What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 97 added, 61 removed, 162 unchanged (49% of the section changed)

4 unchanged sentences

Legacy Housing Corporation builds, sells and finances manufactured homes and “tiny houses” that are distributed through a network of independent retailers and company-owned stores and are sold directly to manufactured housing communities.

We are the fifth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for the fourth quarter of 2020.

We are the sixth largest producer of manufactured homes in the United States as ranked by number of homes manufactured based on information available from the Manufactured Housing Institute and IBTS for the twelve month period ending March 31, 2021.

With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 390 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 3 1 / 2 bathrooms.

Our homes range in price, at retail, from approximately $22,000 to $140,000.

For the three months ended March 31, 2021, we sold 720 home sections (which are entire homes or single floors that are combined to create complete homes) and for the three months ended March 31, 2020, we sold 849 home sections.

For the three and six months ended June 30, 2021, we sold 945 and 1,665 home sections, respectively (which are entire homes or single floors that are combined to create complete homes).

For the three and six months ended June 30, 2020, we sold 1,056 and 1,905 home sections, respectively.

The Company has one reportable segment.

12 unchanged sentences

Our 13 company-owned retail locations, including 11 Heritage Housing stores and two Tiny House Outlet stores exclusively sell our homes.

For the three months ended March 31, 2021, approximately 49% of our manufactured homes were sold in Texas, followed by 11% in Georgia, 8% in Alabama, 6% in Louisiana and 5% in Kansas.

For the three months ended March 31, 2020, approximately 47% of our manufactured homes were sold in Texas, followed by 10% in Kentucky, 9% in North Carolina, 8% in Georgia, and 5% in Kansas.

For the six months ended June 30, 2021, approximately 50% of our manufactured homes were sold in Texas, followed by 13% in Georgia, 9% in Louisiana and 4% in Alabama.

For the six months ended June 30, 2020, approximately 46% of our manufactured homes were sold in Texas, followed by 9% in Michigan, 8% in Georgia, 7% in North Carolina, and 6% in Kentucky.

We plan to deepen our distribution channel by using cash from operations and borrowings from our lines of credit to expand our company-owned retail locations in new and existing markets.

19 unchanged sentences

Each retail center requires between $500,000 and $1,500,000 to acquire the location, situate an office, provide inventory, and provide the initial working capital.

We initially anticipated opening 2 to 4 additional retail centers by the end of 2020, but we delayed those plans due to the COVID-19 pandemic’s impact on the retail business.We expect to open 1 to 2 additional retail centers by the end of 2021.

● We have purchased several properties in our market area for the purpose of developing manufactured housing communities and subdivisions.

As of March 31, 2021, these properties include the following (dollars in 000’s):

As of June 30, 2021, these properties include the following (dollars in 000’s):

Date of Acquisition

12 unchanged sentences

● Finally, our financial performance will be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers.

Currently, our two Texas manufacturing facilities are

operating at near peak capacity, with limited ability to increase the volume of homes produced at those plants.

Currently, our two Texas manufacturing facilities are operating at near peak capacity, with limited ability to increase the volume of homes produced at those plants.

Our Georgia manufacturing facility has unutilized square footage available and with additional investment can add capacity to increase the number of homes that can be manufactured.

We intend to increase production at the Georgia facility over time, particularly in response to orders increasingly being generated from new markets in Florida and the Carolinas.

increase production at the Georgia facility over time, particularly in response to orders increasingly being generated from new markets in Florida and the Carolinas.

In order to maintain our growth, we will need to be able to continue to properly estimate anticipated future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel.

13 unchanged sentences

The following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this Form 10-Q.

Comparison of Three Months ended March 31, 2021 and 2020 (in thousands)

Comparison of Three Months ended June 30, 2021 and 2020 (in thousands)

Three months ended

10 unchanged sentences

Miscellaneous, net

Gain on settlement, net

Interest expense

2 unchanged sentences

Product sales primarily consist of direct sales, commercial sales, consignment sales and retail store sales.

Product sales increased $1.1 million, or 3.5%, during the three months ended March 31, 2021 as compared to the same period in 2020.

