NOBILITY HOMES INC 10-Q

Item 2. Management’s Discussion and Analysis of Fin ancial Condition and Results of Operations Results of Operations Total net sales in the third quarter of 2024 were $13,803,340 compared to $14,654,789 in the third quarter of 2023. Total net sales for the first nine months of 2024 were $40,099,316 compared to $48,599,139 for the first nine months of 2023. Net sales decreased in the first nine months of 2024 as compared to last year because of the decrease in the number of retail homes sold and manufactured. In addition, we are building and selling lower-priced homes due to the higher interest rates on mortgages that we believe are negatively impacting sales as compared to the prior years. There also remain delays in the receipt of certain key production materials from suppliers, back orders, price increases and labor shortages which continue to cause delays in the completion of the homes at our manufacturing facility and the set-up process of retail homes in the field. Our inability to timely deliver and set up homes to customers has negatively impacted sales and earnings. We expect these challenges will continue throughout fiscal year 2024 and potentially into 2025. The Company also continues to experience inflation in some building products resulting in increases to our material and labor costs which may increase the wholesale and retail selling prices of our homes. We believe that potential customers have delayed or deferred purchasing decisions when considering the interest rate environment. The current demand for affordable manufactured housing in Florida and the U.S. has slowed due to the interest rate environment and increased costs associated with mortgages. According to the Florida Manufactured Housing Association, shipments for the industry in Florida for the period from November 2023 through July 2024 declined by approximately 3% from the same period last year. The following table summarizes certain key sales statistics and percentage of gross profit. (Unaudited) (Unaudited) Three Months Ended Nine Months Ended August 3, August 5, August 3, August 5, 2024 2023 2024 2023 New homes sold through Company owned sales centers 79 84 232 292 Pre-owned homes sold through Company owned sales centers 2 1 5 5 Homes sold to independent dealers 36 46 99 109 Total new factory built homes produced 95 108 301 361 Average new manufactured home price - retail $ 145,496 $ 147,426 $ 147,979 $ 147,094 Average new manufactured home price - wholesale $ 65,675 $ 71,514 $ 67,348 $ 74,325 As a percent of net sales: Gross profit from the Company owned retail sales centers 25 % 24 % 24 % 23 % Gross profit from the manufacturing facilities -including intercompany sales 25 % 26 % 23 % 24 % Maintaining our strong financial position is vital for future growth and success. Our many years of experience in the Florida market, combined with home buyers’ increased need for more affordable housing, should serve the Company well in the coming years. Management remains convinced that our specific geographic market is one of the best long-term growth areas in the country. On June 5, 2024, the Company celebrated its 57 th anniversary in business specializing in the design and production of quality, affordable manufactured homes. With multiple retail sales centers in Florida for over 34 years and an insurance agency subsidiary, we are the only vertically integrated manufactured home company headquartered in Florida. Insurance agent commission revenues in the third quarter of 2024 were $88,703 compared to $86,255 in the third quarter of 2023. Total insurance agent commission revenues for the first nine months of 2024 were $259,883 compared to $255,052 for the first nine months of 2023. Revenues are generated by new and renewal policies being written which affects agent commission earned. The Company establishes appropriate reserves for policy cancellations based on numerous factors, including past transaction history with customers, historical experience and other information, which is periodically evaluated and adjusted as deemed necessary. In the opinion of management, no reserve was deemed necessary for policy cancellations at August 3, 2024 and November 4, 2023. Gross profit as a percentage of net sales was 33% in the third quarter of 2024 compared to 35% for the third quarter of 2023 and was 34% for the first nine months of 2024 compared to 35% for the first nine months of 2023. The gross profit in the third quarter of 2024 was $4,606,600 compared to $5,114,390 in the third quarter of 2023 and was $13,509,340 for the first nine months of 2024 compared to $16,939,297 for the first nine months of 2023. The gross profit is dependent on the sales mix of wholesale and retail homes and number of pre-owned homes sold. Higher inflation costs of building products and labor cost on each home, manufacturing 10 Table of Contents lower-costs homes and the decrease in the number of homes manufactured and sold at our retail sales centers has negatively impacted our gross profit. Selling, general and administrative expenses as a percent of net sales was 15% in the third quarter of 2024 compared to 14% for the third quarter of 2023 and was 15% for the first nine months of 2024 compared to 13% for the first nine months of 2023. Selling, general and administrative expenses in the third quarter of 2024 was $2,032,973 compared to $1,987,782 in the third quarter of 2023 and was $5,976,683 for the first nine months of 2024 compared to $6,238,457 for the first nine months of 2023. Selling, general and administrative expenses as a percent of net sales increased due to additional costs incurred from the resignation of the Company's auditors, the decrease in sales at the manufacturing plant and retail sales centers and the fixed costs associated with many of the expenses. We earned interest income of $318,253 for the third quarter of 2024 compared to $203,972 for the third quarter of 2023. For the first nine months of 2024, interest income was $836,113 compared to $513,987 in the first nine months of 2023. The increase in interest income for the three and