What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 71 added, 61 removed, 198 unchanged (40% 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 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 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.

For the three and nine months ended September 30, 2021, we sold 1,044 and 2,709 home sections, respectively (which are entire homes or single floors that are combined to create complete homes).

For the three and nine months ended September 30, 2020, we sold 961 and 2,866 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 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.

For the nine months ended September 30, 2021, approximately 47% of our manufactured homes were sold in Texas, followed by 15% in Georgia, 10% in Louisiana and 6% in Alabama.

For the nine months ended September 30, 2020, approximately 45% of our manufactured homes were sold in Texas, followed by 11% in Michigan, 7% in Georgia, 5% in Kansas, 5% in North Carolina, and 5% 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.

20 unchanged sentences

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

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

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

Date of Acquisition

30 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 June 30, 2021 and 2020 (in thousands)

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

Three months ended

September 30,

Product sales

13 unchanged sentences

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

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.

Product sales increased $11.7 million, or 32.1%, during the three months ended September 30, 2021 as compared to the same period in 2020.

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

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

Three months ended

September 30,

(in thousands)

2 unchanged sentences

Net revenue per product sold

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.

For the three months ended September 30, 2021, our net revenue per product sold increased because of increases to our product prices in the third 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.

Consumer and MHP loans interest income grew $0.8 million, or 12.9%, during the three months ended September 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 September 29, 2021 and September 30, 2020 our MHP Note portfolio increased by $15.5 million and the consumer loan portfolio increased by $13.1 million.

On September 30, 2021, we collected $44.9 million in principal payment from one of our borrowers.

As a result of this payment, MHP loan interest income is expected to decrease in the fourth quarter of 2021.

Other revenue primarily consists of consignment fees, commercial lease rents and servicer fee revenue and increased $0.2 million, or 21.8% during the three months ended September 30, 2021 as compared to the same period in 2020.

The cost of product sales increased $5.6 million, or 19.9%, during the three months ended September 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 $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

Selling, general and administrative expenses increased $0.5 million, or 11.5%, during the three months ended September 30, 2021 as compared to the same period in 2020.

This increase was primarily due to a $0.8 million increase in salaries and incentive costs and a $0.1 million increase in depreciation expense partially offset by a $0.4 million decrease in advertising expense.

Dealer incentive expense decreased $0.1 million, or 23.4% in 2021 as compared to 2020.

Other income (expense), net increased $0.3 million during the three months ended September 30, 2021 as compared to the same period in 2020.

This increase was primarily due to a $0.3 million increase in non-operating interest income offset by a $0.1 million increase in interest expense.

Income tax expense was $3.3 million during the three months ended September 30, 2021 compared to $2.5 million for the same period in 2020.

The effective tax rate for the three months ended September 30, 2021 was 18.1% 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 September 30, 2020 was 22.7% and differs from the federal statutory rate of 21% primarily due to state income taxes.

Comparison of Nine Months ended September 30, 2021 and 2020 (in thousands)

Nine months ended

September 30,

Product sales

13 unchanged sentences

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.

Product sales increased $14.7 million, or 13.8%, during the nine months ended September 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

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

Nine Months Ended

September 30,

(in thousands)

2 unchanged sentences

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.

For the nine months ended September 30, 2021, our net revenue per product sold increased because of increases to our product prices during the first three quarters 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.

Consumer and MHP loans interest income grew $1.7 million, or 9.0%, during the nine months ended September 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 September 29, 2021 and September 30, 2020 our MHP Note portfolio increased by $15.5 million and the consumer loan portfolio increased by $13.1 million.

On September 30, 2021, we collected $44.9 million in principal payment from one of our borrowers.

As a result of this payment, MHP loan interest income is expected to decrease in the fourth quarter of 2021.

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.

Other revenue increased $0.5 million or 23.8% during the nine months ended September 30, 2021 as compared to the same period in 2020 primarily due to a $0.7 million increase in commercial lease rents partially offset by a $0.1 million decrease in consignment fee revenue.

The cost of product sales increased $7.6 million, or 9.7%, during the nine months ended September 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.

Selling, general and administrative expenses increased $0.8 million, or 5.7%, during the nine months ended September 30, 2021 as compared to the same period in 2020.

This increase was primarily due to $1.8 million increase in salaries and incentive costs, a $0.4 million increase in rent and facility costs, a $0.3 million increase in consulting and professional fees, a $0.3 million increase in depreciation & amortization expense, and a net $0.2 million increase in other miscellaneous costs.

These increases were partially offset by a $0.7 million decrease in warranty costs, a $0.7 decrease in bad debt expense, a $0.6 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.

Dealer incentive expense increased $0.1 million, or 7.4% in 2021 as compared to 2020.

Other income (expense), net decreased $0.3 million, or 28.0%, during the nine months ended September 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 $0.6 million in non-operating interest income, an increase of $0.2 million in miscellaneous income, net.

Income tax expense during the nine months ended September 30, 2021 was $7.6 million compared to $8.1 million for the same period in 2020.

The effective tax rate for the nine months ended September 30, 2021 was 17.3% 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 nine months ended September 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 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.

We believe that cash flow from operations, cash and cash equivalents at September 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 September 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

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net cash used in operating activities

Net cash provided by (used in) operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net cash used in financing activities

Net change in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents at end of period

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.

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

Net cash provided by operating activities increased $57.8 million during the nine months ended September 30, 2021, compared to the comparable period in 2020, primarily as a result of increased MHP principal collections, decreased MHP originations, and increased customer deposits and escrow.

The increase 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 $22.3 million in 2021 was primarily attributable to $4.6 million used for the acquisition of property plant and equipment and $27.1 million used for loans to third parties for the development of manufactured housing parks.

These were offset by collections of $7.8 million of loans we made to third parties for the development of manufactured housing parks and collections of $1.6 million from our purchased consumer loans.

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.

Net cash used in financing activities of $27.8 million in 2021 was attributable to net payments of $27.9 million on our lines of credit offset by $0.1 million received from the exercise of stock options.

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, consumer loans and MHP Notes.

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 June 30 , 2021 was 2.09%.

The interest rate in effect as of September 30 , 2021 was 2.14%.

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.

The amount of available credit under the New Revolver was $61,719 as of September 30, 2021.

In connection with the New Revolver, we paid certain arrangement fees and other fees of approximately $300, 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.

For the nine months ended September 30, 2021 and 2020, interest expense under the Capital One Revolvers was $827 and $785, respectively.

The outstanding balance as of September 30, 2021 and December 31, 2020 was $8,281 and $36,174, respectively.

Veritex Community Bank Revolver.

8 unchanged sentences

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

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

For the nine months ended September 30, 2020 interest expense was $17.

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

11 unchanged sentences

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

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

As of September 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 June 30, 2021:

Payments Due by Period

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

Payments Due by Period (in thousands)

Contractual Obligations

6 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 $3,393,000 and $2,967,000 as of June 30, 2021 and December 31, 2020, respectively, without reduction for the resale value of the homes.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $5,292 and $2,967 as of September 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 June 30, 2021.

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