Q1 2021 Legacy Housing Corp Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the legacy Housing Corporation first quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct the question and answer session and instructions will follow at that time, if anyone should.
At the corner of assistance during the conference. Please press Star then zero on your Touchtone telephone as a reminder of these conference calls being recorded I would now like to turn the conference over to your of House, Mr. Curt Hodgson Executive Chairman of the Board you may begin.
Okay.
Good morning folks. Thank you for joining our 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. The management may make additional forward looking statements in response to your questions.
Therefore, the company claims the protection of the 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 of the risks and uncertainties of the company's annual report filed with Securities and Exchange Commission.
In addition, any projections as to the company's future performance represent managements estimates as of today's call legacy housing assumes no obligation to update these projections of the teacher.
As otherwise required by applicable law.
Now, let me turn to a discussion of our first quarter performance and provide additional corporate updates I.
I will then turn the call over to our Chief Financial Officer, Thomas Kirkhart to discuss the financials in more detail.
This quarter legacy continued its track record of delivering strong financial results net revenue increased to $39 $9 million in the first quarter, representing a 4.4% improvement over last year.
This result was stronger than it may seem considering that.
And our ability to build and deliver houses was severely impacted by the February weather events across the south east Southern United States.
Our Texas based operations were actually closed for the first time ever for.
For the entire week, and our ability to deliver homes and receive raw materials.
Disrupted companywide.
In spite of this we experienced improvement in our income from operations for the quarter, which increased to $10.7 million for $10 six last year.
<unk> and the cost of production.
It has been steep.
And we have taken the strong actions to mitigate the impact to our bottom line, including price increases and.
The 14th 26 per cent decrease.
S G&A spending.
We'll continue to focus on opportunities to protect and grow margins, while we continue to reduce our SG&A footprint.
Net income of $9 million for the quarter was a 10, 2% increase over last year. If you exclude the impact of the one time settlement realized in the <unk>.
First quarter last year.
Excluding this one time event earnings per share grew to 37 cents per share in the first quarter, a 10, 1% increase over the first quarter of 2020 adjusted for the one time settlement of them.
Legacy delivered a 16, 5% return on book value per share on a rolling 12 months basis. We were pleased with our continued success in delivering value to both our customers into our shareholders.
Overall market demand orders and our loan portfolio performance are strong.
Of great importance to our future success, which is not reflected in our GAAP based out of them are.
For the strides we have made in creating and developing acreage for mobile home communities.
During the first quarter, we completed another acquisition of 213 233 acres in the San Antonio area and we secured.
Finally, our wastewater per bidding for the acreage we hold outside of Austin in Bastrop County.
Our strategic real estate will be populated by legacy build houses and will serve to reinforce the man for product for years to GAAP.
You see this is of major competitive advantage over our peer group and a key to our future continued success.
At this point I will turn the call over to Tom.
Thank you Kurt.
Following up on Curt's comments regarding revenue total revenue for the first quarter of 2021 was $39 $9 million, which is of four 4% increase over the first quarter of 2020.
Product sales accounted for 65 per cent of the revenue increase.
Looking back on the quarter, the bright spots or that we overcame a fair amount of operational challenges net.
<unk> ended the quarter with the shippable backlog.
Further our fleet of revenue generated the least houses continues to grow and like interest revenue from our loan portfolios of presents a reliable source of revenue for years to come.
The interest revenue from the company's retail and commercial loan portfolio has expanded the $6 $6 million for the first for the quarter of 2021.
This represents a three 3% increase over the first quarter of 2020.
Compared to March 31, 2020, the commercial loan portfolio increased by 35, 8% to $143 million, while the retail loan portfolio increased by seven 6% to $113 $7 million net of allowances.
In combination this amounted to a 21, 6% increase on the book portfolios over the past year and ease of conduit for grilling interest revenue into the future.
As for our previously stated we had modest improvement in income from operations. Despite the challenges we had during.
During the first quarter of 2020.
Our ability to reduce SG&A expenses without significant detriments of the topline was the key factor in achieving this result.
