Business Overview and History
Legacy Housing Corporation (LEGH) has navigated a turbulent industry landscape, demonstrating resilience and a commitment to long-term success. As a leading manufacturer and retailer of affordable, high-quality manufactured homes, the company has weathered various market conditions, emerging as a formidable player in the dynamic manufactured housing sector.
Founded in 2005 and headquartered in Bedford, Texas, Legacy Housing Corporation has established itself as a vertically integrated player in the manufactured housing industry. The company’s journey began with the formation of Legacy Housing, Ltd., a Texas-based limited partnership, which later transitioned into a Delaware corporation in 2018 and reincorporated as a Texas corporation in 2019.
Legacy Housing’s core business revolves around the manufacturing, distribution, and retail sales of manufactured homes. The company operates three manufacturing facilities located in Fort Worth, Texas, Commerce, Texas, and Eatonton, Georgia, leveraging high-volume production techniques to deliver custom-made homes to its extensive network of independent retailers and company-owned retail locations. As of September 30, 2024, the company’s product portfolio ranges from approximately 395 to 2,670 square feet, consisting of 1 to 5 bedrooms and 1 to 3 bathrooms, with retail prices typically ranging from $33,000 to $180,000.
In addition to its manufacturing prowess, Legacy Housing has also established itself as a provider of tailored financing solutions. The company offers consumer financing for its products sold through independent and company-owned retail locations, inventory financing for its independent retailers, and financing solutions to manufactured housing community owners who purchase the company’s homes.
Legacy Housing’s business model extends beyond manufacturing and financing. The company is also involved in the development of new manufactured home communities, further diversifying its operations and revenue streams. This vertical integration strategy has allowed Legacy to capture value across multiple segments of the manufactured housing industry.
Throughout its history, Legacy Housing has demonstrated resilience in the face of challenges. In 2023, the company encountered issues with a group of borrowers known as the “Makers,” who defaulted on a portion of promissory notes owed to the company. Legacy took decisive action by filing several lawsuits and aggressively pursuing the collateral before reaching a settlement agreement in July 2024. This incident highlighted the company’s ability to navigate complex financial situations and protect its interests.
Overcoming Challenges and Driving Growth
Legacy Housing’s performance has not been without its challenges. The company has navigated various industry headwinds, including the impact of the COVID-19 pandemic, fluctuations in material and labor costs due to inflationary pressures, and evolving consumer preferences.
During the third quarter of 2024, Legacy Housing reported a decrease in product sales of 18.3% year-over-year, primarily driven by a decline in unit volumes shipped across its direct sales, mobile home park sales, and inventory finance sales categories. This decline was partially offset by an increase in sales at the company’s owned retail stores. Specifically, direct sales decreased 19.7%, commercial sales decreased 11.2%, and inventory finance sales to dealers decreased 37.8% during the quarter. However, retail store sales increased 4.8% as the company focused on improving performance at its company-owned retail locations.
Despite these challenges, Legacy Housing has demonstrated its ability to adapt and capitalize on emerging opportunities. The company’s focus on enhancing its product offerings has been a key strategic initiative, as evidenced by the significant updates to its interior and exterior home finishes showcased at its successful fall 2024 show. These updates, which included new flooring options, wallboard, cabinet colors, countertops, and walk-in showers, were well-received by both dealer and community customers, setting the stage for improved sales and customer engagement.
Moreover, the company’s lending portfolios have continued to grow, with interest revenue from MHP, retail finance, and floor plan financing up 33.9% over the last 12 months. Legacy Housing’s delinquencies remain low, and its recovery rates are strong, reflecting the strength of its financing solutions. The company’s consumer loan portfolio increased by $15.6 million, and its MHP loan portfolio increased by $22.0 million between September 30, 2023, and September 30, 2024.
Financials
Legacy Housing Corporation’s financial performance has been marked by both challenges and opportunities. For the most recent fiscal year (2023), the company reported revenue of $189.14 million, net income of $54.46 million, operating cash flow of -$13.54 million, and free cash flow of -$21.25 million.
In the third quarter of 2024, Legacy Housing reported revenue of $44.27 million, a decrease of 11.4% compared to the same period in 2023. Net income for the quarter was $15.80 million, a slight decrease of 1.8% year-over-year. Operating cash flow improved significantly to $13.84 million, with free cash flow reaching $9.12 million.
The company’s gross profit margin was 29.2% of product sales in the third quarter of 2024, compared to 32.9% in the same period in 2023. Basic earnings per share decreased by $0.01 per share or 1.5% in the third quarter of 2024 compared to the third quarter of 2023.
