Legacy Housing Q4 2023 Earnings Call Transcript

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March 18, 2024

There are 7 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Legacy Housing Corporation Q4 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Duncan Bates, President and CEO.

Operator

Please go ahead.

Speaker 1

Good morning. This is Duncan Bates, Legacy's President and CEO. Thank you for joining our call to discuss Legacy's year end 2023 results. I apologize for the release late Friday. Circumstances outside of our control delayed the release and we will try to avoid Friday releases in the future.

Speaker 1

Max Aferick, Legacy's General Counsel, will read the Safe Harbor disclosure before getting started. Max?

Speaker 2

Thanks, Duncan. 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 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.

Speaker 2

Legacy assumes no obligation to update these projections in the future unless otherwise required by law.

Speaker 1

Thanks, Max. I'm joined today by Jeff Fiedelman, Legacy's Chief Financial Officer. Jeff will discuss our 2023 financial performance, then I will provide additional corporate updates and open the call for Q and A.

Speaker 3

Jeff? Thanks, Duncan. Product sales decreased to $145,100,000 or 34.7 percent in 2023 as compared to 2022. This decrease was driven by a decrease in unit volumes and the conversion of certain independent dealer consignment arrangements to inventory finance arrangements in 2022 that did not occur in 2023. The conversion of consignment arrangements to inventory finance arrangements resulted in an increase to product sales of approximately $29,100,000 during 2023.

Speaker 3

Between December and December 31, 2022, our net revenue per unit sold decreased 10.4% to $59,600 Dealer and community customers purchased smaller, less optioned homes to meet customer demand in 2023. The decrease was not driven by price concessions during the year. Consumer MHP and dealer loans interest income increased to $37,400,000 or 31% from 2023 to 2022. This increase was driven by increased balances in the MHP and consumer loan portfolios. Between December 31, 2023 December 31, 2022, our consumer loan portfolio increased by $17,500,000 and our MHP loan portfolio increased by $39,200,000 These increases are net of principal payments and loan loss reserves.

Speaker 3

Other revenue primarily consists of contract deposit The increase was driven by growth in forfeited deposits and The increase was driven by growth in forfeited deposits and servicer fee revenue, offset by a decrease in consignment fees as dealers carry less inventory in 2023. The cost of product sales decreased $50,400,000 or 33.6 percent in 2023 as compared to 2022. The decrease in cost is primarily related to a decrease in units sold. Product gross margin was 31.3% for the year ended December 31, 2023. Selling, general and administrative expenses decreased 3,300,000 dollars or 11.9 percent in 2023 as compared to 2022.

Speaker 3

This decrease was primarily due to a decrease in salaries and benefits costs, warranty costs, consulting and professional fees, partially offset by an increase in low loss provision, legal expenses and marketing and advertising expenses. Net income decreased 19.6% to $54,500,000 between December 31, 2023 December 31, 2022. At December 31, 2023, we had approximately $700,000 in cash and cash equivalents compared to $2,800,000 as of December 31, 2022. Legacy's outstanding balance on our credit facility at December 31, 2023 was $23,700,000 During the Q4, we drew on our facility to make significant investments in our land developments and to fund multiple financing opportunities that surface near year end. The balance on our credit facility is below $11,000,000 today.

Speaker 3

Legacy delivered a 13.0 percent return on shareholders' equity over the last 12 months. At December 31, 2023, Legacy's book value per basic share outstanding was $17.91 an increase of 14.2 percent from the same period in 2022.

Speaker 1

Thanks, Jeff. I appreciate you and your team's hard work on the audit and the 10 ks filing. Let's start with legacy's financial performance, then I will discuss the market and give other corporate updates. First, I would like to address a few one time items that impacted our numbers for the reported period. In 2022, we converted Legacy's dealer financing program from consignment arrangements to inventory financing arrangements.

Speaker 1

The goal of this conversion was to move our dealers to an industry standard inventory finance program. The conversion resulted in a one time increase in product sales of $29,100,000 in 2022. Approximately 20,000,000 dollars

Operator

of the

Speaker 1

$29,000,000 was recognized in the Q4 of 2022. Please keep this in mind as you evaluate the quarter and year end performance. In 2023, the energy tax credit program changed and legacy adjusted accordingly. In 2023, we started building nearly all of our HUD code units to Energy Star standards, a voluntary program that will serve our that will save our customers money. For the year ended December 31, 2023, legacy could only claim tax credits for homes built and sold in 2023, lowering the tax credits recognized during the year.

