Q3 2020 Legacy Housing Corp Earnings Call
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I would now like the hand, the conference over to your Speaker today, Curt Hartman Executive Chairman of the Board. Please go ahead.
Thank you for joining the call today.
Before we begin may I remind the listeners that managements prepared remarks day will contain forward looking statements, which are subject to risk and uncertainties and management may make additional forward looking statements in response to your question.
Therefore, the company claims the protection of the Safe Harbor for forward looking statements that is contained in the price.
Securities Litigation Reform Act of nine.
D 95.
<unk> results may differ from management's current expectations and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report filed with the Securities and Exchange Commission in.
In addition, any.
Any projections as to the Companys future performance represents managements estimates as of todays call.
Legacy housing assumes no obligation to update these projections in the future unless otherwise required by applicable law.
Now, let me turn to a discussion of our third quarter performance and provide additional expense.
Stage I will then turn the call over to our Chief Financial Officer Thomas Kirkhart.
To discuss the financials in more detail.
Overall, we're pleased with the third quarter results net revenue increased to $43.7 billion in the third quarter of 2020 compared to 41.9 billion in the third quarter of 29 team on.
On a trailing 12 month basis.
We've increased net revenue by $11 million or 6.9 per share.
We have also experienced solid improvement in our income from operations for the quarter third quarter 2020 income from operations was $10.8 million compared.
Compared to 8.1 million for the third quarter last year up 34.5 per cent.
Net income of 8.4 million for the quarter was increased 37.6% from last year.
Earnings per share increased as well expanding from 25 cents per share since the last year to 35 cents per share this year.
Looking at the trailing 12 months net income is up 9.6.
Million dollars or 38.9%.
We have also.
Continuously increased tangible book value per share at.
That is as it has grown from $8.85 per share the true on.
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Now 10.2 $7 per share the third quarter of this year a day.
<unk> 42 per share increase over the last 12 months were 16%.
Looking at the remainder of 2020 overall market demand is good orders are good backlog is good in our loan portfolio book.
Remains strong and is performing well interest revenue on the loan per poor meal for portfolio continues to grow.
At the current 12 month run rate interest revenue from loan portfolios.
Contribute $25.7 million from over the next year to our top line.
Were dealing effectively with the fallout from Cowen.
Especially as it impacts manufacturing and production levels.
We have brought on additional labor to increase production.
And raise prices to address cost increases on the lumber market during the third quarter.
We also have a subcontracted out production up north in the Midwest to meet demand as manufacturing adapts to current constraints.
With that I will now turn it over to our CFO, Tom Kirker to provide additional commentary on the quarter.
Thank you Kurt.
True product sales were 36.6 million for the third quarter compared to 35.4 million from the same period in 2019.
As has been the case in recent quarters sales to manufacture on parks is the largest part of our product sales coming in at $17.7 million for the third quarter.
That 17.7 million is 48.4 percentage of total product sales for the quarter compared to 47.7% of total product sales for the same period last year.
Interest revenue has continued to grow as a component of overall net revenue.
Non interest revenue of 6.4 million represented 14.7 per cent of net revenue for the third quarter 2020, compared to 5.7 million or 13.6% of net revenue for Q3 2019.
In particular, the interest revenue from our manufactured home Park notes increased 48.8% to over from $2.4 million for the third quarter 2020 from 1.6 million in the third quarter of 29 channel.
Overall interest revenue was up 13% for the quarter compared to last year and.
Interest revenue from the consumer loan portfolio was roughly flat year over year.
Similarly, the manufactured home park loan portfolio increased by 9.5 million or 7.9% to 129.6 million for the third quarter 2020 compared to.
120.1 million for the second quarter of 2020.
Year over year, the manufactured home park loan portfolio increased by 58% from 82 million at the end of September 2019.
The consumer loan portfolio increased by 1.3% to 108.6 million inclusive on allowances for loan loss and other discounts compared to $107.2 million for the second quarter itself 2020.
