What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2023-03-15 compared with 2022-08-03 · 43 added, 53 removed, 360 unchanged (21% of the section changed)

18 unchanged sentences

We completed our initial public offering (the “IPO”) in December 2018 and our common stock trades on The NASDAQ Global Market under the symbol “LEGH.”

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 September 30, 2021.

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 twelve month period ending September 30, 2022.

With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 395 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 3 1 / 2 bathrooms.

5 unchanged sentences

Our customers typically have annual household incomes of less than $75,000 and include young and working class families, as well as persons age 55 and older.

In 2020, there were approximately 58,470,000 households in the United States with annual household incomes of less than $60,000, representing nearly half of all U.S.

In 2021, there were approximately 68,619,000 households in the United States with annual household incomes of less than $75,000, representing 52% of all U.S.

households, according to the Current Population Survey published by the U.S.

9 unchanged sentences

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

During 2022, approximately 53% of our manufactured homes were sold in Texas, followed by 9% in Georgia, 5 % in Florida, 5% in Alabama, 5% in Arizona and 4% in Louisiana.

During 2021, approximately 50% of our manufactured homes were sold in Texas, followed by 16% in Georgia, 8% in Louisiana and 5% in Alabama.

During 2020, approximately 46% of our manufactured homes were sold in Texas, followed by 8% in Georgia, 8% in Michigan, 5% in Kansas, and 5% in North Carolina.

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.

We offer three types of financing solutions to our customers.

7 unchanged sentences

The conversion qualified as a tax free transaction under Section 351 of the Internal Revenue Code.

Effective December 31, 2019, the Company reincorporated from a Delaware corporation to a Texas corporation.

Following the Corporate Conversion, Legacy Housing Corporation continues to hold all of the property and assets of Legacy Housing, Ltd.

5 unchanged sentences

Manufactured housing is a competitive alternative to other forms of affordable housing, whether new or existing, or located in urban, suburban or rural areas.

We believe the target universe of manufactured home buyers consists of households with total annual income below $60,000 which comprised nearly half of total U.S.

We believe the target universe of manufactured home buyers consists of households with total annual income below $75,000 which comprised 52% of total U.S.

households in 2021.

8 unchanged sentences

management sees this gap as an opportunity for the industry.

Average Sale Price Comparison

Census Bureau, the Institute for Building Technology and Safety, and the Manufactured Housing Institute.

2 unchanged sentences

population and stagnant U.S.

Percentage of New Houses Sold Under $150,000

Census Bureau.

1 unchanged sentence

Census Bureau.

Manufactured housing shipments have increased by 30% and 34%, respectively, over the past five years and represent approximately 7% of total completed privately owned housing units.

Manufactured Home Shipments vs.

Total Completed Housing

Manufactured housing shipments have increased by 22% over the past five years and represent approximately 8% of total completed privately owned housing units.

Census Bureau

6 unchanged sentences

By utilizing an assembly-line process that employs from approximately 150 to 275 individuals per facility, we are able to manufacture a home in approximately three to six days and, are on average producing approximately 70 home sections, or 60 fully-completed homes depending on product mix, in total per week.

We utilize local market research to design homes that meet the specific needs of our customers and offer a variety of structural and decorative customization options, including, among others, fireplaces, central air conditioning, overhead heat ducts, stipple-textured ceilings, decorative woodgrain vinyl floors, wood cabinetry and energy conservation elements.

We utilize local market research to design homes that meet the specific needs of our customers and offer a variety of structural and decorative customization options, including, among others,

fireplaces, central air conditioning, overhead heat ducts, stipple-textured ceilings, decorative woodgrain vinyl floors, wood cabinetry and energy conservation elements.

Additionally, our homes have vaulted ceilings in every room, have numerous proprietary advantages such as our copyrighted “furniture friendly” floor plans and, in most cases, are wider, have taller ceilings and a steeper roof pitch than our competitors’ products.

15 unchanged sentences

When these custom homes are sold through company-owned retail stores, we expect to capture higher gross margins.

● Available Financing for our Customers.

● Available Financing for our Dealers and Retail Customers.

Our financial position allows us to develop and offer financing solutions to our customers in connection with their purchase of our homes.

3 unchanged sentences

Our company has been providing floor plan financing to our independent retailers since our formation and we now have 156 independent retailers using our consignment solution.

We now have more than 3,300 customers that purchased their homes utilizing our retail financing solutions.

The average interest rates of our retail financing loans were approximately 13.5% and 13.8% at December 31, 2021 and 2020, respectively.

The repossession rates for our retail financing loans, measured by units, was approximately 1.5% and 2.9% for 2021 and 2020, respectively.

We now have more than 3,400 retail customers that purchased their homes utilizing our retail financing solutions.

● Support for Owners of Manufactured Home Communities.

2 unchanged sentences

We also make loans to community owners for the purpose of acquiring or developing properties and, as part of the arrangement, these community owners contract to buy homes from us.

These loans typically range in term from two to five years and carry interest at 5.00% to 12.0%.

For the years ended December 31, 2021 and 2020, we had provided additional loans to owners of manufactured home communities for development purposes with a total amount outstanding of $42,100,000 and $14,685,000, respectively.