Speaker 1

Our effective tax rate jumped from 17.5 percent in 2022 to 20.8% in 2023. For 2024, we anticipate reducing our effective tax rate back towards 18% as we claim credit for homes built in 2023 but sold in 2024. For the year ended 2023, legacy implemented CECL, a loan loss accounting framework required by FASB. The standard requires an entity to reflect its current estimate of all expected credit losses. The adoption resulted in an increase in portfolio allowances of $900,000 at transition in the Q1 of 2023.

Speaker 1

The allowance the CECL allowances have increased 158 percent to 2,200,000 dollars at December 31, 2023 from 840,000 at December 31, 2022. I'm proud of our team's execution controlling expenses during a lower demand environment in 2023. We managed SG and A down 11.9 percent and overhead expenses effectively and ended 2023 with 29% net income margins for the year with no adjustments. Legacy's Board wants our management team laser focused on the bottom line. We have held pricing levels and held production levels as we continue to build a backlog across the manufacturing plants.

Speaker 1

Shipments were lower in the Q4 than we would have liked. I underestimated seasonality on the dealer side, further delayed shipments from both Texas and Georgia plants to mobile home parks and weather up north delaying shipments of subcontracted units from our partners. These factors all contributed to lower shipments during the Q4. As Jeff mentioned, consumer, MHP and dealer loan interest income increased to $37,400,000 or 31% from 2022 to 2023. We will continue to deploy capital into our loan portfolios in 2024.

Speaker 1

The notes are performing well and we like the stable and recurring revenue. Housing affordability in the U. S. Continues to deteriorate. Large numbers of potential homebuyers are priced out of the traditional housing market.

Speaker 1

Our products and financing solutions serve the 50% of U. S. Households that make less than $75,000 a year. We believe in our industry and continue to see signs of a gradual recovery in 2024 as the economy stabilizes and credit eases. Moving on to the market.

Speaker 1

The retail or dealer side of our business continues to show signs of life. We just work through the seasonally slower period, but foot traffic is still up from mid-twenty 23 and dealers are selling homes. We believe that most of the destocking issues from early 2023 are behind us. The reorder rates continue to lag, but inventory carrying costs are higher. 2 important data points.

Speaker 1

Right now, interest from new dealers and legacy's products and financing solutions is high. Legacy has signed up more new dealers this month than any other month since I started. 2nd, our heritage stores are on track for the best sales month in the last 12 months. On the communities or park side of our business, sales to community owners and developers remain stable, but shipments lag. Like other manufacturers, we have battled delayed shipments due to setup related issues and discriminatory zoning practices.

Speaker 1

New manufactured housing developments have been impacted by high interest rates. In Q4, we started to see an interesting trend as traditional community developers and investors started taking delivery of small HUD units and tiny homes for RV parks that they have purchased and converted. These smaller units did impact our average selling price in the 4th quarter. A quick update on some of the projects I discussed last call. Here's where I'm focused.

Speaker 1

Hiring. We continue to build the team at Legacy. I mentioned that we are hiring young, hungry talent last quarter. My mandate from the Board now is to also hire senior professionals with industry experience to increase depth in important areas of our business like financing, sales, engineering and manufacturing. We still have some key positions to fill, but I am excited to see the contribution as these individuals get up to speed.

Speaker 1

Working capital. Working capital is still a focus. From December 31, 2022 to December 31, 2023, we reduced our raw material inventory by 23%. We still have work to do on finished goods inventory at our Georgia plant. Sales.

Speaker 1

Kenny and I have been heavily involved in recruiting and training talented sales professionals. We are systemizing our sales process by adding tools and technology. As the newer sales team gets up to speed, we are starting to see results. And as the market improves, we are well positioned from a sales standpoint. Workforce Housing.

Speaker 1

I continue to believe workforce housing is a big opportunity for legacy. We hired a team to focus exclusively on this product line during the Q4. The team is quoting and winning small orders. We are managing this area closely and are excited about the opportunities we state. Land development.

Speaker 1

I mentioned during the call that we hired a dedicated team to prioritize and accelerate land development. Completing Phase 1 of our Del Valle, Bastrop County project outside of Austin is our top priority. You will see in our numbers the capital to complete this project is accelerating. We continue to evaluate ways to maximize the value of these projects for our shareholders. 2 new areas that I want investors to keep an eye on.

