What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 109 added, 57 removed, 124 unchanged (57% of the section changed)

7 unchanged sentences

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

For the three months ended March 31, 2024 and 2023, we sold 645 and 810 home sections, respectively (which are entire modules or single floors).

For the three and six months ended June 30, 2024, we sold 578 and 1,223 home sections, respectively (which are entire modules or single floors).

For the three and six months ended June 30, 2023, we sold 793 and 1,603 home sections, respectively

The Company has one reportable segment.

1 unchanged sentence

For example, the sale of manufactured homes includes providing transportation for dealers.

We also provide financing options to the customers to facilitate such sale of homes.

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

We also provide financing options to the customers to facilitate home sales.

Accordingly, all significant operating and strategic decisions by the chief operating decision maker, the Chief Executive Officer, are based upon analyses of our company as one operating segment.

6 unchanged sentences

Each home can be configured according to a variety of floor plans and equipped with features such as fireplaces, central air conditioning and state of the art kitchens.

Our homes are marketed under our premier “Legacy” brand name and, as of March 31, 2024, are sold to consumers, primarily across 15 states through a network of independent retail locations, 13 company owned retail locations and through direct sales to owners of manufactured home communities.

Our homes are marketed under our premier “Legacy” brand name and, as of June 30, 2024, are sold to consumers, primarily in over 15 states through a network of independent retail locations, 13 company owned retail locations and through direct sales to owners of manufactured home communities.

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, 2024, approximately 54% of our manufactured homes were sold in Texas, followed by 18% in North Carolina, 8% in Oklahoma, 4% in Georgia, and 2% in New Mexico.

For the three months ended March 31, 2023, approximately 38% of our manufactured homes were sold in Texas, followed by 19% in Georgia, 8% in Louisiana, 7% in Florida, and 4% in Alabama.

For the six months ended June 30, 2024, approximately 49% of our manufactured homes were sold in Texas, followed by 12% in North Carolina, 9% in Georgia, 7% in Oklahoma, and 4% in Michigan.

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.

We offer three types of financing solutions to our customers.

We provide inventory financing for our independent retailers who purchase homes from us and then sell them to consumers.

We provide consumer financing for our products which are sold to end users through both independent and company owned retail locations.

We provide inventory financing for our independent retailers who purchase homes from us and then sell them to consumers.

We also provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities.

4 unchanged sentences

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

As of March 31, 2024, these properties include the following (dollars in thousands):

As of June 30, 2024, these properties include the following (dollars in thousands):

Date of Acquisition

16 unchanged sentences

We continue to explore opportunities to minimize the impact of inflation on our future profitability.

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

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

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

In order to maintain long term 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.

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

Our Georgia manufacturing facility has unutilized space available and, with additional investment, we can add capacity to increase the number of homes that we can manufacture in that facility.

Our future levels of production will depend in part, on our ability to anticipate sales volumes and product mix, to schedule production efficiently, to maintain proper equipment and to manage levels of inventory and personnel.

We actively review organic and inorganic opportunities to add production capacity in attractive regions to meet future demand.

1 unchanged sentence

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, 2024 and 2023 (in thousands)

Comparison of Three Months ended June 30, 2024 and 2023 (in thousands)

Three months ended

15 unchanged sentences

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

Product sales decreased $12.5 million, or 28.8%, during the three months ended March 31, 2024 as compared to the same period in 2023.

Product sales decreased $10.7 million, or 25.2%, during the three months ended June 30, 2024 as compared to the same period in 2023.

This decrease was driven by an industry wide decrease in unit volumes shipped, primarily in direct sales, mobile home park sales and inventory finance sales categories.

Net revenue attributable to our factory-built housing consisted of the following during the first three months of 2024 and 2023:

Net revenue attributable to our factory-built housing consisted of the following during the three months ended June 30, 2024 and 2023:

Three months ended

3 unchanged sentences

Net revenue per unit sold

For the three months ended March 31, 2024, our net revenue per product sold decreased primarily due to a shift in product mix to smaller units and to a large sale of homes from our leased home portfolio to a mobile home park customer at a lower average price than our typical new home.

