What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-09 · 104 added, 93 removed, 135 unchanged (59% 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 to consumers and manufactured housing communities.

We are the fifth largest producer of manufactured homes in the United States as ranked by the number of homes manufactured based on information available from the Manufactured Housing Institute and the Institute for Building Technology and Safety for the twelve month period ending March 31, 2023.

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.

Our homes range in price, at retail, from approximately $33,000 to $180,000.

For the three and six months ended June 30, 2023, we sold 793 and 1,603 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, 2022, we sold 999 and 2,003 home sections, respectively.

For the three and nine months ended September 30, 2023, we sold 643 and 2,246 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, 2022, we sold 944 and 2,947 home sections, respectively.

The Company has one reportable segment.

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In addition, the sale of homes is directly related to financing provided by us.

Accordingly, all significant operating and strategic decisions by the chief operating decision-maker, the Executive Chairman of the Board, are based upon analyses of our company as one segment or unit.

Accordingly, all significant operating and strategic decisions by the Company are based upon analyses of our company as one segment or unit.

We believe our Company is one of the most vertically integrated in the manufactured housing industry, allowing us to offer a complete solution to our customers, from manufacturing custom-made homes using quality materials and distributing those homes through our expansive network of independent retailers and company-owned distribution locations, to providing tailored financing solutions for our customers.

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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, 2023, approximately 48% of our manufactured homes were sold in Texas, followed by 19% in Georgia, 7% in Louisiana, 4% in Florida, and 3% in Oklahoma.

For the six months ended June 30, 2022, approximately 50% of our manufactured homes were sold in Texas, followed by 11% in Georgia, 8% in Florida, 5% in Louisiana and 5% in Alabama.

For the nine months ended September 30, 2023, approximately 49% of our manufactured homes were sold in Texas, followed by 15% in Georgia, 9% in Louisiana, 4% in Oklahoma, and 3% in Florida.

For the nine months ended September 30, 2022, approximately 51% of our manufactured homes were sold in Texas, followed by 11% in Georgia, 6% in Florida, 5% in Louisiana and 5% in Arizona.

We offer three types of financing solutions to our customers.

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We also provide consumer financing for our products which are sold to end-users through both independent and company-owned retail locations, and we provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities.

Our ability to offer competitive financing options at our retail locations provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing.

Our ability to offer competitive financing options

at our retail locations provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing.

Factors Affecting Our Performance

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

As of June 30, 2023, the cost of these properties include the following (dollars in thousands):

As of September 30, 2023, the cost of these properties include the following (dollars in thousands):

Date of Acquisition

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These solutions will be structured to give us an attractive return on investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities .

● Inflation has most recently been at it’s highest rate in the U.S.

● Inflation most recently has been at or near its highest rate in the U.S.

over the last 30 years.

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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, 2023 and 2022 (in thousands)

Comparison of Three Months ended September 30, 2023 and 2022 (in thousands)

Three months ended

September 30,

Product sales

13 unchanged sentences

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

Product sales decreased $12.8 million, or 23.2%, during the three months ended June 30, 2023 as compared to the same period in 2022.

This decrease was driven by an industry wide decrease in unit volumes and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements.

Product sales decreased $11.7 million, or 24%, during the three months ended September 30, 2023 as compared to the same period in 2022.

This decrease was driven by an industry wide decrease in unit volumes ($11.0 million), a decrease in net revenue per unit ($0.2 million) and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements and other market factors ($0.5 million).

Net revenue attributable to our factory-built housing consisted of the following during the three months of 2023 and 2022:

Three months ended

September 30,

(in thousands)

Products sold

Total products sold

Net revenue per product sold

For the three months ended June 30, 2023, our net revenue per product sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the first half of 2022, as rising material and labor costs were passed on to our customers.

Product sales

Total units sold

Net revenue per unit sold

For the three months ended September 30, 2023, our net revenue per unit sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the same period in 2022, as rising material and labor costs were passed on to our customers.

