Legacy Housing(LEGH) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Legacy Housing Corporation's unaudited financial statements and management's analysis of operations Item 1. Financial Statements (Unaudited) This section presents Legacy Housing Corporation's unaudited condensed financial statements for Q2 and H1 2021 Condensed Balance Sheets The balance sheet shows growth in total assets, liabilities, and stockholders' equity as of June 30, 2021 Condensed Balance Sheet Data (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total current assets | $69,731 | $54,963 | | Consumer loans, net | $110,362 | $106,572 | | Notes receivable from MHP | $133,606 | $123,872 | | Total assets | $373,794 | $338,616 | | Total current liabilities | $37,376 | $36,406 | | Lines of credit | $49,675 | $36,174 | | Total liabilities | $93,042 | $79,423 | | Total stockholders' equity | $280,752 | $259,193 | Condensed Statements of Operations Net income and diluted EPS increased for Q2 and H1 2021, driven by higher product sales and interest income Q2 2021 vs Q2 2020 Performance (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Total net revenue | $48,589 | $46,006 | | Income from operations | $14,702 | $13,068 | | Net income | $12,428 | $10,040 | | Diluted EPS | $0.51 | $0.41 | H1 2021 vs H1 2020 Performance (in thousands, except per share data) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Total net revenue | $88,528 | $84,280 | | Income from operations | $25,362 | $23,677 | | Net income | $21,451 | $19,063 | | Diluted EPS | $0.89 | $0.79 | Condensed Statements of Cash Flows Net cash used in operating and investing activities was offset by financing activities for H1 2021 Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,978) | $(5,248) | | Net cash used in investing activities | $(8,482) | $(414) | | Net cash provided by financing activities | $13,501 | $4,962 | | Net increase (decrease) in cash | $41 | $(700) | Condensed Statements of Changes in Stockholders' Equity Stockholders' equity increased significantly due to retained net income for the six months ended June 30, 2021 - Stockholders' equity grew to $280.8 million at June 30, 2021, mainly due to the retention of net income[15] Notes to Condensed Financial Statements (Unaudited) These notes detail the company's operations, accounting policies, debt, and contingencies - The company's business model is vertically integrated, covering manufacturing, sales, transportation, and financing for mobile homes and communities[19] - The consumer loan portfolio had an average interest rate of 13.6% as of June 30, 2021. The allowance for loan losses was $0.814 million against a total portfolio of $119.5 million[55][65] - The company has a $70 million revolving line of credit with Capital One, with an outstanding balance of $49.7 million as of June 30, 2021[79][81] - The effective tax rate for H1 2021 was 16.8%, lower than the 21% federal statutory rate, primarily due to a federal tax credit for energy-efficient construction[99] - The company is contingently liable for up to $3.4 million under repurchase agreements with dealers for their inventory financing[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, capital resources, and strategic initiatives for Q2 and H1 2021 Overview Legacy Housing, the sixth largest U.S. manufactured home producer, operates a vertically integrated model - The company is the sixth largest producer of manufactured homes in the United States[121] - Legacy operates a vertically integrated model, including manufacturing, distribution through 106 independent and 13 company-owned retail locations, and financing services[123][124] - For H1 2021, Texas was the largest market, accounting for 50% of manufactured homes sold[124] Factors Affecting Our Performance Performance is influenced by expansion strategies, production capacity, and COVID-19 pandemic risks - Key growth strategies include expanding retail centers, with each requiring $0.5 million to $1.5 million in capital[132] - The company has purchased several properties for over $13.1 million to develop new manufactured housing communities[131][132] - The company plans to increase production at its Georgia facility to meet growing demand, as its Texas facilities are near peak capacity[133][135] - The COVID-19 pandemic poses several risks, including potential for increased loan losses, reduced sales, production disruptions, and supply chain delays[137] Results of Operations Revenue growth for Q2 and H1 2021 was driven by higher revenue per product sold, despite lower sales volume Comparison of Three