sheet perspective, we ended the year with $8.5 million in cash, up from $1.1 million at the end of 2024. Our $50 million revolving credit facility with Prosperity Bank carried essentially zero balance at year-end, only $1.2 million drawn, which was associated with the AmeriCasa line of credit, we assumed and subsequently paid off in January 2026.

The stockholders' equity was $528.6 million. Book value per share was $22.20 at the end of 2025 compared with $20.45 a year ago, an increase of $1.75 per share or about 8.6%. Legacy delivered an 8.2% return on shareholders' equity for 2025 and operating cash flow was strong at $37.2 million.

Turning now to the fourth quarter specifically. It was shaped by two dynamics: Stronger production volumes driven by our fall show in Fort Worth in late September, offset by continued cost pressures. Q4 net income came in at approximately $8.2 million compared to $14.5 million in Q4 '24, a decline of roughly 43%.

Net revenue decreased $16 million or 29% compared to Q4 of '24. Fully $12.5 million of the net revenue decrease related to a nonrecurring sale of a mobile home park project, including land and homes, acquired previously in foreclosure during Q4 '24. Also, the decline in net income was impacted by an increase in SG&A of $3.5 million or 60% compared to 2024 as the company absorbed costs associated with the AmeriCasa transaction and increased loan loss provisions based on updates to our loan loss policy.

Also, certain onetime nonoperating gains and other income during Q4 of '24 resulted in a $2.4 million decline before tax income in the comparison between Q4 '25 and '24. On the positive side, the fall show generated strong dealer and park customer orders that translated into materially higher production in Q4 relative to Q3. Loan interest income for the fourth quarter reached approximately $11.3 million, up from the prior year quarter as our consumer portfolio continued to grow throughout the year.

On credit quality, we ended the fourth quarter in a strong shape. At December 31, '25, 98.4% of mobile home park notes and 97.4% of consumer loans are current or fewer than 30 days past due. We ended the full year with $8.5 million in cash and near zero leverage, a strong position from which to fund future growth.

I'll turn things back over to Curt now.

Thanks, Jon. Let me quickly cover my perception of our current market environment, then discuss a few strategic topics and share some concluding thoughts. The manufactured housing industry is continuing to face headwinds and it did so throughout 2025. Despite persistent housing affordability problem for our markets, manufactured homes, of course, remain roughly 2/3 less expensive than site build homes, falling consumer confidence and tariff-driven price increases restrained growth. Industry shipments were running at an annualized rate of approximately $106,000 last year. Our own unit volumes were down approximately 20% year-over-year.

The long-term structural case for affordable manufactured housing has never been stronger. The affordability gap between what we build and site-built house continues to widen. Manufactured homes average about $85 per square foot versus double that for site-built construction. We are well positioned to serve the roughly 63 million U.S. households with annual incomes below $75,000.

But let me run through a couple of specific topics. On the retail and dealer side, unit sales were lower unit -- year-over-year. The revenue rose sharply as price increases took hold and the size of our unit was up slightly. Our 14 company-owned heritage and Tiny House retail locations were 12% higher in '25 than '24. On the community side, commercial sales to park owners and developers fell as operators scaled back. Our operators have been unable to raise rents as fast as price increases have been going on in our industry. We believe it's a cyclical pause rather than a structural change. Underlying tenant demand remains stable, occupancy rates in the mobile home parks, particularly in large metropolitan areas are very high.

In our finance division, the loan portfolio generated $43 million of interest income last year, and we expect continued growth as consumer portfolio expands. Credit quality remains strong, over 97% current, across all of our portfolios. We are seeing modestly higher charge-off activity and have increased our loan loss reserves accordingly, which is reflected in the SG&A increase Jon described. In fact, I believe there's going to be around an $8 million delta between that which we pay taxes on because we're not allowed to deduct loan loss provisions and our GAAP income that we're reporting to you today.

On tariffs and raw materials, we continue to monitor the situation closely. It seems to change almost every day. Tariffs on Chinese sourced inputs currently add about $1,200 for the cost of each of our homes. I have to ask my buyers what's the latest on tariffs and the bottom line is we currently are paying 35% tariff on anything we import from China.

We repurchased 346,000 shares last year, and our existing repurchase program expired in October. Although we did initiate a $10 million buyback program at our last Board meeting, and we will be evaluating whether to repurchase on an ongoing basis.

On development, we, of course, have one super big project going on in Austin. I keep predicting that it's near finished. One of these days, I'll be right. But I really think we'll be putting homes into consumers in a calendar year 2026, although it may be the third or fourth quarter before that happens.

