Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001‑38761 Legacy Housing Corporation (Exact name of registrant as specified in its charter) (State or other jurisdiction of (I ...

Legacy Housing Corporation (NASDAQ:LEGH) Q2 2019 Earnings Conference Call August 14, 2019 11:00 AM ET Company Participants Curtis Hodgson - Executive Chairman of the Board Cork Van Den Handel - Chief Financial Officer Kenneth Shipley - Chief Executive Officer Conference Call Participants Alex Rygiel - B. Riley FBR Operator Good day, ladies and gentlemen and welcome to the Legacy Housing Corporation Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10‑Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001‑38761 Legacy Housing Corporation (Exact name of registrant as specified in its charter) (State or other jurisdiction of ( ...

Legacy Housing Corporation (NASDAQ:LEGH) Q1 2019 Results Earnings Conference Call May 14, 2019 10:00 AM ET Company Participants Curtis Hodgson - Executive Chairman Jeff Burt - Chief Financial Officer Operator Good day, ladies and gentlemen and welcome to Legacy Housing Corporation First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Cur ...

[Part I](index=3&type=section&id=PART%20I) [Business](index=3&type=section&id=Item%201.%20Business) Legacy Housing, the fourth largest U.S. manufactured home producer, integrates manufacturing, distribution, and financing for affordable housing in the southern U.S. - The company is the fourth largest producer of manufactured homes in the United States, focusing on the affordable housing market with homes priced between **$22,000** and **$95,000**[11](index=11&type=chunk) - Legacy operates a vertically integrated business model that includes manufacturing, distribution through **114 independent** and **12 company-owned retail locations**, and offering financing solutions to customers[12](index=12&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) Geographic Sales Distribution (as % of Total Net Sales) | Location | % of 2018 Total Net Sales | % of 2017 Total Net Sales | | :--- | :--- | :--- | | Texas | 56% | 62% | | Georgia | 13% | 8% | | Louisiana | 11% | 4% | | Oklahoma | 4% | 5% | | Colorado | 2% | 8% | [Our Company](index=3&type=section&id=Our%20Company) Legacy Housing, founded in 2005 and IPO'd in 2018, manufactures and sells affordable homes through a vertically integrated model. - The company was founded in **2005**, converted to a Delaware corporation on **January 1, 2018**, and completed its IPO in **December 2018**[11](index=11&type=chunk)[16](index=16&type=chunk) - Home section sales increased from **3,274 in 2017** to **3,950 in 2018**[11](index=11&type=chunk) - The company's vertical integration allows it to offer a complete solution from manufacturing to financing[12](index=12&type=chunk) [Our Market Opportunity](index=5&type=section&id=Our%20Market%20Opportunity) The company targets the affordable housing market, serving households with incomes below **$60,000** due to cost advantages of manufactured homes. - The target market is households with annual incomes below **$60,000**, which comprised a majority of U.S. households in **2016**[18](index=18&type=chunk) - The average sale price for new single-family homes (including land) increased by approximately **42% since 2009**, while manufactured home prices increased by only **14%** in the same period[22](index=22&type=chunk) - The manufactured housing industry shipped **92,891 homes in 2017**, with annualized shipments increasing to approximately **102,000** in the first half of **2018**[25](index=25&type=chunk)[26](index=26&type=chunk) [Our Competitive Advantages](index=9&type=section&id=Our%20Competitive%20Advantages) Legacy's competitive advantages include efficient production, vertical integration, an expansive distribution network, and tailored financing solutions. - Operates **three manufacturing facilities** in Texas and Georgia, producing an average of **75 home sections** (approx. **62 homes**) per week[13](index=13&type=chunk)[29](index=29&type=chunk) - Offers **three types of financing**: floor plan financing for independent retailers, consumer financing for end-users, and financing for manufactured home community owners[31](index=31&type=chunk) Retail Financing Loan Statistics (as of Dec 31, 2018) | Metric | Value | | :--- | :--- | | Number of Customers | > 3,000 | | Average Interest Rate | ~14.0% | | Repossession Rate (2018) | ~2.3% | [Our Growth Strategy](index=13&type=section&id=Our%20Growth%20Strategy) The