Q4 2020 Legacy Housing Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the legacy Housing Corporation fourth quarter 2020 earnings call.

At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.

After the presentation, there will be a question and answer session to ask a question. During the session you will need to press Star and then one.

Please be advised today's conference maybe recorded.

I'd now like to hand, the conference over to your host today, Mr. Kurt Hudson. Please go ahead.

Thank you for joining the call today before we begin may I remind our listeners that management's prepared remarks today will contain forward looking statements, which are subject to risks and uncertainties and <unk>.

Management May take additional forward looking statements response to your questions.

Therefore, the company claims the protection of the Safe Harbor for forward looking statements that is contained and the private Securities Litigation Reform Act of 1990 for life.

Actual results may differ from management's current expectations and therefore, we refer you to a more detailed discussion of the risks and uncertainties and the company's annual report filed with Securities and Exchange Commission.

In addition, any projections as to the Companys future performance represent managements estimates as of today's call.

Legacy housing assumes no obligation to update these projections and the future unless otherwise required by applicable law.

Now, let me turn to discussion of our fourth quarter performance and provide additional corporate updates.

And then turn the call over to our Chief Financial Officer.

Tom Kirkhart to discuss the financials in more detail.

We continued our track record of delivering strong results this quarter.

Net revenue increased 48 increased to 48 million $48 $7 million and the fourth quarter.

Representing a 12, 5% improvement over the fourth quarter of last year.

We experienced solid improvement and our income from operations for the quarter as well.

Income from operations increased to $13.1 billion and the fourth quarter.

A 46, four and 8% increase over last year.

And I guess, he's been able to maintain our industry, leading margins across the board and 2020.

Through a combination of systemic systematic price increases and <unk>.

Focus on controlling and reducing costs.

Both on the production side and the <unk>.

SG&A side.

The increase and net revenue a good margins and the decrease in SG&A cost have directly impacted our bottom line.

Net income net income of 10, and a half million dollars for the quarter was an impressive 52.9% increase.

Over the fourth quarter from the prior year.

The benefit to our shoulder shareholders.

Has tracked with or Friday Nashville performance.

Earnings per share grew to 43 cents per share.

And the fourth quarter, a 54% increase over the fourth quarter of the prior year.

Legacy Lilly delivered an increase in book value per share of 17, 2% year over year.

Looking to this year 2021.

Overall market demand orders and backlog.

And loan performance, a law and portfolio performance remains strong.

Production has now rebounded back to pre Covid levels, we saw about a 20% increase.

And factory output and the fourth quarter compared to the third quarter.

Despite the impact of February as dramatic weather event, and Texas and the rest of the South we're back on track and looking for opportunities to increase production at all three of our manufacturing facilities.

At this point I'll turn the call over to Tom.

Thank you Kurt.

And following up on Curt's comments regarding revenue total revenue for 'twenty, and 'twenty was $176 $7 million and seven.

$7 8 million dollar increase over 2019.

Product sales accounted for 62% of the revenue increase.

Looking back on 2020, we're proud of how our company responded to the wide range of challenges we faced.

And the obstacles we overcame.

Overall revenue from commercial sales to mobile home parks increased by 9% compared to 2019.

We saw strong demand during the year and we're.

Able to translate that into a success story.

Expect for that story to continue into 2020 one.

Interest revenue from the company's retail and commercial loan portfolio has expanded to $25 4 million for 2020, which represents a 14, 3% increase over 2019.

Interest revenue and the mobile home Park portfolio grew nearly 50% year over year.

In line with the growth and interest revenue a key development for 2020 was the growth and our loan portfolios and the commercial loan portfolio increased by 47, 6% to 136 3 million for the retail loan portfolio increased by six 5% $212 million net of allowances.

And.

Asian this amounted to 25, 8% increase and the 2020 loan book and as a conduit for growing and future interest revenue.

It's true previously stated we had significant improvement and income from operations during 2020.

We grew our income from operations by 25, 8% to $47.6 million.

Without detriment to our top line, we're able to reduce SG&A expenses by 25, 2% compared to 2019.

<unk> and payroll related payroll related costs service and warranty costs and.

Portfolio loan losses accounted for the lion's share of the expense reduction.

Finally, the company improved on its asset utilization and return on assets of 12, 2% and 2020 compared to 11, 1% and 2019.

Our return on equity grew to 15, 8% compared to 14% and the prior year.

And also of note is that our inventory turnover improved by 22% from 2020.

With that I'll turn it back over to Curt for final comments and questions.

Thank you Tom.

Now I will just ask for any questions. If there are any.

Ladies and gentlemen, if you'd like to ask a question and at this time. Please press. The Star then the number one key on your Touchtone telephone.

Our first question comes from the line of Ryan Meyers with Lake Street capital.

