Executive Summary / Key Takeaways

• Vertically Integrated Model Driving Value: Legacy Housing Corporation ($LEGH) leverages its end-to-end control over manufacturing, distribution, and financing to offer affordable housing solutions, consistently growing its book value and generating strong cash flow from its loan portfolios.
• Strategic Shift Towards Retail and Technology: Recent management changes and the acquisition of AmeriCasa Solutions, including its FutureHomeX platform, signal a focused drive to significantly expand higher-margin direct-to-retail sales and enhance operational efficiency through remote dealership management.
• Resilience Amidst Macroeconomic Headwinds: Despite industry-wide slowdowns, rising input costs, and increased tariffs, Legacy Housing maintains a robust balance sheet with ample liquidity, enabling strategic investments and opportunistic share repurchases.
• Texas Market Strength Offsetting Southeast Weakness: Strong demand in Texas, particularly from data center workforce housing, is expected to drive production and sales, while the Southeast market faces challenges from a less viable mobile home park model and slower overall activity.
• Product Innovation and Cost Discipline: The company is simplifying its product line and introducing new energy-efficient features like the 21 SEER mini-split heat pump, alongside a renewed focus on cost control, aiming to improve gross and net margins in the coming quarters.

The Foundation of Affordable Housing: Legacy's Integrated Approach

Legacy Housing Corporation, trading as $LEGH on NASDAQ, stands as a vertically integrated powerhouse in the manufactured housing industry, primarily serving the southern United States. Founded in 2005 by Curt Hodgson and Kenny Shipley, the company's journey from a limited partnership to a publicly traded entity in 2018 has been marked by a consistent commitment to providing quality, affordable homes. Legacy's comprehensive business model encompasses everything from designing and manufacturing mobile and tiny homes in its three facilities across Texas and Georgia, to transporting these units, and crucially, offering a suite of financing solutions to dealers, mobile home parks, and end consumers. This integrated approach is a foundational strength, allowing Legacy to control costs, maintain quality, and offer competitive pricing in a market desperate for accessible housing options.

The broader industry landscape underscores Legacy's critical role. The United States faces a persistent affordable housing crisis, with the average price of a new single-family home reaching $511,000 in 2023, compared to just $123,000 for a manufactured home. This stark contrast highlights the growing demand for factory-built housing, especially for households earning below $75,000 annually, a demographic severely impacted by rising rents and traditional home prices. While the industry as a whole has experienced a slowdown, with the Texas Manufactured Housing Association reporting a 6.1% raw total decline in September 2024, regional tailwinds, such as the burgeoning data center industry in Texas, are expected to generate significant housing demand, positioning Legacy favorably in its core market.

Strategic Evolution and Leadership Renewal

Legacy Housing's history is one of continuous adaptation. The company has consistently compounded book value by 15% annually, demonstrating a resilient operating model. A strategic capital management program, initiated in November 2022 with a $10 million share repurchase authorization, expanded by another $10 million in August 2024, reflects management's confidence in the company's intrinsic value. In July 2023, Legacy enhanced its financial flexibility by securing a new $50 million revolving credit facility with Prosperity Bank, which includes an additional $25 million accordion feature and currently holds a zero outstanding balance.

The latter half of 2025 marked a pivotal moment for Legacy Housing. Following the departure of its CEO, CFO, and General Counsel in October, co-founder Kenneth E. Shipley stepped in as Interim CEO, with former CFO Ronald C. Arrington returning as Interim CFO. This leadership transition, described by Executive Chairman Curt Hodgson as "getting back to basics," signals a renewed focus on cost discipline, operational efficiency, and expanding sales opportunities. This realignment is poised to reinvigorate growth and innovation, aiming to enhance profit margins and potentially create a stock premium, according to management.

Operational Excellence and Technological Edge

Legacy's operational strategy revolves around efficient manufacturing and a diversified distribution network. The company's three manufacturing facilities are capable of producing, on average, approximately 70 home sections per week. These homes, ranging from 395 to 2,667 square feet with up to five bedrooms, are marketed under the Legacy brand through a network of independent retailers, 13 company-owned retail locations, and direct sales to manufactured home communities. Approximately 56% of Legacy's manufactured homes were sold in Texas for the nine months ended September 30, 2025, underscoring the state's importance to the company's sales volume.

A significant technological differentiator for Legacy Housing is its recent acquisition of AmeriCasa Solutions LLC, including its proprietary FutureHomeX cloud-based SaaS platform. This platform is designed to enhance sales management for manufactured home retailers and communities. The strategic intent behind this acquisition, valued at approximately $22 million, is to leverage remote management technology to significantly boost Legacy's direct-to-retail sales, as outlined by management. Norman Newton, AmeriCasa's CEO and an expert in passively managing dealerships, has joined Legacy as Director of Revenue to integrate this system. The acquisition includes a high-performing Houston dealership that sells 10-12 homes per month, more than double Legacy's average per retail location, providing a tangible model for expansion, according to company statements.