Gross margin realized on product sales was 23.9 per cent for the third quarter of 2020 up from 22.2 percentage in the third quarter of 2019, suggesting that our pricing increases and cost mitigation efforts have kept pace with on avoidable cost increases and the cost from disruption from the global health.
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Product gross margin year to date was 26.7 per cent, which is down from 27.6% in 2019.
This year over year decline has its origins in the health disruptions and the changes to our supply chain, which impacted us most dramatically in the first half 2020.
The company has seen significant reductions across the board in our restaurant expense.
<unk> expense for the third quarter of 2020 was 4.5 million, which is a 28% decrease from $6.3 million in the third quarter of 2019.
The realized savings were broad based and included the cost of salaries and benefits Werent t. and delivery costs.
Additionally, our third quarter 2020, low losses were favorable compared to the prior year as the quality of our notes receivables has held up very well.
So otherwise very trying times.
Our operational I'm sorry.
Other operational measures implemented from the start of the COVID-19 pandemic have resulted in about $2.6 million in savings.
True the end of the third quarter.
These reductions are continuing into Q4, and we're continuing to evaluate a.
What additional measures may be needed on a go forward basis as situations situations.
Situations arise fine.
Finally, net income increased to 27.5 million for the nine months ending September 2020, compared to 22 million share the same period last year. This.
This is a 25% increase in net income, which we achieved well net revenues increased 1.9% ugly. This highlights the efficiency of our cost containment measures.
Looking ahead to the fourth quarter, we think the fourth quarter is going to be strong and we believe it will deliver a a good outcome, which is a similar two and possibly better than the quarter that we just reported.
Thank you Tom as I mentioned at the start of the call. We're pleased with the third quarter and year to date financials. We believe the long term fundamentals of the business and the industry remains strong we have been proactive and disciplined and configuring the business to confront the impact of Cowen.
These early actions to reduce as GE in inventory enhancer flexibility and improve our operational position for the remainder of this year.
I remain positive when I look to the rest of this year that we will continue to outperform and deliver the kind of value on returns our shareholders jump due to expect at.
At this point well take any questions you may have.
Thank you.
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Our first question comes from the line of Alex Rygiel with B. Riley. Your line is now open.
Thank you gentlemen, very nice quarter.
Thank you Kurt you've you've seen a fairly active hurricane season. This year, how did that impact demand in the third quarter or how could impact demand over the coming quarters.
Well that's a good question no. Our demand is so robust that are real cool on a real challenge is production and even an increase in demand.
So on the Hurricanes that hit particularly in Louisiana.
Isn't really going to.
Increased business because were limited by production capability right now.
It's been the story of the two l.'s for the third quarter labor and lumber.
Labor was not as easy to replace as we'd hoped Africa.
I guess in part because of the unemployment benefits that were.
The government Oh shelled out but.
So we weren't able to get back to pre co with production levels in the third quarter now were added in December we're kind of back to where we were.
Retail <unk>.
In production, but even that said, we're looking 10, 12 14 week backlogs across the entire industry.
So I don't really sure that demand is the problem is as much as satisfying salary book.
We got our September and October shows I don't think other manufacturer did that we had them live in Texas and in Georgia.
And they were the most successful shows from an order point of view that we've ever had so.
We did have one customer on Lake Charles Louisiana, That's received a huge insurance settlement on the and he plans on re upping is orders with us as soon as he gets the settlement. He's close now so I assume that we'll have a.
Order book from from Lake, Charles Louisiana, coming up it will be several hundred units it looks like I hope that answered your question Alex.
It does and to sort of follow up on some of that answer.
With demand so high you obviously had some.
Positive response, and raising pricing in the third quarter has that continued into the fourth quarter.
[noise] last price increase we had was announced August 31 kind of at the peak of the lumber run up.
It was effective in early September we haven't had a price increase since then but we had a series of price increases in the summertime along with the rest of the industry.
We kind of anticipated that parabolic curve on the way up and lumber would eventually.
