Legacy Housing(US:LEGH)2025-05-12 21:14PART I - FINANCIAL INFORMATION This part presents the unaudited condensed financial statements and management's discussion and analysis for the quarter ended March 31, 2025 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements and detailed notes for the quarter ended March 31, 2025 Condensed Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------------------ | :------------------------------- | :-------------------- | :------- | | Total current assets | $130,544 | $124,306 | $6,238 | 5.0% | | Total assets | $544,606 | $534,194 | $10,412 | 1.9% | | Total current liabilities | $33,351 | $32,742 | $609 | 1.9% | | Total liabilities | $40,878 | $40,238 | $640 | 1.6% | | Total stockholders' equity | $503,728 | $493,956 | $9,772 | 2.0% | - Cash balance significantly increased from $1,149k at December 31, 2024, to $3,414k at March 31, 20258 - Inventories, net, increased from $37,538k to $41,404k, indicating higher stock levels8 Condensed Statements of Income This section details the company's revenues, expenses, and net income over a specific reporting period | Metric | Three months ended March 31, 2025 (in thousands) | Three months ended March 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Product sales | $24,290 | $30,833 | $(6,543) | (21.2)% | | Consumer, MHP and dealer loans interest | $10,655 | $10,633 | $22 | 0.2% | | Other revenue | $725 | $1,777 | $(1,052) | (59.2)% | | Total net revenue | $35,670 | $43,243 | $(7,573) | (17.5)% | | Income from operations | $11,591 | $16,750 | $(5,159) | (30.8)% | | Net income | $10,276 | $15,140 | $(4,864) | (32.1)% | | Basic EPS | $0.43 | $0.62 | $(0.19) | (30.6)% | | Diluted EPS | $0.41 | $0.60 | $(0.19) | (31.7)% | Condensed Statements of Changes in Stockholders' Equity This section outlines the changes in the company's equity accounts, including net income and stock transactions | Metric | December 31, 2024 (in thousands) | March 31, 2025 (in thousands) | Change (in thousands) | | :----------------------- | :------------------------------- | :---------------------------- | :-------------------- | | Total Stockholders' Equity | $493,956 | $503,728 | $9,772 | | Retained Earnings | $321,400 | $331,676 | $10,276 | | Treasury Stock | $(9,875) | $(10,550) | $(675) | - Net income of $10,276k was the primary driver for the increase in retained earnings during Q1 202513 - The company purchased $675k of treasury stock in Q1 202513 Condensed Statements of Cash Flows This section reports the cash generated and used by operating, investing, and financing activities | Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | Change (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Net cash provided by operating activities | $4,908 | $10,806 | $(5,898) | | Net cash (used in) provided by investing activities | $(1,968) | $2,721 | $(4,689) | | Net cash used in financing activities | $(675) | $(13,654) | $12,979 | | Net increase (decrease) in cash | $2,265 | $(127) | $2,392 | | Cash at end of period | $3,414 | $621 | $2,793 | - Operating cash flow decreased significantly by 54.6% year-over-year, primarily due to decreased net income and changes in working capital152 - Investing activities shifted from providing $2.7 million in cash in Q1 2024 to using $2.0 million in Q1 2025, mainly due to increased property development and notes issuance153 Notes to Condensed Financial Statements (Unaudited) This section provides detailed disclosures and explanations for the figures presented in the condensed financial statements 1. NATURE OF OPERATIONS This note describes the company's core business activities, including manufacturing, financing, and community development - Legacy Housing Corporation manufactures and transports mobile homes, provides wholesale and retail financing, and develops manufactured home communities19 - The company operates as one reportable segment, with performance evaluated by the CEO based on net income, total revenue, and return on investment22 | Metric | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Allowance for doubtful accounts | $763 | $578 | | Product warranty liability | $2,033 | $1,950 | | Share-based compensation expense (Q1) | $171 | $257 | 2. REVENUE This note details the company's revenue recognition policies and disaggregated revenue streams - Revenue from product sales is recognized upon delivery and transfer of title to customers53 - For Q1 2025, no single MHP customer accounted for more than 5.0% of product sales, a change from Q1 2024 where two customers had significant concentrations60 Disaggregated Revenue (Three months ended March 31) | Category | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :---------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Product sales | $24,290 | $30,833 | $(6,543) | (21.2)% | | Loan portfolio interest | $10,655 | $10,633 | $22 | 0.2% | | Other revenue | $725 | $1,777 | $(1,052) | (59.2)% | | Total net revenue | $35,670 | $43,243 | $(7,573) | (17.5)% | 3. CONSUMER LOANS RECEIVABLE This note provides information on the company's consumer loan portfolio, including interest rates and loan loss allowances - The average contractual interest rate for consumer loans was approximately 13.1% as of March 31, 202564 Consumer Loans Receivable, Net (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Consumer loans receivable | $182,789 | $177,289 | | Allowance for loan losses | $(812) | $(694) | | Consumer loans receivable, net | $179,474 | $174,105 | Allowance for Loan Losses Activity (Consumer Loans, in thousands) | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Allowance for loan losses, beginning | $694 | $765 | | Provision for loan losses | $193 | $(268) | | (Charge offs) recoveries | $(75) | $67 | | Allowance for loan losses, end | $812 | $564 | 4. NOTES RECEIVABLE FROM MOBILE HOME PARKS This note details the company's notes receivable from mobile home parks, including interest rates and a significant settlement - The average interest rate on MHP Notes was approximately 7.8% as of March 31, 202578 - A settlement agreement in July 2024 refinanced approximately $37 million in defaulted notes into a new two-year, $48.6 million Promissory Note at 7.9% interest, secured by over 1,000 mobile homes and two mobile-home parks828690 MHP Notes Receivable, Net (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Outstanding principal balance | $204,400 | $208,175 | | Allowance for loan losses | $(776) | $(654) | | Total | $202,666 | $206,464 | 5. OTHER NOTES RECEIVABLE This note describes other notes receivable, their collateral, interest rates, and past due balances - Other notes receivable are collateralized by mortgages on real estate, mobile homes used as offices, and vehicles, with interest rates ranging from 5.00% to 17.50%93 - Past due balances on other notes increased to $1,698k as of March 31, 2025, from $1,357k as of December 31, 202495 Other Notes Receivable, Net (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Outstanding principal balance | $16,386 | $15,412 | | Allowance for loan losses | $(468) | $(364) | | Total | $15,816 | $14,916 | 6. DEALER FINANCED RECEIVABLES This note explains the company's dealer financed receivables, including terms and outstanding balances - Dealer financed receivables are loans to independent retailers for mobile home purchases, typically with a three-year term and monthly interest payments103 Dealer Financed Receivables, Net (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Outstanding principal balance | $31,878 | $32,779 | | Allowance for loan losses | $(200) | $(194) | | Total | $31,678 | $32,585 | 7. INVENTORIES, NET This note provides a breakdown of the company's inventory, including raw materials, work in progress, and finished goods Inventories, Net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------- | :------------- | :---------------- | | Raw materials | $13,583 | $13,172 | | Work in progress | $325 | $478 | | Finished goods, net | $27,496 | $23,888 | | Total | $41,404 | $37,538 | 8. PROPERTY, PLANT AND EQUIPMENT This note details the company's property, plant, and equipment, including land, buildings, and construction in progress Property, Plant and Equipment, Net (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Land | $17,020 | $17,025 | | Buildings and leasehold improvements | $13,360 | $13,353 | | Construction in Progress | $20,864 | $19,719 | | Total property, plant and equipment, net | $48,445 | $47,585 | - Depreciation expense for Q1 2025 was $399k, slightly down from $403k in Q1 2024107 9. OTHER ASSETS This note describes other assets, including prepaid rent and repossessed homes Other Assets (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :--------------- | :------------- | :---------------- | | Prepaid rent | $356 | $356 | | Repossessed homes | $6,274 | $5,129 | | Total | $6,630 | $5,485 | - Repossessed homes increased by $1,145k from December 31, 2024, to March 31, 2025108 10. ACCRUED LIABILITIES This note provides a breakdown of accrued liabilities, including warranty, litigation, and income tax reserves Accrued Liabilities (in thousands) | Category | March 31, 2025 | December 31, 2024 | | :-------------------------- | :------------- | :---------------- | | Warranty reserve | $2,033 | $1,950 | | Litigation reserve | $490 | $328 | | Federal and state income taxes | $5,734 | $3,295 | | Total accrued liabilities | $15,238 | $13,672 | - Federal and state income taxes accrued increased significantly by $2,439k from December 31, 2024, to March 31, 2025110 11. LINES OF CREDIT This note details the company's revolving credit facility, including available credit and interest expense - The company has a $50,000k senior secured revolving credit facility with Prosperity Bank, maturing July 28, 2027111 - The outstanding balance on the Revolver was $0 as of March 31, 2025, and December 31, 2024, with $50,000k available credit112 - Interest expense under the Revolver was $0 for Q1 2025, down from $276k for Q1 2024112 12. INCOME TAXES This note explains the company's income tax expense and effective tax rate, including factors causing differences from statutory rates Income Tax Expense and Effective Tax Rate (Three months ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :---------------- | :------------------ | :------------------ | | Income tax expense | $2,452 | $3,373 | | Effective tax rate | 19.3% | 18.2% | - The effective tax rate differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy-efficient homes (§45L)113 13. COMMITMENTS AND CONTINGENCIES This note outlines the company's commitments and contingent liabilities, such as self-insured health benefits and legal proceedings - The company has a self-insured health benefits plan with a $809k liability for incurred but not reported claims as of March 31, 2025115 - Maximum contingent liability under repurchase agreements for dealer inventory financing was $672k as of March 31, 2025, down from $805k at December 31, 2024116 - Legal reserves for ordinary course legal proceedings increased to $490k as of March 31, 2025, from $328k at December 31, 2024118 14. FAIR VALUE MEASUREMENTS This note describes the fair value measurement methodologies for the company's loan portfolios Fair Value vs. Book Value of Loan Portfolios (March 31, 2025, in thousands) | Portfolio | Fair Value | Book Value | | :-------------------------- | :--------- | :--------- | | Consumer loan portfolio | $168,317 | $179,474 | | Fixed rate MHP Notes | $195,921 | $199,693 | | Fixed rate other notes | $15,109 | $15,250 | - Variable rate loans (MHP, other, line of credit) are valued at Level II, approximating carrying value. Fixed rate loans (consumer, MHP, other) are valued at Level III using discounted cash flows121 15. EARNINGS PER SHARE This note provides details on basic and diluted earnings per share and share repurchase activities Earnings Per Share (Three months ended March 31) | Metric | 2025 | 2024 | | :----- | :--- | :--- | | Basic | $0.43 | $0.62 | | Diluted | $0.41 | $0.60 | - The company repurchased 29,385 shares of common stock for $675k in Q1 2025, with approximately $13,927k remaining authorization as of March 31, 2025125 16. RELATED PARTY TRANSACTIONS This note discloses sales transactions with related parties, highlighting changes in sales volumes - Home sales to Bell Mobile Homes (related party) decreased to $384k in Q1 2025 from $1,119k in Q1 2024126 - Home sales to Shipley Bros., Ltd. and Crazy Red's Mobile Homes (related party) increased to $392k in Q1 2025 from $299k in Q1 2024127 17. SUBSEQUENT EVENTS This note reports significant events occurring after the balance sheet date, such as additional share repurchases - Between April 1, 2025, and May 12, 2025, the company repurchased an additional 11,466 shares of common stock for $261k125128 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operational results, and liquidity for the three months ended March 31, 2025 Overview This section provides an overview of Legacy Housing Corporation's business model, operations, and market focus - Legacy Housing Corporation is a vertically integrated manufacturer, seller, and financier of manufactured homes and 'tiny houses' primarily in the southern United States130132 - The company sold 427 home sections in Q1 2025, a decrease from 645 in Q1 2024130 - Approximately 62% of manufactured homes were sold in Texas during Q1 2025134 Factors Affecting Our Performance This section discusses key internal and external factors influencing the company's financial performance and strategic initiatives - The company is developing manufactured housing communities and subdivisions, holding properties totaling $34,244k for this purpose as of March 31, 2025137 - High inflation and rising interest rates are identified as potential adverse impacts on gross margins and home buyer financing affordability137 - The Georgia manufacturing facility has space to add capacity, and the company is exploring opportunities to