Q3 2021 Legacy Housing Corp Earnings Call
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Yeah.
Good day, and thank you for standing by and welcome to the legacy Housing Corporation third quarter 2021 earnings conference call at.
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I would now like to hand, the conference over to your first speaker for today, Mr. Craig Hudson. Please go ahead Sir.
Thank you for joining the call today.
My name is Curt Hodgson executive Chairman.
Before we begin may I remind our listeners that management's prepared remarks today will contain forward looking statements.
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 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, when you get where you do a more detailed discussion of the risks and uncertainties in the company's annual report.
All of the security that machine.
In addition, any projections as to the company's future.
Performance represent managements.
The estimates as of today's call.
You can see housing assumes no obligation to update these predictions of the future.
Otherwise required by applicable law.
Now, let me turn to discussion of our third quarter performance and provide additional corporate updates.
I will then turn the call over to our Chief Financial Officer, Kirk Hart discuss the financials in more detail.
This quarter legacy continued its track record of delivering strong financial results.
Net revenue increased to 56, and a half million dollars in the third quarter, representing a 29, 1% improvement over the third quarter of last year.
This revenue increase came from both volume and price increases.
We experienced strong improvement in income from operations for the quarter, which increased to 17.6 million deadweight.
In the third quarter of last year.
While managing ongoing supply chain challenges and inflationary cost pressures.
We were able to increase our unit deliveries by selling two finished goods inventory in realizing better gross margins.
We offset cost pressure with it.
Systematic and regular price increases we will continue to focus on opportunities to protect and grow margins and leverage our SG&A footprint.
Net income of $14 $7 million for the quarter.
74, 4% increase.
Over last year.
Earnings per share grew to 61 per share in the third quarter.
There to 35 cents per share.
Last year.
This is the metric that I followed.
The bonuses.
Yes.
Legacy delivered an 18, 9% return on book value.
On a rolling 12 month basis.
We are pleased with our continued success in delivering value to both our customers our shareholders.
Overall market demand orders in our loan portfolio are very strong.
Of great importance to our future success, which is not reflected.
GAAP basis Okay.
Are the strides we have taken and our mobile home communities under development.
During the third quarter, we secured water rights as well as cleared other development hurdles on our 400 acre project.
Got it near Austin, Texas.
Our strategic real estate portfolio of mobile home communities will be populated by legacy build houses and will serve to reinforce the demand for almost four years ago.
We see this as a major competitive advantage over our peer group.
Key to our continued success.
At this point I'll turn the call over to Tom.
Thank you Kurt.
Following up on Curt's comments regarding revenue total revenue for the third quarter of 2021 was $56 $5 million, a 29% increase over the third quarter of 2020.
Product sales accounted for more than 90% of the revenue increase and that was achieved while originating leases for 71 homes in the third quarter.
Interest revenue from the company's retail and commercial loan portfolios expanded to $7 $3 million for the quarter, which represents a 12, 9% increase over the prior year.
Compared to September 32020, retail loan portfolio increased by 12% to $121 6 million or a consumer loan portfolio decreased by 22, 7% to $100 $1 million due to a customer prepaying a portion of its balance.
Looking back on the quarter. The big highlight is that we successfully navigated a difficult commodity market through effective management of both purchasing and pricing.
Deepening our long term position as a provider of choice for key customers.
Further we continue to keep our thumb on spending while making prudent investments.
With that I will hand, the call back over to Kirk for final comments and any questions.
Well. Thank you Tom I don't have any further comments, but you all are welcome to ask whatever questions you have.
Alright reminder, tour audio attendees if he would like to register a question. Please press star followed by the number one on your telephone keypad.
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One moment for the firm.
First question.
And your first question is from Mark Smith of Lake Street Capital. Your line is open.
Hi, guys I've got a handful of questions here, but first I just wanted to look a little bit.
Kind of price increases versus mix and kind of average selling price of homes and how that how that trended.
Yes.
Well this is curt.
I don't have that data in front of me, but we do follow weekly basis.
So I think thats committed to February.
What you are asking.
Kind of depends what period were looking over if we're looking at third quarter of last year versus the third quarter. This year.
Our pricing metrics are up 25% to 30%.
However.
If youre looking at product mix.
It's been really hard to track we had a huge increase in double wides for the first half of this year.
Recently, where we were.
Going back to the single lives and when we track metrics, we really track the number of floors rebuilt.
As opposed to the number of houses that yourself.
So our floor volume is pretty stable.
One year to the next because theres more single Wides being built now than there was previously a number of homes sold.
Actually gone up.
The comment that we increased production.
Happy to report that production is back to pre COVID-19 levels and in the case of Georgia for setting all time records in the amount of product.
Product, we're producing on a daily basis.