growth strategy involves expanding retail presence, enhancing financing, product innovation, community owner agreements, and selective acquisitions. - Key growth initiatives include expanding the network of company-owned retail locations, which are expected to be more productive and have higher gross margins than independent retailers[34](index=34&type=chunk) - The company intends to expand financing solutions, noting that it financed approximately **37% of homes sold to consumers in 2018**[34](index=34&type=chunk) - In **2018**, the company acquired approximately **489 acres of land** in Texas for **$5.0 million** to develop manufactured housing communities, with development expected to begin in the first half of **2019**[34](index=34&type=chunk)[36](index=36&type=chunk) [Our Products](index=15&type=section&id=Our%20Products) Legacy produces HUD-compliant manufactured homes and tiny houses, selling **3,950 home sections in 2018** with a **$13.3 million backlog** at year-end. - Products include manufactured homes built to HUD standards and tiny houses (**320-400 sq. ft.**) not requiring HUD standards[40](index=40&type=chunk) - In **2018**, the company sold **3,950 home sections**, including **245 tiny houses**[41](index=41&type=chunk) - As of **December 31, 2018**, the order backlog was approximately **416 home sections**, valued at **$13.3 million**[45](index=45&type=chunk) [Distribution](index=18&type=section&id=Distribution) Legacy distributes homes across **15 states** through independent and company-owned retailers, and direct community sales, with a **$2.2 million** contingent repurchase obligation. 2018 Product Sales by Distribution Channel | Channel | % of 2018 Product Sales | | :--- | :--- | | Independent Retail Distributors | 67% | | Company-Owned Retail Locations | 9% | | Direct Sales to Community Owners | 24% | - The maximum contingent obligation under repurchase agreements with third-party lenders for independent retailer inventory was approximately **$2.2 million** as of **December 31, 2018**[50](index=50&type=chunk) [Financing Solutions for Our Customers](index=19&type=section&id=Financing%20Solutions%20for%20Our%20Customers) Legacy provides floor plan, consumer, and MHP community financing, with **$101.0 million** in consumer loans and **$57.9 million** in MHP loans outstanding. Financing Portfolio Overview (as of Dec 31, 2018) | Financing Type | Principal Outstanding | Number of Loans | Average Rate/Fee | | :--- | :--- | :--- | :--- | | Consumer Financing | $101,049,000 | 2,868 | 14% avg. contractual rate | | MHP Community Financing | $57,935,000 | 346 | Typically Prime + 4.0% (8% floor) | | Floor Plan (Consignment) | $28,373,000 | N/A | 0.5% to 1.4% monthly fee | - Consignment sales, where revenue is recognized upon final sale to the end consumer, totaled **$50.1 million in 2018**[58](index=58&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) This section is not applicable as the company qualifies as a smaller reporting company. - Not applicable for smaller reporting companies[84](index=84&type=chunk) [Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments. - None[85](index=85&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) The company owns two manufacturing facilities and leases one, operates **12 retail locations** (3 owned, 9 leased), and incurred **$542,000** in rent expense in **2018**. Key Facilities | Location | Type | Owned/Leased | | :--- | :--- | :--- | | Fort Worth, TX | Manufacturing | Owned | | Commerce, TX | Manufacturing | Owned | | Eatonton, GA | Manufacturing | Leased | | Various | 12 Retail Locations | 3 Owned, 9 Leased | | Bedford, TX | Corporate HQ | Leased | - Total rent expense for leased properties was **$542,000 in 2018**, up from **$340,000 in 2017**[88](index=88&type=chunk) [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, which management believes will not materially affect its financial position or operations. - The company is party to legal proceedings arising in the ordinary course of business[89](index=89&type=chunk) - Management does not believe that currently pending litigation will have a material adverse effect on the company's financial position or results[90](index=90&type=chunk) [Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations. - Not applicable[91](index=91&type=chunk) [Part II](index=32&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock began trading on NASDAQ under "LEGH" on **December 14, 2018**, with no plans for future cash dividends. - Common