We had decreases in direct sales, inventory finance sales and retail store sales, partially offset by an increase in commercial sales and other product sales.

Our commercial sales have lower margins than sales through our company-owned retail stores and our inventory financed sales.

Consumer and MHP loans interest income grew $1.0 million, or 13.2%, during the three months ended June 30, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note portfolio balance and average outstanding consumer loan portfolio balance.

Between June 30, 2023 and June 30, 2022 our MHP note portfolio increased by $43.9 million and our consumer loan portfolio increased by $15.1 million.

Other revenue primarily consists of contract forfeitures, dealer finance fees and commercial lease rents and increased $0.2 million, or 13.4% during the three months ended June 30, 2023 as compared to the same period in 2022.

This increase was primarily due to $0.1 million increase in forfeited deposits, a $0.2 million increase in dealer finance fees, partially offset by a $0.1 million decrease in portfolio fees & servicer revenue.

Commercial lease rents were flat for the quarter.

The cost of product sales decreased $7.7 million, or 20.6%, during the three months ended June 30, 2023 as compared to the same period in 2022.

Consumer and MHP loans interest income grew $1.8 million, or 25.7%, during the three months ended September 30, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note portfolio balance and average outstanding consumer loan portfolio balance.

Between September 30, 2023 and September 30, 2022 our MHP note portfolio increased by $47.8 million and our consumer loan portfolio increased by $16.8 million.

Other revenue primarily consists of contract deposit forfeitures, dealer finance fees and commercial lease rents and increased $2.5 million, or 150.8%, during the three months ended September 30, 2023 as compared to the same period in 2022.

This increase was primarily due to $2.4 million increase in forfeited deposits, a $0.2 million increase in dealer finance fees, partially offset by a $0.1 million decrease in commercial lease rents.

The cost of product sales decreased $8.7 million, or 25.9%, during the three months ended September 30, 2023 as compared to the same period in 2022.

The decrease in costs is primarily related to the decrease in units sold.

Selling, general and administrative expenses decreased $0.4 million, or 6.3%, during the three months ended June 30, 2023 as compared to the same period in 2022.

This decrease was primarily due to a $0.4 million decrease in consulting and professional fees, a $0.2 million decrease in warranty costs and a net $0.3 million decrease in other miscellaneous costs, partially offset by a $0.1 million increase in salaries and incentive costs, a $0.2 million increase in legal expense, and a $0.2 million increase in loan loss provision.

Dealer incentive expense decreased $0.5 million, or 122.8%, during the three months ended June 30, 2023 as compared to the same period in 2022.

Other income (expense), net was flat during the three months ended June 30, 2023 as compared to the same period in 2022.

There was a decrease of $0.2 million in non-operating interest income, net offset by an increase of $0.2 million in miscellaneous income, net.

Income tax expense was $3.1 million during the three months ended June 30, 2023 compared to $3.8 million for the same period in 2022.

The effective tax rate for the three months ended June 30, 2023 was 17.0% 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 June 30, 2022 was 18.1% 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.

Comparison of Six Months ended June 30, 2023 and 2022 (in thousands)

Six months ended

Selling, general and administrative expenses decreased $0.6 million, or 9.2%, during the three months ended September 30, 2023 as compared to the same period in 2022.

This decrease was primarily due to a $0.6 million decrease in warranty costs and a net $0.4 million decrease in other miscellaneous costs, partially offset by a $0.2 million increase in legal expense, and a $0.2 million increase in loan loss provision.

Dealer incentive expense decreased $0.2 million, or 102.2%, during the three months ended September 30, 2023 as compared to the same period in 2022.

Other income (expense) decreased $0.3 million, or 36.0%, during the three months ended September 30, 2023 as compared to the same period in 2022.

There was an increase of $0.2 million in non-operating interest income, offset by a decrease of $0.2 million in miscellaneous income, net, and an increase of $0.2 million in interest expense.

