Q2 2020 Legacy Housing Corp Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the legacy Housing Corporation second quarter 2020 earnings Conference call. At this time, all participants are in listen only mode.
So to speak a presentation there'll be a question answer session asking question during the session you'll need to press star one on your telephone. Please be advised that today's conference. Maybe recorded you require any further assistance. Please press star Zero I would now like the conference over to your speaker today.
Auction executive Chairman of the Board. Please go ahead Sir.
Good morning, Thank you for joining the call today.
Well, we began may I remind the listeners that management's prepared remarks today will contain forward looking statements.
Which are subject to risks and uncertainties and management may make additional forward looking statements in response to your questions.
Therefore, the company claims the protection of the Safe Harbor ER of Safe Harbor for forward looking statements that is contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ from management's current expectations and therefore, we refer you to a more detailed discussion the risk and uncertainties in the company's annual report filed with the Securities Exchange Commission.
In addition, any projections as the company's future performance may represent managements estimates as of todays call legacy housing assumes no obligation to update these projections in the future.
Otherwise required by applicable law.
Now, let me turn to a discussion for a second quarter performance and provide additional corporate updates I.
I will then turn the call over to our Chief Accounting Officer, Jeff Berkes to discuss the financials in more detail.
Overall, we had a very good second quarter, especially within the context of the continuing cobot 19.
Back to the broader economy.
Net revenue increased to 46 million in the second quarter this year.
Her to 45.8 million the second quarter last year.
Income from operations and net income were substantially unchanged in comparison to the same quarter last year.
Income from operations for a second quarter. This year was $11.2 million compared to 11.5 million last year.
Net income of 8.6 for the second quarter. This year was approximately the same net income posters at the same quarter last year.
Earnings per share were up slightly.
For the quarter at 36 cents per share versus 35 cents per share for the same quarter last year.
Predominately because I think we had a reduction or total outstanding shares.
Looking at the six months year to date results that in gem.
Was up $1.8 million for the six months or 11% compared to the same six month period last year and earnings per share increased to 73 cents for the six months compared to 65 cents per share last year.
During the boat [laughter] during both the first quarter in the second quarter of 2020, the company implement a number of immediate measures to navigate cobot 19 environment.
This included reducing payroll cost at both the office manufacturing operations.
Slowing production, a bit reducing inventories and lowering other components of best DNA overhead.
For example.
Compared to first quarter, 2020, we reduced inventories by $4 million or 9%.
From 43 million to 39 million.
We reduced ASG today by 1.5 million year over year from 5.6 million to 4.1 million or 26% reduction and best DNA expenses.
And this environment. The camera is focused on gaining flexibility in our manufacturing operations, reducing cost and reducing excess inventories.
This is all this also includes the ability to strategically subcontract production.
When needed.
As always the company remains committed to expanding the top line and we were able to do that during the second quarter 2020.
The comedy continued to see relative to sales to manufacture home parks.
During the second quarter 2020 bark sales increased three and half million Dr. almost 20% to bridge the same period last year.
The majority of these sales are financed so they include interest revenue over the longer term for the first on commercial loans to manufactured home parks exceeded our retail consumer loan portfolio, increasing to over $120 million or financing products out to mobile home parks more recently, we have offered manufactured home park operators the ability to.
Sure homes as well, adding yet another revenue stream derived from these same to us.
In conclusion, the second quarter.
Has been challenging for everyone.
I am pleased that we are quickly.
Aptitude the reality of the ongoing situation.
So we've been able to deliver exceptional value to our shareholders and customers.
Over the last six months, we've increased the tangible book value of our company by approximately eight present for our shareholders. Despite the headwinds of the current economy.
I'll now turn the call over to our Chief Accounting Officer, Jeff Bird for some additional commentary on the results of operations.
Yes, hi.
Total product sales were 39.2 million for the second quarter compared to 39.8 million for the same period in 2019.