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

Direct sales decreased $5.6 million, or 75.8% during the three months ended March 31, 2024 as compared to the same period in 2023.

Commercial sales decreased $2.0 million, or 12.6% during the three months ended March 31, 2024 as compared to the

same period in 2023.

Inventory finance sales to dealers decreased $5.2 million, or 37.8% during the three months ended March 31, 2024 as compared to the same period in 2023.

Retail store sales increased $0.8 million, or 20.9% during the three months ended March 31, 2024 as compared to the same period in 2023.

For the three months ended June 30, 2024, our net revenue per product sold decreased primarily due to a shift in product mix to smaller units.

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

Direct sales decreased $0.4 million, or 10.1% during the three months ended June 30, 2024 as compared to the same period in 2023.

Commercial sales decreased $4.6 million, or 29.2% during the three months ended June 30, 2024 as compared to the same period in 2023.

Inventory finance sales to dealers decreased $6.5 million, or 41.6% during the three months ended June 30, 2024 as compared to the same period in 2023.

Retail store sales increased $0.2 million, or 3.7% during the three months ended June 30, 2024 as compared to the same period in 2023.

Our revenue has decreased primarily due to a lower volume of shipments, a shift in product mix generally to smaller units and a slowdown in our dealer and mobile home park sales.

Our current business is dependent on dealer sales, as reflected in direct sales and inventory finance sales, and our sales have slowed due to high levels of inventory on dealer lots and seasonality.

Our current business is dependent

on dealer sales, as reflected in direct sales and inventory finance sales, and our sales have slowed due to high levels of inventory on dealer lots and seasonality.

Our retail sales have improved as we have focused on improving the performance of our company owned stores.

Our mobile home park business has been impacted by higher interest rates, and transaction volumes and new development have declined.

Consumer, MHP and dealer loans interest income increased $2.9 million, or 38.0%, during the three months ended March 31, 2024 as compared to the same period in 2023 due to growth in our loan portfolios.

Between March 31, 2024 and March 31, 2023 our consumer loan portfolio increased by $17.9 million, our MHP loan portfolio increased by $28.2 million, and our dealer finance notes increased by $2.1 million.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income and decreased $0.1 million, or 3.1%, during the three months ended March 31, 2024 as compared to the same period in 2023.

This decrease was primarily due to a $1.0 million decrease in dealer finance fees, a $0.2 million decrease in commercial lease rents, partially offset by a $1.1 million increase in forfeited deposits.

The cost of product sales decreased $8.5 million, or 29.3%, during the three months ended March 31, 2024 as compared to the same period in 2023.

Consumer, MHP and dealer loans interest income increased $1.4 million, or 16.0%, during the three months ended June 30, 2024 as compared to the same period in 2023 due to growth in our loan portfolios.

Between June 30, 2024 and June 30, 2023 our consumer loan portfolio increased by $15.8 million, our MHP loan portfolio increased by $16.6 million, and our dealer finance notes increased by $0.9 million.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income and decreased $0.8 million, or 45.5%, during the three months ended June 30, 2024 as compared to the same period in 2023.

This decrease was primarily due to a $1.0 million decrease in dealer finance fees, a $0.2 million decrease in commercial lease rents, partially offset by a $0.4 million increase in other miscellaneous revenue.

The cost of product sales decreased $8.2 million, or 27.4%, during the three months ended June 30, 2024 as compared to the same period in 2023.

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

Selling, general and administrative expenses increased $0.5 million, or 8.8%, during the three months ended March 31, 2024 as compared to the same period in 2023.

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

Dealer incentive expense remained the same during the three months ended March 31, 2024 as compared to the same period in 2023.

Other income (expense) increased $0.4 million, or 29.9%, during the three months ended March 31, 2024 as compared to the same period in 2023.