stock began trading on NASDAQ under **"LEGH"** on **December 14, 2018**[94](index=94&type=chunk) - The company has no plans to pay cash dividends and intends to retain earnings for future operations and growth[95](index=95&type=chunk) [Selected Financial Data](index=32&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is not applicable as the company qualifies as a smaller reporting company. - Not applicable for smaller reporting companies[98](index=98&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In **2018**, total net revenue grew **25.7% to $161.9 million**, while net income decreased to **$21.5 million** due to increased tax expense from corporate conversion. Financial Performance Summary (2018 vs 2017) | Metric (in thousands) | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | $161,877 | $128,736 | 25.7% | | Product Sales | $139,165 | $109,750 | 26.8% | | Income from Operations | $32,800 | $28,095 | 16.7% | | Net Income | $21,513 | $26,348 | (18.4)% | | Pro Forma Net Income (2017) | - | $16,900 | - | - The decrease in net income was primarily due to a **$9.1 million income tax expense in 2018** after converting from a pass-through partnership to a C corporation[139](index=139&type=chunk) - The company plans to open **8 to 12 additional retail centers by the end of 2020** and increase production at its Georgia facility[105](index=105&type=chunk)[107](index=107&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) In **2018**, product sales grew **26.8%** from volume and price increases, interest income rose **19.9%**, and tax expense included a one-time corporate conversion cost. - Product sales growth was driven by a **17.0% increase in the volume of homes sold** and an **8.4% increase in net revenue per product sold**, attributed to price increases and a shift in sales mix towards higher-margin channels[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - Interest income from consumer and MHP loans grew **19.9%** due to a **$10.5 million increase** in the consumer loan portfolio and an **$8.4 million increase** in the MHP note portfolio[135](index=135&type=chunk) - The **2018 income tax expense of $9.1 million** included a one-time, non-cash expense of **$2.1 million** to record a net deferred tax liability upon converting to a C corporation[139](index=139&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) As of **December 31, 2018**, cash was **$2.6 million**, operating cash flow decreased, investing cash flow increased due to land acquisition, and financing activities provided cash from IPO proceeds. Cash Flow Summary (in thousands) | Activity | 2018 | 2017 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,820 | $4,373 | | Net cash used in investing activities | $(4,453) | $(1,938) | | Net cash provided by (used in) financing activities | $3,804 | $(3,016) | - Financing activities in **2018** were primarily driven by **$43.5 million in net proceeds from the IPO**, which were used for a net paydown of **$39.4 million** on lines of credit[144](index=144&type=chunk) Indebtedness as of Dec 31, 2018 (in thousands) | Facility | Outstanding Balance | | :--- | :--- | | Capital One Revolver | $3,679 | | Veritex Community Bank Revolver | $10,000 | | Notes Payable | $3,965 | | **Total** | **$17,644** | [Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company. - Not applicable for smaller reporting companies[156](index=156&type=chunk) [Financial Statements and Supplementary Data](index=46&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements for **2018** and **2017**, including balance sheets, statements of operations, cash flows, and notes. Balance Sheet Highlights (as of Dec 31, in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets | $235,038 | $208,335 | | Total Liabilities | $45,758 | $84,064 | | Total Equity | $189,280 | $124,271 | Statement of Operations Highlights (Year ended Dec 31, in thousands) | Account | 2018 | 2017 | | :--- | :--- | :--- | | Total Net Revenue | $161,877 | $128,736 | | Income from Operations | $32,800 | $28,095 | | Net Income | $21,513 | $26,348 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=76&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure. - None[289](index=289&type=chunk) [Controls and Procedures](index=76&type=section&id=Item%209A.