Kurt indicated in his comments sales to manufactured home parts constitutes a larger part of our pride itself during the second quarter, increasing to 53.8% painted product sales versus 44.3% annotated.
It'll probably itself for the same period last year.
Also interest revenue has continued to grow at a component of our overall net revenue total interest revenue of 6.1 million, representing 13.3% of net revenue for two Q2 thousand 20, compared to 5.1 billion or 11.1% of net revenue for Q2 to three.
The main team in particular interest from our maintenance answered the home <unk> notes increased 58.8% from 1.4 million into Q2 thousand 19 to over 2.2 million into Q2 thousand 20 overall interest revenue was up.
18.7% over the comparable second quarter period.
And the same period interest revenue from the consumer loan portfolio increased 3.3% to 3.8 million into Q2 thousand 20 from 3.7 million into Q2 thousand 19.
Literally the manufactured home.
Our loan portfolio increased by 16.8 million or 16.3% to 120.1 million for the second quarter in 2020 compared to 103.3 million for first quarter 2020 consumer loan portfolio increased by one.
0.5% to 107.2 million inclusive of the allowance for loan losses, and other discounts compared to 105.6 million for the first quarter of 2020, when you compare the growth in the manufactured home Park loan portfolio for Twoq you.
2020, with two Q2 thousand 18, the portfolio increased by 66.8% to 120.1 million in the second quarter 2020 from 72 main in the second quarter 2019.
Well I think product sales were up for the second quarter 2020, compared to the second quarter of 2019, increasing by 2.7 million or 9.6% to 30.6 million from 27.9 billion. Some of this increase was attributable to a reclassification.
In a certain costs from the retail operations semester DNA overhead to the cost of sale. When this reclassification is taken into account the increase is 7.2% for the comparable quarters. When you compare product cost of sales as a percentage of products.
Sales for all of 2019 to the six month ended June 2020, we have experienced an increase from 73.3% of product sales to 74.5% upon itself. During the first half of 2020, the company had to temperamentally reconfirm.
Your some of the supply chain away from overseas suppliers, who alternative domestic suppliers overall, the 2020 year to date profit margin of 25.6% is in line with a 2019 quite a margin of 26.7%, but we have experienced.
Some margin erosion during the first half of 2012.
As Curt previously mentioned the company has seen significant reductions across the board units DNA.
Selling general and administrative expense in the second quarter of 2000 24.1 million, 33.9% decrease from the 6.1 billion. The second quarter of 2019. This was primarily due to reductions in payroll costs advertising and dealer show expensive warrants.
He and service costs as well as professional and accounting fees.
Also operational measures were implemented at the start of the coal that 19.
Resulting in an additional 1.5 million S. DNA reduction between the first and the second quarter of 2020. This as DNA reduction will continue to carry throughout the major through the remainder of 2020 and of course, we will continue to assess the environment evaluate if any additional.
Action needs to be implemented.
Finally, net income has increased for the six month ended June 2020 to pay compared to the same period last year, increasing to 17.6 million versus 15.8 million last year and 11.4% increase in net income while that revenue for the first.
Next.
<unk> has expanded 0.7% from 84.3 million to from 83.7 million.
Good.
These.
Highlight the cost leveraging going on within the company as the year to date overall net profit margin has grown to 20.9% versus 18.9% for the comparable period last year.
That completes our financial report.
Did we lose huh.
Oh, I'm, sorry, I had my phone on mute. Thanks, Jeff [laughter]. These are certainly interesting an unprecedented times, we think we've weathered this cobot 19 storm very well.
And to shed some light on the future I thought I would just tell you that our backlog is healthy.
As ever were having or September and October shows, which we decided not to go off and the pre registrations are at an all time high for those shows. So there is extremely good demand for what we do.
And and I think we'll get through the third quarter and the fourth quarter.
Without a reduction of.
Oh production and if we can find the labor.
We'll actually be able to increase production in or our topline for the third quarter and the fourth quarter should be as good as last year or better.