We have 10 land development projects in total, many of which are already engineered and entitled. Our 3 manufactured -- manufacturing facilities, Fort Worth and Commerce and Eatonton produced 1,549 homes in 2025. We're certain to be able to outstrip that this year. We are -- we've been running pretty much at capacity at both Texas facilities since the first of the year. We're probably going to do just in Texas alone, the 1,500 units that we did company-wide last year.

On workforce housing and data center opportunities, we continue to exploit that. We've already taken orders for over 500 houses in this space this year. It's a potentially significant growth avenue, it complements our core business, and it's something that we're pretty good at. We also completed a small tuck-in acquisition, AmeriCasa in November. It added a consumer loan portfolio, a retail location and some technology. I don't expect that acquisition to make much of a difference in 2026. Although the prospects of some of the foundation, especially in technology still looks pretty strong.

For closing thoughts, let me just close a couple of things on where I think we stand. Legacy delivers consistent profitability. We've never had a quarterly loss in our history. This year's increase in book value of 8-point-something percent is the worst year we've had, but most of that was -- it was largely affected, let's put it this way, by increasing provisions for loans as the economy gets a little less certain. The CECL requirements under accounting increased several million dollars and that shows up in the fourth quarter.

Our balance sheet is conservatively stated. Book value is $22.20 a share. I personally believe that liquidation value is significantly higher than book value because of all the provisions that we take. And our valuation when we started was about $700,000. We've grown shareholders' equity to $528 million over these 20 years. A pretty good IRR. I'm not going to broadcast it because it's just pretty extreme. But as long as we keep growing at 8%, 10%, 12% per year, we'll be a $1 billion company, probably by the turn of this decade and beyond that as we progress.

With our stock trading near book value or today below book value, we view this period as an opportunity to reinvigorate growth and innovation, should increase profit margins and create stock premium. If the stock continues to trade at or below book value, we will use our balance sheet strength to repurchase shares opportunistically.

And sure, this is a great time to be an owner of Legacy. There really isn't any downside. You own a part of a company that has never lost money in any year since its founding, that's conservatively capitalized and is perfectly positioned to provide affordable housing to thousands of families as affordability moves to the front of the national agenda. And Texas, in particular, has a front row in all the data center business, which for us is just what we often do in the oil fields. We provide workforce housing for rural areas that are experiencing growth.

Operator, this concludes my prepared remarks. Please begin the question and answer.

[Operator Instructions] Our first question comes from Rohit Seth with B. Riley.

I'm trying to reconcile two things. The ASP per section dropped about 15% sequentially, but the ASP increased 12%, and gross margin improved. Is that purely a function of selling more double wides where per section revenue is lower, but unit profitability is higher? Is there a pricing element maybe discounting to move some excess finished inventory that you flagged last quarter?

Yes. We measure production, this is Curt. We measure production per floor and that's kind of how we track things. So we report to you all oftentimes per unit. So if we have more double wides, our price per unit, of course, is higher than if we have single wides. Now in the workforce housing space, it's substantially all single wides. But we sell at such high premiums and such high values in workforce housing, I believe the average cost per floor per unit, one of the same in workforce housing, for the orders we've taken this year is over $85,000. So that's part of the disparity you're seeing. We're enjoying greater margins in specialty products. And I think that probably explains why the margin is doing just fine, even though the number of units we sold was less. Does that answer your question?

Yes. Yes, it does. If I get a follow-up, you mentioned on volume growth, you mentioned last quarter in 1Q looks even better than 4Q and the trade show backlog is extending well into the first quarter. Now Q4 came in at 570 sections. So are we in that 650 range for Q1? Or has demand picture changed?

A lot of our workforce housing orders really won't show up in revenue till Q2. In fact, I think right now, we are in finished good inventory probably at an all-time high, almost all of which has a very big customer name attached to it. It's like every development project, if you're doing business with one of the big 7 tech companies, and they think they're going to need housing in February well, they really don't need it until May, but they went ahead and bought it and gave us purchase orders. So we've produced it and we were obligated to produce it, but we won't be recognizing any revenue until shipment. And I think a lot of the -- a lot of what we've already built in Q1 won't show up in revenue until Q2.

Understood. And then last one, maybe you can talk about this ROAD to Housing Act that's passing through Congress to remove the steel component, the chassis, do you want to make any comments on the impact to Legacy?

Yes. That's a very interesting piece of legislation that's moving through. The definition of manufactured homes ever since I've been in it, which is 40-something years has always included a permanent foundation -- permanent chassis, I'm sorry. They're removing that, and that's about $2,000 or $3,000 per floor when we manufacture and leave it. There may be an opportunity to retrieve, return those chassis to the factory depending on how the houses are being set up. I don't look at that being material because by the time we get it back, recondition it and recycle it, we're not going to save a significant amount of money. And even if we did, we'd be just passing it on to the consumer.