Income tax expense was $3.4 million during the three months ended September 30, 2023 compared to $2.8 million for the same period in 2022.

The effective tax rate for the three months ended September 30, 2023 was 17.4% 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 September 30, 2022 was 16.1% 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.

Comparison of Nine Months ended September 30, 2023 and 2022 (in thousands)

Nine months ended

September 30,

Product sales

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

Product sales decreased $21.4 million, or 20.0%, during the six months ended June 30, 2023 as compared to the same period in 2022.

This decrease was driven by an industry wide decrease in unit volumes and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements.

Net revenue attributable to our factory-built housing consisted of the following during the six months of 2023 and 2022:

Six Months Ended

Product sales decreased $33.0 million, or 21.3%, during the nine months ended September 30, 2023 as compared to the same period in 2022.

This decrease was driven by an industry wide decrease in unit volumes ($26.6 million), a decrease in net revenue per unit ($1.3 million) and a decrease in the conversion of certain independent dealer consignment arrangements to financing arrangements and other market factors ($5.1 million).

Net revenue attributable to our factory-built housing consisted of the following during the nine months of 2023 and 2022:

Nine Months Ended

September 30,

(in thousands)

Products sold

Total products sold

Net revenue per product sold

For the six months ended June 30, 2023, our net revenue per product sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the first half of 2022, as rising material and labor costs were passed on to our customers.

We had decreases in inventory finance sales, direct sales, retail store sales, and other product sales, partially offset by an increase in commercial sales.

Product sales

Total units sold

Net revenue per unit sold

For the nine months ended September 30, 2023, our net revenue per unit sold decreased primarily due to changes in our product sales mix slightly offset by increases in unit prices over the first nine months of 2022, as rising material and labor costs were passed on to our customers.

We had decreases in inventory finance sales, direct sales, retail store sales, and other product sales, and commercial sales were flat.

Our commercial sales have lower margins than sales through our company-owned retail stores and our inventory financed sales.

For the six months ending June 30, 2023, we experienced a decrease in net revenue attributable to product sales due to the Company and the State of Georgia’s efforts to evaluate and improve the quality and consistency of homes manufactured in our Eatonton facility.

These efforts have resulted in a temporary decrease in the rate of issuing HUD Labels of Certification and shipping finished homes from our Eatonton facility.

We increased shipments from our Eatonton facility during the second quarter of 2023 and plan to meet or exceed historical levels in 2023, pending market conditions.

Consumer and MHP loans interest income grew $1.9 million, or 13.5%, during the six months ended June 30, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note portfolio

balance and average outstanding consumer loan portfolio balance.

Between June 30, 2023 and June 30, 2022 our MHP note portfolio increased by $43.9 million and our consumer loan portfolio increased by $15.1 million.

Other revenue primarily consists of contract forfeitures, dealer finance fees and commercial lease rents and increased $0.8 million, or 27.1% during the six months ended June 30, 2023 as compared to the same period in 2022.

This increase was primarily due to $0.2 million increase in forfeited deposits, a $0.6 million increase in dealer finance fees and a $0.1 million increase in commercial lease rents and a $0.1 million increase in setup and service sales, partially offset by a $0.2 million decrease in portfolio fees & servicer revenue.

The cost of product sales decreased $12.5 million, or 17.5%, during the six months ended June 30, 2023 as compared to the same period in 2022.

For the nine months ending September 30, 2023, we experienced a decrease in net revenue attributable to product sales in our Eatonton facility.

We have remediated the quality and consistency issues in this facility and are increasing our sales efforts in Eatonton.

We plan to meet or exceed historical levels in 2024, pending market conditions.

Consumer and MHP loans interest income grew $3.7 million, or 17.6%, during the nine months ended September 30, 2023 as compared to the same period in 2022 and is related to our increase in average outstanding MHP note portfolio balance and average outstanding consumer loan portfolio balance.