Yeah, Hi, guys. Thanks for taking my questions first one for me here it looks like it's good to see.

And production come back to pre Covid levels, just kind of wondering what you guys are thinking about increasing production and here in 2020, one and kind of what youre seeing so far from a demand environment or how you guys are kind of sort of thinking about next year for not next year. This year.

Sure Ryan I think that's the question and then everybody's asking.

Demand is strong.

Measured by backlog.

The industry is challenged with production that demand is unsatisfied. So we're not really sure if production went up by 10 or 20%.

Would that be enough to decrease the backlog or not and we're all striving to do that is 130 for operating plants in the United States and we're all trying to get.

Production up.

As for US we have additional capacity two of our plants from a physical point of view.

It's basically been and manpower issue as we fight Covid and let's say seven people and the electrical for department are out with Covid.

And that kind of doesn't work very well and assembly line format. So like a lot of industry should not just for me.

Mobile home business.

Everything from lumber and steel to everything it's it's.

And challenging on the production side.

Which has had the effect of increasing backlog and giving us all a feeling that demand is going through the roof.

Well I'm, a little bit more pessimistic that demand is all that great and it's not like we're adding more households, and the United States the birth rate and the immigration right or not greater than they were five years ago say, so I'm, a little skeptical that the backlogs and all of these industries.

It's more caused by supply problems and it is a true demand from that said.

Backlog has never been better and this time of year March we're usually what we call up against it so I.

I mean, we're out to August September October and we charge people and priority if they want it more than that and I'd say about half of our production is now dedicated to.

And we called priority, which gives us about another $1000 for floor and revenue so I would expect better than average margins.

So long as we can keep up with the material increases that we're having and their stomach, but I would expect better than average margins.

For the entire year and that's all.

And all all 134 plants and the United States Endeavoring to increase capacity along the way.

And does that answer for you yes.

And I thought that's helpful. And then kind of a follow up to that and you guys expect and any price increases and 2021 kind of similar to what you did here in 2020.

Every month, we have already had one in January and another one effective February one and another one effective March one and.

And I'm sure our customers some of them are on the line there'll be another one April one every commodity that we buy for many of the commodities we bought.

We're having price increases we've even had to get labor increases because just to get people to come to work, we pay a and our dollar and our more if they just come to work and addition to their wage.

If they come to work for five consecutive days they get another dollar per hour. So there were shortages and everything including labor.

This is a shortage environment that we haven't had and a long long time and.

We have and remember back to that Rita Katrina days and about five if you remember what it was like this and.

And we're reacting as well as anybody we have large inventories of raw materials, the largest probably and the industry. So we can we can weather, even though for five months delay from our suppliers and are more on almost every component.

We have warehouses and our competitors don't have we buy by the container we buy by the truckload and we buy and quantity and.

And that's what's got us through some some rather challenging times.

Thank you for having any problem with our numbers this year.

That's helpful and that's good to hear.

Can you give us an update on and all the retail stores have been performing so far and if theres been and headwinds.

Headwinds with that.

Many people don't out or if that's kind of been improving here.

Alright, I can take that question Curt Let me tell you. This is Kenny Shipley and then.

<unk> stores and we were we have still struggled with the stores and.

We see we see that what we've been doing it didn't work and.

So.

We've added a couple of new key people and.

We're putting some systems in place and.

From controls, where we can where we can manage these guys a little bit better. So if we can't get the story up and go and spend and real challenge this year.

Yes.

To complement the equation Ryan things are progressing.

Fantastic.

On the development side, we're now up to over 1000 acres, we own the distributor for development and we got a.

We've got a very difficult to get water treatment for men.

Last week from the regs.

Regulator here in Texas that will allow us to put 1200 for 1200 Homesites about nine miles from the new Tesla facility.

Outside of Austin, Texas.

We are we have plateaued or preliminary flattered in several markets and <unk>.

Texas, So as far as development is concerned.

I think we've made a lot of progress and as the last earnings call I would expect we'll be breaking ground shortly and and at <unk>.

One maybe two sites.

Well, that's great to hear and that actually covers my last question. So that's all I had for you guys. Thank you and best of luck in 2020 one.

Thank you.

Yeah.

Our next question comes from Alex Rygiel with B Riley.

Thanks, nice quarter gentlemen.

And you on that last answer Curt can you talk about capital needs with regards to development of some of these properties and 2021 and 2022.

Well.

And right now, we have 30 or $40 million.

Our line and which is rather small.

And that is a LIBOR plus two line so the cost of capital is rather cheap.

And in addition, we're cash flowing 30% or $40 million per year.

So we really could absorb 60 or $70 million for its capital needs internally without going out pretty cap raise and.

But we have a lot of people that have assured us if we need to GAAP raise and then.

We'd have alternatives of how to get it.

We don't have any acquisition targets. There is one company that we have and I are and they know that we're looking at them.