So the neat thing about it is, we'll be able to get the houses lower because the 12-inch high-beam won't be underneath the house anymore. So normally, we install at about 40 to 48 inches above ground level for our finished floor, and we may be able to decrease that by 10 or 12 inches, which would be an advantage to the industry as a whole, and that's about it.

There's another concept working its way through called duplex. In addition to a permanent chassis being part of the definition, single-family dwelling has also historically been part of the definition. And now they get a lot of duplex -- the duplexes. And in certain urban environments, that could be some sort of some marketing advantage. So there's a little bit of governmental tailwinds in our industry, but not nearly as much as I was anticipating. I'm really anticipating that Washington, D.C. would encourage people to become homeowners, including what we build. But having listened to the entire state of the union speech the other day, I didn't hear any such proposal on the table. So we're not getting much tailwind from a legislative point of view.

Our next question comes from Mark Smith with Lake Street.

I wanted to ask a little bit about kind of sales and demand. Just, Curt, you called out commercial sales and some weakness there in fourth quarter as maybe these operators pulled back. Can you just tell us kind of what you're seeing from a demand perspective today and kind of how you feel about the year for commercial sales?

The only bright spot, Mark, I see are these workforce housing opportunities in rural places that are particularly robust for data centers. I mean these people are spending money like drunken sailors. And that is an extremely bright point, and we're all participating in it, not just Legacy, but our competition is building towards that. The end user, we still have a place to put him problem. In Austin, Texas, it cost $1,300 a month for a space, if you could find one. So you can always find something 100 miles out to nowhere, but if you want to be within community distance of a major metropolitan area, there just isn't many places that are legal to park, what we build. And that headwind, we've been fighting that ever since I've gotten in the industry, and it really hasn't improved that much.

Fortunately, we had excess mobile home parks spaces in many markets, and we all participated in helping fill those. But if you visit a metropolitan area of 1 million or more people, pretty much that mobile home park is now full. I don't care whether it's Austin, Texas or St. Louis or Cleveland. There just isn't any empty mobile home spaces in significant metropolitan areas and the development side has been very weak. And when you try to develop it like we are, what we thought was going to cost $40,000 or $50,000 of space is actually turning out to cost $70,000, $80,000, $90,000 of space by the time we make all the regulators happy.

And that creates a big difference -- a big gap because normally, the land component and site-built housing is about 20%, 25%. But people are paying more for their park rent than they are the paying on their mobile home. Our average mobile home payment is still under $800 a month in what we build. But yet people are having to pay $1,100, $1,200, $1,300, $1,400 a month to park it. And that's the headwind that continues to exist in the industry. It's really not a factor in workforce housing because they build dedicated communities. But for run of the mill retail business, where to put them and where to put them economically is -- it's a watermark. And it just hasn't improved since I met you 8 years ago, it's the same issue, yes.

And that leads to my next question. Just as we think about kind of industry or channel inventory that's out there, are we seeing a build that puts a lag here for several quarters? Or is that not really an issue?

Yes. I really think -- I mean it's a little bit negative to say, but the industry continues to be a niche business, filling up existing mobile home parks, providing workforce housing, providing emergency housing in places that have been hit by weather issues or something like that. I would guess of the 106,000 mobile homes that were built last year, at least half of them went into one of those niche categories.

So even though we could and our mobile homes look and feel and act as well as any site-built house, the reality of it is for general, good to live in consumer business, we probably are sitting there only really building 50,000, 60,000 mobile homes a year for that market across the 134 operating plants in the United States. And if you divide one into the other, nobody can make a profit building 400 mobile homes in a mobile home factory. It's just not enough volume.

So unless we get some sort of help from the Feds or some sort of push towards development in major metropolitan areas, I think, we have too many plants facing too little market to be quite frank. And -- but we're so conservative, we would make money if the stock market went down 30% tomorrow, we will still make money. But that's just because we don't have any debt, and we have $40 million, $50 million a year interest coming in. This year, we'll be better, Mark, in product profits at all levels, retailing, manufacturing, even shipping will be better because the data center push nationwide is creating property demand of 20,000, 30,000, 40,000 units that frankly wasn't here last year or the year before. So that tailwind alone is going to help not just our company, but the industry as a whole.

And as we think about kind of where the demand is for homes, I'm curious as we look at ASP per product sold here coming up. How much of that is a function of pricing that you guys took? And how much of that is a function of maybe a higher ASP on some of this workforce housing products?

