Legacy Housing Corporation Common Stock 2026 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining Legacy Housing second quarter 2026 conference call.

I'm Jon Langbert, the Chief Financial Officer. Our CEO, Kenneth Shipley, is also on the line and will join me for the question and answer session following our prepared remarks. Before we get into the quarter, I want to briefly note a leadership change. In July, Curt Hodgson retired as Executive Chairman and from our board of directors after decades building Legacy alongside Kenny, from a Texas partnership into one of the largest producers of manufactured homes in the country. Curt is the reason I joined Legacy. I have known him personally for more than 20 years, and I have learned an immense amount from him about this business and about business in general. I will always be grateful to him.

Kenny continues to lead the company as Chief Executive Officer, and he will share a few thoughts on Curt at the close of our prepared remarks. Before we begin those remarks, I will read our safe harbors disclosure. 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 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. With that, let's get into the numbers. Total net revenue for the quarter was $66.3 million, up 32.3% from $50.2 million a year ago. Net income grew to $23.5 million from $14.7 million, an increase of nearly 60%, and diluted earnings per share came in at $0.99, up from $0.60 in the second quarter of 2025. Net income was a record for the company, and I will walk you through the drivers. Product sales were $53.8 million, up 40%. We shipped 718 units in the quarter versus 564 a year ago, up 27.3%. Net revenue per unit rose to roughly $74,900 from $68,100, reflecting a shift in product mix toward higher value homes. The single biggest driver was the commencement of deliveries under our large workforce housing order.

We shipped 113 units this quarter against a 380-unit contract. We also saw strength in commercial sales to mobile home parks, which were up about 12.5%. Those gains were partially offset by inventory finance sales, which were down about $10.1 billion, or 74%, as our dealers continued to work through existing inventory on their lots, and by modestly lower direct and retail store sales. Loan portfolio interest income was $11.5 million, up 5.4%, with the growth driven primarily by our consumer book. At quarter end, the consumer loan portfolio stood at approximately $202.2 million, notes receivable from mobile home parks at approximately $209 million, and dealer inventory finance receivables at approximately $23.2 million. On the expense side, cost of product sales rose 29.2%, in line with higher unit volumes, including deliveries under the Workforce Housing Order.

Selling, General, and Administrative expense was $6.9 million, up 21.1%, driven mainly by higher professional and consulting fees, higher Heritage Housing payroll, and higher service and warranty costs, partially offset by lower incentive compensation and property taxes. Beginning this quarter, we present the provision for loan loss as a separate line item rather than within SG&A. On that basis, the provision was a benefit of about $600,000 this quarter, compared with an expense of $1.1 million a year ago, reflecting favorable portfolio performance. On taxes, our effective rate for the quarter was 11.2% versus 17.3% a year ago, and the 21% statutory rate. The lower rate reflects the Federal Energy-Efficient Home Tax Credit, known as Section 45L, as well as the reversal of certain uncertain tax position accruals during the quarter. As a reminder, the Section 45L credit terminated on June 30th of this year under last year's tax legislation.

We expect our effective tax rate to move closer to the statutory rate in the second half of the year. Our balance sheet remains in excellent shape. We ended the quarter with $29 million in cash, up from $8.5 million at year-end, and we generated $24.4 million of operating cash flow in the first half of the year, up from $11 million a year ago. That increase was driven by our stronger earnings and by a $10.7 million increase in customer deposits, which includes the roughly $7.1 million non-refundable advance we received in the first quarter on that Workforce Housing Order. Inventories rose to $43.9 million from $39.9 million at year-end, primarily in finished goods to support continued production, including units remaining to be delivered under the Workforce Housing Order. Our $50 million Prosperity Bank revolver had no borrowings outstanding at quarter end.

We paid down the small balance carried at year-end, leaving essentially the full facility available. We remain in compliance with all financial covenants. Total stockholders' equity finished the quarter at $562.2 million, up from $528.6 million at year-end, and book value per share was $23.64. Credit quality across the loan portfolios remains solid. The clear highlight of the quarter was the start of deliveries under our large Workforce Housing Order. This is a 380-unit contract, and we shipped 113 units during the second quarter, with deliveries expected to continue throughout the remainder of 2026. We're seeing significant interest in workforce housing across our markets. In addition to our traditional oil field housing, new opportunities tied to data center construction projects. Given the number of projects underway or planned in our regions, we believe there is meaningful potential for additional orders of this type.

We'd also credit our sales organization directly here. The team continues to raise its game, bringing in more and higher quality leads than we've worked in the past, and that is building an increasingly healthy order book heading into the second half. Our principal near-term constraint on converting that opportunity is securing and retaining enough trained labor, and management is implementing new recruiting and retention programs to expand and stabilize our skilled workforce. Our loan portfolios continue to be a stable, growing source of interest income. Consumer loan portfolio interest income grew again this quarter. Credit quality remains solid across all portfolios, and we have not seen deterioration that would change our reserving posture.

On capital allocation, with our balance sheet carrying $29 million of cash and essentially no debt, we remain well-positioned to fund growth, and we continue to view share repurchases as a sensible use of capital when our stock trades near book value. One important development this summer came out of Washington. In July, the 21st Century ROAD to Housing Act was signed into law, the most significant federal housing affordability legislation in decades, and one that we view as meaningfully favorable to our industry. Among other things, it eliminates the longstanding permanent chassis requirement for HUD code homes, directs HUD to modernize construction standards, raises FHA-insured loan limits for manufactured housing, and reauthorizes grant funding that supports manufactured home communities. Taken together, we believe these measures should, over time, expand where our homes can be placed and improve financing access for our customers.

It's still early, and we don't know which of these changes we'll ultimately be able to take advantage of. Some of the new possibilities, such as building duplexes or two-story units, come with their own set of opportunities and challenges that we're still working through. What we can say is that there was nothing in this legislation that is negative for Legacy, and the overall policy direction is clearly supportive of factory-built affordable housing, which is exactly the market we serve. Tariff rates were relatively stable this quarter, which helped us forecast input costs, and we received about $700,000 of tariff refunds following the Supreme Court's ruling on the IEEPA tariffs, which benefited gross margin. That said, effective rates on most Chinese origin goods remain well above pre-2025 levels, and we continue to mitigate through supplier diversification, more domestic sourcing, and selective price adjustments.

A quick update on the Americasa litigation. By way of background, Americasa is a manufactured housing business whose assets we acquired in late 2025. In March, we filed suit against the sellers over alleged misrepresentations and post-closing misappropriation of receipts connected to that acquisition. The case is now in the Texas Business Court, and the sellers have filed counterclaims that we believe are without merit. It's early, and we can't yet predict an outcome, but depending upon how it develops, there could be adjustments to the provisional acquisition accounting in a future period. Separately, we wrote off our roughly $560,000 minority investment in an affiliated entity, Corpus Americasa, during the quarter. The full detail is in notes 13, 16, and 17, and in the Legal Proceedings section of our 10-Q. One other item. We hold a roughly $48.6 million note from a group of mobile home park borrowers that matured in July and was not repaid in full.

Since quarter end, we've received a $2 million principal paydown and agreed to a modification, a short forbearance, an 18-month interest-only period, and then amortizing payments at a market rate, along with additional collateral and an increased personal guarantee. Based on the collateral, we do not expect to recognize a loss, and we're finalizing the documentation right now. This is covered in notes four and 17 of the 10-Q. To sum up, this was a record quarter for net income at Legacy. Net revenue was up 32%, net income was up nearly 60% to a company record $23.5 million, and diluted earnings per share was $0.99.