Now building a solid 16 floors per day.
You can pick up from the company's perspective is about as good as you say.
Okay.
That may give you a little bit.
We have a little wrong room for growth.
And.
In deliveries from our current plants.
<unk>.
I would say no more than 10%.
Volume capacity left over and that's only if we can harness.
Material labor shortages that we saw.
Countered this year, which I'm sure everybody's been talking about.
Yes.
No no. That's that's helpful on the price side as we look at kind of channel mix. It looks like your strong results in direct sales as well as retail store sales continuing to trend. The right way can you just talk about kind of how you feel about kind of that channel mix and how thats trending today.
Well, we are retailing slightly more.
We've added some very recent.
Management to that part of our business.
As you May remember from when we went public.
It's our intent to be more and more retailers and less soldier.
It's hard to turn down backlog of your good character and you've had for years.
Colin.
Thank you for your help and satisfying them.
So we've got we have production challenges, even our own lots have to compete for production slots.
<unk> challenged in the sale of them.
Because of our own production limitations, not just us it's true industry wide.
All of our backlogs are so far out there and how are you doing with Ocwen box a year process for us back.
Backlog. So we just have to kind of pick and choose who gets their product in 2000.
Don't know when that supply balance will be.
Those in the industry.
I suspect we have another year or so we're pretty clear sailing.
We can sell anything we can build.
Question so.
One of our longstanding community.
Relationships or do we sell it to one of our own retail locations or do we sell it to an independent view I.
I don't make those choices myself liability.
People like.
Quite general managers, but I wouldn't want to be in their shoes and have to figure out who gets the production of who does it difficult decision on a daily basis again that doesn't answer the question directly I'm, just saying that our retail sales are somewhat limited by our production capacity issues a few final remarks.
No that helps us as we.
I kind of look at price increases that you guys have taken.
How do you feel about the competitive environment do you still have pricing power and the price increases that you've taken enough to fully offset inflationary pressure.
Each time, we have a price increase we kind of offer our customers a chance to back out.
This year, we've had 13 price increases, but we haven't lost 1% of our backlog.
So I don't know where the end is the carriers from an old time Rong Mei.
Perfect.
Can't believe we're now showing single Wides for more than we used to sell double wide, but we are we're.
We're getting $50000 for our basic package three bedroom two bath number one seller.
Few years ago.
Two years ago that was $30000. So price increases are just amazing to me, it's not just us our customer we have vendors does the obvious one there leverage deal, but you could take it further and talk about sheet rock or windows or.
Or any other thing in any of our Chinese import we don't get a 2% price increase for March suppliers, where you get a four year, 50% price increase.
Our customers understand that I don't know where the end is.
I can tell you our average payment.
Owns that we originate is up 25% 24 months and it doesn't seem to stifle.
Demand I don't know worthy and as we're still experiencing relative to the slight counterpart.
Wide margin.
That's our number one calling card in the industry.
Okay.
The last one from me I just wanted to look a little bit at this this big repayment that you had in your MH portfolio right at the end of the quarter kind of the impact on that going forward and is there anything else to read into that.
As far as continued partnership with this.
Kind of partner.
There anything that we should be reading into given that big repayment.
Well I was kind of hoping to somebody else should take one of these questions, but just one on this.
This is probably the other four questions is the one I'm most familiar with this.
As has been our number one customer very well heeled customer all along we knew this prepayment was coming for quite a while to get with water for warrant.
But they are still buying from us and they are still buying from us on a finance space.
But let me just translate what you asked for a number of point of view.
When we finance somebody.
And Megan 5% Delta between our cost of borrowing.
The price that we financed or sometimes even more than 5%.
So you can do the math and figure out if we are unable to be place that $45 million prepayment.
That would.
Potentially do to our bottom line.
In fact, the matter is we do replace it with other things, including sales to that variable pay this off directly and we have plans on the horizon.
Once again take care.
Our loan back up to <unk>.
$60 million of March so we get some leverage on our current financial statement on leverage we still do pretty doggone. Good from an ROE point of view I think you would agree.
But when you have a good customer and they are trying to lend money to them, but let's just say 7%.
And he has an opportunity to pay it off early 3% well, we're not going to compete with that source of debt.
It doesn't make sense for us.
We're gonna be on those types of approaches for goodwill.
While longer that's why we have to find ways to keep our margins spread on what we're selling the product for versus our cost healthy I think we're roughly 30% this quarter, which is very healthy.
From a gross margin point of view as long as we can make money on the product.
We're going to still be able to deliver the ROE that you are dose.
Excellent thanks Kurt.
Our next we have Alex Rygiel from B Riley Your line is open.
Thanks, Curt Kenny and Tom Great quarter.
Thank you.
Couple of questions here.