There was a lot of pressure to not raise prices even with tariffs going up. We're one of the few companies that track our labor cost per square foot. And I got to tell you, it's double, triple what it was in the pre-COVID era. But wages didn't go up triple, they didn't even go up double. So basically, the labor we're using today is less efficient than the labor we used 5 years ago. And I don't see any change on that. It's work ethic, it's regulations, it's immigration controls. We're at -- I'm not going to publish it because it's proprietary. But I will say that our labor per square foot price is more than double what it was on the onset of COVID, and our wages are probably up 50%, 60%, if that helps you.

And I don't see a change to higher labor cost. I mean I think we're all going to endure that in virtually every industry. And we're a pretty labor-intensive business. I mean about 20% of the manufacturing cost of a mobile home is labor. And that is the hardest thing to control. But the commodities are holding in there, too. I don't know if you've been looking at copper or steel or lumber, but none of those are at lows. If anything, they're, I mean, obviously, they went up in COVID to places that they're not returning to, but we probably pay more for lumber, more for steel, more for windows, significantly more than we did pre-COVID. Does that help?

No, that helps. With the pricing that you took and as you look at the mix here going forward, I guess, maybe a different way of asking it is, do you feel like you can maintain kind of this level, 2025 level of gross profit margin? Or do we see a squeeze because of continued pressure on cost and maybe inability to take incremental pricing to cover it?

This is tale of two states. You remember in my earnings call 3 months ago, I kind of cautioned on Georgia. We've actually had -- we've had days where we haven't worked in Georgia this first quarter. But Texas, on the other hand, we keep whipping them saying, "Can you please increase production because we've got plenty of orders." We used to be able to build 7, 8 a day in our plant in Fort Worth. The workforce housing that we're building there is pretty sophisticated and we struggle to get 4 a day with our labor force. With the same number of workers that we're getting 7, 8 a day 6 years ago.

So as long as we -- and I think the whole industry perceives that their plant used to be able to build 6 a day, but now only builds 4 a day and I don't know what my competition is doing. But I'm coming to the realization that my belief of what capacity is, is historically correct, but isn't correct for 2026. I don't think we can ever get back to 7, 8 a day at our factories in Texas where we were able to do that pretty easily for many years.

So I think even though we have 134 plants running in the United States, the capacity because of labor challenges is actually less today for those 134 plants than it was a couple of years ago. So -- and I think we led this price increase. My sales staff fought me on it every inch of the way, but our competition is now falling in line. And we probably had about an 8%, 9% price increase in the middle of 2025. And that had a negative effect on our sales because when you go first, people buy from the competition because they're cheaper. But now that everybody is kind of falling in line, and we really think we build a better house we're selling now for -- in the 50s per square foot. Seven years ago, we were selling in the 30s per square foot. So -- and I think we'll see the 60s within the next 12 months. I think the industry nationwide will be selling in the 60s per square foot at a wholesale level. So that's healthy.

The competition is pretty sophisticated. It's not like we have a bunch of people that want to lose money. So I look for the competition to be sophisticated and to make sure that they don't lose money. There's no market share to be gained by what do they call a predatory pricing. I think everybody knows that. I mean we don't get together to breakfast and decide what the price is. Somebody has to go first, but lumber today is, the commodity on the market is $600 and when COVID struck it was $350. So -- and that's the #1 component. Steel is very similar. Other commodities like copper, very, very similar. And so I think the days of being super cheap housing is over.

We're selling $100,000 our single wides now. And 7 years ago, $100,000 would buy pretty nice double wide and now it buys a nice single wide. And I think that, that price increase has just got to be absorbed and it's hard because the people that live in them aren't used to paying $800, $900 on their payment at $1,200 rent. You add those together, you got a $2,000, 3-bedroom, 2-bath house with a yard. Their apartment alternatives really aren't attractive compared to what we do. And that's our market. We sell to families that have a puppy dog and a kid and they want a yard, and we're a pretty viable alternative.

I think the last question for me is just looking at operating expenses here in SG&A in Q4. Can you just give us any more breakdown on maybe what we should look at as onetime in nature? I know you called out $1 million legal costs. There were some loan loss reserves. Can you just give us maybe a good run rate of where your SG&A is and maybe it would be helpful for how we should look at this going forward here in '26?

Well, I'm sure you know we bought a couple of $12 million airplanes last quarter, no, I'm just kidding. No. I'll turn that question over to Jon because he's got a pretty good handle on the SG&A that took place in the fourth quarter.

Thanks. Yes. The SG&A has a lot of nonrecurring, and it's kind of -- it's a grab bag. It's not just the 3 words that you think of in terms of sales expense and office overhead and administrative. Because it includes that loan loss reserve, that's really the big number in there. As we became more conservative in our estimates, that's the big increase. I think that's mostly behind us. So that should drop back because we've already built up that extra reserve. It's the change in reserve that shows up in SG&A. The legal expenses, those have dialed back. We had some cases got settled as well. So the I'll put it in air quotes, the backlog of legal exposure has declined. So I think as a percentage of sales, SG&A should drop back to a more normal historical rate, it did bump up last year. Is that the color you're looking for?