These financing solutions are structured to give us an attractive return on investment, when coupled with the gross margin we realize on products specifically targeted for these new manufactured housing communities.

1 unchanged sentence

We believe that a strong alignment of interests with stockholders and investors exists through the ownership of a significant percentage of our outstanding shares by our co-founders, Curtis D.

Hodgson (Executive Chairman of the Board) and Kenneth

Shipley (President and Chief Executive Officer).

Hodgson (Executive Chairman of the Board) and Kenneth E.

Shipley (Executive Vice President and Director).

Hodgson and Shipley acquired their ownership in 2005 when they founded the company.

14 unchanged sentences

We recognize that offering financing solutions to our customers is an important component of being a vertically integrated company that provides affordable manufactured housing.

Providing financing improves our responsiveness to the needs of prospective purchasers while also providing us with opportunities for loan origination and servicing revenues, which act as additional drivers of net income for us.

During the years ended December 31, 2021 and 2020, we financed approximately 46% and 62% of the homes we sold to consumers, respectively.

Providing financing improves our responsiveness to the needs of prospective purchasers while also providing us with opportunities for interest and servicing revenues, which act as additional drivers of net income for us.

During the years ended December 31, 2022 and 2021, we financed approximately 45% and 46% of the homes we sold to customers, respectively.

We intend to expand financing and leasing solutions to manufactured housing community-owner customers, in a manner that includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products.

12 unchanged sentences

In July and August 2019, we acquired approximately 140 acres of raw land in Johnson County, Texas for $0.9 million.

In September 2020, we acquired approximately 80 acres of raw land in Wise County, Texas for $0.9 million.

In September 2020, we acquired

approximately 80 acres of raw land in Wise County, Texas for $0.9 million.

In February 2021, we acquired approximately 233 acres of raw land in Bexar County, Texas for $1.6 million.

We have secured a permit for a wastewater plant for the land in Bastrop County and we intend to begin construction in 2022.

completion, the wastewater plant can serve 1,075 home sites.

We will continue to evaluate opportunities to develop the remaining land, or to provide financing to third party developers of additional manufactured housing communities in order to provide locations for manufactured homes for our customers.

Management estimates that our land holdings will yield approximately 3000 manufactured home pad sites.

● Focus on our Retail Process.

2 unchanged sentences

We believe our company-owned stores will, on average, carry higher gross margins due to our ability to select critical markets and develop highly-trained sales representatives who possess a deep understanding of our business and customer needs.

We produce a wide variety of homes that can be used by our customers in a number of ways.

15 unchanged sentences

Each section is assembled in stages beginning with the construction of the chassis, followed by the addition of other constructed and purchased components and ending with a final quality control inspection.

The efficiency of the production process and the benefits of constructing homes in a controlled factory environment enable us to produce homes in less time and at a lower cost per-square-foot than traditional home building.

The efficiency of the production process and the benefits of constructing homes in a controlled factory environment enable us to produce homes in less time, generating less waste and at a lower cost per-square-foot than traditional home building.

The finished home is then transported directly to a customer at a retail sales center, work site or manufactured home community.

3 unchanged sentences

The production schedules for our manufacturing facilities are based on wholesale orders received from distributors, which fluctuate from week to week.

In general, our facilities are structured to operate on one 8- to 9-hour shift per day,

five days per week.

In general, our facilities are structured to operate on one 8- to 9-hour shift per day, five days per week.

We currently manufacture a typical home in approximately three to six production days.

7 unchanged sentences

The inability to obtain any materials used in the production of our homes, whether resulting from material shortages, limitation of supplier facilities or other events affecting production of component parts, may affect our ability to meet or maintain production requirements.

Pricing and availability of certain raw materials were volatile during 2021 due to a number of factors in th e economic environment.

Pricing and availability of certain raw materials were volatile during 2022 and 2021 due to a number of factors in th e economic environment.

We continue to monitor and react to inflation in these materials by maintaining a focus on our product pricing in response to higher materials costs.

10 unchanged sentences

South Carolina

In 2021 and 2020, we also sold homes in Arkansas, Arizona, Colorado, Iowa, Illinois, Indiana, Kentucky, Minnesota, Mississippi, Missouri, Nebraska, Ohio, Pennsylvania, Tennessee, Utah, Virginia and Wisconsin.

In 2022 and 2021, we also sold homes in Arkansas, Iowa, Illinois, Indiana, Michigan, Mississippi, Missouri, Nevada, Ohio, Pennsylvania, Tennessee, Utah, Virginia and Wisconsin.

We continually seek to increase our wholesale shipments by growing sales at our existing independent retailers and by finding new independent retailers to sell our homes.

9 unchanged sentences

Approximately 63% of our 2022 product sales were attributable to our independent retail distributors, 9% to our company-owned retail locations and 29% directly to owners of manufactured housing communities.

Approximately 39% of our 2020 product sales were attributable to our independent retail distributors, 12% to our company-owned retail locations and 49% to direct sales to owners of manufactured housing communities.

