Legacy Housing Q3 2026 Earnings Call Transcript

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November 5, 2026

Key Takeaways

  • Positive Sentiment: Third-quarter revenue rose 72% to $69.7 million, while net income increased 133% to $20.1 million, or $0.85 per diluted share. Product sales grew 92% and product gross margin expanded to 36.9%, supported by product mix and 2026 price increases.
  • Positive Sentiment: Legacy ended the quarter with $36.1 million in cash and short-term investments, no debt, and an undrawn $50 million revolver; nine-month operating cash flow was $35.3 million. Management cited a strong pipeline across construction, industrial and other housing opportunities, though labor availability limits production growth.
  • Negative Sentiment: Inventory finance sales declined amid weaker dealer demand and fewer new dealers, and about $2.5 million of dealer-financed homes had been on lots for more than three years. The company is using incentives and, when appropriate, repossessions to address the older inventory.
  • Neutral Sentiment: The large Bastrop development is progressing slowly as infrastructure work continues; management said lot sales could begin as late as the first half of 2027. The project offers a mix of home and lot sales, rentals and commercial opportunities, but its rollout and returns remain dependent on completion and market conditions.
  • Negative Sentiment: Previously disclosed material weaknesses in internal controls remain under remediation and will not be considered resolved until new controls have been tested and operated effectively for a sufficient period.
AI Generated. May Contain Errors.
Earnings Conference Call
Legacy Housing Q3 2026
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation Q3 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star, one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star, one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jon Langbert, Chief Financial Officer. Please go ahead.

Speaker 1

Good morning, and thank you for joining Legacy Housing's third quarter 2026 conference call. This is Jon Langbert, Chief Financial Officer. Our Chairman and Chief Executive Officer, Kenneth Shipley, is also on the line and will join me for the Q&A session following our prepared remarks. Before we begin those, I will read our safe harbor 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.

Speaker 1

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. Before we get into the quarter, on August 13, the board appointed Kenny Shipley Chairman of the Board in addition to his role as Chief Executive Officer. Congratulations, Kenny. With that, let's get to the numbers. Total net revenue for the quarter was $69.7 million, up 72.2% from a year ago.

Speaker 1

Net income was $20.1 million, or $0.85 per diluted share, compared with $8.6 million, or $0.35 per diluted share, in the third quarter of 2025. Product sales increased 92% to $55.2 million. We sold 635 homes in the quarter compared with 420 a year ago. Our Heritage Housing stores grew sales while making room for our 2027 models, which began shipping in July. Inventory finance sales declined, reflecting weaker dealer demand and fewer new dealers joining the program, and we are working closely with our dealers in that softer retail market. Gross margin on product sales was 36.9%, up 16.7 percentage points from 20.2% a year ago. The improvement reflected a shift in product mix together with the price increases we implemented during 2026. Keep in mind too that the prior year quarter was weighed down by tariffs and rising material costs.

Speaker 1

Other revenue increased primarily because of the gain on the sale of a mobile home park we had taken as collateral. That covers the headline numbers. The 10-Q has the full detail, including sales by channel, loan portfolio interest income, SG&A, our provision for loan losses, taxes, and our year-to-date results. The balance sheet remains in excellent shape. We ended the quarter with $30.8 million in cash plus $5.3 million in short-term CDs, $36.1 million in total, up from $8.5 million at year-end. Operating cash flow for the first nine months was $35.3 million, nearly double the $18.2 million of a year ago. Two working capital items moved meaningfully with our large contracts.

Speaker 1

Customer deposits rose to $10.3 million from $1.8 million at year-end, reflecting advanced deposits under those contracts, and accounts receivable rose to $30.4 million from $5.5 million, reflecting invoices that are payable within 35 days. Inventories were $39.6 million, down from $43.9 million at June 30, and roughly flat with year-end as we shift finished goods. Year-to-date capital spending was $10.2 million, mostly for development of our land holdings, principally in Bastrop, and plant equipment. Our $50 million Prosperity Bank revolver remains undrawn. We remain in compliance with all financial covenants, and we intend to renew the facility ahead of its July 2027 maturity. Total stockholders' equity finished the quarter at $582.4 million, up from $562.2 million at June 30, and book value per share was $24.49, up from $23.64.