Speaker 1

As our heritage stores performance improves, we think there is an opportunity to add additional stores. We only sell about 10% of our production through our company owned stores compared to almost 50% from some of our competitors. 2nd, we are exploring opportunities to add financing products to better serve our customers. Our senior leadership team has been working with customers to understand their needs and is evaluating if these programs make sense for our business. One final thought, I discussed valuation on our last call.

Speaker 1

Legacy is a high quality business with strong consistent margins, high insider ownership, low leverage and the ability to redeploy its earnings at high rates of return. We are long term focused and 1 quarter does not define us. Now that our foundation is stable, the right conversations are happening at the Board level about strategic growth projects. Our management team is excited to see what we can do over the next few years. Operator, this concludes our prepared remarks.

Speaker 1

Please begin the Q and A.

Operator

Thank you. Our first question comes from the line of Alex Rygiel from B. Riley Securities.

Speaker 4

Good morning, Duncan and Jeff. This is Minh on for Alex this morning.

Speaker 1

Hey, Minh.

Operator

A couple of quick questions.

Speaker 4

So I was just wondering if you could well, on your November call, you obviously talked about a lot of positive trends that you're seeing, retail improvements, you had some positive backlog from your October show. Has anything shifted like more positively or maybe just in a negative direction since then?

Speaker 1

Minh, it's been spotty. We were really excited coming out of the show and we're able to secure a lot of orders. And we had a pretty good run building those orders. But during the Q4, we just had a lot of things that worked against us and ultimately slowed down shipments. And so what we decided was, let's hold production at current levels and let's continue to build a backlog.

Speaker 1

And we've got we're all heading to Biloxi after this call. We've got great show specials. And so we've been continuing to push on the sales side. I think the biggest change is that we are seeing the impacts of higher interest rates on the park side of our business now. And that's something that we had a lot of parks that we were filling up.

Speaker 1

I think that new development is slower than we like, but it's still stable. And we've had some nice size orders. We're working on some more. But it hasn't we're impacted just like the other manufacturers on the parts side of the business.

Speaker 4

Okay, great. Thank you. Also just talking more about DelVal, I know that you had hired

Speaker 5

a new team to kind

Speaker 4

of focus on your land development. You're supposed to finish kind of like the roads and water treatment plants and maybe that's part of some of the slower development. But do you have any sense, any better sense for timing of some of the home deliveries into DelVal or even Horseshoe Bay at this

Speaker 1

point? So we have made some progress in Horseshoe Bay. Horseshoe Bay are individual lots We own about 300 of them that we're putting homes on and selling. And we're probably, I'd say, 1.5 months away from opening a sales center there, which should accelerate the sales of those homes. And we've already sold a few we sold a few homes this quarter in Horseshoe Bay.

Speaker 1

So there is we are making progress in Horseshoe Bay. And the other area where we're really focused on the land development side is Del Valle. You'll see if you look at our CapEx, I mean, we wrote some really big checks at the end of the year. We've got the water lines and we've got the sewer lines and we've got the power. They're working on the drainage and roads now and starting the water treatment plant.

Speaker 1

And so our goal, I really I don't think we'll have houses on it in 2024, but I think it's pretty early in 2023 sorry, 2025. And we're pushing hard on it now. Dollars are starting to really accelerate and we've got the right team working with Kurt on that project to get back on track.

Speaker 4

Okay. And then just a final question on your new focus on potentially expanding your heritage or your in home sales, I guess. Yes. Can you talk a little bit about how much capital is required to open up a new location, kind of what your, kind of return horizon timeline looks like and just what locations you're looking to expand in? Yes.

Speaker 1

I want you guys to keep an eye on it. I won't say it's perfect, but when legacy went public, they used the IPO proceeds to build a retail presence. And we've had some challenges managing our retail stores. But I finally feel like we're heading in the right direction there, which is the first step to ultimately growing that piece of our business. And there's a lot of benefits that we pick up by adding company owned retail stores because you capture the retail margin and you accelerate the financing opportunities to our consumer loan portfolio.