Between September 30, 2023 and

September 30, 2022, our MHP note portfolio increased by $47.8 million and our consumer loan portfolio increased by $16.8 million, both net of principal reduction.

Other revenue primarily consists of contract deposit forfeitures, dealer finance fees and commercial lease rents and increased $3.3 million, or 71.0%, during the nine months ended September 30, 2023 as compared to the same period in 2022.

This increase was primarily due to $2.6 million increase in forfeited deposits, a $0.8 million increase in dealer finance fees and a $0.1 million increase in setup and service sales, partially offset by a $0.2 million decrease in portfolio fees & servicer revenue.

The cost of product sales decreased $21.2 million, or 20.2%, during the nine months ended September 30, 2023 as compared to the same period in 2022.

The decrease in costs is primarily related to the decrease in units sold.

Selling, general and administrative expenses decreased $2.6 million, or 19.3%, during the six months ended June 30, 2023 as compared to the same period in 2022.

This decrease was primarily due to a $3.2 million decrease in salaries and incentive costs, a $0.4 million decrease in consulting and professional fees, a $0.2 million decrease in legal expense and a net $0.1 million decrease in other miscellaneous costs, partially offset by a $0.7 million increase in warranty costs, a $0.1 million increase in loan loss provision related to the adoption of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , a $0.4 million increase in loan loss provision not related to the adoption of ASU 2016-13, and a $0.1 million increase in advertising costs.

Dealer incentive expense decreased $0.7 million, or 95.5%, during the six months ended June 30, 2023 as compared to the same period in 2022.

Other income (expense), net was flat during the six months ended June 30, 2023 as compared to the same period in 2022.

There was a decrease of $0.3 million in non-operating interest income offset by an increase of $0.3 million in miscellaneous income, net.

Income tax expense was $6.5 million during the six months ended June 30, 2023 compared to $7.4 million for the same period in 2022.

The effective tax rate for the six months ended June 30, 2023 was 17.2% 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 six months ended June 30, 2022 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.

Selling, general and administrative expenses decreased $3.2 million, or 16.0%, during the nine months ended September 30, 2023 as compared to the same period in 2022.

This decrease was primarily due to a $3.2 million decrease in payroll & related costs, a $0.3 million decrease in consulting and professional fees, a $0.2 million decrease in supplies and a net $0.6 million decrease in other miscellaneous costs, partially offset by a $1.1 million increase in loan loss provisions.

Dealer incentive expense decreased $0.9 million, or 97.1%, during the nine months ended September 30, 2023 as compared to the same period in 2022.

Other income (expense) decreased $0.3 million, or 11.3%, during the nine months ended September 30, 2023 as compared to the same period in 2022.

There was a decrease of $0.1 million in non-operating interest income and an increase of $0.3 million in interest expense, offset by an increase of $0.1 million in miscellaneous income, net.

Income tax expense was $9.9 million during the nine months ended September 30, 2023 compared to $10.2 million for the same period in 2022.

The effective tax rate for the nine months ended September 30, 2023 was 17.3% 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 nine months ended September 30, 2022 was 17.5% 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.

Liquidity and Capital Resources

We believe that cash flow from operations, cash and cash equivalents at September 30, 2023, 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.

On July 28, 2023, we terminated our credit agreement with Capital One, N.A.

and entered into a new credit agreement with Prosperity Bank that expanded and extended our credit availability (see Indebtedness , below).

Cash and Cash Equivalents

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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, 2023, 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.

In 2020, we negotiated a credit agreement with Capital One, N.A.

that expanded and extended our credit availability (see Indebtedness – Capital One Revolver , below).

As of June 30, 2023, we had approximately $1.5 million in cash and cash equivalents, compared to $2.8 million as of December 31, 2022.

On July 28, 2023, the Company entered into a new Credit Agreement with Prosperity Bank and terminated the Revolver with Capital One.