Peter out and it did so we didn't increase our price is as much as some of our competitors did.
And we don't intend to average price decreases I think overall, our price increases for the year had been on the 10% to 15% range almost entirely due to the two wells labor and lumber.
And we intend to be able to hold our current prices.
Through the rest of the year and maybe even into next year, but we are.
We couldn't raise price as fast enough to.
As the lumber it was just incredible I've never seen anything like it before lumber literally tripled on a period of about 40 days and you just can't put into effect price increases to reflect those costs are margins were just a tad challenged on third quarter I look for improved margins in the fourth quarter, probably similar to the margins we had to say on this.
Second quarter.
And last question can you give us a little bit of an update on your community development activities.
Sure.
This work from home environment. We're in is made government approvals almost impossible to get Oh, we did have we've had some zone public meetings believe it or non and we never won in the last step of.
Our waste water treatment for men for del Valle was their biggest from pretty well.
You bet on our run into some delays in our San Antonio Project, and then ourselves Fort worth projects on all just a matter of.
Regulatory approvals.
I want to say, we're stuck in mud.
But I would say, we're operating in 20 or 30% of the normal speed.
That goes into place when you're developing so cobot is really impacted development, probably not just in mobile home community development, but I My guess isn't all development nationwide.
People are not able to function when they can have in person meetings.
Thank you.
Thank you. Our next question comes on the line of Mark Smith with Lake Street Capital. Your line is now open.
Hi, guys first question for me is just looking on average selling price curve can you give us any insight into how much of that was mix versus the price increases.
I think we're selling a an unusually high numbers single wise.
And again on usually big part of that is two communities as they fill up around the country.
Oh this industry historically has seen ratios of 50% double wides, 50% single Wides.
And our mix is closer to 80 per cent singles and 20% doubles right now probably a higher percentage of singles.
Than we've had in the history of the company.
As such if you look at a unit as being a house.
Are.
Average house price is probably down on a relative to a few years ago because of the decrease in multi section houses.
On a per section basis single was generally so from more than double wise. So our section prices right now are around the wholesale low $35000 each.
That's up over the last 24 months from say $31500 each.
Mostly due to price increases.
Period of time.
That's hope that answer your question Mark from new.
No absolutely and then looking at lumber you know can you talk about kind of what you're seeing today out there for lumber and then any other commodities, where maybe you've seen some pressure where you feel like you're starting to see some more pressure or relief.
Sure.
Lumber Pete so.
September.
And as since follow on about a third of this of the dimensional lumber things like two by fours.
The panels like risk Dechy, Florida housing and even sighting.
It has not seen much relief in the last two months.
And just recently dimensional lumber has firmed up and gone up about 10% from where it was say a month ago.
Looking at the graph it doesn't seem to be moving much on the dimensional lumber side.
On the O us be in the panel side I would guess, we'll see some softening they usually.
One follows the other usually on I think we'll see some softening.
The retail demand for housing in general.
I would call it a strong but probably not as strong as the press believes we really have is a failure to be able to produce both single family housing and manufactured housing to keep up with.
Somewhat above average demand, but not extraordinary demand we own 12 retail lots if there was.
If there was extraordinary retail demand, we would be able to see it at the retail level.
I would call the demand above average, but not extraordinary and as soon as these production issues worked their way through I think we'll have a balance between.
Supply and demand and I would guess that debt will be.
Within the next six months.
Okay, and that's a good segue into the my next question retail stores.
Can you talk about how your performance has been and how you're feeling about your route you're the 12 stores that you've got today.
Can you give that may come on line.
My partner can you handle that as they did you book was having issues out west.
West, Texas to get on the line on.
Our retail stores are about the same as they were six months or a year ago as far as number of units they're selling.
We actually closed one retail store immobile.
Ben we have not opened up or I guess, we opened up one in the last six months in Tulsa, Oklahoma.
We are not you know, we're not lighting the world on fire at the retail store level and that's that's been a real challenge for US we're still learning our way around how to me.
