Earnings call transcript: Legacy Housing Q3 2025 sees earnings miss, stock dips

Legacy Housing Corporation’s third-quarter earnings report revealed a significant miss in both earnings per share (EPS) and revenue forecasts, resulting in a drop in stock price. The company reported an EPS of $0.35, falling short of the expected $0.58, marking a negative surprise of 39.66%. Revenue also missed expectations, coming in at $40.48 million compared to the forecasted $45.97 million, a shortfall of 11.94%. Following the announcement, Legacy Housing’s stock fell by 3.42%, closing at $22.22. This disappointing report aligns with InvestingPro data showing that two analysts have recently revised their earnings downwards for the upcoming period.

Key Takeaways

• Legacy Housing missed both EPS and revenue forecasts for Q3 2025.
• Stock price dropped by 3.42% post-earnings announcement.
• Net income decreased significantly by 45.3% to $8.6 million.
• The company acquired Americassim for $22 million, aiming to boost retail sales.
• Challenges include rising raw material costs and competitive pressures.

Company Performance

Legacy Housing’s Q3 2025 performance was marked by a decrease in home sales and net income, despite an increase in net revenue per unit. The company’s net income fell by 45.3% to $8.6 million, and the net income margin dropped from 35.7% to 21.4%. However, the consumer loan portfolio grew by 12.8% to $188.1 million, indicating some resilience in its financial services segment.

Financial Highlights

• Revenue: $40.48 million, down from forecasted $45.97 million
• Earnings per share: $0.35, below the $0.58 forecast
• Net income: $8.6 million, a decrease of 45.3% YoY
• Consumer loan portfolio: Increased by $21.4 million to $188.1 million
• Book value per share: $21.85, up $1.90 from the previous year

Earnings vs. Forecast

Legacy Housing’s Q3 2025 earnings report showed a substantial miss in both EPS and revenue. The actual EPS of $0.35 was significantly below the forecast of $0.58, representing a negative surprise of 39.66%. Revenue also fell short, at $40.48 million compared to the expected $45.97 million, a miss of 11.94%.

Market Reaction

Following the earnings announcement, Legacy Housing’s stock declined by 3.42%, closing at $22.22. This decline reflects investor disappointment with the earnings miss and aligns with the broader trend of cautious market sentiment in the housing sector. The stock remains above its 52-week low of $20.85 but well below the high of $29.45.

Outlook & Guidance

Looking ahead, Legacy Housing is focusing on strategic initiatives such as the acquisition of Americassim and the development of HomeX remote management technology, which could potentially increase retail sales by 50-100% in 2026. The company is also exploring nearshoring opportunities in Colombia and developing infrastructure for an Austin real estate project.

Executive Commentary

Kurt Hodgson, Executive Chairman, emphasized the company’s commitment to providing affordable housing, stating, "We are positioned to provide that affordable housing to thousands of families over the coming years." He also highlighted the potential to free up $10-$20 million by reducing unproductive working capital.

Risks and Challenges

• Rising raw material costs and tariffs could pressure margins.
• Competitive challenges in the Southeast market.
• Potential for further market saturation in Texas.
• Macroeconomic pressures affecting consumer spending.
• Industry-wide pricing pressures impacting profitability.

Q&A

During the Q&A session, analysts inquired about the details of the Americassim acquisition and its expected impact on retail sales. Concerns were also raised about the performance of the loan portfolio and potential stock buybacks. The company addressed challenges in the Southeast market, emphasizing its strategic focus on improving retail distribution and exploring potential land sales.

Full transcript - Legacy Housing Corp (LEGH) Q3 2025:

Conference Operator: Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation Third Quarter 2025 Earnings Conference 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kurt Hodgson, Co-founder and Executive Chairman of the Board. Please go ahead.

Kurt Hodgson, Co-founder and Executive Chairman of the Board, Legacy Housing Corporation: Good morning. This is Kurt Hodgson. I’m here with Kenny Shipley, my Legacy co-founder and our Interim CEO. Thanks for joining our Third Quarter 2025 Conference Call. Ron Arrington, our Interim Chief Financial Officer, will read the Safe Harbor Disclosure before we get started.

Ron Arrington, Interim Chief Financial Officer, Legacy Housing Corporation: Before we begin, I’m reminding our listeners that management’s prepared remarks today will contain forward-looking statements, which are subject to risk 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. Therefore, we refer you to a more detailed discussion of the risk and uncertainties in the company’s annual report filed with the U.S. Securities and Exchange Commission. In addition, any projection as to the company’s future performance represents management’s estimates as of today’s call. Legacy Housing assumes no obligation to update these projections in the future unless it is required by applicable law.