increase production capacity137 Results of Operations This section analyzes the company's financial performance for the period, focusing on revenue, expenses, and net income Key Financial Performance (Three months ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Total net revenue | $35,670 | $43,243 | $(7,573) | (17.5)% | | Product sales | $24,290 | $30,833 | $(6,543) | (21.2)% | | Net revenue per unit sold | $69.4 | $56.4 | $13 | 23.1% | | Income from operations | $11,591 | $16,750 | $(5,159) | (30.8)% | | Net income | $10,276 | $15,140 | $(4,864) | (32.1)% | - The increase in net revenue per unit sold is primarily due to a decrease in wholesale units sold to mobile home parks and an increase in higher-priced retail units sold to consumers140 - Selling, general and administrative expenses increased by $0.4 million (6.9%) due to higher legal expenses and loan loss provisions, partially offset by lower warranty and payroll expenses145 Liquidity and Capital Resources This section assesses the company's ability to meet its short-term and long-term financial obligations and fund growth - Management believes cash flow from operations, current cash, and available lines of credit will be sufficient to fund operations and growth for the next 12 to 18 months149 Cash Flow Activities (Three Months Ended March 31) | Activity | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | 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 end of period | $3,414 | $621 | - The company repurchased 29,385 shares for $675k in Q1 2025, with a remaining authorization of approximately $13,927k156 Contractual Obligations (as of March 31, 2025, in thousands) | Contractual Obligations | Total | 2025 | 2026 - 2027 | 2028 - 2029 | After 2029 | | :---------------------- | :---- | :--- | :---------- | :---------- | :--------- | | Lines of credit | $0 | $0 | $0 | $0 | $0 | | Operating lease obligations | $1,291 | $370 | $776 | $145 | $0 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable for this quarterly report Item 4. Controls and Procedures This section addresses the effectiveness of disclosure controls and procedures and identifies material weaknesses in internal control over financial reporting - The company's disclosure controls and procedures were deemed ineffective as of March 31, 2025, due to material weaknesses in internal control over financial reporting168 - Material weaknesses include insufficient design, implementation, monitoring, or testing of control activities, and inadequate documentation or reviews - Lack of sufficient qualified accounting personnel to support GAAP and SEC reporting requirements - Insufficient design, implementation, or maintenance of information technology general controls over in-scope business processes and financial reporting systems - Despite the identified material weaknesses, management believes the financial statements fairly present the company's financial condition, results of operations, and cash flows169 PART II - OTHER INFORMATION This part covers legal proceedings, equity security sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings This section refers to Note 13 for details regarding the company's legal proceedings Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's equity security repurchases during the reporting period Repurchases of Equity Securities (Three months ended March 31, 2025) | Period | Total number of shares purchased | Average price paid per share | | :------------------ | :----------------------------- | :--------------------------- | | January 1-31, 2025 | 29,385 | $22.88 | | February 1-28, 2025 | — | — | | March 1-31, 2025 | — | — | - All shares purchased were in the open market and not pursuant to a publicly announced plan or program175 Item 3. Defaults Upon Senior Securities This section confirms the absence of defaults on senior securities during the reporting period Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company's operations Item 5. Other Information This section discloses other relevant information, including a director's Rule 10b5-1 trading plan termination - On January 13, 2025, Curtis D. Hodgson, a Director, terminated a Rule 10b5-1 trading plan to sell up to 899,600 shares of the company's common stock177 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibit 31.1 and 31.2: Rule 13a-14(a) / 15d-14(a) Certifications from the Chief Executive Officer and Chief Financial Officer - Exhibit 32.1 and 32.2: Section 1350 Certifications - Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE: Inline XBRL Taxonomy Extension Documents180 SIGNATURES This section contains the required signatures for the quarterly report