We saw substantial savings compared to the first quarter of 2020 and warranty costs loan losses and legal expense.
Also our ability to pass them on commodity inflation was vital to the good quarter, who just recorded.
With that I'll turn it back over to Kirk for final comments on equal any questions.
Okay, we'll now open it up to questions that you all have.
Ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your types of total talent found it for your question has been answered or the restroom move yourself from the queue. Please press the pound key.
Your first question comes from Alex of Regal.
Of B Riley.
Your line is now open you may ask your question.
Thank you good morning, gentlemen, and nice quarter.
I heard a couple of questions here.
The first did the company fully catch up from the severe weather in February or is there some of you.
Revenue work cost carryover into <unk>.
Yeah.
You know as I started the quantify this in the end.
The call, but the the February weather event.
Probably impacted top line.
Maybe 2 million, maybe even $3 million, so that was quite a factor of and of course.
Similarly <unk>.
Impacting the bottom line it was the worst of.
On cold spill.
On record in Texas, and the damage of the Carnage was incredible the entire state were shut down.
For at least one week and then of carried over two weeks of follow up to the point, where we couldn't even get our yard shipped because we don't have the shipping capacity to to recover from that so we kind of head of higher ending finished good inventory than we would normally have and that's the way. It's finished good inventory sitting in the yard at Austin.
<unk> revenue now as of now probably even at the end of the quarter I would say that were fully recovered we had some damage of one of our plants.
Allow us allowed us to only run at partial capacity, but that plant was fort worth and recently is now back at the near record.
Production levels. So I think we're I think we recovered.
On the what's causing production.
<unk> now are the shortages shortages in materials and it's not just lumber as lumber it's steel it's resin glue.
It's laminates is across the board shortages for along with price increases and building materials.
And then labor with us having to compete against the federal government for for Labor.
Just don't have the applicant pool coming in the door for our $15 an hour jobs that we would normally have so we're challenged in.
And production, which means we're also the channel has been top line for.
We're still not producing at capacity from the plant point of view, where we are if you look at the staff the staff as well.
Work in the working their tails off and we're getting out of them everything that he will do.
But it's hard to find people to work on a production line in this environment I think is not true it's not like a problem for us but.
Within the industry in the in building and construction generally and be on when I go to restaurants, the restaurants half full but it still takes forever to get for meal. So I think theyre just capacity problems throughout the entire economy I don't know what the answer to your question, but I think it hits the highlights so.
Definitely.
As it relates to your price increases what do you think your price increase was from point of view this year versus <unk> last year and how do you look at your price increases versions of the material cost inflation on labor cost inflation are you ahead of the curve in line lagging behind.
The line.
And that's a very good question and I spend a lot of time.
Reflecting on that.
The price fluctuation has been so rapid and so severe.
That you can't even keep up with it on a computer model.
So a lot of it is just sort of the advanced flying here.
To quantify it for you.
We estimate that as.
As of.
Today were up 21 per cent.
In prices year over year of what we charge and we have another price increase of two point something percent.
Take effect next week.
So if you combine those two as of the middle of May we are up 23% plus the prices.
I have of course anecdotal.
Stories about lumber being up triple the steel steel being up 40%.
But as a percentage of sales of our materials.
Currently are about the same ratio as norm is proprietary and I don't publish it but where.
We're keeping our margins on materials about the same.
Of course, we are happy corresponding increases in labor to people we were paying.
One of the hours and hours were paying 25 hours on our two and even the administrative staff.
It's hard to keep the unless you reward them financially so.
It's a reset of pricing that I don't see going back down.
And I want to I'm going to expand on this a little bit.
Some of our competitors will take huge leaps in price.
Our philosophy is gradual but steady increases so terms, sometimes will lag, but not very often.
Because we don't want of shock somebody with a 20% price increase of one day, if we can spread it over 10 price increases of 2% each so they don't they.
They don't fixate on what day of their house was produce we don't honor of yesterday's prices and neither do our vendors that we have agreements with <unk>.
Basically when we ship of house today, it's based on todays pricing, even if the order came in the six months ago.
Has now become a kind of an industry standard.