This increase, though broad based, was muted by the week-long closure of our Texas-based factories due to a February weather event.

The disruption from the weather event contributed to an increase in ending finished goods inventory as our transportation schedule was disrupted, similar to our Texas-based factories.

Product sales increased $1.9 million, or 4.9%, during the three months ended June 30, 2021 as compared to the same period in 2020.

This increase was driven by higher average sales price partially offset by lower unit volumes.

Net revenue attributable to our factory-built housing consisted of the following during the three months of 2021 and 2020:

4 unchanged sentences

Net revenue per product sold

For the three months ended March 31, 2021, our net revenue per product sold increased because of price increases in the first quarter of 2021 due to rising material and labor costs.

We had increases in consignment sales, direct sales and company-owned retail store sales partially offset by a decline in sales to manufactured home communities.

MHP loans interest income grew $0.2 million, or 9.7%, during the three months ended March 31, 2021 as compared to the same period in 2020 and is related to our increase in outstanding MHP Note portfolio.

Between March 31, 2021 and March 31, 2020 our MHP Note portfolio increased by $35.0 million.

Consumer loan interest was $4.1 million for the three months ended March 31, 2021 and 2020.

Other revenue primarily consists of consignment fees, commercial lease rents, and service fees.

Other revenue increased $0.4 million or 57.2% during the three months ended March 31, 2021 as compared to the same period in 2020 and is primarily due to continued growth in our commercial lease revenue.

The cost of product sales increased $2.2 million, or 9.9%, during the three months ended March 31, 2021 as compared to the same period in 2020.

For the three months ended June 30, 2021, our net revenue per product sold increased because of increases to our product prices in the second quarter of 2021 due to rising material and labor costs, which resulted in higher home sales prices and more revenue generated per home sold.

We had increases in consignment sales, direct sales, retail store sales and other product sales partially offset by a decline in commercial sales.

Sales through our company-owned retail stores have higher margins than our direct sales and consignment sales.

Consumer and MHP loans interest income grew $0.7 million, or 11.0%, during the three months ended June 30, 2021 as compared to the same period in 2020 and is related to our increase in outstanding MHP Note portfolio and consumer loan portfolio.

Between June 30, 2021 and June 30, 2020 our MHP Note portfolio increased by $25.7 million and the consumer loan portfolio increased by $8.8 million.

Other revenue primarily consists of consignment fees and commercial lease rents fees and was $0.7 million during the three months ended June 30, 2021 and 2020.

The cost of product sales increased $0.1 million, or 0.3%, during the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in costs is primarily related to increases in the cost of materials and labor in 2021 and was materially passed along to our end-customer.

Selling, general and administrative expenses decreased $0.8 million, or 14.6%, during the three months ended March 31, 2021 as compared to the same period in 2020.

This decrease was primarily due to a $0.8 million decrease in warranty costs, a $0.4 decrease in loan losses, a $0.2 million decrease in legal expense and a $0.2 million decrease in advertising and promotions.

These decreases were partially offset by a $0.3 million increase in consulting and professional fees, a $0.3 million increase in salaries and incentive costs and a net $0.2 million increase in other miscellaneous costs.

In addition, dealer incentive expense increased $0.3 million in 2021 as compared to 2020.

Other income (expense), net decreased $0.8 million during the three months ended March 31, 2021 as compared to the same period in 2020.

This decrease was primarily due to a $1.1 million gain associated with the 2020 settlement of a lawsuit with a previous vendor for the Company, partially offset by an increase of $0.2 million in miscellaneous, net and a $0.1 million decrease in interest expense.

Income tax expense during the three months ended March 31, 2021 was $1.9 million compared to $2.6 million for the same period in 2020.

The effective tax rate for the three months ended March 31, 2021 was 17.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction partially offset by state income taxes.

The effective tax rate for the three months ended March 31, 2020 was 22.3% and differs from the federal statutory rate of 21% primarily due to state income taxes.

Selling, general and administrative expenses increased $1.1 million, or 27.1%, during the three months ended June 30, 2021 as compared to the same period in 2020.

This increase was primarily due to a $0.7 million increase in salaries and incentive costs, a $0.3 million increase in warranty costs and a net $0.1 million increase in other miscellaneous costs.