Yes, more of the low to mid-teens is a better rate as we look forward compared to the elevated that we saw here in maybe Q3, but especially Q4?

Right. I mean the wildcard is credit quality. We feel like we're good at underwriting and have been historically. There's a kind of a flip side to that, which is the market for used homes. If you do have a repossession, are you able to recover 100% of the unit's value or 70% of the unit's value or, in other words, the outstanding balance that might be there? We had a blip post COVID, where that number was over 100% for a little while. You actually made money on repossessions. It's returned to a more normal number now, and that gets reflected in SG&A as well. So a lot of moving parts there. Hard to give you an exact estimate, but I think the trend will be favorable in '26 versus '25.

Let me chirp in a little bit here. Our SG&A includes all of our people that are in finance. It includes being public even that we're only a $500 million market cap company. And so when you divide SG&A as a numerator by product sales, $116 million, is going to seem high because it includes things that our peer group doesn't have, a robust finance department. And our size, I don't know what it costs to be public. I hesitate to put a number on it. But it seems like it's a never-ending spiral upwards between audit fees and public corporation fees. I would guess that's almost like a fixed expense. So it doesn't change with sales. And so when sales come down, the SG&A ratio goes up. Are you following?

Yes. No, that's helpful. Thank you, guys.

[Operator Instructions] Our next question comes from Alex Rygiel with Texas Capital Securities.

A couple of quick questions here. So what's the final hurdle in Austin for deliveries? Because I know there are a couple of different things going on there with regards to wastewater treatment plants, road connection and discussions with the school boards.

Yes, I think you could probably run our development meeting because those same issues come up every time we have a meeting which is monthly. So the wastewater treatment plant, which is necessary to connect these thousand spaces. The plant itself is substantially delivered, and that which is not delivered is said to be delivered this year. We have enough delivered that we could run about 40% capacity in that plant without anything further being delivered. We have not let the assembly of that out. We've taken bids, we're close. And I would guess that's a 4- to 6-month lead time item. So that is a major, major deal.

School board, I mean, as soon as they are convinced that we're actually going to put 1,000 rooftops in there. I'm sure they'll rise to the occasion and build the school that we envisioned in the property. We have got DOT approval for connecting to the two highways that we -- but it took a long time to get that done much more than we thought. But as soon as we dot a couple of Is and cross a couple of Ts, that construction should be imminent. I said earlier, Alex, that I expect to actually put houses in there this calendar year. Just remind me in December, if I turn out to be wrong. But hopefully, I am conservative enough to be right on this one. It's a lot harder to get through the regulatory environment than I ever dreamed and everybody's got the same problem.

I don't know how Elon Musk can build a factory as quick as he did, but the rest of us have to play by the rules and get permits and get comments and change the plans and reapply and have Zoom meetings because nobody wants to meet in person anymore. It's -- building anything now is even a site-built house, which we used to be able to do in 6 months a custom is now 2 years. This has gone out much longer than I expected. I've got 7 years into this, Alex. And I'd like to see it finish while I'm still on this planet. So I'm working on it as much as I can. I'm the one directing that traffic. I designed it, I bought the land, and it's going to be a very profitable deal. We're in that thing right. We'll be all in for 60%, 70% of what the competition is when they do something similar.

And remind me again, how many homes do you think you need to deliver to that site prior to considering liquidating the whole asset?

Zero. But -- because I consider liquidating any time somebody wants to knock on my door. The problem is how else are we going to have distribution with the independent retailers trading nationwide and with our own company stores struggling to get ample volume. So it was always designed to complement the factories. And if some communities were to come along and pay us 2 or 3x what we have in it, I suppose we have to look at that. But it's just such an advantage to be able to sell directly to the consumer.

I can see one of our factories taking 2 or 3 years at capacity just on that one project. So that's a little bit of an exaggeration because I don't think we'll fill that fast. But let's say, I can see of the 2 Texas factories, one of them half of their capacity could be used just in that Austin project. And then we wouldn't have to be apologizing for our numbers on these earnings calls.