Speaker 1

The first lot will be in Horseshoe Bay and that's mainly to serve that development as we put houses on those lots. But there are several other areas that we're looking at. And from a capital contribution standpoint, I mean, we're not talking about huge dollars. About half of our lots right now are leased and the others are owned. So we don't have to necessarily go out and buy a piece of land every time we open up a lot.

Speaker 1

But it just seems like an area as we've gotten better at managing heritage and there's still some there's certainly some improvement or ways to go. But I think as we get that business really humming, then it opens up the opportunity to add more stores. And if you look at our larger competitors, right now, I mean, they're selling up to 50 percent of their production through their stores. So we've got a lot of white space ahead if we can get this right.

Speaker 4

Great. Thanks, Duncan. I'll turn it over.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Mark Smith from Lake Street.

Speaker 6

Hi, guys. First question for me, Duncan, let's stay on the retail stores. Did you guys run any more promotions? Did we see ASP? Where did that kind of move within the retail store segment as the sales there look pretty solid?

Speaker 1

Yes. I'd say let's talk about all dealer sales, not just the legacy sales. But I'd say that the dealer side of the business is improving. And we continue we've been really impressed. I've got my secret sales weapon Kenny out there running down new dealers.

Speaker 1

And we've added a lot of new independent dealers, which is great for us because when the Parkside cycles, we do really need the dealers and we like the financing opportunities on the consignment on the federal investors consumer financing side. So we're seeing some good improvement on the dealer side. It is patchy though. There are certain geographies where people seem to be doing better than others. I think that there is also we're seeing this divergence between the dealers that have embraced technology and are using social media and finding customers on the Internet versus others that haven't.

Speaker 1

And so I think that there's some room to help them improve as well. But we haven't dropped prices across the board. We've taken production down to meet the demand and they're building the backlog, but the dealer side of the business is fairly strong.

Speaker 2

Okay.

Speaker 6

And then if we had if we maintain the sales mix similar to where it was here in Q4, can you just talk about margin outlook and how much of the decline here in margins in Q4 was really due to sales mix versus anything else happening?

Speaker 1

Yes. I mean, we were impacted. I mentioned, we had these big orders where on the park side where we shipped smaller HUD code units than tiny homes to got a few customers who are converting RV parks. So I think that that has impacted us. But across the board, both on the dealer side and the park side, the shift has been has continued to be toward smaller homes.

Speaker 1

I mean, where we used to sell a lot of large 16 wides to parks, people are moving to 14 wides and 12 wides. So I think that has had an impact, but I don't anticipate that everyone's only going to be buying smaller homes for the next year or so. I mean, it's just something that we've seen here in the very, very near future or very near history.

Speaker 6

Okay. And then as we look at the loan business, within consumer loans, are you guys using rate to drive an increase in that business? It looks like rates have maybe come down throughout the year and even into Q4. Any commentary on kind of what you guys are charging and how that's impacting the business?

Speaker 1

Yes. I mean, if you look at that loan portfolio in its entirety, we went through a period where I'd say rates were stable and then interest rates were super low and now interest rates are high. And our the older loans have higher interest rates in the loans, say, from the last 3 years, but we are pushing rate higher now. We with federal investors, we have very strict underwriting requirements. We have used we have kept our rate low because we're not borrowing to lend.

Speaker 1

But in certain unique, say, situations where we're financing a certain type of borrower or certain types of borrowers that where the credit quality is a little bit lower, I mean, we're certainly pushing rates higher. So I think we'll get back to a point where the rates on our chattel loans are closer to what they were 4, 5 years ago than over the last few years.

Speaker 6

Okay. And the last one for me, Jeff. Sorry, I think I missed it. Did you talk about where the balance sheet, where the debt is today?

Speaker 3

Today, we're under 11,000,000 dollars on our line of credit. So it's come down considerably since the end of December. Okay.

Speaker 6

And maybe that's one more follow-up on that. Just as we think about use of capital going forward, you guys spent a little bit more here recently on some investments. How should we look at kind of CapEx and use of capital going forward here in 2024?

Speaker 1

I think on Bastrop County, Q4 is a pretty good indicator of what the next few quarters will look like from a CapEx standpoint for that specific project. And I think CapEx at the plants is fairly stable. We've had we've worked through several projects where we've invested in the plants with things like new roofs and updated walkways and other things to keep our workers safe, but no meaningful uptick in the plant CapEx. And but back to your question on the credit line, what essentially happened at year end, we had some larger checks that we had to write for Bastrop, for roadwork and for the water treatment plant. But credit is tight and there's a lot of people in our industry that need to borrow money for certain projects.