Speaker 1

We made no share repurchases during the quarter, and approximately $9.3 million remains available under the board's repurchase authorization through February of 2029. As for growth, we continue to see a robust pipeline of opportunities, including housing for large construction and industrial sites, HUD-code homes, and park rentals. Many of these units are higher specification and more complex to build, and customers place real value on our ability to deliver large quantities on compressed schedules. Our principal near-term constraint remains securing and retaining enough trained labor, and the recruiting and retention programs we discussed last quarter are underway. Our Georgia plant still has room to grow with modest additional investment. On costs, roughly 9% of our material costs, about $2,700 per home, come from internationally sourced materials, and tariffs added approximately $700 per home to material costs during the first nine months.

Speaker 1

To offset that, we implemented price increases averaging about 3.8% over the nine months, and we continued to diversify suppliers and source domestically where practical. Our loan portfolios remain a stable earnings engine. In the consumer book, 97.6% of balances are current or less than 30 days past due, and total past due consumer balances were 2.4% at quarter end, compared with 2.6% at year end. Within dealer inventory finance, about $2.5 million relates to homes that have been on dealer lots for more than three years. We're working with dealers to move that older inventory through pricing and lending incentives, and where appropriate, repossessing homes for resale through our Heritage Housing stores or other dealers. Last quarter, I told you we had agreed to modify our roughly $48.6 million mobile home park note that matured in July, and we were finalizing the documentation. That's now complete.

Speaker 1

The final terms differ slightly from what we outlined last quarter, most notably a slightly longer interest-only period. Under the amended note, effective July 3, the borrowers paid down $2 million of principal, bringing the balance to $46.6 million, about 23% of our MHP notes, pledged an additional manufactured housing community in Mississippi as collateral, and increased their personal guarantees. The note carries a fixed 7.9% rate through April of 2028, and prime plus 3% thereafter. Interest was abated from July 3 through October 3, payments are interest only through April 2028, and then amortizing, and the remaining balance is due at maturity in April of 2031. We accounted for this as a loan modification with no gain or loss. Because of the abatement, we recognized no interest income on this note during the third quarter, and interest resumed in October.

Speaker 1

The note was not past due at quarter end, and based on our analysis of the collateral, we determined that no allowance was required. This is covered in note four of the 10-Q. A brief update on AmeriCasa. Our litigation against the sellers is in the Texas Business Court and has moved into discovery. Both sides have served written discovery, and we're preparing for depositions and third-party subpoenas. It's still early, and we can't predict an outcome. Separately, during the quarter, we completed a measurement period review of the acquisition accounting. Based on the historical sales performance of the acquired business, we concluded that the trademark and non-compete agreement had no fair value at the acquisition date. We removed the $4 million recorded for those intangibles and increased goodwill by $3.1 million, net of the related deferred tax effects. Finally, an update on our control environment.

Speaker 1

We continue to work on remediating the material weaknesses disclosed in our 10-K. Since year end, we've substantially expanded our accounting and finance team, including staff accountants and financial analysts. In September, we hired a SOX compliance director, a CPA with SOX 404 systems implementation experience. On September 1, we completed our migration to Microsoft Dynamics 365 Business Central, and we're building out IT general controls around the new system. We've made a meaningful start, but remediation is a multi-step process that will take time. The material weaknesses won't be considered remediated until the new controls have been tested and have operated effectively for a sufficient period. To sum up, net revenue was up 72% to $69.7 million. Net income was up 133% to $20.1 million. Diluted earnings per share was $0.85, and gross margin on product sales was 36.9%.

Speaker 1

Through nine months, we generated $35.3 million of operating cash flow, and we ended the quarter with $36.1 million of cash and short-term investments, no debt, $582 million of stockholders' equity, and a fully available revolver. With a strong pipeline and our Bastrop County development expected to begin lot and home sales in 2027, we're well-positioned heading into next year. Our loan portfolios remain a dependable earnings engine, and our balance sheet gives us the flexibility to fund that growth internally. Legacy has never had a losing quarter in its history, and the third quarter of 2026 keeps that streak going. We're conservatively capitalized and focused on long-term value creation as affordable housing becomes ever more important to U.S. consumers and policymakers. Operator, that concludes our prepared remarks. Please open the line for questions. Kenny and I will both be available to respond.

