Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the financial statements and accompanying notes and the information contained in other sections of this Form 10-Q. It contains forward looking statements that involve risks and uncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those anticipated by our management in these forward looking statements as a result of various factors, including those discussed in this Form 10-Q and in our Registration Statement on Form S-1, particularly under the heading “Risk Factors.” Dollar amounts are in thousands unless otherwise noted.
Overview
We build, sell and finance 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 one of the largest producers of manufactured homes in the United States. 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 to $180. For the three months ended March 31, 2025 and 2024 we sold 427 and 645 home sections (which are entire homes or single floors that are combined to create complete homes), respectively.
The Company has one reportable segment. All of our activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, the sale of manufactured homes includes coordinating or providing transportation for dealers. We also provide financing options for 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.
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. We manufacture custom-made homes using quality materials, distribute those homes through our expansive network of independent retailers and company-owned distribution locations and provide tailored financing solutions for our customers. Our homes are constructed in the United States at one of our three manufacturing facilities in accordance with the construction and safety standards of the U.S. Department of Housing and Urban Development (“HUD”). Our factories employ high-volume production techniques that allow us to produce up to, on average, approximately 70 home sections, or 60 fully-completed homes depending on product mix, in total per week. We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes. 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 currently are sold primarily across 15 states through a network of over 125 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 12 Heritage Housing stores and one Tiny House Outlet stores exclusively sell our homes.
For the three months ended March 31, 2025, approximately 62% of our manufactured homes were sold in Texas, followed by 10% in Oklahoma, 8% in Georgia, 4% in Alabama and 3% in New Mexico. 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.
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 also 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.
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Factors Affecting Our Performance
We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including the following:
● We have acquired several properties in our market area for the purpose of developing manufactured housing communities and subdivisions. As of March 31, 2025, these properties include the following (dollars in thousands):
Location
Description
Date of Acquisition
Land
Improvements
Total
Bastrop County, Texas
368 Acres
April 2018
$
4,215
$
17,827
$
22,042
Bexar County, Texas
69 Acres
November 2018
842
138
980
Horseshoe Bay, Texas
39 Acres
Various 2018-2019
1,222
2,308
3,530
Johnson County, Texas
91.5 Acres
July 2019
449
-
449
Venus, Texas
50 Acres
August 2019
422
52
474
Wise County, Texas
81.5 Acres
September 2020
889
-
889
Bexar County, Texas
233 Acres
February 2021
1,550
539
2,089
Richland, Mississippi (1)
22 Acres
February, 2024
1,141
-
1,141
Bonham, Texas
109 Acres
December, 2024
1,533
-
1,533
Balch Springs, Texas
6 Acres
December, 2024
1,117
-
1,117
$
13,380
$
20,864
$
34,244
(1) Land and improvement values do not include the value of Company owned homes located in this community
● We also may provide financing solutions to certain 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. These solutions are 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 rates have been high in the U.S. recently. Our ability to maintain gross margins can be adversely impacted by sudden increases in specific costs, such as the increases in material and labor. In addition, measures used to combat inflation, such as increases in interest rates, could also have an impact on the ability of home buyers to obtain affordable financing. We continue to explore opportunities to minimize the impact of inflation on our future profitability.
● Finally, our financial performance may be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers. Our Georgia manufacturing facility has space available and with additional investment can add capacity to increase the number of homes that can be manufactured. In order to continue to grow, we must be able to properly estimate 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. We actively review organic and inorganic opportunities to add production capacity in attractive regions to meet future demand.