%20Controls%20and%20Procedures) Disclosure controls and procedures were ineffective as of **December 31, 2018**, due to material weaknesses in internal control over financial reporting, with remediation efforts ongoing. - Disclosure controls and procedures were determined to be **ineffective as of December 31, 2018**, due to material weaknesses in internal control over financial reporting[291](index=291&type=chunk) - Identified material weaknesses include: insufficient accounting processes (e.g., allowance for loan loss, revenue recognition), lack of experienced personnel for SEC reporting, and inadequate policies for system access and segregation of duties[293](index=293&type=chunk) - Remediation efforts are in process, including hiring additional personnel, designing new internal controls, and providing further training[293](index=293&type=chunk) [Other Information](index=78&type=section&id=Item%209B.%20Other%20Information) The company reports no other information. - None[298](index=298&type=chunk) [Part III](index=79&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=79&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company's leadership includes co-founders as Executive Chairman and CEO, with a **five-member board** and **three independent committees** established post-IPO. Executive Officers and Directors | Name | Position(s) | | :--- | :--- | | Curtis D. Hodgson | Executive Chairman of the Board | | Kenneth E. Shipley | President, Chief Executive Officer and Director | | Jeffrey V. Burt | Chief Financial Officer and Treasurer | | Neal J. Suit | Executive Vice President, General Counsel and Secretary | | Mark E. Bennett | Director | | Philip T. Blazek | Director | | John A. Isakson | Director | - The board has determined that directors **Mark E. Bennett, Philip T. Blazek, and John Isakson are independent** under Nasdaq rules[318](index=318&type=chunk) - The board has **three standing committees**: Audit, Compensation, and Nominating and Governance, established in **December 2018**[319](index=319&type=chunk) [Executive Compensation](index=85&type=section&id=Item%2011.%20Executive%20Compensation) Co-founders Hodgson and Shipley receive **$50,000** annual salaries, with primary compensation from equity, and a **2018 Incentive Compensation Plan** was adopted with **2,500,000 shares** available. 2018 Summary Compensation | Name and Position | Salary ($) | Bonus ($) | Total ($) | | :--- | :--- | :--- | :--- | | Curtis D. Hodgson (Executive Chairman) | 50,000 | — | 50,000 | | Kenneth E. Shipley (President & CEO) | 50,000 | — | 50,000 | | Jeffrey V. Burt (CFO) | 223,654 | 30,000 | 253,654 | | Neal J. Suit (General Counsel) | 183,077 | 30,000 | 213,077 | - Co-founders Hodgson and Shipley's compensation is primarily driven by their equity ownership, with each receiving a fixed annual salary of **$50,000**[331](index=331&type=chunk)[332](index=332&type=chunk) - The company adopted a **2018 Incentive Compensation Plan** making **2,500,000 shares** available for future awards to executives, employees, and directors[339](index=339&type=chunk)[343](index=343&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=91&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of **March 27, 2019**, directors and executive officers collectively owned **50.4%** of common stock, with co-founder Curtis D. Hodgson holding **36.2%**. Beneficial Ownership (as of March 27, 2019) | Name | Percentage Ownership | | :--- | :--- | | Curtis D. Hodgson | 36.2% | | Kenneth E. Shipley | 13.8% | | William Shipley | 13.4% | | Douglas Shipley | 13.4% | | All directors and executive officers as a group | 50.4% | [Certain Relationships and Related Transactions, and Director Independence](index=93&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company conducts transactions with related parties, including **$3.6 million** in home sales to Bell Mobile Homes in **2018**, and has adopted a related person transaction policy. - The company sells manufactured homes to Bell Mobile Homes, a retailer owned by a significant shareholder. Sales totaled **$3.6 million in 2018** and **$2.5 million in 2017**[357](index=357&type=chunk) - A **$1.5 million note payable** to a related party was paid in full on **October 18, 2018**[359](index=359&type=chunk) - The board of directors has adopted a written policy for the review and approval of related person transactions exceeding **$120,000**[363](index=363&type=chunk) [Principal Accounting Fees and Services](index=94&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The company incurred approximately **$1.5 million** in audit fees from Grant Thornton LLP in **FY 2018**, primarily for annual financial statements and IPO-related services. Auditor