Kurt Hodgson, Co-founder and Executive Chairman of the Board, Legacy Housing Corporation: Thanks, Ron. As you can tell from the word "interim" appearing in two of our titles, we’ve had some senior turnover recently. Our prior CEO, CFO, and general counsel departed last month. Fortunately, Kenny and I have remained active in the business through these years and are excited to re-engage in the day-to-day operations of profitably manufacturing and selling mobile homes. Ron Arrington previously served as our CFO and has led our development team recently, so we haven’t skipped a beat in that section. I’m going to turn the call over to Ron now for a review of our third quarter performance, after which I will speak briefly with our thoughts and some additional corporate updates, and then we’ll open the call up for questions. Ron?

Ron Arrington, Interim Chief Financial Officer, Legacy Housing Corporation: Thanks, Kurt. Let’s get straight to the numbers. Home sales decreased by $1.4 million, or 4.8%, during the three months ended September 30, 2025, as compared to the same period last year. The decrease was primarily driven by a decline in sales to mobile home park customers utilizing Legacy’s commercial loan program, as well as a decline in sales to independent dealers participating in Legacy’s inventory finance program. These drops were primarily offset by increased indirect sales to customers and revenues from Legacy’s company-owned heritage outlets. Net revenue per unit increased approximately 8% to $68,500, from $63,500 year over year. At the end of the second quarter of 2025, Legacy increased prices to mitigate the impact increases in raw material costs and tariffs on Chinese goods. Kurt can speak later as to these other steps Legacy is taking to address these challenges.

Product sales remained relatively flat in the year-to-date comparison for 2025 versus 2024, declining slightly by $1.2 million, or 1.3%. The sales mix changed with declines in direct sales and mobile home park sales offset by an increase in company-owned retail store sales and dealer inventory finance program sales. The shift in mix, along with price increase, explains why Legacy’s net revenue per unit increased 13% to $68,600. Consumer MHP and dealer loan interest income increased to $10.9 million, up 5.4% during the third quarter as compared to the prior year. This increase was primarily driven by increases in the consumer loan portfolio and higher interest rates from MHP loans converting to variable rates per their loan agreements. Consumer MHP and dealer loan interest increased to $32.4 million, up 5.3% for the nine months ended September 2025, as compared to 2024.

Over the prior 12 months, Legacy’s consumer loan portfolio increased by $21.4 million, up to $188.1 million, up 12.8%. During the same period, Legacy’s MHP note portfolio remained essentially unchanged at $201.5 million. Dealer inventory finance loans decreased $1.4 million to $30.3 million, down 4.4%. Other revenue consists primarily of contract deposit foreclosures, forfeitures, dealer consignment sales, commercial lease rents, portfolio servicer revenue, and land sales revenue decreased by $3 million, or 79%, for the third quarter of 2025 compared to the third quarter of 2024. This decrease was primarily due to a significant land sale, which occurred during the third quarter of 2024, as well as a decrease in portfolio servicer revenue between comparison periods.

For the nine-month comparison period of third quarter 2025 versus third quarter 2024, other revenues declined $4.1 million, or 63.1%, due to the aforementioned sale, as well as a significant reduction of 2025 forfeiture income on MHP deposits for canceled contracts. The cost of product sales increased $1.6 million, or 7.5%, during the three months ended September 2025, as compared to the same period in 2024. During this same comparison period, product sales declined $1.4 million, or 4.6%. This increase in cost of product sales is primarily related to a sizable increase in raw material costs and tariffs, offset by a decrease in delivery, shipping, and setup costs as we ship fewer units. I know tariffs are a particular interest, so to put them in perspective, they add roughly $1,200 to the cost of a standard floor plan.

Product gross margin was 20.28% for the third quarter of 2025, down from 29.2% for the third quarter of 2024. The cost of product sales increased $2.7 million, or 4.3%, for the nine months ended September 2025 compared to 2024. During the same period, product revenue decreased by $1.2 million, or 1.3%. The increase in cost of product sales is primarily related to increases in raw material costs, tariffs, and delivery, shipping, and setup costs, offset by a decrease in labor and factory overhead costs. Product gross margin was 27.7% for the nine months ended September 2025 compared to 31.6% for 2024. Selling, general, and administrative expenses increased $1.3 million, or 20.6%, for the three months ended September 2025 compared to 2024.

The increase was a result of a $900,000 increase in legal expenses, a $500,000 increase in loan portfolio loss expenses, and a $500,000 increase in professional and consulting fees, partially offset by a $600,000 decrease in the company’s self-insured health benefit plan. SG&A increased $2.7 million, or 15.5%, for the nine months ended September 2025 compared to 2024. The increase was primarily a result of a $1.7 million increase in loan portfolio expenses, an $800,000 increase in legal costs, a $700,000 increase in service and warranty expenses, and a $400,000 increase in professional and consulting fees, offset by a $700,000 decrease in the company’s self-insured health benefit expenses and a $400,000 decrease in corporate and general payroll expenses. Other non-operating income decreased $6.9 million, or 72.3%, over the nine-month comparison period ending September 2025 compared to September 2024.