Speaker 1

And these are secured loans at relatively high interest rates with personal guarantees for assets that we wouldn't mind owning if there's a problem with the credit. And so we put a lot of money to work at the end of the year, and we continue to see those opportunities to generate great returns with a secured loan and ultimately help some of our customers out with projects that where we'll get some orders once they get through the development.

Speaker 2

Okay, great. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Jay McCanless from Wedbush.

Speaker 5

Hey, good morning, Blair. Thanks for taking my questions. Hey, good morning. So if we could start with the decline in product sales for the Q4, maybe could you break out what that decline was for the retail dealers versus the part versus your part customers?

Speaker 1

Yes. I mean a big well, I don't have the exact split in front of me, but I can follow-up with you with an exact number. But at a high level on the dealer side, we came off our show. We started shipping a lot of houses. And then we hit a seasonably slower period where dealers wanted us to hold off on shipping homes.

Speaker 1

And the park side, like I mentioned, has been spotty where a project will go and you'll be able to deliver a few months of houses or in many cases, there's significant delays with utilities or permitting or other things that happen for these developments or retrofits. And so we kind of just had a little bit of a perfect storm and delays on the park side and just some seasonality on the dealer side. We've also got I think you know, Jay, we've got some partnerships up north with some other manufacturers that build our floor plans. And I think that that continues to be a good opportunity for us. But with the weather out there, we just couldn't ship anything.

Speaker 1

And it just we've been pushing hard all year and we just we kind of hit a point where there was a lot of delays in shipments. And you see that in our 4th quarter results.

Speaker 5

Got it. Could you give us any color on how product sales are trending thus far in the Q1?

Speaker 1

Yes. They're looking pretty good. I've had some delays shipping houses out of Georgia, which just seems to be one thing after another there, but we're pretty close I think to getting back on track. So we had the beginning of the quarter, we had homes caught up in the yard there that we're clearing out now as quickly as we can. But in Texas, it's been pretty consistent.

Speaker 1

We thought when we spoke last quarter that we were we looked really good. And we were planning on taking up production. And what we're doing now is we're we've decided, hey, let's keep production where it is and keep building the backlog, keep running specials, keep focusing on sales. We've got a lot of new sales reps that are getting up to speed and they're making sales and they're making commissions and it's fun to watch. But for Q1, I think it looks better than Q4, but maybe not as good as some of the prior quarters in early 2023.

Speaker 5

And then just thinking about gross margin, 31% and change for fiscal 2023, Maybe what's your outlook for fiscal 2024? And are there anything we need any issues we need to be thinking about from a cost side, whether it's rising OSB prices or some other things going on, maybe walk us through how you're thinking about gross margin for the full year?

Speaker 1

Yes. I mean, look, I think if you go back and you look 5 years backwards and kind of our gross margins, they tend to be in the higher 20s versus low 30s. So the margins look pretty strong right now. I don't anticipate a major change between say this quarter and next quarter, But I think over the long term, they will revert closer in the high to the high 20s and stay at these levels as material prices start to increase.

Speaker 5

And you said on pricing that you guys have been holding pricing, especially on the dealer side. Is that continued into the Q1? And do you think based on now that Georgia is starting to ship again, you'll be able to hold prices there too?

Speaker 1

Yes. I mean, look, there's price and volume is are related, obviously. And throughout this entire slower period, and I think 2023 is a great example, could we have given homes away and really increased the throughput through the plants? I'm sure we could have. But like I mentioned on the call, our Board wants us to be extremely bottom line focused.

Speaker 1

And I don't I think for other manufacturers that are cutting price, I mean, I don't think material costs are going down. And frankly, I know labor costs aren't going down. And so we're going to right size our SG and A and right size our overhead for a slower period and continue to hold price as the market recovers even to the detriment of volume.

Speaker 5

Okay. And that actually was going to be my next question on SG and A. It sounds like you're going to be doing staffing higher income staffing as you build out some of the different portions of the business. I guess how from a total dollar standpoint, should we expect that to ramp up by some percentage in 2024 as you're adding more personnel?