So -- because Austin, Texas, if there's one market in the entire Southwestern United States that commands a premium from a housing perspective, it's Austin, Texas, more so than Dallas, more so than Houston, more so than Phoenix. It's that kind of market. And as you know, from this property, you can see downtown Austin's skyline is right next to the Formula One race track only a few miles from the Tesla factory, only a few miles from the Austin-Bergstrom Airport. It's extremely well located. And it is the brightest part of our development portfolio. It is the one that I want to get across the finish line. And the concept is so unique. It's an integrated concept where we're building neighborhoods like Pulte or D.R. Horton does and nobody really has attacked it like that before. So we'll have car ports, we'll have communal parking. We'll have amenities out the Gazoo, so we'll be a neighborhood.

The industry doesn't really sell neighborhoods like site-built does, but this is a vision. I mean, it's kind of an experiment. If this vision of a true neighborhood with nice amenities and a pretty good location works, then we'll be able to command the premiums, I think, we can get for it. I think we can sell lots. We have about 100 lots there. I think we get $120,000, $130,000 a piece for those lots. Our cost is about half of that. And then the rents, hey, if we can get $1,200 a month rent for one of the little 35x90 spaces that we have, that's a pretty good rate of return on our investment. So I am looking forward to it. I just want to live long enough to see it. So that's about it.

As it relates to the Georgia plant, it sounds like production here is somewhat limited. Can you talk about maybe what your longer-term plan is with regards to that plant?

Well, I mean, our alternatives are obvious. We either admit that we can't make a profit there and sell the property to one of our competitors. We are making a profit because we do a lot of ancillary work. We have a lamination facility that sells $4 million or $5 million a year with pretty good margin. But the factory itself, quite frankly, I don't think has added anything to our bottom line in 3, 4 years and this quarter isn't any better.

So me and Kenny get together regularly and lament what are we going to do with Georgia. And you remember on my last earnings call, I've pretty much predicted that we'd be struggling with what are we going to do with Georgia. And I probably have Georgia employees that are listening to this call. But I'm sorry, it's an open book, I'm not going to mince words about it. We're not going to continue to feed something that doesn't make money. No prudent businessmen is going to do that. So either we turn it, I don't know, this year, '26, or we dispose it, dispose of it? It wouldn't change our economics. It hasn't contributed to earnings for so long, I can't remember.

And then lastly, as it relates to AmeriCasa, I know what came with that acquisition was a location in Houston that I think you're hoping to sell 10 or 12 units, I believe it was month. Can you give us an update on kind of the success of that acquisition has been and also talk about its strategy to go direct to retail?

Well, the acquisition was an attempt to try something new in retailer ships -- company-owned retailer ships. I'm going to spell it out here. We didn't announce it in writing, but the Norman Newton employment agreement is no longer valid. He's not with the company. And so that management boost that we were looking forward to has not come to pass. As far as the hard assets we bought, we can probably make -- we can probably justify those because it was a reasonably good deal. But the new launch to something that's never been done before is not going to happen, at least not anytime soon. Now we do have the software. We're continuing to install it at some of our locations. We picked up a couple of pretty good middle managers in the process. We have about a dozen Bogota, Colombia employees that we picked up in the process. So it wasn't for naught, but my excitement over it has dwindled a lot since the last earnings call.

I would now like to turn the call back over to Curt Hodgson for any closing remarks.

Well, I just want to thank everybody who joined today's earnings call. We do appreciate your interest in Legacy, and we're pretty transparent in what's going on. I would have liked better numbers. But quite frankly, the provisions that we took caused pretty much the entire disappointment. And we're going to continue to improve from an earnings point of view, I mean, I don't -- I've been making money since I was 8 years old, I'm not going to stop now. And I think that I'm not satisfied with the earnings or the earnings per share. But I personally got back involved in the company only a couple of months ago -- a few months ago. And I thought -- on the last earnings call, I thought; it was going to be a piece of cake. And guess what, it hasn't been a piece of cake. So -- but I do think that we are going to have a pretty good year in 2026. So hang on, don't be selling $18 a share. So that's my final words. I appreciate you all participating. Bye.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

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.

This concludes today's conference. Thank you for your participation. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to Legacy House Corporation Second Quarter 2025 Earnings Call. [Operator Instructions] 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% as 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 [indiscernible] 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 and warranty costs in the second quarter of 2024 that we reversed. And 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. And we had a, one, decrease of $0.5 million in nonoperating interest income, reflecting a lower balance of other notes receivable; two, 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 three, 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, 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 noncore land when pricing reflects underlying value. In the second quarter of 2024, we completed a noncore 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 [indiscernible] 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 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 Housing Act, which passed the Senate Banking Committee and is awaiting a full Senate vote.

The bill reauthorizes [ HUDs ] 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 past the bill should support growth in both home sales and community development.

Operator, this concludes our prepared remarks. Please begin the Q&A.

[Operator Instructions] The first question comes from Rohit Seth with B. Riley Securities.