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Results of Operations
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, 2025 and 2024 (in thousands)
Three months ended
March 31,
2025
2024
$ change
% change
Net revenue:
Product sales
$
24,290
$
30,833
$
(6,543)
(21.2)
%
Consumer, MHP and dealer loans interest
10,655
10,633
22
0.2
%
Other
725
1,777
(1,052)
(59.2)
%
Total net revenue
35,670
43,243
(7,573)
(17.5)
%
Operating expenses:
Cost of product sales
17,192
20,466
(3,274)
(16.0)
%
Cost of other sales
515
—
515
N/A
%
Selling, general administrative expenses
6,296
5,889
407
6.9
%
Dealer incentive
76
138
(62)
(44.9)
%
Total operating expenses
24,079
26,493
(2,414)
(9.1)
%
Income from operations
11,591
16,750
(5,159)
(30.8)
%
Other income (expense)
Non‑operating interest income
467
1,302
(835)
(64.1)
%
Miscellaneous, net
675
737
(62)
(8.4)
%
Interest expense
(5)
(276)
271
(98.2)
%
Total other income (expense)
1,137
1,763
(626)
(35.5)
%
Income before income tax expense
12,728
18,513
(5,785)
(31.2)
%
Income tax expense
(2,452)
(3,373)
921
(27.3)
%
Net income
$
10,276
$
15,140
$
(4,864)
(32.1)
%
Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales. Product sales decreased $6.5 million, or 21.2%, during the three months ended March 31, 2025 as compared to the same period in 2024. This decrease was driven by a decrease in unit volumes shipped, primarily in mobile home park sales, retail sales, direct sales and other product sales categories.
Net revenue attributable to our factory-built housing consisted of the following during the three months ended March 31, 2025 and 2024:
Three months ended
March 31,
(in thousands)
2025
2024
$ Change
% Change
Net revenue:
Product Sales
$
24,290
$
30,833
$
(6,543)
(21.2)
%
Total units sold
350
547
(197)
(36.0)
%
Net revenue per unit sold
$
69.4
$
56.4
$
13
23.1
%
For the three months ended March 31, 2025, our net revenue per product sold increased by 23.1% as compared to the same period in 2024. The increase is primarily due to a decrease in units sold to mobile home parks, which are sold at wholesale prices, and an increase in units sold to consumers, which are sold at higher retail prices. We had decreases in direct sales, commercial sales, retail sales and other product sales, partially offset by an increase in inventory finance sales. Direct sales decreased $0.3 million, or 17.0% during the three months ended March 31, 2025 as compared to the same period in 2024. Commercial sales decreased $6.8 million, or 50.0% during the three months ended March 31, 2025 as compared to the same period in 2024. Retail sales decreased $1.5 million, or 30.3% during the three months ended March 31, 2025 as compared to the same period in 2024. Inventory finance sales increased $2.7 million,
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or 31.5% during the three months ended March 31, 2025 as compared to the same period in 2024. Other product sales decreased $0.6 million, or 29.6% during the three months ended March 31, 2025 as compared to the same period in 2024. Our revenue has decreased primarily due to a lower volume of shipments and a slowdown in our retail and mobile home park sales.
Consumer, MHP and dealer loans interest income did not change during the three months ended March 31, 2025 as compared to the same period in 2024. Between March 31, 2025 and March 31 , 2024 our consumer loan portfolio increased by $20.3 million, our MHP loan portfolio increased by $20.1 million, and our dealer finance notes decreased by $2.4 million.
Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees and other miscellaneous income and decreased $1.0 million, or 59.2%, during the three months ended March 31, 2025 as compared to the same period in 2024. This decrease was primarily due to a $1.1 million decrease in forfeited deposits partially offset by a $0.2 million increase in portfolio fees and service revenue and land sales and a net $0.1 million decrease in other miscellaneous revenue.
The cost of product sales decreased $3.3 million, or 16.0%, during the three months ended March 31, 2025 as compared to the same period in 2024. The decrease in costs is primarily related to the decrease in units sold. The cost of other sales was $0.5 million during the three months ended March 31, 2025.
Selling, general and administrative expenses increased $0.4 million, or 6.9%, during the three months ended March 31, 2025 as compared to the same period in 2024. We had a $0.6 million increase in legal expense, a $0.5 million increase in loan loss provision and a $0.3 million increase in other miscellaneous expense offset by a $0.4 million decrease in warranty expense, $0.3 million decrease in payroll and related expense and a $0.3 million decrease in professional fees.
Other income (expense) decreased $0.6 million, or 35.5%, during the three months ended March 31, 2025 as compared to the same period in 2024. We had a decrease of $0.8 million in Non-operating interest income primarily as a result of the Settlement Agreement described in Note 4, Notes Receivable from Mobile Home Parks, in these Notes to Condensed Financial Statements (Unaudited) for the quarter ended March 31, 2025 offset by a decrease of $0.2 million in interest expense.
Income tax decreased $0.9 million during the three months ended March 31, 2025 as compared to the same period in 2024. The effective tax rate for the three months ended March 31, 2025 and 2024 was 19.3% and 18.2%, 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.