Let's start with the community development program so.
You mentioned Austin <unk>.
First on Austin, when should we expect homes to start to be delivered to that property and then what is your longer term view on liquidating that asset.
Well.
As you May know Alex I live in August so it was pretty much in my backyard.
And in an ideal world you wouldn't liquidated most of the Cal for the roster.
But.
<unk>.
Development.
For our project is spread throughout the United States.
It's just hard to get government regulators and contractors to do much in 2021.
Couple that with the fact that we really don't need the orders, it's hard to get really excited about.
Developing that project.
The risk.
Notifying my neighbors, we broke ground in the third quarter. So.
I would expect that we can be.
We can be up and running as far as product sales within 12 months.
Alright.
We might not do that just because we don't have the manufacturing capacity with the project. So.
Doing extremely well its very very exciting project to only a few miles south of the New Testament facility.
No.
So to say, but we also have another 2000 spaces. Besides those that are under development.
We have about $20 million convoluted answer that land land and improvements in the company that have been sitting dormant from an ROE point of view there.
For the right time and place.
Okay.
They turn them loose.
That's coming out of the one in south of Austin.
I would say in a calendar year 'twenty two 2022.
It's going to have.
We're experience on younger.
Building road, putting water system right now.
As far as the extra strategies.
It's going to be tempting to sell it to one of the two.
One of the Reits because they are paying top dollar.
Or their spaces, so it'll be a character's between what we think is best for the company long term and what's obviously best for the company short term.
Long term.
Our ideal.
Landlord should owner Forever short term, it's hard to turn down two or three I expect what you got in it.
We'll see when that time comes.
And then next question are there any other strategic initiatives or activities that are ongoing right now either as it relates to your Georgia plant.
Sure as it relates to the type of home Youre building the size of all of your building or.
Geography deterrent.
We think we're the most innovative company on the planet.
What's you are asking I can be answered with the word yes, but I really don't want to you.
A lot of details that would.
Pre announce what we're doing to our competitors.
Yes.
We're having a big show this weekend and there'll be 250 attendees as the biggest share with the industry.
And they will get a glimpse of what a product point of view.
For the next year.
And then.
As far as our strategic initiatives.
Not I'm just not getting.
Two question I don't really want to answer.
I'm sorry, Alex.
Fair enough nice quarter good luck.
Okay.
Anybody else.
Next we have Michael Chapman from <unk>.
<unk> capital your line is open.
Great. Thanks, just a couple of follow ups on the.
Homes leased 70, 71 increase what's the total number of homes you have lease now in the portfolio.
Colin do you now take your questions.
Yes.
<unk>.
I believe my schedule tells me 398 is our total count that's what I've got in front of me.
Okay.
And then given that Youre kind of capacity constrained is how do you decide what goes into that obviously you put that in at cost.
I'm, assuming there is plenty of demand there.
Lease rates don't seem to be that great on that so what's the what's the decision.
Okay.
How do you decide whether you put more into that.
As opposed to sell them to third parties.
I can answer that one.
We've kind of left the decisions of who gets what.
To the general manager level it keeps upper management.
Out of the politics ended.
It seems to be more satisfied so that general manager is line, whether or not it's a lease or a sale for cash or to finance sale or even our sales were online you might be blind to that he's looking to maximize production.
Number of floors. That's number one priority number two priority is to look at the customer and decide whether or not that personality that situation is going to be long term or whether it's just appeared because of the imbalance between supply and demand. So we don't really recognize that.
Burley sort of something that you're already observed.
I think I could mathematically pay you something that will be of interest.
The lease rate that we're getting as close to 2%.
The bases, we have properties on a monthly basis. So those 390 leases will be paying dividends.
Form of earnings in top line for many many years to come.
And on top of that these are not closed and leases or open end leases, where we get the residual.
The residual has gone up in value markedly since most of these leases we put in place. So it's one of many gems in our balance sheet, while we might be showing it ex the actual cash flow and residual value.
It's probably closer to it maybe even more.
Okay, and so on those do you get inbound calls from investors wanting to buy those from you and you just hold onto them because of the basically the annuity that you guys get on that and the increased kind of residual value.
Well the only interest we have in getting us out of it as the lessee is self he calls and say, okay, let's forget.
And thus far when we do a cash analysis.
Turn on investment.
Yes.
They think theyre going to unit discount from the original invoice price spreads.
It's just not that way.
Between the rate of return we get on the lease payments.
<unk> residual value.
Residual value.
If anything increase they are appreciated.
Okay.
Yes.
So it'd be like buying.
Two car for $30000 in three years later, it's worth 40000 feet.
<unk>.
Kind of the market that we're in right now.
Right, Okay, and then just kind of on capacity.