Legacy Housing’s other revenue, which includes items such as contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees, and other miscellaneous income, decreased 8.7% in the third quarter and 17.5% in the first nine months of 2024 compared to the same periods in 2023. The decreases were primarily due to lower forfeited deposits and dealer finance fees, partially offset by higher land sales.
Operating expenses have also been impacted by the changing business environment. Cost of product sales decreased 13.9% in the third quarter and 24.1% in the first nine months of 2024, primarily due to the decrease in unit volumes sold. Selling, general, and administrative expenses remained relatively flat in the third quarter and increased 2.8% in the first nine months of 2024, driven by increases in payroll, healthcare, marketing, and other miscellaneous expenses, partially offset by decreases in warranty, loan loss provision, bad debt, and professional fees. Dealer incentive expenses decreased 99.0% and 96.3% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.
Liquidity
Legacy Housing has maintained a strong liquidity position, which has enabled it to weather industry challenges and pursue growth opportunities. As of September 30, 2024, the company’s debt-to-equity ratio stood at 0.014, indicating a conservative capital structure. The company had $570,000 in cash and a $50 million revolving credit facility, of which $47.89 million was available.
The company’s current ratio of 3.47 and quick ratio of 2.57 as of September 30, 2024, further underscore its strong short-term liquidity position. This financial flexibility allows Legacy Housing to invest in product development, expand its retail network, and pursue land development projects.
Geographic Performance and Market Trends
While Legacy Housing does not provide detailed geographic breakdowns of its performance, the company’s sales are concentrated in certain key markets. For the nine months ended September 30, 2024, approximately 48% of manufactured homes were sold in Texas, followed by North Carolina (9%), Georgia (9%), Oklahoma (8%), Michigan (3%), and Florida (3%).
The manufactured housing industry has experienced a compound annual growth rate (CAGR) of approximately 5% over the past five years, driven by increased demand for affordable housing options. This trend bodes well for Legacy Housing’s long-term growth prospects, particularly as the company continues to expand its product offerings and geographic reach.
Encouraging Signs and Future Outlook
Despite the challenges faced in the third quarter, Legacy Housing is seeing encouraging signs of recovery. The company’s product sales for October 2024 were up 27% compared to September 2024, and the strong orders received at the fall 2024 show have extended the backlog into the first quarter of 2025. Legacy Housing expects its product gross margins to normalize and return to the 30% range in the fourth quarter of 2024 as production improves.
The company’s efforts to build its team, including the onboarding of a senior sales manager for the Texas plants, are also expected to contribute to improved performance going forward. Legacy Housing’s focus on pricing discipline, even as some competitors have reduced prices, has been a contributing factor to the slower recovery, but the management team believes this approach will serve the company well in the long run.
In the community business, Legacy Housing is seeing a slow but steady improvement, with high interest rates continuing to depress transaction volumes. However, the company is receiving more inbound requests and believes the community business will continue to improve in 2025. Additionally, the company’s success in selling HUD tiny homes to RV park investors, transitioning these assets from seasonal to year-round occupancy, is viewed as a growth opportunity.
Legacy Housing’s land development projects, such as the 1,100-pad development in Bastrop County near Austin and the 300 developed mobile home lots in Horseshoe Bay, also hold promising long-term potential. The company’s expansion of its company-owned dealership network, including the opening of a new location near the Horseshoe Bay land, further demonstrates its commitment to growth and diversification.
Conclusion
Legacy Housing Corporation has navigated a challenging industry landscape, demonstrating resilience and a commitment to long-term success. While the company faced headwinds in the third quarter of 2024, including a decline in product sales, it has taken proactive steps to adapt and capitalize on emerging opportunities.
The company’s focus on enhancing its product offerings, growing its lending portfolios, and diversifying its business model through land development and company-owned dealerships provide a strong foundation for future growth. With a robust liquidity position, improving operational metrics, and a strategic focus on high-growth markets, Legacy Housing is well-positioned to capitalize on the ongoing demand for affordable housing solutions.
As Legacy Housing continues to navigate the dynamic manufactured housing market, investors will closely monitor the company’s ability to capitalize on its strategic initiatives and deliver sustainable long-term value. The company’s recent performance improvements and positive outlook for 2025 suggest that Legacy Housing is on track to overcome recent challenges and emerge as a stronger, more diversified player in the manufactured housing industry.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.