So there's some predictions about the future of those you're more optimistic on most of my head in the call three months ago, but three months go we were in different times, though we are today.
So thank you for your interest in being on the call today, well take any questions you have now.
Thank you as a reminder, its asking question you'll need to press star one on your telephone to withdraw your question first about Keith. Please standby, we can probably kuni roster.
Our first question comes from David Burdick with.
Oh Rich you May proceed with your question.
Hey, guys. Thanks for taking my questions in great job in the quarter.
So first I just wanted to touch on the labor common at the end there I know with cold it in the extra unemployment money given some of your competitors are seeing some labor constraints just curious how the availability of labor and then you guys and then kind of going off that its production back to around 15 for today or where does.
Yes, Dan Thanks.
Yes, Curt I'll I'll take that Oh, we have been.
Thinking about what to do with labor.
How long we measure labor about five different ways, how many people do we have.
How many man hours are we spending to do what we do and what is our total cost per square foot or per unit.
On labor.
Oh, we are saddled with.
Very shallow on.
Applicants.
As you probably know we don't really have 330 million are unemployed Americans.
For the most part they've been paid quite handsomely to be unemployed.
We're now getting to this nextera is or is there new unemployment benefits or isn't there and exactly how does that work I think that the.
That the unemployment benefits.
Being paid to those 30 million.
It is likely to go down and maybe even go way over the next two or three months releasing them to the labor market. So I'm hopeful that we indeed will have a much deeper upon labor.
We ended the third quarter than we had say at the beginning of this third quarter.
We don't have any more people asking for a job at our lobby today than we did with unemployment was only at 2%. So that's kind of puts it in perspective, we've had two we're moving to overtime and one of our factories trying to use our existing labor to increase capacity in that facility, where we expect that.
[noise], we're probably at around 14, a day across all three plants today, it maybe a tad under that 13.7.
And by the end of the quarter, we hope to be back at 15 across those three plants.
We have the labor concerns.
Of course, you can always just throw more money at it keep outbidding your competition.
But that we don't think is that's a good long term program.
Our other concern which is coming up recently is the price lumber, which is doubles and triples in some cases since the bottom of the Mark in March.
Can we pass on those.
Increased lumber cost to our customers of course, we're all trying to do that we don't yet we don't know yet while we try to do that whether those orders in the backlog will be cancelled or not one of our competitors had a 4000 dollar increase per floor that's humongous.
And we're trying to take it in a more measured approach a smaller smaller established but more but more regular steps. We've had two steps in the last 60 days, which which amounted to $1000 per floor, but I anticipate that it less this lumber.
Graph starts to peak and come back down we're going to be more and more lumber more and more material surcharges due to lumber prices and that may that may have a negative effect on our backlog because we generally passion to immediately we don't give option.
I don't want to Proctor, they not they don't have the right to cancel their order but.
We don't we don't say that the order you placed it may.
When when lumber was 400 is valid today.
August one Libre is 800, we basically reserve the right to increase prices if I, if our material prices increases I don't know to answer your.
Question, David right now, we're still selling at a pace greater than we're producing it feels pretty good and we haven't even at or fall show yet.
Usually get two or three months of production just from the fall show.
No that's great. Thank you that's helpful I.
I guess next.
Question I think last call you mentioned, Texas demand was you know a bit sluggish, but Georgia and some of the Midwest seeing some strength I'm just wanted to see how the Texas market demand is as we kind of moves through the summer months.
Any are you on your arent take that.
Yeah.
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Mhm.
Texas It seemed to pick up we were getting.
We're getting plenty of orders.
And the lack of.
You know the production part we're we're labor has been so rough on this I mean, it's.
Well, we're having a hard time keeping up with the.
With the demand I.
I think if even if we went up and.
Even if we went up in production that I think that the.
You know, we would probably pick up some.
Some business from dealers and then that's been trade in other places because I think everybody's got the same production problems.