Sounds like you're kind of tapped out on capacity in Texas. If you didn't have the labor constraints that you do have.
Is there the possibility in those plants to run more than one shift or run on weekends.
We've looked at that possibility several times before and of course those decisions that were made 10 years ago aren't necessarily the same disease she would make today.
But.
Historically, no plan has exceeded the nine network and running multiple shifts in one geographic location.
The cost building is not that material. So if you were add that type of capacity and you had a little lead time.
Youre, probably better off building a sister plant right next to it.
The workers want to come back to their home environment, where there are tools and that's what they love.
They can pick up where they left off the day before.
That's my sense of it we've never tried to double shifts, but when we looked at it.
Prior imbalanced situations between supply and demand.
We came to the conclusion after a lot of thinking and analysis and discussion among farmers.
That it just wasn't getting paid.
We found some time tenable wall, where the ninth well the home out of the plant is actually unprofitable theres a sweet spot of these plant.
If we could get the labor shortage stabilized so the people that stay here for at least 12 weeks before they find a nice good.
And then I think we have about a 10, maybe 12% capacity, we don't have geographic problems.
We got a revolving door when it comes to labor as everybody's outbidding.
<unk> Guy and so everybody's name when you have the same groundwater Fort worth will have the same core 120 workers and then we'll have another 100.
Showing up for the first time or it seems like every day.
The same we have another problem in that.
Attendance is not that good.
So right nobody nobody works for five consecutive days anymore, it's kind of hard to run an assembly plant. If you don't show up tomorrow.
I mean, so that must be systematic across the industry. So I mean do you think that a lot of the pricing youre getting is just capacity constraints industry wide in production.
And.
Everybody is kind of assuming that thats going to be consistent unless there's some change in either the work ethic or that the.
<unk>.
Outside broker side and everywhere when you got boats going around in circles out specific because they can't.
A report on low systemic problems.
Everything that I think will just take.
Something too.
To get that back to a stabilized deal.
When I talk to it.
People of my suppliers and I am begging them for shingles right.
Our refrigerated.
But Dave Apologetically say, I'm, sorry, I'm, sorry, I'm, sorry, I know this doesn't make any sense, but we can't so we don't have the steel that we don't have.
The asphalt or something like that so we have worldwide.
Issues in supply.
Management, and our staff spends more time begging for the product than they do negotiate enterprise when will that change.
I should be asking you that question you might be able to you might be more right.
It won't be this month might be next year sometime.
Okay and so the.
The number of floors that you guys can do is pretty well tapped out right now even even if you had the ability.
There is demand pull im assuming theres demand pull out of the Georgia plant, where you do have the ability to add.
Some production facilities you can add the production facilities because you don't have the workers that would fill that production facility. So it's kind of like.
An infinite loop until something loosens up does that is that fair to say.
I feel like if we build a plant right next to that why don't we have in Fort worth we Couldnt believe more houses because we've employed to everybody that knows roquefort knows how to do electrical work within a five mile radius.
So.
I mean, the capacity problems or physical.
As an industry there are people in materials.
These buildings aren't that hard.
Put up.
Excellent visibility.
Four months.
Let's just say less than $10 million.
Staffing or materials.
The system is that we have in place it's hard to duplicate.
We're all sitting there aren't many plants in the United States that Youre actually getting construction at least in our industry I don't understand the RV industry has got quite a bit under construction in Indiana, but.
In our industry, you could probably count the number of new plants under construction in one hand.
The entire United States, even would be a balance between supply and demand.
Okay I appreciate that color. Thank you very much guys.
Okay.
Remind me again to ask a question. Please press star one on your telephone keypad and next we have Deforest Hinman from Walt has and company. Your line is open.
Hey, Thanks for taking my question.
What new to the name.
Just to get a little bit more color on the comment.
Valuations for developed parcels I believe you are referencing that UMH call they put out a number.
I think it was in excess of $100000 four.
A developed Pat is that that type of number you're referencing or is that something different.
I'll add some excellent question first time, it's ever been asked.
The number you are hearing is the market value what they're trading at.
Trading it.
For five years.
Where they are trading in.
The actual replacement cost.
The diversity of major bubble.
Bottling and put the improvements in and fill it up for sale.
Under $50000 place.
So there is an imbalance between market value and replacement value in this space and the space.
Significant imbalance.
And even at our best properties were intended to be all in for less than $50, all in including holding costs everything so.
I mean in some cases, we're going to be and we can be in the 30 to $35000. This place. So there's a big imbalance.
Between market value.
Based on cost.
The reach.
Reach think that.
There is a.
And if there is a.
Limited supply of land and the developer.
Well almost place.
Youre indexes, which is the number one state in our states.
I've lived here for most of my life and Ive been in this industry for over 41 years.