There was an increase of $0.6 million in non-operating interest income offset by an increase of $0.2 million in interest expense.

Income tax expense remained the same during the three months ended March 31, 2024 as compared to the same period in 2023.

The effective tax rate for the three months ended March 31, 2024 and 2023 was 18.2% and 17.4%, respectively, 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.

Selling, general and administrative expenses remained flat during the three months ended June 30, 2024 as compared to the same period in 2023.

We had a $0.8 million decrease in warranty costs and a $0.7 million decrease in payroll and related expense, a $0.2 million decrease in bad debt expense, offset by a $0.8 million increase in legal expense, a $0.4 million increase in property tax expense a $0.2 million increase in loan loss provision, and a $0.1 million increase in marketing expense and a net $0.2 million in other miscellaneous expense.

Dealer incentive expense decreased $0.6 million during the three months ended June 30, 2024 as compared to the same period in 2023.

Other income (expense) increased $3.2 million, or 538.3%, during the three months ended June 30, 2024 as compared to the same period in 2023.

There was (i) an increase of $2.6 million in miscellaneous income as a result of a gain of $1.3 million on the sale of real property in Georgia and a reversal of $1.3 million of accrued liabilities, (ii) an increase of $0.3 million in other miscellaneous income, and (iii) an increase of $0.3 million in interest income for other notes receivable net of allowances.

Income tax increased $0.5 million during the three months ended June 30, 2024 as compared to the same period in 2023.

The effective tax rate for the three months ended June 30, 2024 and 2023 was 18.2% and 17.0%, respectively, 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, 2024 and 2023 (in thousands)

Six months ended

Product sales

Consumer, MHP and dealer loans interest

Total net revenue

Operating expenses:

Cost of product sales

Selling, general administrative expenses

Dealer incentive

Total operating expenses

Income from operations

Other income (expense)

Non‑operating interest income

Miscellaneous, net

Interest expense

Income before income tax expense

Income tax expense

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

Product sales decreased $23.0 million, or 26.9%, during the six months ended June 30, 2024 as compared to the same period in 2023.

This decrease was driven by an industry wide decrease in unit volumes shipped, primarily in direct sales, mobile home park sales and inventory finance sales categories.

Net revenue attributable to our factory-built housing consisted of the following during six months ended June 30, 2024 and 2023:

Six Months Ended

($ in thousands)

Product Sales

Total units sold

Net revenue per unit sold

For the six months ended June 30, 2024, our net revenue per product sold decreased primarily due to a shift in product mix to smaller units and to a large sale of homes in the first quarter of 2024 from our leased home portfolio to a mobile home park customer at a lower than average price than our typical new home.

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

Direct sales decreased $6.0 million, or 53.8% during the six months ended June 30, 2024 as compared to the same period in 2023.

Commercial sales decreased $6.6 million, or 21.0% during the six months ended June 30, 2024 as compared to the same period in 2023.

Inventory finance sales to dealers decreased $11.7 million, or 39.9% during the six months ended June 30, 2024 as compared to the same period in 2023.

Retail store sales increased $1.0 million, or 12.0% during the six months ended June 30, 2024 as compared to the same period in 2023.

Our revenue has decreased primarily due to a lower volume of shipments, a shift in product mix generally to smaller units and a slowdown in our dealer and mobile home park sales.

Our current business is dependent on dealer sales, as reflected in direct sales and inventory finance sales, and our sales have slowed due to high levels of inventory on dealer lots and seasonality.

Our retail sales have

improved as we have focused on improving the performance of our company owned stores.

Our mobile home park business has been impacted by higher interest rates, and transaction volumes and new development have declined.

Consumer, MHP and dealer loans interest income increased $4.3 million, or 26.5%, during the six months ended June 30, 2024 as compared to the same period in 2023 due to growth in our loan portfolios.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income and decreased $1.0 million, or 27.0%, during the six months ended June 30, 2024 as compared to the same period in 2023.