We are and where we're.
We're able to move it on I think we'll be able to maintain the same gross margin effect.
Alex if you I mean, I know, you're very analytical and when if you look at our statement our margin our gross margin in this quarter was almost identical to prior quarters and so we are so we have been able to pass through.
Our increase in costs as far as of margin as Martin and I think we're going to be able to continue to do that not one single cancel the order yet due to to do the price increases the price adjustments.
Lastly, how should we think about.
The volume over the next sort of three quarters volume in the first quarter. It looks like home sections sold was down about 15% looking into the second quarter.
How should we think about that volume of 720 sections sold in one Q growing in to Q.
And then how should we think about sort of the cadence of that throughout the year.
Another excellent question.
We have some favorable comparisons coming up here.
So the second quarter of last year was the first full quarter out of the pit.
Make it almost all plants around the country had some outages or even shut downs because of that so I think as an industry youre going to see fairly significant gains on the year over year basis in the second and third quarter and that's also true of legacy as far as our production at our plants.
Year over year comparisons I would guess.
Up at least 10% maybe 15%.
And in part because we've been able to increase production recently, but also in part because we decreased production of <unk>.
Year ago in response to the pandemic.
That's where we're at from a number of units number of units point of view.
That caveat last year, we were buying product from two different companies that were private branding from us.
Because they didn't have any orders and we went ahead and seize that opportunity and now because of their backlogs were only buying from one of those companies. So the top line will.
We will be up on what we produce ourselves and slightly down on what we buy from from outside manufacturers for resale.
Net result.
If I was picking a number.
I feel real comfortable with.
10% or better.
Top line gains in the sales and and and the increase in total production as well so.
Should be a good second quarter.
But just interesting just to further probably a good third quarter as well.
Just to clarify that second quarter number so that 10% growth in <unk> and.
Volume number that we should be layering of price on top of that.
As far as the Texas production and the Georgia production.
I think we'll be up.
In quantity.
The 10% year over year.
Tempered a bit by our lack of of buying from one of our competitors up in Indiana.
Price wise.
We're going to see these for these number of be up solidly on a per unit basis is not bags has the split by the industry, so 20% or more year over year increases on the average price per unit.
I'm, sorry did I say 10 of about 20% of 20% or more price increases Q2 of 'twenty, one versus Q2 of 'twenty.
Some of our competitors have been more bolt on in taking advantage of their backlogs and.
And I think they might be up 25% of at this point.
That's very helpful I'll get back into queue. Thank you.
Again, ladies and gentlemen, if you have questions at this time, please press the star and the number one key on your Touchtone telephone if for your question has been answered here of Mr move yourself from the queue. Please press the pound key.
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Your next question comes from the line of Mark Smith for.
From Lake Street Capital. Your line is open you may ask your question.
Hi, guys for.
First question for me is just following up on on pricing a little bit it looks like you know.
Average selling price was up pretty big share during the quarter, but maybe you've got a little bit of benefit for mix can you talk about kind of the mix of homes and what youre seeing from a demand standpoint today.
Ooh.
We measure of production by the floor and you guys measure the unit sales.
I looked at that anomaly that youre talking about but I can't I don't have an opinion.
About it look like.
Debt, we're selling more double wides this year than we were last year because our.
Our sections went up.
<unk> has gone up recently, because I just looked at april's numbers are sections have gone up.
A percentage more.
For that are.
Homes, So I do think that we're having.
Having an incline in.
In the multi section units relative to a year ago I don't know if that's good or bad typically the margins are a little bit better than double wides and the our singles, but it's not significant.
Okay.
That kind of leads to the the next question is what you're seeing out there in your markets as far as demand for affordable housing and obviously the housing market's a bit crazy right now.
But within the kind of your.
Specialty in manufactured housing and what Youre seeing from demand as far as people moving from urban locations out into the suburbs and.
How many people are looking at your products today.
Hum.
Kidney are you on as a participant.
Yes, I'm on here.
Go ahead and channel that quickly.
Uh huh.
Ask that again Im sorry, Mark.