Approximately 57% of our 2021 product sales were attributable to our independent retail distributors, 13% to our company-owned retail locations and 30% directly to owners of manufactured housing communities.

As of December 31, 2022, we operate 13 company-owned retail locations.

11 unchanged sentences

All of our customers are located in the United States.

During the year ended December 31, 2021, no customer accounted for more than 10% of our net sales.

During the year ended December 31, 2020, one customer accounted for 29% of our net sales and no other customer accounted for more than 10% of our net sales.

During the years ended December 31, 2022 and 2021, no customer accounted for more than 10% of our net sales.

Financing Solutions for Our Customers

6 unchanged sentences

We provide financing to community owners that buy or lease our products for use in their rental housing communities.

Overview of Consumer and MHP Financing Options as of December 31, 2021

($ in thousands)

Contractual Rate

or Monthly Fee

Consumer Financing

13.5% average contractual rate

MHP Community Financing

7.6% average contractual rate

We also offer inventory floor plan financing to retailers that takes the form of a consignment arrangement.

As of December 31, 2021, we had $12,541,000 of inventory under consignment to our retailers.

Three Types of Financing.

Offering financing solutions to our dealers and customers generally improves our responsiveness to the needs of prospective purchasers while also providing us with opportunities for loan origination and servicing revenues, which acts as an additional driver of net income for us.

Floor Plan Financing.

8 unchanged sentences

The independent dealer is free to terminate the consignment agreement by giving us 90-days’ advance notice if it is current on all its obligations to us.

Our wholesale consignment contracts allow us to defer income recognition until we are paid in full.

Our wholesale consignment contracts require us to defer income recognition until we are paid in full.

For the years ended December 31, 2022 and 2021, we recorded consignment sales of $84,037,000 and $63,496,000, respectively.

4 unchanged sentences

The price at which we may be obligated to repurchase a home under these agreements is based upon the amount financed, plus certain administrative and shipping expenses.

Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer.

Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail

The maximum amount of contingent obligations under our repurchase agreements (without reduction for the resale value of the homes) as of December 31, 2022 was $8,925,000.

1 unchanged sentence

We carry no reserve for this contingent liability.

Overview of Consumer and MHP Financing Options as of December 31, 2022

($ in thousands)

Contractual Rate

or Monthly Fee

Consumer Financing

13.4% average contractual rate

MHP Community Financing

8.1% average contractual rate

We also offer inventory floor plan financing to retailers that takes the form of a consignment arrangement.

As of December 31, 2022, we had $5,132,000 of inventory under consignment to our retailers.

Consumer Financing.

Sales of factory-built homes are significantly affected by the availability and cost of consumer financing.

21 unchanged sentences

Down payments, delivery expenses and installation expenses are negotiated on a case-by-case basis.

As of December 31, 2021 and 2020, loans outstanding from manufactured home communities totaled $102,992,000 and $136,340,000, which comprised 530 and 589 loans, respectively.

Our average remaining term on these loans as of December 31, 2021 and 2020 was approximately six years.

As of December 31, 2022

and 2021, loans outstanding from manufactured home communities totaled $143,253,000 and $102,992,000, which comprised 545 and 530 loans, respectively.

Our average remaining term on these loans was approximately four years and six years as of December 31, 2022 and 2021, respectively.

We also make loans to community owners for the purpose of acquiring or developing properties and, as part of the arrangement, these community owners contract to buy homes from us.

8 unchanged sentences

For the past 17 years, the industry has experienced a trend towards consolidation and, as a result, the bulk of the market share is controlled by a small number of companies.

We are the country’s sixth largest producer of manufactured homes.

We are the country’s fifth largest producer of manufactured homes.

Accordingly, we believe we have a significant opportunity to expand in this industry by effectively growing our market share.

51 unchanged sentences

Traditionally, manufactured housing retailers have assisted home buyers with securing financing for the purchase of homes, including negotiating rates and the terms for their loans.

Under the act, however, these activities are prohibited unless performed by a registered or licensed MLO.

Under the act, however, these activities are prohibited unless performed by a

registered or licensed MLO.

A variety of state laws also regulate the form of financing documents and the allowable deposits, finance charge and fees chargeable pursuant to financing documents.

4 unchanged sentences

While many manufactured homes are financed with agency-conforming mortgages in which the ability to repay is verified, and interest rates and other costs are within the safe harbor limits, a significant amount of loans to finance the purchase of manufactured homes, particularly chattel loans and non-conforming land-home loans, fall outside such safe harbors.

Additionally, the CFPB rules, among other things, amended the Truth-in-Lending Act and the Real Estate

Settlement Procedures Act by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (“HOEPA”) and imposing additional restrictions on mortgages that are covered by HOEPA.

Additionally, the CFPB rules, among other things, amended the Truth-in-Lending Act and the Real Estate Settlement Procedures Act by expanding the types of mortgage loans that are subject to the protections of the Home Ownership and Equity Protections Act of 1994 (“HOEPA”) and imposing additional restrictions on mortgages that are covered by HOEPA.

As a result, certain manufactured home loans are now subject to HOEPA limits on interest rates and fees.

28 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-K

Item 1. Business