So yeah, I think I think Texas is picking back up to the all catastrophe seems to be going away again.
Some of the oil companies are going back to work on my part of the country.
And so it's seems to be picking back up.
That's good to hear I guess last one for me just wanted to ask about the MHP is and the development. Although it did come along I know I may have been delayed with all this call that stuff, but I guess, specifically just Austin location and if any unit sales has taken place or when we should maybe it's been.
Like that.
I'll take that there has been a delay because cities and counties and government or regulators are not having their normal meetings you can almost at two or three times a normal lead time too.
In Austin, we had or public hearing for our water treatment plant and went exceedingly well we had at last month, it's usually about two more months after that before we get our permit which usually the final step in that and that planning stage for that thousand unit a development outside of Austin. Good news is that.
That's a essentially in the territory the new Tesla plant so.
We probably have a paper gain and.
Our land value or 400 acres, that's not too far from the new Tesla plant.
In Venus, we had as substantial.
Substantial win in the quarter.
We went into the city council with a recommendation of the zoning committee against US at five to zero and we won mobile home parks zoning on our partially in beat US seven to zero with the city Council and we're working through the city in what what that means and what they want us to do there that San Antonio we have a small subdivision that.
Isn't that final stages of planning so all those projects are progressing, albeit at a slower pace than what we'd hoped.
And I think I I, just probably make a liar out myself, if I pick to date, but I'd be surprised if we don't see dirt flying somewhere.
By the end of the year and some sort of movement in our topline.
By sometime until 2021, probably the latter part of 2021, but there's.
In value and all that because we are progressing and once you get mobile home parks approved in these.
And these outskirts of these major cities or the land is actually worked up were even triple what you bought it for this by getting the approvals they call. It in some states they called the entitlements.
But we feel real good about all those projects.
And we have some other iron so far for more of those projects, we just haven't taken any land out yet.
All right. That's helpful. Thanks, guys and good luck in the back half the year.
Thanks, David.
Your next question comes from Alexandra Geller.
See Riley you May proceed with your question.
Thank you good morning, Kurt.
Good morning.
What is your sales shift more towards.
Parks I got to believe that you have increasing visibility on your business in some sort of backlog in hand can you enlighten us on a kind of what that looks like today versus maybe 12 months ago or two years ago and correct me if.
If that's not the case.
Well, we just have not done much of a job of trustee backlog because it Bob little to no consideration when we take an order.
We only get real concern when we don't have something to build but we have customers now.
That are squealing from product that they ordered in may.
And I'm just going by memory I don't think it was that was the case a year ago. So we're not.
Our backlog.
Depending on how you measure is probably.
12 weeks on paper.
And if you had to push him to take their houses, let's see if there was another decline of the economy. It would probably be more like seven weeks.
But on the other hand, there's people that are not ordering from us because they know that good because they're being told they can't get.
There their product and less than 12 weeks kind of like going into a restaurant is saying is going to be an hour halfway would you like would you like to wait.
Right.
So right now we're kind of in that mode right now that.
We could be selling more but the weight that we're telling them to customers that they go to have this got him I'm looking for other alternatives and supplies. So backlog is extremely healthy.
Healthier than we ever expected.
And now we just have to figure out whether or not as real or not as we try to get through the fall and winter much which typically.
Have a decline in sales generally beginning beginning about the last part of October all the way through February.
The seasonal industry there were in the usually product demand starts to fall off a bit.
And.
Talk a little bit about.
Leasing team.
Parks as well sounds like a new product offerings.
Guess off a little bit insight into the economics of this versus.
Alternatives.
Yeah, the economics of it it really pretty simple.
So they came out with a way to Capex things all the way through 2022.
And the tax code you may remember that a couple of years ago.
So we decided since were taxpaying entity, we kind of wanted to capex.
And so we could Lisa to people.
On a non finance lease it is not close added.
We get a deducted immediately.
And then so we're deferring taxes on that.