But that's the same thing and I would've said, a year ago and viewed as getting people too.

To combine has been challenging for us I'm sure our competitors are having the same issue.

And we prefer to grow organically if we can at the same token there is no particular market that I want to add capacity and even with these backlogs and.

And a lot of that.

Decision is based on my early comments is is it really increased demand or is it just increase back.

Don't think that our industry or any industry will know that until we have another six or 12 months behind us. After this COVID-19 thing goes away backlog it doesn't necessarily mean increase in supply. It just means it takes longer to get it for increase in demand and and.

Keep telling people that and.

And I think.

I think I'm right on that at the retail retail level.

<unk> does not appear to be up dramatically year over year.

But our backlog and like I said massive and we have actual cash deposits on a good part of our backlog, which is unusual for us we use just no deposits. So our backlog is pretty solid.

Okay.

And then secondly, kirt you've been in the business for a long time, so as Kenny can you talk a little bit about how rising interest rates impact to your business and then.

Also address sort of a rebound and the Texas economy, the energy market.

And what Youre seeing with regards to the migrant workforce and how that could be a tailwind.

Oh, right now and I mean at this instance.

All the things you just brought up appear to be positive for the company.

The cost of housing is substantially related to interest rates.

Almost everybody borrows money when they buy their manufactured home or when they buy their range.

85% of our sales are finance sales at the retail retail level when we saw that.

And when interest rates go up and.

And the and housing and <unk>.

Rates on manufactured housing don't go up so our cost per.

Per month.

$550 per home, which is kind of what a single wide as <unk>.

Remains the same.

As conventional housing and go up dramatically with just a tick up of 1%.

If you if interest rates were zero and you could borrow for.

1000 years.

And we'd all be living and multimillion dollar mansion payments would be so low.

And even though that's the extreme really thats the best the competition that we've had to deal with for the last few months with the federal government essentially taking interest rates for housing down below 3% and 30 years for houses that are even used and they don't even have a 30 year economic life anymore.

So thats been our competition and we're fighting those people that are subsidizing net interest rate and they've site built market.

But these subdivisions these properties where were building and many of them are designed to take advantage of those very low interest rates.

And to sell these properties using FHA financing.

For our products and as effectively jurado, 4%, well and it's actually on paper less and that by the time you put the points and then.

And that means that our our customers will get the benefit I mean, you can buy 100000 or mobile home and this environment for 500.

Some dollars per month.

Which is pretty incredible so interest rates are very rare.

Relevant and.

I can't really remember what else, yes, because I got off on my tangent what else it yourselves.

The Texas economy, the rebound and the energy complex and the migrant workforce as tailwind.

Yeah, I think I think there's so many tailwind going on right now.

The change in Washington D. C is a huge positive for affordable housing across the board.

One of the present and buy it and this platform was that he was getting subsidized.

The purchase of a home with a $15000 refundable tax credit and I expect that to come to pass and it.

Addition, Texas and particularly.

To do well relative to the past because.

Of our relationship to Mexico and and.

Our little business $64, a barrel and.

And now we're back on track for fracking and we are getting some orders for for man camp type housing, which we hadn't gotten for the last couple three years and man camp type housing is probably the best margin business that we have there isn't anything better than that.

So.

We're hitting on all cylinders.

And I Cross my fingers and hope that.

Nothing will happen to change that and I haven't seen times is good and our industry for.

15 years, now and I had I had a congress co and.

Covid hit and predicting that.

The production would be down for the year and I think it was but it wasn't so much for demand.

Just couldn't run these factories, we couldnt get the people to run the factories.

Part of what we're competing against the U S government pay and people thousands of hours a week to stay at home, which is higher than we pay and become to work.

Part of it was this sickness just makes it harder to run and Assembly line. It just <unk>.

Extremely hard and we don't have enough general utility people to cover a whole electrical department and the example that I've given so when we normally could build six years or seven a day, we were struggling to get for a five a day out of that same facility without any shortage of materials without any.

Other problems or anything it was just a staffing and problem.

And we're pretty well through now and we used to.

<unk>, we're back to normal.

Normal production, Georgia is actually higher than.

At all time high.

Commerce is.

Going to be able to increase production and Fort worth were doing 6% and 70 day, which is pretty much capacity.

So I would expect that.

We'll be able to eke out some more production out of two or three of our facilities.

Still have relationships and the Midwest, where we buy their product and our private brand basis and they are still producing for us. So I think our topline is.

Is going to be just fine and it will be up year over year fairly significantly.

And if we can keep these margins, we should be able to rock and roll for this.

And this year.

That's great good luck gentlemen.

Okay.

As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question.

I'm showing no further questions in queue at this time I would like to turn.

This will conclude today's conference call. Thank you for participating you may now disconnect.

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