Legacy Housing(LEGH) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Product sales decreased by $12.5 million or 28.8% for Q1 2024 compared to Q1 2023, primarily due to a decrease in unit volume in direct sales, mobile home park sales, and inventory finance sales [6][10] - Net income decreased by 7.0% to$ 15.1 million in Q1 2024 compared to Q1 2023, and basic earnings per share decreased by $0.05 or 7.5% [12] - Book value per basic share increased by 13.1% to$ 18.46 as of March 31, 2024, compared to the same period in 2023 [8] Business Line Data and Key Metrics Changes - Consumer MHP and dealer loans interest income increased by $2.9 million or 38% during Q1 2024 compared to Q1 2023, driven by growth in loan portfolios [7] - The cost of product sales decreased by$ 8.5 million or 29.3% during Q1 2024 compared to Q1 2023, primarily due to a decrease in units sold [10] - Selling, general and administrative expenses increased by $0.5 million or 8.8% during Q1 2024 compared to Q1 2023, mainly due to increased warranty costs and legal expenses [11] Market Data and Key Metrics Changes - Sales at company-owned retail stores improved, and a new special was launched to drive dealer sales, which received positive initial feedback [18][57] - The park business was slower and impacted by high interest rates, similar to other real estate asset classes, affecting M&A transaction volume and new development [18] Company Strategy and Development Direction - The company is focused on improving product quality and has made significant improvements at the Eatonton plant, which has been well received by customers [15] - Management is evaluating proposals to sell or partner on some properties to unlock significant value on the balance sheet [16] - The company aims to build a backlog and ramp up production while managing expenses closely [27][36] Management's Comments on Operating Environment and Future Outlook - The housing market remains challenging with affordability at a multi-decade low, but there are signs of improvement compared to 2023 [14] - Management is optimistic about a better year in 2024 compared to 2023, despite the tricky market conditions [27] - The company is monitoring product gross margins closely and expects to revert to average levels while aiming for production efficiencies [47] Other Important Information - The company repurchased 91,187 shares for$ 1.9 million in Q1 2024 and an additional 170,342 shares for $3.5 million between April 1 and May 9, 2024 [13][63] - The company has a remaining authorization of approximately$ 4.6 million for share repurchases [13] Q&A Session Summary Question: Can you provide more detail on the loan portfolio and the default loans in litigation? - Management confirmed active litigation with a long-term customer and emphasized the significant equity in the portfolio despite some notes being in default [22][23] Question: What is the outlook for product sales and pricing? - Management indicated that unit volumes are expected to improve in Q2, but the mix remains skewed towards lower-priced homes due to housing affordability issues [35][46] Question: How sustainable are the current gross margins? - Management noted that the high gross margins in Q1 were influenced by a large sale of leased homes and expect margins to revert to average levels while aiming for production efficiencies [47] Question: What is the status of the consumer loan portfolio and delinquencies? - Management reported that delinquencies have increased slightly but remain well below the national average, with a strong retail financing program contributing to outperformance [50][52]