Operator

Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Rohit Seth of B. Riley. Your line is now open.

Speaker 2

Hey, thanks for taking my question. I just wanted to learn a little bit more about the Bastrop County opportunity, where we stand now, and how you see that playing out in the next 12 months.

Speaker 3

Yeah, it's still a slow project. I mean, it's hurry up and wait and wait for the next regulator to give us an answer on something. We did get a DOT approval, and we're building the DOT entrance into the subdivision now. They're finishing up the sewer. They're claiming they'll be done by the end of December, they'll be finished with our sewer system that we're putting in. As they advance, I mean, it slowed down some of the road building. We got to come back in and do some more road work, and we still got to build a bridge after they get underneath it. We've been kind of waiting on them guys. It seems like it's put one puzzle piece in, and we can't do anything else till we can't put any more puzzle pieces in till we get that one started.

Speaker 3

That's been kind of the drawback. It's a pretty slow process, and we're a little bit aggravated with how long it's taken to do things. But we're right here, we can see the end of it coming pretty fast. We think we'll be selling lots here in the, probably the, maybe as late as the first half of the year, late in the first half of the year maybe, we'll be ready to start selling lots. That's kind of where we're at.

Speaker 1

At a high level, it is a large development. It is over 350 acres. A lot of the roads are in. We had to put in utilities. This is a very nice development. It is higher end. It is not your old-style mobile home park where you might have eight or 10 units per acre. It is not that level of density. If anybody happens to be in the Austin area, I would be happy to get you the address if you want to drive by and see it in person.

Speaker 2

There has been a lot of development with SpaceX around there, isn't that right?

Speaker 3

I am sorry, I could not hear what you said.

Speaker 2

There was some development there with SpaceX and whatnot, right? Would it make sense to have you seen people poking around to see if maybe just sell the land wholesale outright?

Speaker 3

Yeah. We're getting I mean, we've always got some low-ballers out there that are looking for a screaming deal or something. But we're getting so close that I think we'd be leaving a lot of money on the table. I mean, this is a big project, and it's going to be a cash cow once we get it going.

Speaker 2

Okay. You've had a lot of success with the data centers, the workforce housing. Looks like you're seeing the end of that first contract with the customer. Maybe you can talk about the opportunities that are out there today.

Speaker 3

Well, I think there's a lot of opportunities in a lot of different areas. Our backlogs are continuing to build, and there's opportunities everywhere. It isn't just data centers. I mean, we just finished a big project for a guy that's building a man camp for oil field, and it was probably a 200-building man camp. So, it's a pretty big man camp. There's a lot of opportunities, and there's a lot of building going on. So, through some of these man camps that we're building in the oil field and some of this data center work, we're meeting a lot of new customers. I look forward to this thing really dominoing, and we're going to get a lot of work out of some of this other stuff that some of these other contacts we're making.

Speaker 3

It's kind of like selling a house to a park, and the guy's buddy finds out what he's doing, and he jumps in on the bandwagon. So, we're getting some of that that's starting to happen.

Speaker 2

Yeah. You have had this workforce housing ASP on there has been very attractive. Should we see a normalization ASP in the upcoming quarter as that contract rolls off?

Speaker 3

Having a hard time hearing you.

Speaker 1

Yeah, we are having a hard time hearing you.

Speaker 2

Oh, I said, you have had the workforce housing contract, and the ASP on that work is significantly higher than your base business. Now that the contract is kind of winding down, should we expect a normalization in the ASP?

Speaker 1

It does have a slightly higher selling price. They are more complex units and larger. It is really the overall product mix. If dealer sales pick up, yes, I would expect that number to come down a bit. Our goal is to fill the pipeline with as much profitable business as possible. With the election results here and the national mood on data centers, the demand for data is not going away. On those high-end units, I expect they are going to have to pretty much always now going to be built in uninhabited areas. Those are the ones that require workforce housing. I think you might find a higher percentage of data centers requiring that. We are going to sell the most profitable units that we can produce, and I think our constraint is manpower.

