Legacy Housing(US:LEGH)2024-08-08 20:45PART I – FINANCIAL INFORMATION This section provides an overview of the company's financial performance and position for the six months ended June 30, 2024 Financial Statements (Unaudited) Legacy Housing Corporation reported $85.7 million net revenue, $31.3 million net income, and $14.3 million positive operating cash flow for H1 2024 Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $514,927 | $506,742 | | Total Current Assets | $139,376 | $107,884 | | Total Liabilities | $51,708 | $70,007 | | Total Current Liabilities | $31,738 | $37,333 | | Total Stockholders' Equity | $463,219 | $436,735 | Condensed Income Statement Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total Net Revenue | $85,738 | $105,493 | | Income from Operations | $32,780 | $35,853 | | Net Income | $31,329 | $31,296 | | Diluted EPS | $1.26 | $1.25 | Condensed Cash Flow Highlights (in thousands) | Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $14,265 | $(7,464) | | Net cash provided by investing activities | $2,142 | $3,937 | | Net cash (used in) provided by financing activities | $(17,095) | $2,240 | | Net decrease in cash | $(688) | $(1,287) | Note 2: Revenue Product sales decreased to $62.5 million in H1 2024, while interest income from loans increased to $20.5 million Disaggregation of Revenue (Six Months Ended June 30, in thousands) | Revenue Source | 2024 | 2023 | | :--- | :--- | :--- | | Product Sales: | | | | Direct sales | $5,167 | $11,178 | | Commercial sales | $24,850 | $31,458 | | Inventory finance sales | $17,618 | $29,290 | | Retail store sales | $9,236 | $8,248 | | Other product sales | $5,613 | $5,323 | | Total product sales | $62,484 | $85,497 | | Interest Income: | | | | Interest - consumer installment notes | $10,255 | $9,482 | | Interest - MHP notes | $8,595 | $6,711 | | Interest - dealer finance notes | $1,627 | $0 | | Total interest income | $20,477 | $16,193 | | Other Revenue | $2,777 | $3,803 | | Total Net Revenue | $85,738 | $105,493 | Note 3: Consumer Loans Receivable Consumer loan portfolio grew to $164.8 million, with past due loans increasing to 2.6% and nonaccrual loans rising Consumer Loans Receivable Aging | Past Due Status | June 30, 2024 (in thousands) | % of Total | Dec 31, 2023 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | 31 - 60 days | $1,251 | 0.8% | $624 | 0.4% | | 61 - 90 days | $628 | 0.4% | $149 | 0.1% | | > 90 days | $2,250 | 1.4% | $1,572 | 1.0% | | Total Past Due | $4,129 | 2.6% | $2,345 | 1.5% | - The total principal outstanding for consumer loans on nonaccrual status was $2,250 thousand as of June 30, 2024, an increase from $1,565 thousand as of December 31, 202349 Note 4: Notes Receivable from Mobile Home Parks (MHP) MHP Notes portfolio reached $184.7 million, with $32 million in default and 11.3% of the portfolio over 90 days past due - Approximately $32 million in MHP and Other notes are in default and subject to litigation, accruing interest at 17.5% after acceleration in January 202456 - As of June 30, 2024, 11.3% of the MHP loan portfolio, or $20.9 million, was over 90 days past due, primarily related to the defaulted loans62 - The company has concentrations of MHP Notes with three independent third-parties representing 23.8%, 14.9%, and 13.3% of the total principal balance53 Note 17: Earnings Per Share Basic EPS was $1.29 and diluted EPS $1.26 for H1 2024, with $5.4 million in share repurchases and an additional $10.0 million authorization - The company repurchased 261,529 shares for $5.4 million in the first six months of 2024103 - On August 6, 2024, the Board of Directors authorized an additional $10.0 million for the share repurchase program103 Note 19: Subsequent Events A post-quarter settlement resolved $37 million in defaulted notes, involving asset transfer and a new $48 million promissory note - On July 27, 2024, Legacy entered into a Settlement Agreement to resolve the default on notes valued at approximately $37 million106 - As part of the settlement, Legacy will receive two mobile home communities and issue a new $48 million, two-year promissory note to refinance the remaining debt, secured by different collateral106 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 26.9% product sales decrease due to market slowdowns, offset by increased loan interest income and improved operating cash flow to $14.3 million Results of Operations Product sales declined 26.9% to $62.5 million for H1 2024, partially offset by increased loan interest income, resulting in flat net income Q2 2024 vs Q2 2023 Performance (in thousands) | Metric | Q2 2024 | Q2 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product Sales | $31,652 | $42,316 | $(10,664) | (25.2)% | | Total Net Revenue | $42,495 | $52,636 | $(10,141) | (19.3)% | | Income from Operations | $16,030 | $17,500 | $(1,470) | (8.4)% | | Net Income | $16,189 | $15,020 | $1,169 | 7.8% | H1 2024 vs H1 2023 Performance (in thousands) | Metric | H1 2024 | H1 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product Sales | $62,484 | $85,497 | $(23,013) | (26.9)% | | Total Net Revenue | $85,738 | $105,493 | $(19,755) | (18.7)% | | Income from Operations | $32,780 | $35,853 | $(3,073) | (8.6)% | | Net Income | $31,329 | $31,296 | $33 | 0.1% | - The decrease in product sales was attributed to an industry-wide decrease in unit volumes, high levels of inventory on dealer lots, and a slowdown in mobile home park business due to higher interest rates122128 Liquidity and Capital Resources Liquidity is strong with $14.3 million positive operating cash flow and $38.1 million available on the $50 million revolving credit facility - Net cash provided by operating activities was $14.3 million for H1 2024, compared to $7.5 million used in H1 2023, mainly due to decreased MHP and consumer loan originations137 - The company has a $50 million revolving credit facility maturing in July 2027, with an outstanding balance of $11.9 million and available credit of $38.1 million as of June 30, 2024140141 - The company has a contingent repurchase obligation for dealer inventory financing, with a maximum liability of $1.04 million as of June 30, 2024, down from $3.03 million at year-end 2023144 Controls and Procedures Disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting, with no remediation changes in Q2 2024 - The CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses in internal control over financial reporting149 - The material weaknesses identified are: 1) insufficient design, implementation, and monitoring of control activities; 2) lack of sufficient qualified accounting personnel; and 3) inadequate IT general controls151 - No changes were made in internal control over financial reporting during the second quarter of 2024 that materially affected, or are reasonably likely to materially affect, internal controls152 PART II – OTHER INFORMATION This section covers legal proceedings, equity security sales, and other significant corporate information Legal Proceedings The company maintains a legal reserve of $550 thousand for ordinary course legal proceedings, a decrease from year-end 2023 - The company has legal reserves of $550 thousand as of June 30, 2024, compared to $990 thousand as of December 31, 202396 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 170,342 shares of common stock at an average price of $20.53 per share in Q2 2024 Share Repurchases in Q2 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 170,342 | $20.53 | | May 2024 | 0 | N/A | | June 2024 | 0 | N/A | Other Information Executive Chairman Curtis D. Hodgson adopted a Rule 10b5-1 trading plan to sell up to 899,600 shares of common stock - On May 15, 2024, Executive Chairman Curtis D. Hodgson adopted a Rule 10b5-1 trading plan to sell up to 899,600 shares of common stock over a one-year period starting in August 2024156