Legacy Housing Corporation (NASDAQ:LEGH) Q1 2023 Earnings Call Transcript May 10, 2023
Legacy Housing Corporation reports earnings inline with expectations. Reported EPS is $0.65 EPS, expectations were $0.65.
Duncan Bates: Good morning. This is Duncan Bates.
Operator: Yes. You go ahead, sir.
Duncan Bates: We’re get to go.
Operator: Yes. We’re get to go.
Duncan Bates: All right. Good morning. This is Duncan Bates, Legacy’s President and CEO. Thanks for joining our First Quarter 2023 Conference Call. Max Africk, Legacy’s General Counsel will read the Safe Harbor disclosure before getting started.
Max Africk: Thanks, Duncan. Before we begin, may I remind our listeners that 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 vary or differ from management’s current expectations, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company’s Annual Report filed with the Securities and Exchange Commission. In addition, 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.
Duncan Bates: Thanks, Max. I’ll run through our prepared remarks then we’ll open the call for Q&A. Product revenue decreased to $43.3 million or 16.4% in the first quarter of 2023 compared to the first quarter of 2022. The decrease primarily resulted from a reduction in shipments across all three plants. Also, we did not convert any independent dealer consignment agreements to floor plan financing agreements during this quarter, as we did most quarters last year. The manufactured housing industry has slowed. According to MHI’s March 2023 data March shipments were up over February, but still well below 2022 numbers. We believe that our business has fared better than most. We made a big push on sales this year and have a nice backlog at all plants.
Several longtime customers have stepped up with large orders. We have a small manufacturing footprint and continue to run near capacity. We anticipate having orders to feed all three plants. We also believe that there are several major tailwinds for our industry as housing affordability nears record lows. As we discussed on the prior call, we have been working hard on improvements at our Eatonton, Georgia manufacturing plant. We right-sized the workforce, brought in a third-party to retrain and monitor the team and have significantly improved our product quality. Production during the first quarter of 2023 was still below historical levels in Georgia. However, we recently gained momentum on the manufacturing side and have secured several large orders for the plant.
Our team continues to push production volume without sacrificing quality. Consumer and MHP loan interest income increased to $7.7 million or 13.9% during the three months ended March 31, 2023, as compared to the same period in 2022. This increase was driven by increased balances in the MHP and consumer loan portfolios. Other revenue primarily consists of dealer financed fees and commercial lease rents, which increased to $1.8 million or 33.3% during the three months, ended March 31, 2023, as compared to the same period in 2022. Our financing business generates predictable recurring revenue. We now have over $350 million in principal outstanding across our loan portfolios. The portfolios are performing well and defaults remain near record lows.
Selling, general, and administrative expenses decreased $2.3 million or 29.3% during the three months ended March 31, 2023, as compared to the same period in 2022. This decrease was primarily due to a decrease in salaries and incentive costs and a decrease in legal expense partially offset by an increase in warranty cost. Net income increased 1.1% to $16.3 million in the first quarter of 2023 compared to the first quarter of 2022. Basic earnings per share grew $0.01 per share in the first quarter of 2023, an increase of 1% from the same period in 2022. Legacy delivered an 18.7% return on equity over the last 12 months. At the end of the first quarter of 2023, Legacy’s book value per basic share outstanding was $16.32, an increase of 20.3% from the same period in 2022.
We continue to hold pricing and reduce our raw material inventory. Our top focus remains on sales, but we are also looking at ways to reduce SG&A and warranty costs. Legacy’s balance sheet is healthy. We ended the quarter with $3.2 million in cash and $7.8 million drawn on our line of credit. We also own $8.5 million of treasuries yielding approximately 4.7%. As the economy slows, investors should start to see the beauty of our integrated business model. Sales were down during the first quarter, but margins and earnings improved. From a strategic standpoint, I recently discussed the opportunities we are seeing in our industry with our founders. They have been waiting years for this. Our foundation is stable and we are well-positioned for growth.
Operator, this concludes our prepared remarks. Please begin the Q&A.
Q&A Session
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Operator: Thank you. [Operator Instructions]. Our first question comes from Alex Rygiel with B. Riley. Your line is open.
Operator: Alex?
Operator: One moment for our next question. Our next question comes from Mark Smith with Lake Street. Your line is open.
Operator: One moment for our next question. Our next question comes from Tim Moore from EF Hutton. Your line is open.
Operator: It’s a female one for Tim. She is very low. Can you speak up, ma’am a little bit?
Operator: One moment for our next question. Our next question comes from [indiscernible] who is a Private Investor. Your line is open.
Operator: One moment for our next question. Our next question comes from Roman [indiscernible] also a Private Investor. Your line is open.
Operator: And I’m not showing any further questions at this time. I’d like to turn the call back over to Duncan for any closing remarks.
Duncan Bates: Perfect. Thank you. Two final comments. One, thank you to our customers. I mentioned during the call and the press release certain longtime customers have placed large orders. The orders keep our facilities full and keep our workers paid and we truly appreciate your business. And secondly, I’d like to thank everyone who joined today’s earnings call. We appreciate your interest in Legacy Housing. Feel free to reach out to us with any follow-up questions. My contact information is at the bottom of the press release. Operator, this concludes our call.
Operator: Well, ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.