See Note 18 – Subsequent Events in our June 30, 2023 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

As of September 30, 2023, we had approximately $0.5 million in cash and cash equivalents, compared to $2.8 million as of December 31, 2022.

Cash Flow Activities

Six Months Ended

Nine Months Ended

September 30,

(in thousands)

Net cash used in operating activities

Net cash provided by investing activities

Net cash provided by financing activities

Net cash (used in) provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided (used in) by 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, 2023 to June 30, 2022

Net cash used in operating activities increased $3.5 million during the six months ended June 30, 2023, compared to the same period in 2022, primarily as a result of increased MHP originations net of collections, increased dealer inventory loan originations net of collections, increased volume of consumer loan originations net of principal collections, increased inventories, decrease in customer deposits, decrease in accounts payable and accrued liabilities and a decrease in dealer incentive liability.

The increase in cash used in operating activities was partially offset by an increase in escrow liability.

Net cash provided by investing activities of $3.9 million in 2023 was primarily attributable to $8.5 million in proceeds from the sale of treasury notes, $1.1 million in proceeds from the sale of leased property, $0.9 million of collections related to loans to third parties for the development of manufactured housing parks and collections of $0.2 million from our purchased consumer loans.

These were offset by $5.3 million used for loans to third parties for the development of manufactured housing parks and $1.5 million used for the acquisition of property plant and equipment.

Net cash provided by financing activities of $2.2 million in 2023 was attributable to net proceeds of $2.1 million on our lines of credit and $0.1 million received from the exercise of stock options.

Net cash used in financing activities of $7.1 million in 2022 was attributable to net proceeds of $4.6 million on our lines of credit and $2.5 million in proceeds from other liabilities.

Comparison of Cash Flow Activities from September 30, 2023 to September 30, 2022

Net cash used in operating activities increased $6.1 million during the nine months ended September 30, 2023, compared to the same period in 2022, primarily as a result of increased MHP originations net of collections, decreased dealer inventory loan originations net of collections, decrease in other assets, increase in prepaid expenses and other current assets, increased volume of consumer loan originations net of principal collections, decreased inventories, decrease in customer deposits, increase in accounts payable and accrued liabilities and a decrease in dealer incentive liability.

Net cash used in investing activities of $7.6 million during the nine months ended September 30, 2023 was primarily attributable to $13.9 million used for loans to third parties for the development of manufactured housing parks and $4.5M used for purchases of property, plant and equipment.

This was offset by $8.5 million in proceeds from the sale of treasury notes, $1.1 million in proceeds from the sale of leased property, $1.1 million of collections related to loans to third parties for the development of manufactured housing parks and collections of $0.3 million from our purchased consumer loans.

Net cash provided by financing activities of $10.6 million during the nine months ended September 30, 2023 was attributable to net proceeds of $10.5 million on our lines of credit and $0.1 million received from the exercise of stock options.

Net cash used in financing activities of $8.2 million in 2022 was attributable to net payments of $8.2 million on our lines of credit.

Capital One Revolver.

On March 30, 2020, we entered into an agreement with Capital One, N.A.

(“Capital One”) for a new revolving line of credit (“Revolver”).

(“Capital One”) for a revolving line of credit (“Revolver”).

The Revolver had a maximum credit limit of $70,000 and a maturity date of March 30, 2024.

6 unchanged sentences

The notice stated that the July 28, 2022 forbearance agreement had been terminated and that Capital One was suspending $50,000 of the $70,000 loan commitment under the Revolver.

As a result, the available line of credit in the Revolver has been limited to $20,000.

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

The interest rates in effect as of June 30, 2023 and December 31, 2022 are 7.17% and 6.12%, respectively.

Amounts available under the 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 amount of available credit under the Revolver was $15,315 and $17,400 as of June 30, 2023 and December 31, 2022, respectively.

In connection with the Revolver, we paid certain arrangement fees and other fees of approximately $295, which were capitalized as unamortized debt issuance costs and will be amortized to interest expense over the life of the Revolver.