This was primarily due to a significant one-time transaction during the 2024 period. The two largest were a $4.9 million fair market value adjustment and loan restructuring gains, and a $2 million of liability accrual reverses related to various completed MHP contracts. What’s the bottom line for a tough quarter? Net income decreased $7.2 million, or 45.3%, to $8.6 million compared to $15.8 million in the third quarter of 2024. Net income margin was 21.4%, down from 35.7% for the third quarter of 2024. For the nine months ended September 2025 compared to 2024, net income declined $13 million, or 28.7%, to $33.6 million from $47.1 million. Net income margin was 26.6% for the nine months ended September 2025 compared to 36.3% in 2024. We ended the third quarter of 2025 with $13.6 million in cash.

In July of 2023, we closed a new revolving credit facility with Prosperity Bank. The facility is for $50 million, with a $25 million accordion feature. It is secured by our consumer loan portfolio and currently has a zero balance. As of September 2024, we had approximately $570,000 in cash and equivalents and a balance of $2.6 million on our line of credit. You can see that despite the lower sales and net margin, we have continued to strengthen our balance sheet. Legacy has delivered a 9.5% return on shareholders’ equity over the last four quarters ended September 2025. At the end of the third quarter, Legacy’s book value per basic share outstanding was $21.85, an increase of $1.90 since the same period of 2024. I’ll now turn things back over to Kurt.

Kurt Hodgson, Co-founder and Executive Chairman of the Board, Legacy Housing Corporation: Thanks, Ron. Let’s quickly discuss the market, followed by our financial performance updates on key issues and strategic initiatives. The latest data shows continued slowing in the industry as a whole, with the Texas Manufactured Housing Association reporting a seasonally adjusted drop of 3.8% in August and down 6.1% on the raw total from September of 2024. Despite the continued housing affordability problem in our markets, macroeconomic headwinds such as falling consumer confidence and large tariff rises necessitating price increases are somewhat restraining growth. On the bright side, we held our big annual show in September in Fort Worth. The show was one of the most successful the company has ever had. Orders booked there will ensure higher production rates for the fourth quarter over the third quarter and carrying on well into the first quarter of 2026. Dealer and park customers ordered homes at our fall show.

I’d kind of like to dive into some macro topics for a minute. I think we’re not happy with these results, and I think that probably explains why the changing of the guard, so to speak, happened last month. Our retail and dealer side of our business saw sales falling for the last year or more. Our community park side of the business saw sales falling for the last year or so. Heritage, our retail side, actually had increased sales, and our finance division continued to be profitable, very much so. Low but somewhat increasing charge-offs due to more foreclosures and lower resale prices. As of September 30, I think 99% of our mobile home notes were performing as agreed, and about 97.5% of our consumer loans were performing as agreed. By that, we mean are they within 30 days of being current?

We monitor these numbers monthly and are confident that our portfolios are very strong. We have begun to feel the effects of ICE enforcement on our labor force and on customer demand and on the performance of our retail portfolio. I do not think it is real significant, but we definitely are feeling the effects of fewer Hispanic customers in our market, particularly in Texas, but I think it is also true in the Southeast. We began hiring at key positions. We had kind of a lull in hiring. I think our past management cannot really be credited with hiring anybody of consequence. We have already hired a new general manager for Fort Worth. If you know, Norm Newton is now with the company. It was released earlier. We are actively looking for a new CEO with industry experience.

Our hiring has since in the last few weeks when Kenny and I got back involved, we’re focusing on filling the seats with some quality people. Our working capital is too high. I’ve been noticing this in our financials for some time. We have too much raw material, probably double what we should have, and our finished good inventory is also high. At any given time, we have as many as 200 houses in the yard, which is probably double what it should be. Our finished good inventory was $24 million, including work in progress at the end of the quarter. I think that’s probably double what it should be. If we can reduce our working capital, or let’s say our unproductive working capital, that’ll free up, you know, $10-$20 million to be reinvested into the business. We remain in a strong cash position.

We’ll be able to complete the Americassim purchase without incurring any debt. On a positive, I don’t know who all is on the call and what their knowledge of Texas is, but the data centers in Texas are all underway. There’s going to be at least 5,000 housing units, probably three in the next 24 months, to tend to those housing needs, almost all of which will come from the 30-plus manufacturing facilities located in the state of Texas, you know, ours being a couple of those. Business in Texas anyway looks like it’s going to be really good for the next year or two. I’d like to discuss a little bit about the Americassim acquisition. We’ve known this partnership between Jeff Gainsborough and Norm Newton for at least a decade. They’ve been a customer of ours. They’ve had a portfolio with us the whole way.