Ken can you just kind of what you're seeing from a demand perspective for for manufactured housing today have you seen the increase in a little bit of the madness that we're seeing in the overall housing market or is it a little more tempered.
Yeah, the retail the retail the he is and it's there's still a place to put a problem for those guys I mean, I'm hearing from dealers, especially in these bigger cities of the.
Dallas Fort worth of Austin, and San Antonio.
The customers are trying to get out of the cities and moved to smaller areas. But then it's then theres a place to put them problem because.
They're not wanting to go into these communities that's the.
So that's available they want to go outside on some acreage because all of the a lot of them are working.
From home again so.
And continue to so it's it's I mean, it's out there and it's just it's hard to sell a lot of them because of the place to put on problems.
Okay, Alex let me follow up on that if you were to fly a small airplane into.
Dallas or Austin, you would see subdivision after subdivision after subdivision under construction.
But I'm not aware of hardly any brand new mobile home parks for mobile home communities of any size on.
Of the reconstruction and the entire state of Texas. So we are really lagging.
On this place to put them on problem from our company's perspective, it's hard to get too excited about.
Starting work on the developments when we already have a 10 month backlog, we don't need to add to it by having the only development. So we've kind of.
I don't know of slow walked our own developments for selfish reasons, but eventually.
We've got a we have developments for some 4000 of spaces that we own the land for.
Right now, which is a couple of years supply production of supply out of Texas. So we're.
For internally solving this place to put them problem and can probably pull the trigger on debt.
Anytime we choose to do so.
And that was kind of my next question was just the development pace on your.
For projects you are you it sounds like you've maybe slowed that down a little bit more than before having permitting issues and kind of get local government shutdown on having a hard time working with.
Of of governments to be able to move those forward.
Oh, Yeah, we're three years into it in Bastrop County.
And we keep thinking well.
One week away from the final plant, we should required before you can start the construction, but thank you you are one week away, it's been going on for six months.
Still not meeting in their offices when you have of meeting with him. It's all virtual zoom meetings and stuff and it's I mean the per.
Permitting in the planning.
<unk> is much higher than it usually is hopefully with all.
All of the vaccines the stuff things would get back to normal, but getting things approved for construction at the city and county level.
Is extremely slow compared to the traditional the time may be.
At least double the time, maybe even triple but in the Bastrop County, which is one on lighting hurdle with myself.
We are going to be ready to start construction soon.
And it's not too far for the new Tesla facilities.
A real gem of a piece of land.
And we're getting I think we're gonna start on it even if we don't need the production so.
We should be started the construction.
Construction of the Bastrop County.
No later than the summer I would say major major project for the company.
Okay, Great well 1200, 1200, plus sites on one location.
Perfect and then.
On the last question for me is just if you can talk about kind of your your rates that you're charging on you know M. H P loans.
It kind of of your mix of flow to any of that have gone to fixed and kind of how that has the has trended in your outlook.
Well, you probably noticed because I know your analytical that our interest revenue was up nominally year over a year of why our total book of business was up.
More impressively.
And of course, what that's telling you because we don't have any non performing loans. What's telling you is we've had to do resets on the interest rates. We are charging two communities, which is a big part of our book.
The six 9%.
Where we're at whereas a year ago, we were probably a point higher than that too.
Two consumers were down on what we offer now two or three points from before at higher prices with pretty good margins.
But we're having to lower our interest rates because the world's lowered their interest rates sit in order to be competitive.
And not necessarily retroactively, especially in consumer a lot of times the parks.
We don't if somebody else is $10 million zone, we don't lower the interest rate to be more competitive.
We're going to get the $10 million back of prepaid and we got nowhere to go with it.
Six 9%. So we just go ahead and.
Hmm.
The buys them and keep the keep the alone on our books I think we're gonna be squeezed for me interest rate point of view as long as the.
The fed is keeping their pedal to the middle of on the interest rate environment, which I don't understand why they are but.
You know my my daughter can borrow for 30 years of 3%.
And that's pretty phenomenal interest rate so.
Even when you charge $6 nine and I think that's high.
Those are loans that typically they don't have.