In addition, dealer incentive expense decreased $0.1 million in 2021 as compared to 2020.

Other income (expense), net increased $0.2 million during the three months ended June 30, 2021 as compared to the same period in 2020.

This increase was primarily due to a $0.2 million increase in non-operating interest income.

Income tax expense was $2.5 million during the three months ended June 30, 2021 and 2020.

The effective tax rate for the three months ended June 30, 2021 was 16.5% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes.

The effective tax rate for the three months ended June 30, 2020 was 23.1% and differs from the federal statutory rate of 21% primarily due to state income taxes.

Comparison of Six Months ended June 30, 2021 and 2020 (in thousands)

Six months ended

Product sales

Consumer and MHP loans interest

Total net revenue

Operating expenses:

Cost of product sales

Selling, general administrative expenses

Dealer incentive

Income from operations

Other income (expense)

Non‑operating interest income

Miscellaneous, net

Gain on settlement, net

Interest expense

Income before income tax expense

Income tax expense

Product sales increased $3.0 million, or 4.3%, during the six months ended June 30, 2021 as compared to the same period in 2020.

This increase was driven by higher average sales price partially offset by lower unit volumes.

Net revenue attributable to our factory-built housing consisted of the following during the six months of 2021 and 2020:

Six Months Ended

(in thousands)

Products sold

Total products sold

Net revenue per product sold

For the six months ended June 30, 2021, our net revenue per product sold increased because of increases to our product prices in the second quarter of 2021 due to rising material and labor costs, which resulted in higher home sales prices and more revenue generated per home sold.

We had increases in consignment sales, direct sales retail store sales and other product sales partially offset by a decline in commercial sales.

Sales through our company-owned retail stores have higher margins than our direct sales and consignment sales.

Consumer and MHP loans interest income grew $0.9 million, or 7.1%, during the six months ended June 30, 2021 as compared to the same period in 2020 and is related to our increase in outstanding MHP Note portfolio and consumer loan portfolio.

Between June 30, 2021 and June 30, 2020 our MHP Note portfolio increased by $25.7 million and the consumer loan portfolio increased by $8.8 million.

Other revenue primarily consists of commercial lease rents, consignment fees and servicer fee revenue.

Other revenue increased $0.4 million or 25.0% during the six months ended June 30, 2021 as compared to the same period in 2020 due to a $0.7 million increase in commercial lease rents partially offset by a $0.3 million decrease in servicer fee revenue.

The cost of product sales increased $2.1 million, or 4.1%, during the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in costs is primarily related to increases in the cost of materials and labor in 2021 and was materially passed along to our end-customer.

Selling, general and administrative expenses increased $0.3 million, or 2.9%, during the six months ended June 30, 2021 as compared to the same period in 2020.

This increase was primarily due to $1.0 million increase in salaries and incentive costs, a $0.3 million increase in consulting and professional fees, a $0.2 million increase in depreciation & amortization expense and a net $0.1 million increase in other miscellaneous costs.

These increases were partially offset by a $0.6 million decrease in warranty costs, a $0.3 decrease in bad debt expense, a $0.2 million decrease in advertising and promotions and a $0.2 million decrease in legal expenses.

In addition, dealer incentive expense increased $0.2 million, or 51.8% in 2021 as compared to 2020.

Other income (expense), net decreased $0.6 million, or 59.3%, during the six months ended June 30, 2021 as compared to the same period in 2020.

This decrease was primarily due to a $1.1 million gain in the second quarter of 2020 due to the settlement of a lawsuit with a previous vendor for the Company, partially offset by an increase of $0.2 million in non-operating interest income, an increase of $0.2 million in miscellaneous income, net and a $0.1 million decrease in interest expense.

Income tax expense during the six months ended June 30, 2021 was $4.3 million compared to $5.6 million for the same period in 2020.

The effective tax rate for the six months ended June 30, 2021 was 16.8% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and partially offset by state income taxes.

The effective tax rate for the six months ended June 30, 2020 was 22.7% and differs from the federal statutory rate of 21% primarily due to state income taxes.