For the three months ended June 30, 2023 and 2022, interest expense under the Revolver was $195 and $182, respectively.

For the six months ended June 30, 2023 and 2022, interest expense under the Revolver was $286 and $239, respectively.

The outstanding balance as of June 30, 2023 and December 31, 2022 was $4,685 and $2,545, respectively.

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

We were in compliance with all financial covenants as of as of June 30, 2023, including that we maintain a tangible net worth of at least $120,000 and that it maintain a ratio of debt to EBITDA of 4 to 1, or less.

As a result, the available line of credit in the Revolver was limited to $20,000.

The Revolver accrued interest at one-month SOFR plus 2.00%.

Amounts available under the Revolver 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.

In connection with the Revolver, we paid certain arrangement fees and other fees of approximately $295, which were capitalized as unamortized debt issuance costs and were amortized to interest expense over the life of the Revolver.

The Revolver required the Company to comply with certain financial and non-financial covenants.

On July 28, 2023, upon entry into the New Revolver described below, the Capital One Revolver was repaid in full, and all commitments thereunder were terminated.

Prosperity Revolver.

On July 28, 2023, the Company entered into a new Credit Agreement (the “New Revolver”), by and among the Company as borrower, the financial institutions from time to time party thereto, as lenders, and Prosperity Bank as administrative agent.

The New Revolver provides for a four-year senior secured revolving credit facility with an initial commitment of $50,000,000 and an additional $25,000,000 commitment under an accordion feature.

The New Revolver is secured by the Company’s consumer loans receivables and all escrow accounts associated with the consumer loans receivables.

At the Company's option, borrowings will bear interest at a per annum rate equal to, (i) Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.5% or 2.75% based upon the Company's average quarterly borrowings under the New Revolving Credit Agreement or (ii) a base rate plus an applicable margin of 2.5% or 2.75% based upon the Company's average quarterly borrowings under the New Revolver.

The Company paid certain arrangement fees and other fees in connection with the New Revolver of approximately $271, which were capitalized as unamortized debt issuance costs and are amortized to interest expense over the life of the New Revolver.

The New Revolver matures July 28, 2027.

For the three months ended September 30, 2023, interest expense under the Revolver and New Revolver was $302, and for the three months ended September 30, 2022, interest expense under the Revolver was $87.

For the nine months ended September 30, 2023, interest expense under the Revolver and New Revolver was $588 and for the nine months ended September 30, 2022, interest expense under the Revolver was $326, respectively.

The outstanding balance of the New Revolver as of September 30, 2023 was $13,013, and the outstanding balance of the Revolver as of December 31, 2022 was $2,545.

The interest rate in effect as of September 30, 2023 for the New Revolver was 7.95% and the interest rate in effect as of December 31, 2022 for the Revolver was 6.12%.

The amount of available credit under the New Revolver was $36,987 as of September 30, 2023 and the amount of available credit under the Revolver was $17,400 as of December 31, 2022.

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

As of September 30, 2023, the Company was in compliance with all financial covenants, including that it maintain a maximum leverage ratio of no more than 1.00 to 1.00 and a minimum fixed charge coverage ratio of no less than 1.75 to 1.00.

Contractual Obligations

The following table is a summary of contractual cash obligations as of June 30, 2023:

The following table is a summary of contractual cash obligations as of September 30, 2023:

Payments Due by Period (in thousands)

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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 $6,740 and $8,925 as of June 30, 2023 and December 31, 2022, respectively, without reduction for the resale value of the homes.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $4,767 and $8,925 as of September 30, 2023 and December 31, 2022, 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, 2023.

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, 2023.

Critical Accounting Estimates

6 unchanged sentences

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our June 30, 2023 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, 2023 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

Emerging Growth Company Status

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We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption.

We expect our status as an emerging growth company to end on December 31, 2023, five years from our initial public offering.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for smaller reporting companies

Not applicable.

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