Speaker 1

I think so. I think it will be a little bit higher. But we've had I mean, you guys have seen the press releases with some of the NEOs. I mean, we've had a lot of turnover at the senior level, which I think in many cases is a good thing for the business long term. But what the Board has said is, look, we want you in addition to hiring young people like let's add some bench strength in key areas of our business because some of these areas are significantly larger than when we went public and you need more senior people.

Speaker 1

And so I think as we find the right people, we'll hire them and we'll pay them well. And I think the contributions will be great. We've already made some great new hires at the senior level and they're contributing. So I do see SG and A maybe going up slightly, but a lot of it is just offsetting other senior people that have retired or moved on from the business.

Speaker 5

That's good color. Thank you. And then, appreciate all the commentary on DelVal, but maybe could you talk about some of the other land holdings that legacy has and what your thinking is on those parcels now?

Speaker 1

Yes. And I think I mentioned or I talked a little bit about it, Jay, last call. I mean, really what we're going through is we're prioritizing where we want to allocate capital on these developments. And in many cases, we've sat on some of these things so long that you could if we don't think a project is viable for a community, for us to do internally, there may be a better owner of that. So I think that there's a bucket of properties that we could look to ultimately divest and we've held them for long enough where you make 2, 3, 4 times your money on the raw land.

Speaker 1

There's a second group of properties where over this time period the dynamics have changed. And so you've got City Sewer now coming to the project in the next year or so. And we're looking at those and the feasibility of those projects as MH communities, whether it's with us or someone else finalizing the development? Or is this piece of land, does it have a better and higher use that we can return that we can generate returns for our shareholders by having somebody selling it and having somebody build stick built homes on it. But our focus for all of these projects is we want to sell more manufactured homes.

Speaker 1

We want to finance more manufactured homes. And so we're really we're viewing all these from the lens of MH. That is a big headwind. I mean, it's the biggest headwind is where do you put them. But we're fighting the same battles with the regulators that all of our customers are.

Speaker 1

And but we're trying to pick our battles and we know we've got a few that makes sense to go ahead and take the full way and that's where we're allocating capital as we prioritize the other projects.

Speaker 5

That's great. And then, the administration announced some changes to the Title 1 program for changes they made in a long time. Are those changes any benefit to legacy? Would increase Title 1 financing be something of a challenge for your consumer loan book, maybe any benefit or help you saw in those recent announcements?

Speaker 1

Yes. I don't think it's going to have a huge impact on our business. Like I don't think the changes cannibalize the volume to our consumer loan business. I believe all of these changes were on the FHA financing side. It's just a little bit different than what we do here, but is a longer, more administratively intense process.

Speaker 1

So right now, I don't see a big impact, But if something changes, we can talk offline.

Speaker 5

Got it. And then the last question I had, we've heard from some of your stick built competitors that mortgage qualification has been getting more difficult, not just because of higher rates, but now you're seeing credit card debt starting to move up, other types of debt moving up and that's causing more disqualifications for certain site builders. I guess, are you guys seeing any of that in your consumer loan book right now? And how do you feel like the quality of the loan book has been trending through the quarter so far?

Speaker 1

Yes. Our loan book continues to perform really well. We made a senior hire who had run a financing business in our industry and has been working with the team and doing his analysis and he's like, man, this like you guys have a good formula here for underwriting and you are outperforming the competitors. And I think the key thing with our consumer financing portfolio is we have a very specific customer that we finance and we don't move on things like down payment and extras like financing storage sheds and septic tanks and other add ons that you ultimately can't recover. We want to provide a reasonable rate and a high quality product for a borrower and but they've got to have skin in the game.

Speaker 1

And I think because we haven't bent on those and we've seen a lot of others bent on those, We haven't seen large changes to the downside in the performance of our consumer loan portfolios.

Speaker 5

Okay. That's great. Thanks for taking all my questions.

Speaker 1

Sure. Thanks, Jay.

Operator

Thank you. At this time, I would now like to turn the conference back over to Duncan Bates for closing remarks.

Speaker 1

Our team one other thing, our team is heading to the Biloxi mobile home show today through Wednesday. Kenny and I leave directly after this call. So if there are any industry folks on the call who will be attending the show, we'd love to see you and spend time with you and show you some of the houses we have set up there and discuss some of the specials that we're running right now. Thank you for joining today's earnings call. We appreciate your interest in Legacy Housing.

Speaker 1

Operator, this concludes our call.

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