The only problem from that from a GAAP accounting for point of view and you all have access.
Hi level accounts is even though we don't really have to pay those taxes for.
For the next 10 years that tax deferral that we get out of that has to be recognized on the financials. All your want.
So gaps why the GAAP financials don't show.
Much benefit to that plan.
Overtime, we will be getting income for fully depreciated assets.
That we've taken the the hit on the taxes foreigner financials as well.
<unk>, releasing those out at real rough numbers.
About a 1.2 per cent per months rate. So if they would normally buy it for.
30000, they're paying a 360.
The hours a month.
Actually quite a return on or.
Money and it's kinda like just a savings account that will.
That will blossom through time, and I think it this time, Jeff you can chip in here, we have about four or $5 million.
That product out that a fair statement.
That's that the.
Very accurate statement.
Yes, so so and I look for us maybe get another.
Four or 5 million out or in the next 12 months out would be a healthy number it doesn't do much for our.
A bottom line a this year, but it will pay dividends in the future and it's only because all the tax deferral benefit that we get we'd have to recognize on our financial statements as a tax expense today.
That's just one of the quirks or the GAAP rules.
And lastly, as it relates to the impairments loan reserves.
Any material notable change there in the core corridor.
No I take that Joe.
Okay, well, but.
Well in parallel.
Last year.
As your loan book on any riskier and have you had to take any additional impairments or reserves.
The mobile home parks I mean, there's fit there's two components you've got the mobile park portfolio, which is 120 million. Then do you have to retail portfolio the mobile home park portfolio of the.
500, some odd loans, we only had three groups that became problematic of those three in the third quarter two of them were resolved without any without any.
Financial loss to legacy housing.
We got everything you know back to par.
Than we have one left in corsicana, but it's so close to.
Our home headquarters here, we don't see any financial.
Exposure with it we get worse case, you know we could go pick them up because we've got the tremendous demand from so the mobile home park portfolio is very solid.
Haven't missed any payments they everybody's paying as agreed the and on the retail side, we have not experienced any significant increases in.
Delinquencies it seems to be status quo without increasing.
Our allowance for loan losses so.
Right now, we don't feel lot of exposure there.
Alex I can I.
Attribute the observation on the latter which I'm sure as surprising it was to me as well.
I attribute that to.
Consumers are much more flush than the average person things if they watch some of the news stations.
And our delinquency for our portfolio today is better than it is better or lower it's more it. It is a better portfolio today than it was pre academic I know that's extremely hard to believe but I've.
Then through the numbers myself we.
We we offered a half a payment to.
People that were.
In trouble and April and out of our 3300 lounge.
Only 40 people took us up on that offer and then I don't think we might have done on another smattering of them again.
So we're looking at about 1%.
Of our consumers you gotta half of payment relief.
For one or two months and that was the entire.
That was the entire move we made no more repossessions no more bankruptcies no more.
Over 90 days, we track every we track at each every which way.
And when I saw the end of June report.
I bought fainted, because I said, how can it possibly be this good.
And a in the end of July reports, even better, but I don't know why but they're paying for their mobile homes in part because they're not upside down the value of their homes or higher are higher today than they were pre pandemic housing is on a tear.
Up six up 7% year over year and cost and across all sectors, including manufactured housing.
That's good to hear congratulations on the next quarter.
Thanks.
Thank you. Our next question comes from Mark Smith with Lake Street Capital You May proceed in your question.
Hi, guys up first off maybe for Jeff Your commentary on gross profit margin than some of the SGN a retail expense shifting up to Cogs can can you quantify how much that was.
[noise], how much of it probably 1% was from the reclassification from.
Because we were new to the retail.
Aspect of the business you know the.
Those types of cost went up.
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Into cost of goods sold for that side.
Okay and that will continue going forward being classified yeah, that's right right, Yes, that's correct.
Perfect and then looking to invest in a guys.
Very low looks like you've got quite a bit out can you just talked about how sustainable. This is going forward, especially with still doing some of your fall shows.