Liquidity and Capital Resources

3 unchanged sentences

We have not incurred any losses from such accounts and management considers the risk of loss to be minimal.

We believe that cash flow from operations, cash and cash equivalents at March 31, 2021, and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future.

As of March 31, 2021, we had approximately $2.4 million in cash and cash equivalents, compared to $0.8 million as of December 31, 2020.

We believe that cash flow from operations, cash and cash equivalents at June 30, 2021, and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future.

As of June 30, 2021, we had approximately $0.9 million in cash and cash equivalents, compared to $0.8 million as of December 31, 2020.

In the first quarter of 2020, we negotiated a new credit agreement with our primary bank that expanded and extended our credit facility.

1 unchanged sentence

Cash Flow Activities

Three Months Ended

Six Months Ended

(in thousands)

5 unchanged sentences

Cash and cash equivalents at end of period

Comparison of Cash Flow Activities from March 31, 2021 to March 31, 2020

Net cash used in operating activities decreased $2.8 million during the three months ended March 31, 2021, compared to the comparable period in 2020, primarily as a result of decreased volume of loan originations supporting sales to MHPs net of principal collections and lower growth in net working capital.

The decrease in cash used in operating activities was partially offset by increased growth in consumer loan originations net of principal collections.

Comparison of Cash Flow Activities from June 30, 2021 to June 30, 2020

Net cash used in operating activities decreased $0.3 million during the six months ended June 30, 2021, compared to the comparable period in 2020, primarily as a result of decreased volume of loan originations supporting sales to MHPs net of principal collections, cash generated by operating income before non-cash adjustments and an increase in escrow deposits received by the company.

The decrease in cash used in operating activities was partially offset by increased volume of consumer loan originations net of principal collections, increased inventories, increased accounts receivable and decreased payables.

Net cash used in investing activities of $8.5 million in 2021 was primarily attributable to $2.3 million used for the acquisition of property plant and equipment and $13.6 million used for loans to third parties for the development of manufactured housing parks.

These were offset by collections of $5.9 million of loans we made to third parties for the development of manufactured housing parks and collections of $1.5 million from our purchased consumer loans.

Net cash provided by financing activities of $9.5 million in 2021 was primarily attributable to net proceeds of $9.2 million on our lines of credit and $0.3 million increase in escrow deposits received by the company.

Net cash provided by financing activities of $13.5 million in 2021 was attributable to net proceeds of $13.5 million on our lines of credit.

Capital One Revolver.

5 unchanged sentences

For the period January 1, 2020 through March 30, 2020, Revolver 1 accrued interest at one-month LIBOR plus 2.40%.

Amounts available under Revolver 1 were subject to a formula based on eligible consumer loans and MHP Notes and were secured by all accounts receivable and the consumer loans receivable and MHP Notes.

Amounts available under Revolver 1 were subject to a formula based on eligible consumer loans and MHP Notes and were secured by all accounts receivable, consumer loans and MHP Notes.

The New Revolver accrues interest at one-month LIBOR plus 2.00%.

The interest rate in effect as of March 31, 2021 was 2.11%.

As with Revolver 1, amounts available under the New Revolver are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable and the consumer loans receivable

and MHP Notes.

The amount of available credit under the New Revolver was $24,653,000 as of March 31, 2021.

In connection with the New Revolver, we paid certain arrangement fees and other fees of approximately $0.3 million, which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the New Revolver.

For the three months ended March 31, 2021 and 2020, interest expense under the Capital One Revolvers was $226,000 and $320,000, respectively.

The outstanding balance as of March 31, 2021 and December 31, 2020 was $45,347,000 and $36,174,000, respectively.

We were in compliance with all financial covenants as of March 31, 2021, including that we maintain a tangible net worth of at least $120,000,000 and that we maintain a ratio of debt to EBITDA of 4-to-1, or less.

The interest rate in effect as of June 30 , 2021 was 2.09%.

As with Revolver 1, amounts available under the New Revolver are subject to a formula based on eligible consumer loans and MHP Notes and are secured by all accounts receivable, consumer loans and MHP Notes.

The New Revolver requires the Company to comply with certain quarterly financial and non-financial covenants.