Fees (Grant Thornton LLP) | Fee Category | FY 2018 | FY 2017 | | :--- | :--- | :--- | | Audit Fees | ~$1,507,067 | $0 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | [Part IV](index=95&type=section&id=PART%20IV) [Exhibits, Financial Statement Schedules](index=95&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including corporate governance documents and material contracts, with no financial statement schedules included. - Lists all exhibits filed with the report, such as corporate governance documents, material contracts, and certifications[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) - Financial Statement Schedules are not included as they are not applicable or required[375](index=375&type=chunk)

Financial Data and Key Metrics Changes - Legacy Housing Corporation reported gross revenue of $161 million for 2018, marking the highest annual revenue in the company's history, with a year-over-year increase of 26% [5][13] - The company sold 3,950 home sections in 2018, a 20% increase from 3,274 in 2017, and sold 3,392 complete homes, up 17% from 2,900 in 2017 [5][6] - The average selling price of products increased to approximately $41,000 in 2018 from about $38,000 in 2017 [6] - Net income for 2018 was $21.5 million, compared to $26.3 million in 2017; however, on a pro forma basis, net income increased by 27% when accounting for tax changes [18] Business Line Data and Key Metrics Changes - Company-owned retail store sales increased by 27% in 2018, rising from $10.4 million in 2017 to $13.2 million in 2018 [14] - The cost of product sales increased by 30% to $107 million, largely due to higher production volume and increased material and labor costs [14][16] - SG&A expenses rose by 22% to $21 million, driven by costs associated with expanding retail operations and opening new offices [15] Market Data and Key Metrics Changes - The manufactured housing industry is experiencing incremental recovery but remains below long-term averages, with opportunities for growth driven by demand for affordable housing [7] - Some key markets, particularly Texas and Louisiana, experienced softening in sales towards the end of 2018, attributed to weather-related events [8][9] Company Strategy and Development Direction - The company plans to focus on internal opportunities while evaluating acquisitions that align with shareholder interests [24] - There is a cautious approach to expanding retail operations, with an emphasis on analyzing past successes and failures to create an effective rollout strategy [10] - The company is involved in new park developments, including a 400-acre parcel near Austin and a project in San Antonio, with expectations for significant returns on investment in the coming years [11][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the need to adapt to being a public corporation and emphasizes the importance of internal systems [23] - There is optimism regarding demand for products despite challenges in certain markets, with a strong order backlog and production capacity [35] - The company is monitoring interest rates, which could impact competitiveness against site-built housing [38] Other Important Information - The consumer loan portfolio increased by $10.5 million to $97 million, while the manufactured home park loan portfolio rose by $8.4 million to $58 million [19] - Equity grew to approximately $190 million as of December 31, 2018, up $66 million from the previous year [22] Q&A Session Summary Question: Reason for the delay in the 10-K filing - Management explained that the delay was due to transitioning from a partnership to a corporate structure and ensuring all resources were in place, with no disagreements with auditors [30][31] Question: Overview of the first quarter performance - Management noted that while the industry faced challenges, Legacy maintained a good order backlog and operated at or near capacity [35] Question: Details on the 400 unshipped units - Most of the unshipped units were tagged for independent retailers, with delays attributed to customers not being ready for delivery [41][44] Question: Update on retail store performance - Retail stores are currently selling about two units per month, which is not profitable, but management expects to improve this to four to five units per month [75] Question: Insights on FEMA business - Management indicated that there are currently no FEMA orders, and the business is not expected to see significant FEMA-related sales unless a catastrophe occurs [71]