nine months of 2024 is primarily due to an increase in the monies invested. Our earnings from Majestic 21 in the third quarter of 2024 were $24,914 compared to $27,828, for the third quarter of 2023. The earnings for the first nine months of 2024 were $67,623 compared to $76,276 for the first nine months of 2023. The earnings from Majestic 21 represent the allocation of profit and losses which are owned 50% by 21st Mortgage Corporation and 50% by the Company. The Company received a one-time distribution of approximately $1.6 million in first quarter of 2024, representing our 50% of the excess capital in the portfolio. The earnings from the Majestic 21 loan portfolio vary quarter to quarter, but overall, the earnings will decrease due to the amortization, maturity and payoff of the loans. We received distributions from 21 st Mortgage Corporation in the third quarter of 2024 of $47,339 compared to $115,641 in the third quarter of 2023 and $147,155 for the first nine months of 2024 compared to $209,806 for the first nine months of 2023. The distributions are from an escrow arrangement related to a Finance Revenue Sharing Agreement (FRSA) between 21 st Mortgage Corporation and the Company. The distributions from the escrow arrangement, relating to certain loans financed by 21 st Mortgage Corporation, are recorded as income by the Company when received. The earnings from the FRSA loan portfolio will vary quarter to quarter, but will continue to decrease due to the amortization, maturity and payoff of the loans. The Company realized pre-tax income in the third quarter of 2024 of $2,927,213 as compared to $3,571,531 in the third quarter of 2023. The pre-tax income for the first nine months of 2024 was $8,773,299 as compared to $11,495,736 in the first nine months of 2023. The Company recorded an income tax expense in the amount of $741,901 in the third quarter of 2024 as compared to $905,203 in the third quarter of 2023. Income tax expense for the nine months of 2024 was $2,223,591 compared to $2,913,592 for the nine months of 2023. We reported net income of $2,185,312 for the third quarter of 2024 or $0.67 per share, compared to $2,666,328 or $0.80 per share, for the third quarter of 2023. For the first nine months of 2024 net income was $6,549,708 or $2.00 per share compared to $8,582,144 or $2.56 per share in the first nine months of 2023. Liquidity and Capital Resources Cash and cash equivalents were $13,052,050 at August 3, 2024 compared to $13,879,358 at November 4, 2023. Certificates of deposit were $12,888,834 at August 3, 2024 compared to $10,204,287 at November 4, 2023. Short-term investments were $618,228 at August 3, 2024 compared to $527,899 at November 4, 2023. Working capital was $40,807,632 at August 3, 2024 as compared to $37,871,552 at November 4, 2023. A cash dividend was paid from our cash reserves in April 2024 in the amount of $1.50 per share ($4,903,243). The Company received a one-time distribution of approximately $1.6 million in first quarter of 2024, from 21 st Mortgage Corporation, representing our 50% of the excess capital in the portfolio. Prestige new home inventory was $17.7 million at August 3, 2024 compared to $19 million at November 4, 2023. Prestige has sixty nine (69) ($5.6 million) new homes that are included in inventory and are in the field waiting to be completed and closed. We own the entire inventory for our Prestige retail sales centers, which includes new and pre-owned homes, and do not incur any third-party floor plan financing expenses. The Company currently has no line of credit facility and no debt and does not believe that such a facility is currently necessary to its operations. The Company also has approximately $4.5 million of cash surrender value of life insurance which can be accessed as an additional source of liquidity though the Company has not currently viewed this to be necessary. As of August 3, 2024, the Company continued to report a strong balance sheet which included total assets of approximately $64.3 million which was funded primarily by stockholders’ equity of approximately $54.5 million. 11 Table of Contents Critical Accounting Policies and Estimates In Item 7 of our Form 10-K, under the heading “Critical Accounting Policies and Estimates,” we have provided a discussion of the critical accounting policies and estimates that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements. No significant changes have occurred since that time. Forward-Looking Statements Certain statements in this report are forward-looking statements within the meaning of the federal securities laws. Although Nobility believes that the amounts and expectations reflected in such forward-looking statements are based on reasonable assumptions, there are risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, the potential adverse impact on our business caused by competitive pricing pressures at both the wholesale and retail levels, inflation, increasing material costs (including forest based products) or availability of materials due to supply chain interruptions (such as current inflation with forest products and supply issues with insulation, shingles, vinyl siding and PVC piping), changes in market demand, increase in interest rates, availability of financing for retail and wholesale purchasers, consumer confidence, adverse weather conditions that reduce sales at retail centers, the risk of manufacturing plant shutdowns due to storms or other factors, the impact of marketing and cost-management programs, reliance on the Florida economy, impact of labor shortage, impact of materials shortage, increasing labor cost, cyclical nature of the manufactured housing industry, impact of rising fuel costs, catastrophic events impacting insurance costs, availability of insurance coverage for various risks to Nobility, market demographics, management’s ability to attract and retain executive officers and key personnel, increased global tensions, market disruptions resulting from terrorist attacks, or other events such as a pandemic, any armed conflict involving the United States and the impact of inflation.