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, August, have you seen the same momentum continue? And is it coming from the same channels? Just get a sense of how you see the rest of the year.

Yes, Rohit. We're really -- we're happy with the second quarter performance. Obviously, the dealer side of our business really drove the revenue growth. Continue to see that this quarter. And we're 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, you got -- homes are more expensive, operating costs are higher, and you've got a renter that can only afford so much. And so I think there is a shift to smaller houses, and we're having some success in that. But we really -- we need to land a couple of these large orders to really 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 got -- making some progress there. Do you think you'll be selling plots there by the fourth quarter? Is this something happening '25? Or is this more in 2026? .

That's the goal. I mean the final piece of this thing is we've got to build a bridge. And the bridge is under construction, and it's well underway. Ultimately, roads and utilities are all [indiscernible] to connect it waterway, [ I did ], and -- but it's certainly a project. So the [ goal is to get that starting ] to sell lots. That's something we're looking at where we can go ahead and flat before the bridge is done.

But we're just well underway on construction there. So the goal is certainly 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. And what's been interesting for me to watch is like we're really 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 lot. 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? And just any sense of kind of the trajectory on SG&A.

No. I think SG&A will kind of dip back in mind where it's been. We had some kind of wonky comparison with year-over-year accruals for things like warranty expense and legal expense and others 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 maybe keeping them on hold until an order?

Well, we've got a handful of, I would call them, like large customers that we've worked with for a long period of time. And these guys tend to buy communities that are in disrepair, and they fix them up and they replace all the homes and then they move to the next one.

And so especially through like COVID, we had some huge orders as these guys really expanded. And then they took a breather. And so what we're seeing is we've got some large customers that have either purchased or have communities under contract where they'll need a decent amount of homes. And I think on the other side, on the new customers, I mean, we've been, for the past couple of years, we've been growing with some younger guys as we replace the kind of the legacy customer base.

And those guys may start by ordering 6 homes and the next year, they order 20 homes. And you just keep -- you keep growing with them as their portfolio builds. I think one change is that it seems like the financing markets have opened up a little bit right? So we're seeing some payoffs on the MHP portfolio as now we've got customers who have parts, newer houses in them and they're stabilized and they're monetizing those and rolling those gains into new properties to do the same thing.

Makes sense. And then can you talk a bit about average selling price. Are you surprised that it's holding up here? And any thoughts that are around that?

Yes. I mean the average selling price for the quarter, we went like on a quarter-over-quarter basis from, say, 61,000 to 68,000. I think the bulk of that was just driven by the increase in sales through our company-owned retail stores. But we I think we were slower to raise prices during COVID. We've raised prices more aggressively with -- as we've figured out kind of the impact of tariffs on our costs. And so I do expect it to stay elevated. But certainly, there's a point where it's at detriment of -- or to the detriment of volume through the plants.

And then you talked a bit about Georgia being a little bit slower maybe in the second half. Any additional color on that?

Yes, the Southeast market just feels low. I think [ Cavco ] commented on that during their call, Florida is slower. We're seeing similar things in the Southeast. I mean we've got customers that are doing things. We've won some new customers over there. We've had some workforce housing builds over there. Dealer base isn't as strong out of that plant. So you're more reliant on or we're more reliant on community customers. And -- but it just seems a little bit slower than what we're seeing in Texas. .

And the next question is going to come from Daniel Moore with CJS Securities.

So obviously, you had a really nice jump in product sales in the quarter, volumes up double digits, year-to-date were relatively flat. I just want to make sure and just kind of remind me, were there any sales 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. I mean first quarter wasn't our strongest performance from a product sales standpoint. But you see the community sales at least quarter-over-quarter, are were relatively flat. They were up 5% or so. So there were some -- like there were certainly some orders that slipped, but they were mainly on the community side.

I think we saw on the dealer side was actually some -- a little bit better strength. But the market is still choppy. I mean it's still like Parkside slower than we'd like it to be, certain geographies even within areas that we serve out of our Georgia plant or out of our Texas plants seem to be slower than others. So we're cautiously optimistic on the year, but we continue to be here every day of working and trying to get houses built and shipped.

Got it. And then specifically for retail, obviously, retail stores had their highest [ quarter ] over $7 million in sales. Highest quarter that we've seen in multiple years. Is that a function -- I guess, just talk to the sustainability of that? And any update you can provide on how the investments you've been making in retail sales force are progressing.

Yes. I mean the key to retail systems, processes and people. And you need to get people selling houses and making commissions to retain them. And I think that's something that we've struggled with for a while. We've got a pretty good team on the retail side. They had a great quarter. We've got certain stores that are performing better than others. And the focus right now is bringing the underperforming stores up to some type of baseline and continuing to perform at the stores that are doing better. So it was a good quarter for the retail team. I think it's a representative of what we can do, and we just -- we got to keep pushing forward on that. July was a little bit slower, but not terrible either.