Manny J. multi alot operations like we have I wouldn't put our retail segment as a contributor to two earnings and not that much of a contributor to top line.
Okay, and then last one from me looking at DSG and eight cuts in management that you guys have done there do you feel like you're at a sustainable level or are there some things that will likely see creep back in two semesters day.
Well.
Got it depends on how you measure as few day, if you measured on a gross basis.
I expect we will see.
Slight increases in EPS DNA.
Our people a door to a little bit of salary roll back to cope with that we'll probably gradually put back in place already but probably half of it back in place, but the other half back in place by the year. In addition to that I think.
We have a lot of deserve the book.
For raises and four.
Bonuses and I think that we'll see a little bit increase on a gross basis.
All other aspects of as seen in including rent utilities.
And the sales expenses warranty expenses.
Our in control I would say and as we got these price increases to stick on a percentage basis as seen on a should still be Dave a per.
Pretty well I would guess maybe.
Let's say flat to even down.
Okay sounds great. Thank you guys.
Thank you as a reminder to ask a question you would need to press Star then one on your telephone.
Our next question comes from the line of Chris and so on it was last on advisors. Your line is now open.
Thank you hi, Kurt How's it going on.
On Chris How're you doing.
Excellent great quarter, and I had a question regarding your backlog.
On on a dollar value basis.
How much is that up from the same time last year debt.
That estimate if you don't have the number from you.
Well I don't we don't we don't really track it that much because most of our backlog doesn't carry with it a corresponding deposit.
On a really good times like we're in now people put in place holder orders that are real they keep changing the specs are changing because for his name were delaying the order.
They want to but they're basically testing us manufacturer to see who will build a new loans, so that placing orders among multiple manufacturers that I don't think.
Our all that January that said, we're at the Middle of November now. This is normally the time, where you start to have such a such a small backlog that you have to kind of.
Have sales and so forth in order to make it through the tough months the winter months, that's not the case. This year, we're sitting there putting people on allocation and try to figure out which ones, we're going to build on which ones were non and and I would say we're solidly.
10 to 14 weeks out.
And normally this time of year were two to three weeks.
That's that's remarkable so when you when you look at that.
Much of it do you think is from sales that were.
Displaced or or.
Postponed as a result of coated how much of it is.
Potentially a change and in consumer price.
From score manufactured housing.
Change in and.
Tim or preferences.
Well I think we need to be realistic about a change preference.
Historically, the change of preferences had not been on our favor for the last 10 years or so.
That said, we may have seen a shift in people's People's choices on where they're going to live.
And go would may have catalyze that.
We're seeing a little bit of that but most of this demand is from lack of supply.
The industry is not reporting on a.
A significant increase in supply from production or manufacturing.
The trade organizations that measure that.
Basically say, we're about flat on a relative to where we were a year ago. It's hard to run an assembly line. When you have a disease that can take on an entire department. So if you lost all of your electricians duty Kobin.
Rest of the sub assembly line suffers.
So we're sitting there.
Battling a disease that that strikes a random way and.
It's affecting our ability to produce plants that normally could produce six or eight day are doing four and five a day depending on.
Who's who's absent on who's not our absenteeism is.
Is at record levels, mostly due to.
To the virus as bad subsides in absenteeism gets back to normal.
I would say that capacity will.
We'll get back and as I said.
Earlier as capacity increases.
I think the.
In balance between demand and supply will evaporate.
And we will be back to the industry producing.
Let's say a 100000 units per year if.
If you look at People's financials, including ours and drill in them, how many units are producing.
They're not up if anything there there are lightly down and its not because of lack of demand. It's just you can't you can't run an assembly line.
With significant absenteeism.
Right.
Thank you Kurt good quarter.
Thank you.
Thank you.
No further questions at this time I will now turn the call back to management for closing remarks.
Thank you for joining on the call today, we really appreciate our shareholders and we'll continue to deliver.
Return on equity.
I think will be the best in our peer group.
Talk to you on a few months bye.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
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