The amount of available credit under the New Revolver was $20,325,000 as of June 30, 2021.

In connection with the New Revolver, we paid certain arrangement fees and other fees of approximately $300,000, which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the New Revolver.

For the six months ended June 30, 2021 and 2020, interest expense under the Capital One Revolvers was $509,000 and $545,000, respectively.

The outstanding balance as of June 30, 2021 and December 31, 2020 was $49,675,000 and $36,174,000, respectively.

Veritex Community Bank Revolver.

In April 2016, we entered into an agreement with Veritex Community Bank to secure an additional revolving line of credit of $15,000,000 (“Revolver 2”).

On May 12, 2017, we entered into an agreement to increase the maximum borrowing availability under Revolver 2 to $20,000,000.

On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021.

Revolver 2 accrues interest at one month LIBOR plus 2.50% and all unpaid principal and interest is due at maturity on April 4, 2021.

Revolver 2 is secured by all finished goods inventory excluding repossessed homes.

Revolver 2 requires the Company to comply with certain quarterly financial and non-financial covenants.

Amounts available under Revolver 2 are subject to a formula based on eligible inventory.

The interest rates in effect as of March 31, 2020 was 4.17%.

On May 12, 2017, we entered into an agreement to increase the maximum borrowing availability under Revolver 2 to $20,000,000.

On October 15, 2018, Revolver 2 was amended to extend the maturity date from April 4, 2019 to April 4, 2021.

The amount of available credit under Revolver 2 was $12,028,000 at March 31, 2020.

For the three months ended March 31, 2021 interest expense was $21,000.

The outstanding balance as of March 31, 2020 was $2,001,000.

We were in compliance with all required covenants as of March 31, 2020.

For the six months ended June 30, 2021 interest expense was $17,000.

In April 2020, this note was paid in full and the facility was terminated.

On April 10, 2020, we Company entered into a loan with Peoples Bank as the lender in an aggregate principal amount of $6,545,700 (the “Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act.

The Loan was evidenced by a promissory note (the “Note”) dated April 10, 2020 and had a maturity date of April 10, 2022.

The Note had an interest rate of 1.000% per annum, with the first six months of interest deferred.

On April 10, 2020, we Company entered into a loan with Peoples Bank as the lender in an aggregate principal amount of $6,545,700 (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act.

The PPP Loan was evidenced by a promissory note dated April 10, 2020 and had a maturity date of April 10, 2022.

The PPP Loan had an interest rate of 1.000% per annum, with the first six months of interest deferred.

Principal and interest were payable monthly commencing on November 10, 2020 and could be prepaid by us at any time prior to maturity with no prepayment penalties.

4 unchanged sentences

In connection with the PILOT agreement, the Putman County Development Authority provides a credit facility for up to $10,000,000, which can be drawn upon to fund Project improvements and capital expenditures as defined in the agreement.

If funds are drawn, we would pay transactions costs and debt service payments.

If funds are drawn, we would pay transaction costs and debt service payments.

The PILOT agreement requires interest payments of 6.00% per annum on outstanding balances, which are due each December 1 through maturity on December 1, 2021, at which time all unpaid principal and interest are due.

The PILOT agreement is collateralized by the assets of the Project.

As of March 31, 2021, we had not drawn down on this credit facility.

As of June 30, 2021, we had not drawn down on this credit facility.

Contractual Obligations

The following table is a summary of contractual cash obligations as of March 31, 2021:

The following table is a summary of contractual cash obligations as of June 30, 2021:

Payments Due by Period

7 unchanged sentences

Our obligation under this repurchase agreement ceases upon the purchase of the home by the retail customer.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $3,073,000 and $2,967,000 as of March 31, 2021 and December 31, 2020, respectively, without reduction for the resale value of the homes.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $3,393,000 and $2,967,000 as of June 30, 2021 and December 31, 2020, respectively, without reduction for the resale value of the homes.

We may be required to honor contingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchase agreements.

We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of March 31, 2021.

We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of June 30, 2021.

Critical Accounting Estimates

5 unchanged sentences

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our March 31, 2021 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our June 30, 2021 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

Emerging Growth Company Status

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis