Legacy Housing (LEGH) Q3 Earnings call transcript Nov 13, 2024
2min read In the third quarter of 2024, Legacy Housing Corporation reported a decrease in product sales, driven primarily by a decrease in unit volume shipped, particularly in direct sales, mobile home park sales, and inventory finance sales. The decrease was partially offset by increased sales at company-owned retail stores. Despite the sales decrease, the company's net revenue per product sold remained relatively stable.
Legacy Housing Corporation's financial performance was also marked by an increase in consumer MHP and dealer loans interest income, driven by growth in their loan portfolios. This increase was due to a rise in balances in both the MHP and consumer loan portfolios. The company's other revenue, which primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees, and other miscellaneous income, saw a decrease in the third quarter of 2024 compared to the same period in 2023.
The cost of product sales also decreased in the third quarter of 2024, primarily due to the decrease in units sold. Gross profit margin for product sales was 29.2% during this period, down from 32.9% in the same quarter of 2023. The cost of other sales increased due to the sale of land. Selling, general and administrative expenses remained flat, with minor increases in payroll and health care expense, marketing expense, and other miscellaneous expense, offset by decreases in warranty expense, loan loss provision, bad debt expense, and professional fees.
Looking ahead, Legacy Housing Corporation is optimistic about its prospects, with a focus on increasing production at its Texas plants and showcasing updated interior and exterior home finishes to appeal to younger homebuyers. The company has seen a significant increase in orders following the fall show, with orders up 27% in October 2024 compared to September 2024. Despite slower sales in the third quarter, the company is building the team and pushing to add new independent dealers across its manufacturing footprint, with a focus on South Texas, Florida, and the Carolinas.
The community business is also improving slowly, with more inbound requests and a view that it will continue to improve in 2025. The company has secured several meaningful orders on the community side and is seeing success in selling HUD tiny homes to RV park investors, transitioning these assets from seasonal to year-round occupancy. The lending portfolios continue to grow, with interest revenue from MHP, retail finance, and floor plan financing up 33.9% over the last 12 months.
The company also mentioned the impact of the settlement agreement, which resulted in a one-time gain during the third quarter. The agreement has led to the acquisition of two mobile home parks, which combined have 275 spaces and occupancy rates of approximately 35%. Legacy Housing Corporation is focusing on increasing occupancy in these parks and expects to monetize them in the near future.
In terms of production rates, Legacy Housing Corporation plans to ramp up production in the fourth quarter, aiming for a significant increase over the third quarter. The company expects to return to the 30% gross margin level in the fourth quarter and is keeping a close eye on labor and material price fluctuations.
Overall, Legacy Housing Corporation's earnings call highlighted both challenges and opportunities, with a focus on increasing production, expanding its dealer network, and leveraging the potential of the community business. The company's optimism for the future, coupled with its strategic initiatives, suggests a positive outlook for its financial performance in the coming quarters.