We’re basically buying them out of everything they have in the mobile home business, and Norm Newton has agreed to come to work as Director of Revenue for the company. He has particular expertise in passively, or should I say absentee managing of dealerships, which has been a real challenge for us. He has a vibrant dealership that we’re acquiring in Houston, and it doesn’t have an owner on the premises, and he’s proven that his model works pretty good, and we hope to be able to use his model over our 12 other locations that we have at the retail level. We are acquiring some other things in this process. It’s kind of a hodgepodge of things.

The net result is about $9 million or $10 million will be allocated among the retail dealership that we’re acquiring in Houston, the nearshoring that we’re affiliating with in Colombia, which I visited myself, and what we call the Home FX model, which is Norm’s proprietary system, including software of managing retail locations remotely. We are looking forward to that, integrating that with our system so that we can do more retailing at our company stores. I think that the likelihood of that is extremely high. We continue to deliver strong operating margins and consistent profitability. In fact, we’ve never had a quarterly loss in our entire history, not just from the six years plus that we’ve been public, but for actually the 40-plus years that Kenny and I have maintained our partnership. The loan portfolios are on track to deliver about $40 million straight to the bottom line this year.

As far as valuation, Kenny and I started this company in 1997 with about $700,000. We took in about $60 million of outside money when we went public. The combination of that has now grown to $522 million over the 20-plus years that we have done this. We will continue to grow that book value. That is pretty much after taxes. We make it, we save it, we invest it, and that is what we have always done. That is the basic values that we will be getting back to. I think we got a little distracted over the last couple of years, and we intend to get back to doing what we do, which is selling a good product for a fair price, financing it, and distributing it in a variety of ways. Our book value consists mostly of finance notes.

Realize that that book value was not ever in place at a given time. It is what we evolved to. We basically finance notes to enhance our own yields, but we like to finance business from a return on investment point of view too. The Norm portfolio that we are acquiring, which is a little over $10 million notes, bears interest at over 16%. We have experience with his portfolios because we have one in common with him that has always performed very well. We expect that the portfolio we are acquiring from Norm will perform well and make everybody money. We publish our book value per share each quarter. As Ron mentioned, as of September 30, our book value is $21.85 per share. We have also bought back through time. Ron might be able to quantify this. I do not know.

I want to say it’s somewhere in the neighborhood of $20 million or more of stock, which sits on our balance sheet as treasury stock. With our stock trading at essentially the same price, we’re looking at this changing the guard as an opportunity to maybe reinvigorate our growth and innovation, which should increase profit margins and create a stock premium. On the flip side, if the stock continues to trade somewhere around book value, we will use our own liquidity as usual to repurchase shares. I think the bottom is fairly well protected, subject to our limitations of how much we can buy back in any given day. As you know, with the new buyback laws, every time we buy back shares, we do pay, I think it’s a 1% tax to the federal government.

I believe we can continue building shareholders’ equity even in this high-interest, slowing growth economy. Our share price will begin to reflect this. I think when we get the uncertainty behind us, we’ll get back to some reasonable P/E ratio. Any strategic moves are icing on the cake. In my opinion, this is a great time to be an owner of Legacy, particularly if you’re in at today’s price as you’re long part of a company that’s never lost money in any year since its founding. As for affordability, it is now front and center in the U.S. in housing. We are positioned to provide that affordable housing to thousands of families over the coming years. For those of you that are not from Texas, Texas is a nice place to be right now.

The economy is still doing great, and we haven’t had any hiccups as far as the economy is concerned. I want to address a couple of questions on an email that was sent to me recently. We have a lot of real estate on our books. The Austin project is coming along nicely. It’s a little slower than we like. We have three or four hurdles before we’re up and running. The wastewater treatment plant needs to be installed, which will not happen until probably second quarter of 2026. We’re also working on getting access from the state highways that adjoin our property. The infrastructure in the middle of the property is coming along really well, and we’ll be very far along by the time we solve those other two problems.

We’re trying to negotiate with the school system to put an elementary school in the middle of it, which will be the primary amenity of the parcel. As for other real estate we own, we have no shovels in the dirt anywhere else. It is all entitled to be mobile home properties. It’s a little bit challenging when the properties were two, three, four, five times more than you paid for it. Just because we bought it for $10,000 an acre to make a mobile home park out of it doesn’t mean we would come to the same conclusion now that it’s valued at $40,000 or $50,000 per acre, which is the case in several of our properties. We are entertaining divesting ourselves of the property. I would estimate of the picture seven remaining properties on the books.