Beyond FutureHomeX, Legacy is also innovating its product line through the Legacy 250 initiative and Legacy Ultimate Series, introduced in October 2025. These new models feature taller roof pitches, wider floors, vaulted ceilings, and an optional 8x12 shed storage module, enhancing usable living space. A pioneering feature is the industry-first 21 SEER concealed-duct mini-split heat pump, located entirely under the home, which frees up interior living space and offers superior energy efficiency. This focus on modern floorplans, integrated dining bars, media-focused family rooms, and hotel-quality walk-in showers aims to deliver a custom home feel at an accessible price point, directly addressing consumer preferences for quality and affordability. These technological advancements and design innovations are crucial for Legacy to maintain its competitive moat, attract new customers, and potentially command higher average selling prices.

Financial Performance and Liquidity

Legacy Housing's financial performance in the third quarter of 2025 reflected a mixed environment, with some notable shifts in revenue streams and profitability. Total net revenue for the three months ended September 30, 2025, was $40.478 million, a decrease of 8.6% from $44.266 million in the same period of 2024. Product sales, a primary revenue component, declined by 4.6% to $28.787 million, driven by lower unit volumes, particularly in inventory finance and mobile home park sales. Despite this, the net revenue per unit sold increased by 7.9% to $68,500, primarily due to a favorable shift towards higher-priced consumer sales and price adjustments to offset rising costs.

Interest income from consumer, MHP, and dealer loans, a stable and growing revenue stream, increased by 5.4% to $10.892 million in Q3 2025. For the nine months ended September 30, 2025, total loan portfolio interest income rose by 5.3% to $32.431 million. The consumer loan portfolio grew by 12.8% to $188.1 million over the preceding 12 months, while the MHP note portfolio remained stable at $201.5 million. Management projects these loan portfolios to contribute approximately $40 million directly to the bottom line in 2025.

Profitability saw pressure in Q3 2025, with the cost of product sales increasing by 7.5% to $22.963 million, largely due to higher raw material and tariff costs, which climbed from 39.4% to 47.7% of sales. This resulted in a product gross margin of 20.28%, down from 29.2% in Q3 2024. Selling, general and administrative (SG&A) expenses also rose by 20.6% to $7.315 million, influenced by increased legal and loan portfolio loss expenses. Consequently, net income for Q3 2025 decreased by 45.3% to $8.645 million, with the net income margin falling to 21.4% from 35.7% year-over-year. Management anticipates a reversal of the upward trend in SG&A, expecting relief in Q4 2025 and significant improvements in Q1 2026 as a percentage of sales.

Legacy Housing maintains a robust liquidity position. As of September 30, 2025, the company held $13.551 million in cash, a significant increase from $1.149 million at the end of 2024. The $50 million revolving credit facility with Prosperity Bank remains undrawn, providing substantial financial flexibility. The company is actively managing its working capital, aiming to reduce excess raw material and finished goods inventory, which is currently double its optimal level, to free up $10 million to $20 million for reinvestment, according to management. Legacy's book value per basic share outstanding increased by 10.2% year-over-year to $21.85 as of September 30, 2025, reflecting ongoing financial resilience.

Competitive Landscape and Strategic Positioning

Legacy Housing operates in a highly competitive manufactured housing industry, vying for market share against larger national players like Skyline Champion Corporation (SKY) and Cavco Industries (CVCO), as well as regional homebuilders such as Green Brick Partners (GRBK). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Legacy is recognized as the fourth-largest producer of manufactured homes in the United States.

Legacy's competitive strength lies in its deep vertical integration, allowing it to control the entire value chain from manufacturing to financing and distribution. This model enables the company to offer a complete solution to customers and maintain a strong reputation for quality and affordability. Its specialized financing options, particularly for consumers and mobile home park operators, provide a crucial competitive advantage, capturing sales that might otherwise be lost. For instance, the AmeriCasa acquisition's loan portfolio carries an interest rate over 16%, similar to Legacy's existing portfolios, and is expected to be accretive to financials.