That's just not the case I mean, all you have to do is have a four year plan and politics and find the entitlements.
And you can put thousands of spaces here those same four years yeah.
But there is not.
There is not a barrier to entry that people think of it in public space. So if you wanted to compete in that space you still have to buy at a good location.
Good School district.
Within Commutable distance to unemployment center again, just put it out of nowhere.
I think good for you.
Following the rates you best probably the best question I've heard.
I don't understand why they're being priced at two or three times replacement costs, but they are so there you go.
Some of those people with my customers.
It is what it is.
My short an uninformed answer is people are very impatient so.
The asset is there and they don't have to deal with the four years of development pain.
They pay that pay that premium.
Specifically on your.
Locations that you've disclosed in the Q I believe you had seven.
Parks that are that are disclosed.
Can you just help investors understand where are those parks are in that timeline that you just described.
Our two parks, placing units right now are one parks dawn I mean any.
Color you can provide there I think would be very helpful for shareholders to just really get a better understanding of.
What you have done.
And what you're hoping to accomplish and how much revenue stream.
Those developments are currently providing Pakistan and some color on that all of those locations are already titles.
<unk>.
Jude to developed manufactured housing communities are parks.
Subdivision parks, we don't have any entitlement.
Barriers whatsoever.
Engineering barrier between the water supply in the electric supply.
On tractors and getting the platts filed but there is no entitlement barriers.
Any of those so part of it is the slowness of the systems during the Covid era.
The other part is it is hard to press forward.
Create even more demand for our factories.
We have now so I guess, what kind of incubating them until we need them.
The other question I wanted to answer because it's a follow up to your first question.
Just doing the math a little bit in my head.
I believe our land cost.
It was somewhere around four or $5000 first place.
Of all the different lands that we own where in that range four five and six of the outside.
The land cost first place so any.
Additional cost per space is strictly development white water.
That may help you look at it.
We're active in.
Most of the major markets in Texas.
We have feelers out not only do we own.
Those seven thing, but we provide financing.
The key developers that are in this space.
We make loans I think we have another.
I don't know close to 15 or $20 million out loans to people who are developing.
You factor to housing communities in other states. Besides Texas there are costs, if we make money lending money would make money building homes.
So I'm pretty familiar with what's going on.
Our market all the way from South Carolina.
And.
Pretty familiar with the ones that are on the drawing boards and what their expected development cost is.
There isn't that menu that are breaking ground because it couldnt get product, even if they built them.
They're all.
I'd say there is.
I don't know if I was thinking number.
20, 30000 spaces that are pretty far along on the drawing board.
Markets.
They do more than that which is significant but not that significant.
That's all that's very helpful. And then if we look at those seven parks that you have discussed right now is the math.
Four.
Sure.
Pads per acre is that a number that makes sense or is that is that off base, there's kind of a fork in the road if let's say if it is a subdivision where we're selling the land.
It's probably.
At one point something per acre less than two because they are usually a septic system environment in that case.
That's gonna be a rental community.
Yeah.
Our lives saved genus one there now.
And we try to get around five per acre you can do six.
Better at TC five because no one wants to live.
Some of them where they can.
Whether what they don't have the land part of the advantage it wasn't a good place.
When it swings.
Swings that improve your puppy dogs.
Is better than an apartment if.
If you take that away.
As part of the year.
Got it.
Number one developer that we are financing.
Millions out with us.
He's believing that they should be about five or 6000 square feet.
Pat and he's netting something less than $5 per acre.
Right.
Developed scheme, we're a little bit smaller than what we're doing ourselves, but we're probably between five and six.
Closer to buy them.
Okay. That's very helpful. And then just just kind of maybe last question on the development side can you just talk about how you envision.
Capital and I know you said you can't.
Build a park it doesn't make sense to build a park.
Our units on it but.
In terms of what mathematically what it cost to kind of build out the parks.
The way that you envision them from just the ballpark dollar.
Expectation.
In one year, but just in total how much money would cost to pull out all the parks.
While all in if we were to develop everything that we have on the drawing boards, we're probably looking at a $100 million.
Now where does that money come from.
Parents were making about 14 or 15, a quarter, we got a buying some place to put it so.
It shouldn't be hard to.
To grow it through.
Organically as far as the availability of money to develop.
Must not be that great because we're providing a bunch do some pretty.
Spring is people so.
We don't have any real cash needs are.
It might be.
A lot of money chasing finished product, but theres not much money chasing developments that I know of anyway.
Okay. That's very helpful. And then just really big picture at some point hypothetically.
Hypothetically, maybe some of the demand for.
Units falls from.
The three customer groups I believe you laid out retail.
Dealer and then the Big Park owners.
<unk> reached et cetera.