Months ended June 30, 2021 and 2020 Q2 2021 saw increased revenue and net income, driven by higher revenue per product sold despite lower sales volume Q2 2021 vs Q2 2020 Key Metrics (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $48,589 | $46,006 | $2,583 | 5.6% | | Income from operations | $14,702 | $13,068 | $1,634 | 12.5% | | Net income | $12,428 | $10,040 | $2,388 | 23.8% | - Product sales revenue increased 4.9% due to a 27.9% increase in net revenue per product sold ($52.5 thousand vs $41.1 thousand), despite a 17.9% decrease in total products sold (783 vs 954)[140] - SG&A expenses increased by $1.1 million (27.1%), primarily due to a $0.7 million increase in salaries and incentive costs and a $0.3 million increase in warranty costs[144] Comparison of Six Months ended June 30, 2021 and 2020 H1 2021 total net revenue and net income grew, driven by higher revenue per product sold despite lower sales volume H1 2021 vs H1 2020 Key Metrics (in thousands) | Metric | 2021 | 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $88,528 | $84,280 | $4,248 | 5.0% | | Income from operations | $25,362 | $23,677 | $1,685 | 7.1% | | Net income | $21,451 | $19,063 | $2,388 | 12.5% | - Product sales revenue increased 4.3% due to a 26.4% increase in net revenue per product sold ($52.0 thousand vs $41.2 thousand), despite a 17.5% decrease in total products sold (1,410 vs 1,709)[150] - Other income decreased by $0.6 million, primarily because the 2020 period included a $1.1 million gain from a lawsuit settlement[155] Liquidity and Capital Resources The company's liquidity is supported by cash flow, existing cash, and available credit for future operations - The company believes cash flow from operations, cash on hand ($0.9 million as of June 30, 2021), and available credit will be sufficient for operations and growth for the next 12-18 months[157] Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,978) | $(5,248) | | Net cash used in investing activities | $(8,482) | $(414) | | Net cash provided by financing activities | $13,501 | $4,962 | - The company has a $70 million revolving line of credit with Capital One maturing in March 2024. As of June 30, 2021, the outstanding balance was $49.7 million, with $20.3 million of available credit[162][163] - In April 2020, a $15 million revolving line of credit with Veritex Community Bank was paid in full and terminated. A $6.5 million PPP loan obtained in April 2020 was paid in full in May 2020[165][166] Off Balance Sheet Arrangements Off-balance sheet arrangements primarily involve repurchase agreements for dealer inventory financing - The company has contingent repurchase obligations for dealer inventory financing, with a maximum potential liability of $3.4 million as of June 30, 2021[169] Critical Accounting Estimates No material changes have occurred in the company's critical accounting estimates since its 2020 Form 10-K filing - No material changes have occurred in the company's critical accounting estimates since its 2020 Form 10-K filing[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company qualifies as a smaller reporting company - Not applicable for smaller reporting companies[173] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses, with remediation underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2021[175] - The ineffectiveness is due to previously disclosed material weaknesses, including insufficient accounting processes, personnel, IT safeguards, and segregation of duties[176][177] - The company is implementing remediation plans and expects them to be completed by the end of fiscal 2021[177] PART II - OTHER INFORMATION This section provides other required information, including legal proceedings and exhibits Item 1. Legal Proceedings Legal proceedings are referenced in Note 12, with no expected material adverse effect - For details on legal proceedings, refer to Note 12 - Commitments and Contingencies[179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[180] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None[180] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - None[180] Item 5. Other Information No other material information is reported for the period - None[180] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data - Exhibits filed include CEO/CFO certifications and XBRL data files[181] SIGNATURES This section contains the authorized signatures for the report Signatures The report was duly authorized and signed on August 9, 2021, by the Chief Financial Officer - The report is signed by Thomas Kerkaert, Chief Financial Officer[185]