Alternatives were in the.
Where in the chain of title wherein the trends out of we charge.
$6 nine and they don't have any income to prove our ability to pay back some of those those.
Those loans are not I'm, not competing with banks on that just competing with.
Of the other hard money lenders in that type of stuff in the six nines of fair rate.
We've never had a.
A loss because of the mobile home park loan in the history of the company and that's been our.
Real Big part of our plan, we refers to the party on the long before our competitors and the other starting the.
Copycat as one by one.
As you've reset some of these of the new agreements still been kind of of floating rate or have you gone to more fixed terms on some of these up.
M H P loans.
Yes M. H P. We were prime plus for with the Florida ceiling.
There was some pushback on that so we're basically doing a five year.
Our lock in the interest rate and then floating after that.
And because of higher prices of we'd gone out two years and the total financing package, we used to be 10 years or now 12 years.
For.
For those MH b, our prices have gone up faster than they had been able to increase rents.
So there are there margins are struggling they thought about mobile home Park itself, we continue to go up.
And value of they'd be able to increase net rents.
I get complaints of all the time from mobile home parks.
Oh My gosh.
I'm paying more than I'm getting in rent.
The which I always thought why you might want to increase your rents.
We cannot lower our prices and making the money.
So we're still selling a lot a lots of communities now what has picked up percentage wise I think Kenny would support this is.
The ratio of sales from traditional distributions such as independent retailers.
Is increasing relative to the parks parks are probably flat year over year.
And so this increase in demand is happening from the.
Independent retailers for our own lots.
We should really healthy for the Academy and supportive of I think your first question is what are they doing with the houses I think people are buying second houses are hunting cabinets or stuff to put on their own backyard of the relatives of live there.
So even though the population of this country.
Got.
Necessarily increasing the number of housing units are of households be more particular is increasing a lot of people living alone or in much smaller families.
They lived in 2030 years ago. So we have an increase in households, even without a corresponding increase in population.
Understand.
No.
Okay excellent that's very helpful. Thank you guys.
Again, ladies and gentlemen, if you have questions at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key we have a follow up question from Alex <unk> with <unk>.
B Riley. Your line is open you may ask your question.
Hey, Curt could you quantify the amount of product you have rented out in the market.
The.
Maybe ballpark of the annual rental income there and talk about sort of the future of this opportunity.
I'm going to let.
Either Jeff for Tom quantify it but before I do that.
It's a very interesting anomaly in yeah.
The average counting.
If we lease it to somebody.
From a tax point of view, we are taking advantage of capex.
In deferring that tax, but GAAP requires that all of those deferred taxes be expense. The very first time, we do that so you are seeing.
On the expense side of our of our and kind of the statement.
I'm not getting the benefit in GAAP and.
And tax accounting well, what does that mean that means that while we're not showing from a GAAP point of view. The income now as these leases would go on we will be having all of that income in the future.
Even though there's no real corresponding expense. So it's a really big plus for a 5678 years down the line where leasing. These of these units I don't know how many we've got out there Jeff that you know or you know.
How many leases we have heard.
Yes.
300 at the end of the quarter, we had 339 units on lease.
Just on those units.
No additional coming on the the rest of the year that will generate $1 6 million in lease revenue.
There you go out and how does that flow, which line item in the second captured in the revenue.
Segment that is and that's.
That's on the third line on the income statement other sales or other.
The other revenue by the let's the other category.
Excellent. Thank you.
Again, ladies and gentlemen, if you have questions at this time. Please press. The Star then the number one key on your Touchtone telephone. Thank for your question has been answered or you restarting move yourself from the queue. Please press the pound key.
Yeah.
And I'm showing no further questions at this time I would now like to turn the conference back to the company.
Well, thank you all for attending.
The the times are turbulent out there to say the least but.
We're selling houses business is great.
Haven't seen it this great since the read it could treat of Katrina days back in the old five.
So of the industry is doing just fine like problem. We have is producing what we've got sold.
We're all trying to of tablets for as we can get the so yeah.
You all have a good day and thanks for attending.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
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Okay.
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Sure.
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