Yeah, I'll take that one the.
We have not added anybody administratively and we had.
Salary reductions.
At Sop, that's significant we we eliminated overtime.
Among the administrative.
Staff that was significant.
We.
We are keeping a very careful eye on service expense, which is part of S. your name and Kenny and I and the highest level. It management I've taken a keen interest in.
Yes, and service expenses and that's been fairly significant of course, our travel expense is down markedly because we're not traveling resuming.
Everywhere.
And.
I think we were a little high I think you've heard me say that before it calls.
And as soon as expense, we've actually flip flop now to where we are lower so we may be generous.
Some of the people that were willing to take a little clip and their pay this last year, we may be generous and then I would guess the next 90 days, we may and returned to levels, but back to your margin deal to.
Margin is controlled in large part by inventory.
Raw material inventory and you'll remember last year, we had a quarter that was that looked like an outlier.
On margins.
And we thought would just analyze this completely we spent a lot of time analyzing it.
A lot of at every level my level, the CFO level counting level and so forth.
And we really never did explain it.
The next quarter things bounced up pretty well. So we kind of just wrote off to maybe a more precise inventory being taken that the raw materials. So.
Unlike our competitors, we maintain very large levels of raw materials, we import a higher percentage than they do from China, we maintain higher levels of lumber depending on how well we're buying it we buy everything by the truckload and by the railcar taking advantage of price differences.
Which sounds great until you realize you've got $13 million, where the raw materials for three plants.
And then you have to go around encountered at all in valued at all every quarter.
And.
It's a not as easy to do as you think because we don't keep any of it in the same place one lower lumber will come in well put at one place three months later, another little come in or put another place.
So we literally have on inventory days 70, 80, 90 people that work for us going around finding all the different to buy for by seven lumber that we go and and I don't think were.
I don't think for precise enough on that so that that margin on any given three month bases can be.
Can be.
Cast in stone so.
I think that's a big part of it is our inventory taking ability Oh my bike fountains read this call I apologize for confessing there are perfect or something but it is what it is and so.
So I think I think you'll see our margin over a period of a year being quite stable well into the twenties.
So you can read into that.
What you want Alex but in this particular quarter.
The margin was a compressed and.
I doubt I doubt that would be the same in the future with the possible caveat that lumber prices are eating or watch everything else is pretty stable lump numbers eating our launch.
Okay in the back on the best Junaid just last question for me any any update you know some changes in management any update that you can give on kind of a search for CFO.
Our new CFO is on the line.
So you want to say hi, Tom.
Like I can say, Hello, hi, money and as Tom Kirk Arts and its a hubs that listening in I says then on the jobs are not very long. So I'm just glad to be part of the team.
Excellent salaries.
We have a new CFO, we haven't really announced the yet because his first.
They are reporting to work will be this following Wednesday, I guess, we'll do it will do in eight a along those lines you'll get to see his resume and everything so CFO search is done and I don't think we'll have a new generals House Lane Thompson.
Okay sounds great. Thank you guys.
Thank you and I'm not showing any further questions. At this time I would now like turn the call back over to current Hudson for any further remarks.
Well guys I think we had a tremendous quarter it was.
One of the most interesting quarters my business life.
And you in those of you that follows closely you know we took a P.P.P. alone. We gave it back we decreased production and then we wish we didnt because we have plenty of demand.
And we thought about hedging lumber, but then we didn't do it.
There was a lot of a lot of business decisions and when I look back will be some of the most major business decisions.
That I've ever made in my life, and I think the financial statements.
Are pretty good we once again.
Increased our tangible net worth by 4% right and in one of the most of of quarters of all time.
And that's really kind of how I measure my own success that we move up tangible net worth.
And do we do it in the double digits, which well we did it again and I think we'll go to do it solidly in the next two quarters as well.
Thanks for being on the call I appreciate your all and we look forward to talking to you another three months.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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