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Liquidity and Capital Resources
Liquidity
We believe that cash flow from operations and cash at March 31, 2025, 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 Lines of Credit , below).
Cash
We maintain cash balances in bank accounts that may, at times, exceed federally insured limits. We have not incurred any losses from such accounts, and management considers the risk of loss to be minimal. As of March 31, 2025, we had approximately $3.4 million in cash, compared to $1.1 million as of December 31, 2024. 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
March 31,
(in thousands)
2025
2024
Net cash provided by operating activities
$
4,908
$
10,806
Net cash (used in) provided by investing activities
$
(1,968)
$
2,721
Net cash used in financing activities
$
(675)
$
(13,654)
Net change in cash
$
2,265
$
(127)
Cash at beginning of period
$
1,149
$
748
Cash at end of period
$
3,414
$
621
Comparison of Cash Flow Activities from March 31, 2025 to March 31, 2024
Net cash provided by operating activities was $4.9 million during the three months ended March 31, 2025, compared to net cash of $10.8 million provided by operating activities during the three months ended March 31, 2024. This change was predominantly the result of decreased net income, increased consumer loan originations net of collections, change in accounts receivable, change in inventories, change in accounts payable and accrued liabilities and change in other assets – leased mobile homes.
Net cash used in investing activities of $2.0 million during the three months ended March 31, 2025 was primarily attributable to $1.3 million used in improvements and development of property, plant and equipment and $1.0 million used to issue notes to third parties for the development of manufactured housing parks, offset by $0.2 million in proceeds from the sale of property and $0.1 million of collections of loans we made to third parties for development of manufactured housing parks. 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 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 $0.7 million during the three months ended March 31, 2025 was attributable $0.7 million of stock repurchases. 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.
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. 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. We repurchased 262,530 shares of common stock for $5,398 in the open market during the year ended December 31, 2024.
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We repurchased 29,385 shares of common stock for $675 in the open market during the three months ended March 31, 2025. As of March 31, 2025, we had a remaining authorization of approximately $13,927. Between April 1, 2025 and May 12, 2025 we repurchased 11,466 shares of common stock for $261 in the open market.
Lines of Credit
On July 28, 2023, the Company entered into a new Credit Agreement (the “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. Subsequently, the Company repaid in full the balance due on its prior line of credit with Capital One, N.A. and all commitments under this prior line of credit were terminated. The Revolver provides for a four-year senior secured revolving credit facility with an initial commitment of $50,000 and an additional $25,000 commitment under an accordion feature. The Revolver is secured by the Company’s 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 Revolver 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 Revolver. The Company paid certain arrangement fees and other fees in connection with the Revolver of approximately $271, which were capitalized as unamortized debt issuance costs and included within lines of credit balance in the accompanying balance sheets and are amortized to interest expense over the life of the Revolver. The Revolver matures July 28, 2027.
For the three months ended March 31, 2025 and 2024, interest expense under the Revolver was $0 and $276, respectively. The outstanding balance of the Revolver as of March 31, 2025 and December 31, 2024 was $0. The interest rate in effect as of March 31, 2025 and December 31, 2024 for the Revolver was 6.76% and 7.61%, respectively. The amount of available credit under the Revolver was $50,000 as of March 31, 2025 and December 31, 2024. The Revolver requires the Company to comply with certain financial and non-financial covenants. As of March 31, 2025, 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.
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Contractual Obligations
The following table is a summary of contractual cash obligations as of March 31, 2025:
Payments Due by Period (in thousands)
Contractual Obligations
Total
2025
2026 - 2027
2028 - 2029
After 2029
Lines of credit
$
—
—
—
—
—
Operating lease obligations
$
1,291
370
776
145
—
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, results of operations, liquidity or capital expenditures. However, we do have repurchase agreements with financial institutions providing inventory financing for independent retailers of our products. Under these agreements, we have agreed to repurchase homes at declining prices over the term of the agreement. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately $672 and $805 as of March 31, 2025 and December 31, 2024, 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, 2025.
Critical Accounting Estimates
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. Our critical accounting estimates are identified and described in our Annual Report on Form 10-K for the year ended December 31, 2024.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our March 31, 2025 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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