Besides Bastrop County, we probably have $4 million-$5 million of gains should we choose to liquidate those properties. If anything, that is on the low side. I was asked about the long-term margin targets for the industry. I think a lot of companies have been absorbing the increase in cost caused by tariffs and other factors. I think when they start looking at their financial statements like we just did ours, we will probably all be in lockstep with each other to slowly increase prices for the products that we are marketing. Right now, it has been pretty cutthroat from one manufacturer to the other. I am hoping that when people realize that the tariffs are not temporary, the labor increases that we have paid, the labor wage increase that we are paying are not temporary. I think we probably need to reevaluate the operating margins of the industry as a whole.

That’s pretty much it. I can probably turn it over to question answers or questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Daniel Moore with CJS Securities. Your line is now open. Good morning, Curt. Morning, Ron. Appreciate the color and thanks for taking questions. Maybe start with the Americassim, the Americassim asset purchase. Just talk to their revenue model. What are the features of the future HomeX platform, and how is their software expected to enhance sales growth? We were not really looking at their financials on the purchase. We were intrigued by the HomeX product. We’ve experimented a little bit with it.

Several of our dealers are using it. They pay a royalty to use it. If we can find a way to manage these locations remotely, whether it be from Dallas or Houston or Bogotá, then we will solve a lot of the mystery. Our manufacturing peer group all maintain their own retail locations, and they struggle with how to get volumes up as well. Industry-wide, I would guess that the average retail location that is affiliated with a manufacturer sells two, three, four mobile homes per month. Two is maybe break even, three is profitable, four is highly profitable. Basically, we are just trying to get our sales up on a location basis. The primary reason we made a deal with Norm was to have access to that remote management technology. I think that is it. As far as his one lot in Houston, it shines.

He sells roughly 10-12 houses a month every month, which is more than double what we sell at our locations. Kenny and I have both visited it. It’s pretty impressive in that front. I mean, are we paying a little bit of premium? It kind of depends on what the management system’s worth. If it’s worth, say, $5 million, which is what I kind of put on it, I would look at it as though we had paid fair market value for all the assets we’re acquiring from Americassim. Of course, we won’t know until we integrate it with our own model to see what it is. I am very optimistic that that acquisition is going to help us sell more direct to retail consumers. Really helpful.

Just making sure I heard correctly, the size of the chattel mortgage loan portfolio that you’re acquiring, I heard 16%. Was it $30 million or was that off? I’m sorry. The portfolio, the deal is when we close, we’ll acquire all loans in that portfolio that are current, defined by within 30 days of currency. We think that the face value of that part of the transaction will be $10.8 million, plus or minus a couple hundred thousand. The effective interest rate or the interest rate on that is just over 16%. Very similar to our portfolio, it’s almost exactly on that piece. It’s right up our alley. We can absorb it rather easily. I have confidence that it’ll be accretive to our financials. Got it. You mentioned in the press release you expect normal production out of Texas manufacturing facilities through year-end.

Obviously, great to hear the encouraging show that you had at the end of September in Fort Worth. What does kind of normal mean maybe relative to Q4 last year? Just talk about what your expectations are from the Georgia plant as well over the next quarter or two. I do not have Q4 in front of me from last year, but I think we will be through most of the Q4, which now, of course, we are a month into. I think we will average six to seven in Texas per day and probably two to three in Georgia. Let’s call it company-wide 8-10. I do not really know. I would have to dig out to see how we did in Q4 last year. 8-10 is profitable as so.

One shareholder eloquently pointed out, "It doesn’t look like the production of sales of mobile homes made money in Q3." That is correct. Q4, that part of the business should contribute pretty nicely to our earnings. The first quarter looks even better than that. Perfect. Lastly, you mentioned the industry pricing. Have you taken or plan to take additional price increases? I know it’s a tough environment, but to offset some of the increase in raw material costs and tariffs over the next one, two, three quarters. I’ll jump back in queue. Thank you. I don’t know. We went first. We had a non-price increase in June. I think we were first in the industry to do it. It may have dissuaded some of our regular buyers from buying. Since then, our competitors have joined in to slight price increases.

We’re talking overall probably 3-4% has been the price increases. Again, we’re all trying to use up excess capacity. Thirty-four plants operate in the state of Texas. Probably only three or four of them operating at capacity. We duke it out on pricing, financing, features, and all sorts of things. I heard recently of a manufacturer that was offering one-year free flooring to dealers if they buy a house. We’re concerned about profitability. We were able to make hay while the sun shines during COVID. We don’t intend to give it back by building a mobile home unless we can make a margin on it. It’s tempting to say, "Okay, let’s just keep the factories running or whatnot." We’re not going to be giving back this tangible book value we have.