So I think some of these changes are are helping, but we still have ways to go. I mean, I really view that [indiscernible] if we can push more volume to that channel, it does help us on the revenue side, and it's reflected in the average selling price.

Helpful. One or two more. Just a little bit -- so on the gross margin side, overall, saw a little bit of pressure year-over-year but then you called out, I think, product sales gross margin improved. So just -- I guess if I look at holistically, we were at 47% for the company. Is that a -- would we expect that to be kind of a new level or improve as we move forward? Just talk about the puts and takes there.

Yes. See, when I talk about gross margin, I'm really just looking at the product gross margin. So product revenue and the cost of goods sold. And so in Q2 of '24, I've got 31.9%, which were jumped up to be 2.4% for the second quarter of 2025. I think if you look at it as a whole, we had a bump in SG&A due to some expenses, but also due to kind of some mismatches of accruals from the second quarter of 2024, that if you look at gross margin in total, it's lower for the second quarter, but I'm discussing just product gross margin. .

Makes sense. Lastly, I think you touched on this, but you bought back $6 million of stock in the quarter, I think, $11 million year-to-date that the stock sitting here, not too far above book value. Is that likely continued use of capital and cash flow as we move forward?

Yes. I mean we've got to weigh it against other opportunities. And we're seeing a lot right now, especially on the lending side to put money to work at good rates of return. The business is over the last 20 years generated a 15% -- or 10% to 15% after-tax returns pretty consistently. .

And so we're like -- we obviously -- we're watching the stock, but we're going to be opportunistic buyers. We're not just going to buy stock just to buy it if we've got opportunities to deploy the capital elsewhere.

The next question comes from Mark Smith with Lake Street.

Duncan, wanted to ask first, just -- you're just talking about product margin a little bit. I would love to hear kind of your outlook as we think about tariffs and some inflationary pressure. If you're seeing any items that are moving higher, kind of your outlook here as we think about second half or even into next year?

Yes. As you can imagine, there's a lot of moving parts. I think from the tariffs and the impact on international goods, we have adjusted our pricing accordingly. But you've got moving like moving commodity prices in other materials. I mean you've seen kind of lumber futures have crept up. OSB has been low. Steel has been relatively flat, but it's going lower labor costs.

And so that's something that we're keeping an eye on. I think there's a balance between price and volume. And that's like you got to keep the plants running, you got to keep -- you can't be under [indiscernible] on labor. But certainly, the input prices on most of these products that we buy to assemble houses are going up.

Yes. And back to pricing a little bit in ASP. It sounds like it was largely a function of the sales mix. But can you quantify or talk to maybe over the last 6 months, any kind of pricing action that you guys have taken?

Yes. I mean we've had a couple of price increases this year. We started in February. We had one that I'd say, it's more material kind of mid- to late June. And it's something that we're -- like we're keeping an eye on, but it's also a difficult time right now.

I mean there just seems to be a lot of moving moving pieces with commodity prices. I think with a little bit higher prices, it does give you some flexibility to run like to put the advertising machine to work [ out ] some sales and other types of incentives especially as we head into our fall show coming up in September.

Okay. And the last one for me. Just curious your thoughts around kind of consumer behavior. And if you're seeing a difference out there between kind of the renter in how they're hold out versus kind of a homeowner, homebuyer any differences there? And if there's some pressure renters if that's maybe hurting the MHP market a bit.

I think the renters I think the renters are fairly maybe not tapped out, but they shouldn't be price sensitive. And if your mobile home park model has shown that you're going to continue to raise rents and costs of everything else have gone up, all your operating costs, homes are more expensive. Financing is more expensive. I think it does put pressure on the community operators where the spread isn't as great as it was a few years ago, which is shifting a lot of these guys to smaller houses that they can run at similar prices and keep the monthly payments affordable. .

I think the second quarter, obviously, dealer business performed a little bit better, but I wouldn't say that demand is off the charts on the dealer business right now. I mean I think it's spotty. Customers are price conscious. And -- but compared to a stick-built home, I mean you're so much more affordable.

And that -- although the next few quarters could be choppy, I really don't think that the affordable housing crisis is fixed in this industry -- fixed in this country without this industry. And so the -- some of the work at legislative level is pretty encouraging, where there's been a lot of talks for years about regulatory reform to the HUD code and you're starting to actually see some traction given how bad the affordability problem is in this country. And so I don't think -- like there's -- we're cautiously optimistic. But I think longer term, our outlook is pretty strong.

I show no more 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. 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, and you may now disconnect.