Speaker 1

Can we get enough trained workforce into our factories and get production up as high as possible? While we are doing that, sell the most profitable units.

Speaker 2

Understood. All right, thank you. I will get back in line. Thank you.

Operator

Thank you. Our next question comes from the line of Alex Rygiel of Texas Capital Securities. Your line is now open.

Speaker 4

Hey, Kenny and Jon. Real nice quarter.

Speaker 3

Hey, thank you.

Speaker 4

Couple questions here. First, as it relates to Bastrop, can you remind us what the total lot opportunity is there for you? Then talk a little bit about what your strategy is going to be. Are you selling lots? Are you leasing lots? Are you selling homes? Are you leasing homes?

Speaker 3

All the above. Everything what you just said. I think there's somewhere around room on the lots that we're selling are like 260, then there's another 800, something like that, about 800 rentals that we can do in the park. So it's got a park in the middle. It's got land that we sell around the backside. There's room to put an RV park over in one corner that we're going to do.

Speaker 1

There are even some commercial lots.

Speaker 3

Yeah.

Speaker 1

They are widening the road that goes by our site, so we have lost some land while they are widening the road, but that increases the value of everything else.

Speaker 3

Yep.

Speaker 1

We do have some commercial lots that we could sell or lease. We have not committed to anything, so we will be opportunistic as the market develops. This is nothing that is going to fill up in one year, so anything we think today could easily change a year from now as we roll it out. It is a mix of single and double-wide lots. Those are pretty much set based on your roads that you are putting in there, but

Speaker 3

We will be filling them up. We will be filling the lots up and selling house and land. Even in the park, we are going to set homes up and sell homes in the park also.

Speaker 4

That's great. Do you have any plans to sort of build like community facilities at Bastrop, like a clubhouse or a pool or anything like that? I guess what I'm trying to get to is what's the incremental kind of CapEx you're looking at spending on this?

Speaker 3

We're already in the process of building a big

Speaker 1

Clubhouse

Speaker 3

clubhouse right near the park now.

Speaker 1

Most of the spend is done at this point. I think we're approaching $50 million in that development. So it's close to turning cash flow positive as soon as we start selling. There's not a lot to go.

Speaker 3

Lot rentals in that market are $1,000-$1,300 a month, just for lot rentals.

Speaker 4

Wow.

Speaker 3

You can imagine if we get this thing, when we get it full, what the spin-off of the money is per month. I mean, it's going to be unbelievable.

Speaker 4

For sure. As it relates to the workforce housing contract, how many units did you ship in the third quarter, and how many units remain to be shipped?

Speaker 3

You know what? I do not know that we have that. We rushed around and pulled all this information together and filed and got the earnings out. I mean, if you want to call Jon after a while, he can probably pull that information up for you, Alex. We would be glad to do that. We want to be as transparent with our partners as we can here. But if you want to give Jon a call after a while, he can pull that information together for you.

Speaker 4

That is super helpful. Then, do you think you are going to be able to sort of backfill the capacity fairly efficiently as this first kind of big workforce housing contract kind of winds down in the first quarter/second quarter? Do you think you are going to be able to backfill it with kind of a second one or two or three smaller ones, such that volume stays at a relatively high level?

Speaker 3

I think so. I think we are in good shape. We have talked about our backlog, and I think we are in pretty good shape. I really believe that. But who knows? We have got a whole new administration coming in. A lot of these states went blue instead of red, and I mean, I do not know what is going to happen. I mean, if I knew that, heck, I would load up and go to Las Vegas and start sports betting. Sometimes I think that is an easier way to make a living than building mobile homes. I do not know. But I think we are good at what we do, and I think we are going to be just fine. I really believe that. I am still a big holder. I still got all, most of our shares that me and my brothers have put in a pile, and we are not selling, so.

Speaker 4

Good to hear. Thank you.

Speaker 3

Take care.