I don’t see the market declining, especially in Texas with the data center workforce housing lift that we’re going to be having in the next 24 months. I am a little more concerned about Georgia and where its unit sales are going to come from in the southeast. Very good. I’ll jump back with any follow-ups. Thank you. Thank you. Our next question comes from the line of Alex Wrigel with Texas Capital Securities. Your line is now open. Good morning, Curt. Ron, how are you? Fine, Mr. Wrigel. How are you? Doing well. Thanks. A couple of quick questions here. Are you looking at other acquisitions at this time? Can you talk a bit about expanding your company-owned retail stores? I would say that if we do any acquisitions, it will dovetail well with the one we just did.

The one we just did is designed to increase our ability to profitably distribute through company stores. I think you hit the nail on the head, Alex, that if there is an acquisition, it would probably be retail centers in our market areas. Independent dealers are getting difficult to make money on. Besides that, a lot of them are aging out. They are people that are maybe former tech ages. Very few retail centers, independent retailers, are owned by anybody under 50 years old. That distribution is a little bit coming from stores, not just from the competitors. There may be more of a push to internet sales. We may be emphasizing used out sales. Yeah, we want to be more in the retail business than we have been in the past. A very small percentage of our revenue has been from our own retail centers.

I would hope to grow that to maybe as much as 50% by the end of next year. Very helpful. Secondly, can you talk a little bit more about your kind of consumer loan portfolio and how it’s performed kind of more recently, how the trends have been playing out over the last few months, and if there’s been any kind of notable change there? We do not have much notable change, but there is anecdotal evidence. We had the benefit of everything that was on our books pre-COVID was at prices substantially below current prices. Every mobile home loan on our books that was pre-COVID had the benefit of being right-side up, so to speak, from a consumer’s perspective. Every time one did repo, we actually made money on it.

I mean, if the guy owed $30,000 on his mobile home and turned it back to us, we sold it for $40,000. For years, when we did repo one, it was actually kind of a windfall. Since COVID, those notes that have been created in the last four years do not have a corresponding benefit from price increases. Now when we repo a note that was made, say, in 2022, when we go to sell it, if they owe us $40,000, maybe we only sell it for $35,000, and we have a little bit of impairment to take on it. The recovery rate on the repos is not as good as it once was. In my opinion, it is more realistic that that one-time nearly doubling of prices that we had during COVID kept us from having any losses when we did repossess something.

Now, as far as the percentages that are in trouble, and this is kind of the good news, we just do not have more than a couple percent at the retail level that are problematic, which is still historically a low amount. Anecdotally, we are in Texas. I live here. Kenny lives here. We all know somebody now that is subject to deportation or a relative that is subject to deportation. A lot of our notes and a lot of our basic demand comes from, for lack of a better word, an immigrant market. We are kind of expecting some difficulty there, but it has not shown up in the numbers yet. That is good to hear. Circling back to capital allocation through the years, like you mentioned, you have been a buyer of stock. Can you talk about that a little bit more?

Have there been any insider repurchases, or has there been an open period for insider purchases at all? I have not bought any, and I do not think Kenny has bought any. Unfortunately, from an insider point of view, that is pretty much the only visibility that we do on our foreign force in our circle of influence, which is not an insider. I do know of at least one party that has bought pretty heavily in the last couple of months. I do not know of any party in my own circle that has been a seller at these levels ever since, say, July 24, 2024. I do not know anybody that has even considered being a seller that I have much influence over. At what level will we be protected? I do not make the decision. Kenny does not make the decision.

We kind of make the decision when we talk to each other. We do have the authority to make the decision. As you know, the company can’t—for instance, we can’t buy today. We’re in blackout. We could buy later in the week. It’s always a little bit discretionary when we could buy. When we’re not in a blackout, I think you can assume anytime that we think it’s a good investment, we’ll be there with our cash resources. Not only do we have cash in the bank today, but we have an unused $50 million loan that I think is still pretty solid with Prosperity. Between that and we cash flow money. All the improvements to our land in Bastrop County have all been paid for with free cash flow. I think we’re now pressing about $30 million of money we put into Bastrop County.

I would guess by the time it’s all said and done, we’ll put another $20 million or $30 million into Bastrop County. Then we’ll have room for 1,100 mobile homes. It’ll be a thing of beauty. We’ll probably keep a couple of days a month or three days a month active in one of our factories just by satisfying that one property’s demand. Sorry. One last question as it relates to Bastrop County. What’s your best guess right now as to when you might start to sell homes, place homes on property? We have 110 lots that were designed to be fee simple lots that we would begin marketing as soon as we solve just one piece of the puzzle, and that’s connecting to the state highways on one side or the other. They would go under market.