I mean do you envision transitioning.
These high levels of production.
Over to our own parks to fulfill their needs and then having said that.
Is this.
A period of time.
Thinking about two or three.
Plus years of very high levels of production.
Well I think it was going to be at least another year.
Ultimately the industry has stopped being Jim Walters homes that start being.
Pulte homes, we have to be more integrated providing place for the cars in a place like it gets good place sidewalks.
So on and so forth.
I've been pounding that table for years.
Unless the industry becomes competitive.
Subdivisions built by the major homebuilders that we are.
A boutique industry. So that's what we're doing what we're trying to do.
To be more integrated and give consumers.
More more finished approach to what we're doing now whether we sell it or we ratchet right now there's a big trend towards renting houses so.
In today's market.
Think about running things things for 12, 13, 1400 ARD for months, but historically homeownership is preferred.
Rentals so.
I don't I don't know if I'm dancing around your question, but I think the development philosophy of legacy.
As is.
Fix because of.
The lack of a do it yourself.
Yeah.
We don't know how to build their own car boards anymore at this point.
Yes.
<unk> got to be prepared to give them a more complete.
<unk> or we're going to be just.
Very boutique industry, we can still compete with D. R Horton and pulte on a heads up basis, but we can do it yourself on the house itself, we gotta be more comprehensive than that that's all we're going.
It'd be more and more comprehensive.
Whether we take to the bottom line rental dollars or sales dollars isn't all that relevant.
Our philosophy is to be more complete more comprehensive more like more like a true homebuilder.
I appreciate that color and I am a young guy, but I do remember Jim Walter homes. So that's a good good comparison I guess just in terms of educating shareholders at some point does it make sense too.
Do something on.
Investor deck, where we kind of talk more about the development projects, maybe some pictures to help people.
Visualize what you guys are doing and what Youre trying to accomplish I mean is that something that.
Yes.
What created opening in our Investor Relations Department and you guys can you guys can figure out who we are.
We're not very good at Investor Relations.
I meant to weave in and factor that I'm 67.
63 recently.
Have a succession plan is starting to develop.
But we both grew up.
Barry.
Small rural environments.
We're basically farmers.
Farmer environments and.
And we do know how to make hay, while the Sun shines, which is of course, what youre seeing in not only our financial report.
But other People's financial reports as well, but we also know what to do when the Sun doesn't shine.
That's where.
Yeah.
We show up we had a great week I don't know what happened I mean, this is probably the best we've.
We've ever had.
But our better weeks on a comparative basis it will be a sudden stop China, then you'll really see how curt and Kenny perform what their value systems.
Those of you that are more long term oriented and your investments.
I mean, we.
We've never lost money and we've always made a double digit return on equity.
Since we've been in.
Business, though.
I don't I'm not worried about that.
The turn of events that could be negative.
I just wish it would hurry up and happened so I can prove as pointed out for several years.
Well.
We are shareholders and I don't want you guys, a short change yourself I mean, I can certainly follow up.
I'll give you guys. Some ideas that we have in terms of.
Describing what youre doing because we'll try to be more transparent on some of these things exist.
If you have your choice between talking about it and doing it well.
Doing it.
Right.
Kind of where I'll leave it I mean.
I know I've done most of the talking others. Because these questions. If you had right at my Bailiwick, if we could talk about retailer with Mckinney.
Talking about ratios that had been time, but you keep asking questions that are.
Hertz.
Daily with them.
What we're going to do just fine.
Definitely in future.
<unk> would be.
Extremely well if there is a downturn, we keep talking about the downturn the dog in the months or years.
I mean, who would have guessed that COVID-19 would have lasted two months our stock by the place I certainly didnt have that analysis. It would have been wrong on that.
Our backlog has never been better our margins are good our relationship with our customers is good and we continue to innovate.
We're doing things of the show and this week that are mindboggling as far as the products themselves.
Okay, well I look forward to learning more the strategy makes a lot of sense and I'll circle back with the team and we will have.
A detailed conversation I appreciate you taking the call.
Keep up Covid work.
Well. Thank you thank you for being a shareholder.
Next we have Brian Glenn from offline square investment partners. Your line is open.
Hey, good morning, guys.
Good morning.
I had a question. This goes back to I know you guys are huge proponents of lending.
It is a strategic asset that goes all the way back to.
What are your ROIC to Cavalier when you guys for shareholders with that entity at the time it was <unk>.
Selling its lending alarm and I'm sure years before that.
All through your time in the industry I wanted to see if you could walk through.
In plain English the structure that you do with dealers with your third party dealers in terms of that preferred return in terms of the split.
The residual and then I know theres that gross margin hold back is that part of that dealer incentive liability or is that.