This decrease was primarily due to a $2.0 million decrease in dealer finance fees, a $0.3 million decrease in commercial lease rents, partially offset by a $1.1 million increase in forfeited deposits and a $0.2 million increase in other miscellaneous revenue.

The cost of product sales decreased $16.6 million, or 28.4%, during the six months ended June 30, 2024 as compared to the same period in 2023.

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

Selling, general and administrative expenses increased $0.5 million, or 4.8%, during the six months ended June 30, 2024 as compared to the same period in 2023.

This increase was primarily due to a $1.0 million increase in legal expense, a $0.5 million increase in property tax expense, a $0.1 million increase in marketing expense, a $0.1 million increase in professional fees, and a net $0.1 million increase in other miscellaneous expense partially offset by a $0.7 million decrease in payroll and related expense, a $0.5 million decrease in warranty costs, and a $0.1 million decrease in loan loss provision.

Dealer incentive expense decreased $0.6 million during the six months ended June 30, 2024 as compared to the same period in 2023.

Other income (expense) increased $3.6 million, or 183.8%, during the six months ended June 30, 2024 as compared to the same period in 2023.

There was (i) an increase of $2.6 million in miscellaneous income as a result of a gain of $1.3 million on the sale of real property in Georgia and a reversal of $1.3 million of accrued liabilities, (ii) an increase of $0.6 million in interest income for other notes receivable net of allowances, (iii) an increase of $0.6 million in other miscellaneous income, and (iii) an increase of $0.2 million in interest expense.

Income tax increased $0.5 million during the six months ended June 30, 2024 as compared to the same period in 2023.

The effective tax rate for the six months ended June 30, 2024 and 2023 was 18.2% and 17.2%, respectively, 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.

Liquidity and Capital Resources

We believe that cash flow from operations and cash at March 31, 2024, 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.

We believe that cash flow from operations and cash at June 30, 2024, 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.

2 unchanged sentences

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

As of March 31, 2024, we had approximately $0.6 million in cash, compared to $0.7 million as of December 31, 2023.

As of June 30, 2024, we had approximately $0.1 million in cash, compared to $0.7 million as of December 31, 2023.

We consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Cash Flow Activities

Three Months Ended

Six Months Ended

(in thousands)

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by investing activities

Net cash (used in) provided by financing activities

2 unchanged sentences

Cash at end of period

Comparison of Cash Flow Activities from March 31, 2024 to March 31, 2023

Net cash provided by operating activities was $10.8 million during the three months ended March 31, 2024, compared to net cash of $2.7 million used in operating activities during the three months ended March 31, 2023.

This change was a result of an increase of cash used for a decrease in operating income before non-cash adjustments, decreased MHP originations net of collections, decreased dealer inventory loan originations net of collections, decrease in the reduction of accounts receivable, an increase in the change in inventories, an increase in the change in prepaid expenses and other current assets, an increase in the change in accounts payable and accrued liabilities, an increase in the change in customer deposits, and increase in the change in other assets – leased mobile homes and an increase in the change in escrow liability.

Net cash provided by investing activities of $2.7 million during the three months ended March 31, 2024 was primarily attributable to $4.1 million of collections of loans we made to third parties for the development of manufactured housing parks, offset by $0.9 million used in improvements and development of property, plant and equipment and $0.6 million used to issue notes to third parties for the development of manufactured housing parks.

Net cash used in financing activities of $13.7 million during the three months ended March 31, 2024 was attributable to net payments of $11.9 million on our lines of credit, $1.9 million of stock repurchases and $0.1 million received from the exercise of stock options.

Net cash provided by financing activities of $5.3 million during the three months ended March 31, 2023 was attributable to net proceeds of $5.3 million on our lines of credit.

Comparison of Cash Flow Activities from June 30, 2024 to June 30, 2023

Net cash provided by operating activities was $14.3 million during the six months ended June 30, 2024, compared to net cash of $7.5 million used in operating activities during the six months ended June 30, 2023.