The beauty part about that is when we did this, we thought we’d be selling those things for $70,000 or $80,000 apiece. The current value of those lots retail is probably more like $120,000 or maybe $120,000-$130,000. In a way, not selling them for $80,000 has yielded us an above-average rate of return just by not selling them. Anybody has a lot, a three-quarter acre lot in this market, that’s getting well over $100,000 for a place to put a mobile home, sometimes $130,000. We are kind of expecting now to get $115,000-$120,000 when we go to market on those. We would like to get that going, if nothing else, to fill it up with legacies that we have built at our two plants in Texas. Thank you. Thank you. Our next question comes from the line of Mark Smith with Lake Street.

Your line is now open. Hi, guys. First question for me, just wanted to ask, you talked quite a bit about kind of demand and production in Texas. Curious if you can just give us your thoughts around kind of Georgia and the southeast, how that market’s doing, and kind of how things are running at the plant. You probably got this, Mark, from my mood when I addressed that just a minute ago or my tone of voice. I am not that confident in the southeast. And I know that we can carry on at two or three a day, but that’s a very large manufacturing facility and does not really make sense at two or three a day. We have got to find a way to develop distribution in that market. The mobile home park model is not as good as it was.

People now are paying a lot more for the house. They’re paying a lot more for the home. They’re paying a lot more to set it up. They’re paying more to hook it up to utilities. Unfortunately, the rents that they typically get when they put one in their mobile home parks haven’t increased accordingly. The model is not as solid as it was, say, five years ago, which was a big part of what we built in the market when everybody built filling up a bunch of mobile home parks in a model that did make sense when all those prices were down and the rents were pretty much the same as they are today.

The underlying demand in the southeast has got to be to the guy who’s going to live in it in rural America or some sort of opportunistic disaster housing, which has oftentimes happened in that market that we participated in. If you assume that park sales is going to be much lower than it has been historically, the demand has to come from direct consumer sales for privately owned land or from some sort of disaster relief. If you can tell me how many hurricanes there will be in the southeast next year, I could probably give you a pretty good feel for how good the market’s going to be. That’s really kind of the demand there. As you know, the southeast doesn’t have the tailwinds that Texas has, but it has better tailwinds than many parts of the country.

The demographics in all those states that we serve in the Southeast are still positive. We know it’s not because of birth rate. It’s positive because people are still moving to Georgia, and they’re still moving to North Carolina, and they’re still moving to Florida. There’s an immigration from one part of the United States to another that goes on in that market. We get some positive demographics there. We sell to operators that are taking advantage of that. I talk to them all the time. They’re struggling to make the economics work. Now, if interest rates come down a little bit and their models, instead of being, say, at a six-cap rate or at a five-cap rate, then they can make more sense out of it. We’ve had a nice reduction in interest rates over the last month or so.

They actually punished mobile home stocks for it because they thought that would make site-built housing more attractive. Maybe it does. It sure helps communities that are trying to make sense out of community-owned rentals and community-owned mobile homes. When their bar rate goes down a point, it really helps their model quite a bit. I know this did not address the answer that you want, a specific answer, but I think I made it clear that there are only two ways to really do well in the southeast: the community model and disaster relief housing. The likelihood that all those plants in the southeast, which there are roughly 20 operating in that market that we compete against, there is not enough demand at the retail level to keep 20 factories working.

I can see the industry as a whole making some difficult decisions in the Southeast absent getting some disasters next year that give us more tailwinds. Okay. I did want to ask about gross profit margin. I know you do not give guidance, but just kind of any insight you can give us on the outlook there, maybe where the pressures are coming. I know you discussed tariffs, but I guess maybe two things here. Do you think that you have seen kind of topped out the inflationary pressure, whether it is from tariffs or anything else? Then, do you think that you have taken ample price to cover the pressure that you have seen or could see? I think the price increase that we did are going to cover the effects of tariffs in particular. The world believes that tariffs are a one-time inflationary event.

If that’s the case, then the price increases may be over. We’ve also increased our line workers’ wages by 10% this year. Obviously, the Chinese imports have gone from a 25% tariff to, as of what time is it? 10:00, no, 11 o’clock. As of 11:00 A.M. today, the tariff rate currently is 45%. That could change by 2:00 P.M. this afternoon. I mean, it moves around. The net result of our cost of goods sold on just what happened last week, decreasing the tariff from 55% to 45%, our cost of goods sold would go down roughly $1 million with just that one happening, just like they went up before when they went up that much. I don’t really look at inflation as something that either does happen or doesn’t happen. It’s 70 years old. I can remember 4-cent stamps.