Separately and I guess I know when I talk to people. They view the loan side is particularly risky and I think its something thats just misunderstood I know, it's spelled out in the K.
I just wanted to see if you could walk through that a little bit because to me an interesting structure that you guys do on the risk mitigation and satisfied.
We have four significant.
<unk> arms and Youre hitting on one of them.
Yes.
So if we sell to independent retailer.
And he wants to.
Avail himself of financing retail financing through us.
And we give him at 80% of his profit upfront and then he participates in kind of owns 20% of the backside profits.
So far that arrangement has meant that we sent out over $6 million for their participation checks.
There's no one has lost money in that range of course has been mostly in up market for this period, so it might not be.
Right analysis.
We get real down payments, we have credit.
Analysts should do their job and more importantly, we have eight person bilingual collection collection team.
So that our delinquency rate right now is at an all time low.
And part of that's because no one's upside down and what they bought five years ago.
They wanted to replace that they might have to place.
Three times or so.
So the existing portfolio of $133 million retail papers are solid hours, it's ever been.
And our yields as a yield team or yields or joint venture.
Somewhere in the 13% 14% range.
Our lucky.
Our selling the biggest ticket item probably in the world.
The end user is able and willing to pay 12, 13, 14% rates and internal rates of return.
The debt so I don't want to do we make that on the product that we make a margin on that product and we make our service and fee.
So that's it.
I'm not going to pay what it brings to our bottom line, but I'm not sure I would now, but it's a significant number.
Our earnings is the fact that retail finance.
Thanks, that's helpful.
That's all I have guys. Thanks.
Yes.
And there are no further questions at this time I will now turn the call back to Craig Hudson for closing remarks.
Yes.
Well. Thank you all for attending I know, we Didnt give you much notice is the earnings call.
Yes.
About that.
May shape is probably the most questions we've had and I got some new faces on the line I appreciate you all being.
In there for us.
The more <unk>.
And we get better we offer we are so well.
A little bit we will have another earnings call in three months.
Appreciate you all good day.
This concludes today's conference call. Thank you all for your participation J. The rest of your day safe and you may now disconnect.
Okay.
Yes.
Yes.
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Got it.
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Okay.
[music].
Yes.
Okay.
Please go ahead.
[music].
Yes.
Okay.
Great.
Okay.
Okay.
[music].
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[music].
Good day, and thank you for standing by and welcome to the legacy Housing Corporation third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero.
I would now like you had the conference over to your first speaker for today, Mr. Curt Hodgson. Please go ahead Sir.
Thank you for joining the call today my.
My name is Curt Hodgson executive Chairman.
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 management may make 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 in the privacy Cruise litigation Reform Act of 1995.
Actual results may differ from management's current expectations and therefore, when we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report.
All of the security of that machine.
In addition, any projections as to the company's future.
Performance represent managements.
The estimates as of today's call.
You can see housing assumes no obligation to update these projections in the future unless otherwise required by applicable law.
Now, let me turn to discussion of our third quarter performance and provide additional corporate updates.
I will then turn the call over to our Chief Financial Officer Burkhart to discuss the financials in more detail.
This quarter legacy continued its track record of delivering strong financial results.
Net revenue increased to 56, and a half million dollars in the third quarter, representing a 29, 1% improvement over the third quarter of last year.
This revenue increase came from both volume and price increases.
We experienced strong improvement in our income from operations for the quarter, which increased to 17 6 million deadweight.
In the third quarter of last year.
While managing ongoing supply chain challenges.
Place dairy cost pressure.
We were able to increase our unit deliveries by selling finished goods.
Inventory and realizing better gross margins as we offset cost pressure with the systematic and regular price increases.
Continuing to focus on opportunities to protect and grow margins and leverage our SG&A footprint.
Net income of $14 $7 million for the quarter.
Well, the 74, 4% increase over last year.
Earnings per share grew to 61 per share in the third quarter.
Compared to 35 cents per share last year.
This is the metric that I followed as many of you there.
Legacy delivered an 18, 9% return on book value.
On a rolling 12 month basis.
We are pleased with our continued success in delivering value to both customers and our shareholders.
Overall market demand orders in our loan portfolio are very strong.
Of great importance to our future success, which is not reflected in our GAAP basis. Okay.
Are the strides we have taken in our Milwaukee communities under development.
During the third quarter, we secured water rights as well as cleared other development hurdles.
Our 400 acre project.
Got it near Austin, Texas.
Our strategic real estate portfolio of mobile home communities will be populated by legacy build houses and will serve to reinforce the demand for homes for years to come.
We see this as a major competitive advantage over our peer group.
Key to our continued success.
At this point I'll turn the call over to Tom.
Thank you Kurt.