Compared to larger competitors like Skyline Champion, which boasts a wider geographic footprint and potentially greater scale, Legacy's localized strategy and direct-to-community sales model foster stronger customer loyalty. However, Skyline Champion often exhibits stronger cash flow generation and potentially higher operating margins due to its scale. Cavco Industries, another significant player, shows reliable revenue growth and solid profitability, with strengths in supply chain management. Legacy's financing innovations and focus on quick-deployment homes provide an edge in specific segments, though Cavco's diversified revenue streams may offer greater financial resilience. Green Brick Partners, with its focus on land development and integrated homebuilding, presents a different competitive dynamic, potentially outpacing Legacy in growth from emerging markets through land deals.

The industry is characterized by intense price competition, with many manufacturers operating below capacity, as noted by management. Legacy's management notes that while they have implemented price increases to offset rising costs, the market remains "cutthroat". Legacy's technological advancements, such as the FutureHomeX platform and the energy-efficient Legacy Ultimate Series, aim to differentiate its product and sales process, providing a competitive moat through enhanced customer experience and lower operating costs for homeowners.

Outlook and Strategic Initiatives

Legacy Housing's outlook for the remainder of 2025 and into 2026 is shaped by a combination of strategic initiatives and evolving market dynamics. Management is optimistic about the Texas market, anticipating strong business for the next one to two years, driven by the demand for approximately 5,000 housing units to support data center workforces. Orders from the recent Fort Worth show are expected to ensure Texas manufacturing facilities run at a profitable pace of 6-7 units per day through year-end and into Q1 2026, exceeding Q3 2025 rates. The Georgia plant is projected to produce 2-3 units per day, contributing to a company-wide average of 8-10 units.

A key strategic focus is the expansion of Legacy's retail business. With the integration of AmeriCasa's FutureHomeX platform and Norman Newton's expertise, management expects retail unit sales to increase by 50% to 60% in 2026 compared to 2025, with the potential to double. The goal is to grow the retail segment to as much as 50% of total revenue by the end of next year. This shift is a direct response to the challenges in the mobile home park model, where increased costs and stagnant rents have made it less attractive.

The company is also making significant progress on its Falcon Ranch development in Bastrop County, Texas. Phase 1, comprising 115 lots, has roads and utilities nearing completion, with lot sales anticipated by summer 2025. The retail value of these lots is estimated at $120,000 to $130,000 each. Phase 2, with 350 lots, is also underway with utilities and road work. Legacy is also evaluating the divestment of other appreciated real estate properties, with estimated gains of $4 million to $5 million.

Risks and Challenges

Despite its strengths and strategic initiatives, Legacy Housing faces several pertinent risks. Macroeconomic factors, including high inflation and rising interest rates, continue to pressure gross margins due to increased material and labor costs. The company has experienced higher input costs from increased tariffs on Chinese goods, which rose from 25% to 45% as of November 2025, adding approximately $1,200 to the cost of a standard floor plan. While Legacy has implemented price increases, the competitive industry environment may limit the extent to which these costs can be passed on to customers.

Operational challenges include managing high working capital, with raw material and finished goods inventory currently double optimal levels, as highlighted by management. The Southeast market remains a concern, with slower demand and a less viable mobile home park model, necessitating a focus on direct consumer sales or disaster relief housing. Furthermore, Legacy has identified material weaknesses in its internal control over financial reporting, including insufficient control activities and a lack of qualified accounting personnel, which could pose risks to financial accuracy. The recent senior management turnover also introduces a period of uncertainty, though the re-engagement of co-founders aims to mitigate this.

The company's loan portfolios, while generally strong, are experiencing a slight increase in charge-offs and lower recovery rates on repossessed homes compared to the pre-COVID period, according to recent discussions. Anecdotal evidence suggests that ICE enforcement could impact the demand from the immigrant market, a segment that historically contributes to Legacy's customer base.

Conclusion

Legacy Housing Corporation stands at a pivotal juncture, leveraging its deeply integrated business model and renewed strategic focus to capitalize on the persistent demand for affordable housing. The recent leadership transition and the strategic acquisition of AmeriCasa Solutions, with its FutureHomeX platform, underscore a clear commitment to expanding higher-margin retail sales and enhancing operational efficiency through technological differentiation. This pivot, coupled with product innovations like the energy-efficient Legacy Ultimate Series, is designed to strengthen its competitive position and drive future growth.

While macroeconomic headwinds, including inflation, tariffs, and regional market disparities, present ongoing challenges, Legacy's robust balance sheet, significant cash reserves, and undrawn credit facility provide a strong foundation for resilience and strategic investment. The company's disciplined approach to capital allocation, including opportunistic share repurchases, further reinforces its commitment to shareholder value. As Legacy Housing refines its operations, expands its retail footprint, and continues to innovate its product offerings, it is well-positioned to build upon its consistent track record of growing book value and delivering profits, making it a compelling consideration for discerning investors in the affordable housing sector.