Operator

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. Our next question comes from the line of Catherine Lappe of Gabelli Funds. Your line is now open.

Speaker 5

Hi. Thanks so much for taking my question, and congrats on another great quarter. Really awesome. I wanted to ask a bit about the refund liability for the workforce housing repurchases. I saw that between the fourth and sixth anniversaries of delivery, the contract entails a refund option where you would buy the units back at 33% or 25% of the original unit price. Could you talk a little bit about that, more of the terms of that contract, if you think that is likely, and yeah, just any of the thinking around that?

Speaker 1

Sure. You are exactly right on the numbers. So, if the customer decides to return the units between years four and five after they have been delivered, we buy them back at 33%, and 25% if it is between years five and six of the original invoice for the unit itself, not for any extras. The customer needs to have the units clean and delivered back to us. The math behind that is we have to kind of estimate what the likelihood is of that happening and what the numbers might look like at that time. We believe that it is unlikely that it would be executed, but if it was executed, we would be getting the units back at a cost below where we would be able to sell them.

Speaker 1

We think the customer is most likely to do that themselves, to use them there or at other projects, or to donate them perhaps, or sell them themselves. But if they do put them back to us, we are pretty confident that that would be a profitable enterprise. Legacy participated in a similar exercise many years ago, post-Katrina. There was a large number of units available from FEMA that the company was able to buy en masse and sell quickly, and do that profitably. This is something we would have lots of notice to plan for. So, the expectation is the units will not come back, but if they do come back, we feel like we have got a We are in the business, so we could repurpose them and resell them through our network profitably.

Speaker 5

Awesome. Okay, that's super helpful. Do you have a sense of how long the project for this workforce housing customer will take? I'm just wondering, is it expected to end in three years, and that's why you agreed on the four to six? Or is this project expected to take six or seven years? Do you have a sense of that?

Speaker 1

Do you want to take that, Kenny?

Speaker 3

I don't. I mean, I can't speak and be accurate on three or four or five years from now. We don't know. I mean, I'd be lying if I. Or it'd just be my opinion. But I think we're good for a few years. Most of these guys, I mean, they've put a lot of money in a pile to build these things, and I just can't see them unraveling them in four or five years. I mean, I think it'd be a. First of all, they hadn't even got them. A lot of them aren't even started using them yet. The construction part of the projects was so big that, I mean, they're still building on them. So it hadn't even started yet. I don't know. We don't have any idea how long it's going to last.

Speaker 5

Okay, got it.

Speaker 1

I just feel these projects are going to be run in phases, and they're going to keep expanding. The places where they build these, where they need the workforce housing, they have places to grow. So long as demand for data continues to grow, and I don't think the math for data centers in space really works, I think these units will stay out there for quite a while.

Speaker 5

Okay, great. That's super helpful. Then just a question on the financing side. I was wondering if you could talk a little bit about the rate environment with the Fed raising rates, how that impacts your business. I know chattel loans are less susceptible than regular mortgages, but I'd love to hear a little bit about that, and also if you've been seeing any increase in private lending in the industry, if that's affecting you and-

Speaker 3

Let me take that.

Speaker 5

Yeah.

Speaker 3

If you pull up a graph all the way back from the 1980s, and you put the interest rates on there along with shipments, it's a pretty amazing graph because you're going to see the graph pretty much on shipments follow the rates. As rates went up, shipments went up, because as rates go up, people that are buying these first-time home buyers, they just fall right out of that market. Not only have we had a large increase in the cost of building these things, but interest rates going up, it just puts them out of reach, and they fall back into our industry, back into affordable housing. As far as I mean, we've always done better in the high-interest rate environments than we have in low. I mean, when rates go down low, then we're competing with site-built homes.

Speaker 5

Okay. Yeah. Awesome. Thanks, Kenny. That's super helpful. That's all for me. Congrats again on the great quarter.

Speaker 3

Thank you very much.

Operator

Thank you. I am showing no further questions at this time, so I would like to turn it back to Jon Langbert for closing remarks.

Speaker 1

Thank you all for joining us today and for your continued interest in Legacy Housing. We look forward to updating you next quarter.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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