This change was predominantly the result of decreased MHP loan originations net of collections, decreased consumer loan originations net of collections, and decreased dealer inventory loan originations net of collections.

Net cash provided by investing activities of $2.1 million during the six months ended June 30, 2024 was primarily attributable to $4.8 million of collections of loans we made to third parties for the development of manufactured housing parks and $1.6 million in proceeds from the sale of property, offset by $2.6 million used in improvements and development of property, plant and equipment and $1.7 million used to issue notes to third parties for the development of manufactured housing parks.

Net cash provided by investing activities of $3.9 million during the six months ended June 30, 2023 was primarily attributable to $8.5 million received from the sale of treasury notes, $1.1 million received from the sale of leases homes, $0.9 million of collections of loans we made to third parties for the development of manufactured housing parks and $0.2 million of collections from other purchased loans, offset by $5.3 million of loans we made to third parties for the development of manufactured housing parks and $1.5 used in improvements and development of property, plant and equipment.

Net cash used in financing activities of $17.1 million during the six months ended June 30, 2024 was attributable to net payments of $11.8 million on our lines of credit, $5.4 million of stock repurchases and $0.1 million received from the exercise of stock options.

Net cash provided by financing activities of $2.2 million during the six months ended June 30, 2023 was attributable to net proceeds of $2.2 million on our lines of credit.

In November 2022, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $10.0 million of the Company’s common stock.

We repurchased 91,187 shares for $1.9 million in the open market during the three months ended March 31, 2024.

As of March 31, 2024, we had a remaining authorization of approximately $8.1 million.

Between April 1, 2024 and May 9, 2024, we repurchased 170,342 shares for $3.5 million in the open market.

We repurchased 170,342 shares for $3.5 million in the open market during the three months ended June 30, 2024, and we repurchased 261,529 shares for $5.4 million in the open market during the six months ended June 30, 2024.

As of June 30, 2024, we had a remaining authorization of

approximately $4.6 million.

On August 6, 2024, our Board of Directors authorized the repurchase of an additional $10.0 million of the Company’s common stock under the share repurchase program.

Lines of Credit

7 unchanged sentences

The Revolver matures July 28, 2027.

For the three months ended March 31, 2024, interest expense for the under the Revolver was $276, and for the three months ended March 31, 2023, interest expense under the prior line of credit was $91.

The outstanding balance of the Revolver as of March 31, 2024 and December 31, 2023 was $11,797 and $23,680, respectively.

The interest rate in effect as of March 31, 2024 and December 31, 2023 for the Revolver was 7.67% and 7.95%, respectively.

The amount of available credit under the Revolver was $38,203 and $26,320 as of March 31, 2024 and December 31, 2023, respectively.

For the three months ended June 30, 2024, interest expense under the Revolver was $235, and for the three months ended June 30, 2023, interest expense under the prior line of credit was $195.

For the six months ended June 30, 2024, interest expense under the Revolver was $511, and for the six months ended June 30, 2023, interest expense under the prior line of credit was $285.

The outstanding balance of the Revolver as of June 30, 2024 and December 31, 2023 was $11,861 and $23,680, respectively.

The interest rate in effect as of June 30, 2024 and December 31, 2023 for the Revolver was 7.67% and 7.95%, respectively.

The amount of available credit under the Revolver was $38,139 and $26,320 as of June 30, 2024 and December 31, 2023, respectively.

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

As of March 31, 2024, 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.

As of June 30, 2024, 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 March 31, 2024:

The following table is a summary of contractual cash obligations as of June 30, 2024:

Payments Due by Period (in thousands)

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 $1,671 and $3,030 as of March 31, 2024 and December 31, 2023, respectively, without reduction for the resale value of the homes.

The maximum amount of our contingent obligations under such repurchase agreements was approximately $1,040 and $3,030 as of June 30, 2024 and December 31, 2023, 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, 2024.

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, 2024.

Critical Accounting Estimates

4 unchanged sentences

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our March 31, 2024 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, 2024 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