I can remember 29-cent gasoline. I think inflation is inevitable at what pace. That’s the only thing that we might disagree on. I would guess that our average wholesale price now is about $60,000 per floor. I think that if I was to give this same earnings call, say, 24 months from now, two years from now, I think that it’s going to be closer to $70,000 than $60,000. The margins are real simple. Financial statements sometimes make it seem more complicated. You got a selling price, you got materials, you got labor, and you got allocable overhead. On the materials side, all factories are pretty similar. I would say 80% of the capacity buys their materials within a few percentage points of each other’s. Labor, there’s quite a disparate labor deal, kind of depending on the complexity of the product you’re building.

If you’re building a very simple product, you might get labor all the way down to $4 or $5 per sq ft. If you have a very complex product, you’re going to get labor in the $10-$15 range per sq ft. The only thing that can help that, the more you build this exactly the same, the more productive the assembly line gets as far as allocable overhead. That is very specific about what we’re allowed to do on a GAAP basis. A purchasing agent can be allocated, but a CEO can’t. While our gross margin may be suffering a little bit over the next 12 months, our net margin, because now we’re talking about eliminating SG&A or controlling SG&A, while the founders were gone, SG&A went up. I think Ron was very clear in his outline on that.

With SG&A up 15-16% at a time when sales were down, I think you will see the immediate reversal of that trend and some relief in probably the fourth quarter, followed by significant relief in the first quarter on SG&A as a percentage of sales. I hope that puts a little color on your question. No, that’s helpful. If I can squeeze in one more, just I don’t know if you’re able to talk at all about kind of numbers behind the acquisition and potential impact on the balance sheet just as far as the size of this acquisition. It’s simple. We’re on a call that’s available to the public. We didn’t give much detail on Friday’s announcement, but I don’t mind telling you what it is.

This is roughly a $22 million deal, all in, about half of which is retail paper, and the other half are the assets that I’ve described. We wouldn’t be doing this if we didn’t think it was going to have a positive aspect on the company. If I was just guessing, I would guess that our retail selling as a company, which is currently about 250-300 units a year, I would expect that to be 50% higher, maybe 60% higher in 2026 than it was in 2025. If that doesn’t come to pass, then the purpose of the acquisition didn’t get accomplished. It’s really that’s the jewel. Everything else we bought, pretty much what we would be willing to pay on a one-off basis at any time. We have a 28% interest in a mobile home park as part of the deal. We know that market really well.

It’s worth a little over $1 million or more to us. A lot of what we acquired was hard asset value, with the only uncertainty being how well can we integrate the Colombia presence and the Home FX model into our retail system. If that turns out to be what I think it is, I would think our retail sales will go up by at least 50%. If we really perform well, it could even be double in 2026 relative to 2025. Let’s face it, we make a lot more money when we can retail one than we can make one selling at wholesale for $60,000 a floor. The margin in this industry is about 40-50% up. If we build it for $60,000, we retail it for $90,000. The more that we can retail, the better.

I think Ron mentioned that a good part of the reason why our average price per home went up is because we retailed a higher percentage of what we built in 2025 than we did in 2024. It was just nominal compared to the leap that we are planning on taking with this acquisition. This acquisition is pretty much what can we do at the retail level to improve that part of our distribution, filling the gap that is kind of leaving us because of the park problems that I referred to earlier on the call. Just confirming within that kind of increase within retail stores, that is including the site that you are buying in as your retail location, as well as improvements in retail stores at the existing heritage sites today. Correct. Yeah.

We probably retailed, and I’m just guessing because I know we do monthly, so I’m going to go ahead and multiply by 12. I can still do that in my head. I’m going to guess we’re at about 300 now. The Houston location itself should add 100 to that going forward. The integration of the systems into our existing retails should add another 100 to it. On a good day, maybe even another 200. What I’m saying is we should be up 60% in 2026 versus 2025 on the number of units we retail. It could be as much as 100%. There’s a little more guidance than what you asked for. On the other hand, the press release around the acquisition was a little bit gray, let’s put it that way.

Now you have Colorado, and we have not closed it yet, so you never know. It could blow up. The binding contract, the contingencies are being put together, and we expect to close before Thanksgiving. Excellent. That is very helpful. Thank you. Thank you. This concludes the question and answer session. I would now like to hand the call back over to Kurt Hodgson for closing remarks. It was a much longer call than I expected. I had to able a bunch of it, but I think I did a reasonably good job. I would like to thank everybody who joined in today’s earnings call. We appreciate your interest in our company and look forward to delivering you better results in the future than we did in this last quarter. This concludes today’s conference. Thank you for your participation. You may now disconnect.

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