Following up on Curt's comments regarding revenue total revenue for the third quarter of 2021 was $56 $5 million, a 29% increase over the third quarter of 2020.
Product sales accounted for more than 90% of the revenue increase and that was achieved while originating leases for 71 homes in the third quarter.
Interest revenue from the company's retail and commercial loan portfolios expanded to $7 $3 million for the quarter, which represents a 12, 9% increase over the prior year.
Compared to September 32020, retail loan portfolio increased by 12% to $121 $6 million, while our consumer loan portfolio decreased by 22, 7% to $100 $1 million due to a customer prepaying a portion of its balance.
Looking back on the quarter, the big highlighted that we successfully navigated a difficult commodity market through effective management of the purchasing and pricing while deepening our long term position as a provider of choice for key customers.
Further we continue to keep our thumb on spending while making prudent investments.
With that I'll hand, the call back over to Kirk for final comments and any questions.
Well. Thank you Tom I don't have any further comments, but you are welcome to ask whatever questions you have.
Alright, well reminder, to our audio attendees if he would like to register a question. Please press star followed by the number one on your telephone keypad.
If your question has been answered and you would like to withdraw your registration.
Express the password.
One moment.
First question.
And your first question is from Mark Smith of Lake Street Capital. Your line is open.
Hi, guys.
A handful of questions here, but first just wanted to look a little bit at kind.
Kind of price increases versus mix and kind of average selling price of homes and how that how that trended.
Yes.
Well this is curt.
I don't have that data in front of me, but we do follow on a weekly basis.
For it so I think I've committed to memory.
What you're asking.
Kind of depends what period were looking or if we're looking at third quarter of last year versus the third quarter of this year.
Our pricing metrics are up 25% to 30%.
However.
If youre looking at product mix.
It's been really hard to track we had a huge increase in double wides for the first half of this year and recently, where we were coming back to the single lives and when we track metrics, we really track the number of floors, we built as a poor as opposed to the number of houses that we sell.
So our floor volume is pretty stable.
One year to the next because theres more single wise being built now than there was previously a number of homes sold.
Actually gone up and hence the comment that we increased production.
I'm happy to report that production is back to pre COVID-19 levels and in the case of Georgia for setting all time records of the amount of money.
Our product, we're producing on a daily basis.
We're now building a solid 16 floors per day.
Thank them from the company's perspective is about as good as it's ever history of the country.
That may give you a little bit.
We have a little wrong room for growth.
And and deliveries from our current plants.
I would say no more than 10% volume capacity left over and that's only if we can harness the material labor shortages that we've.
Salaries, this year, which I'm sure everybody's been talking about.
Yes.
No no. That's that's helpful on our price side as we look at kind of channel mix. It looks like your strong results in direct sales as well as retail store sales continuing to trend. The right way can you just talk about kind of how you feel about kind of that channel mix and how that's trending today.
Well, we are retailing a slightly more.
We've added some very recent management to that part of our business. What we as you may remember from when we went public.
It's our intent to be more and more retailers in western wear soldier.
It's hard to turn down a backlog of your good character, you've had for years and they're calling US asking you for your help and satisfying them.
So we've got we have production challenges, even our own lots have to compete for production slots.
Elwood challenged in their sales then.
Because of our own production limitations, not just us it's true industry wide.
All of our backlogs are so far out there at all even with the argument box a year plus for us in our back.
Backlog. So we just have to kind of pick and choose who gets their product and who doesn't.
Don't know when that supply imbalance will be.
Clothes in the industry.
We have another year or so pretty clear sailing.
We can sell anything we can build.
So one of our long standing community.
Our relationships or do we sell it to one of our own retail locations or do we sell it to an independent beer I don't make those choices myself ability meter.
Like general managers, but I wouldn't want to be in their shoes and had to figure out who gets the production of who does it so difficult to sit in on a daily basis again that doesn't answer the question directly I'm, just saying that our retail sales are somewhat limited by our production capacity issues. If you follow me.
No no that that helps us as we can.
Kind of look at price increases that you guys have taken.
How do you feel about the competitive environment do you still have pricing power and the price increases that you've taken enough to fully offset inflationary pressure.
Each time, we have a price increase we kind of offer our customers a chance to back out.
This year, we've had 13 price increases in all that we haven't lost 1% of our of our backlog.
So I don't know where the end is because from an old timer or like Navy perspective, I can't believe we're now selling single wides for more than we used to sell otherwise. So we are.
We're getting $50000 for our basic package or a three bedroom two bath number one seller.
A few years ago or was it just a few.
Years ago, it was $30000 so.
The increases are just amazing to me, it's not just us our customer.
We have vendors does the obvious one here of upwards steel, but you could take it further in Cork talk about sheet rock or windows or.
Or any other thing in any of our Chinese import we don't get a 2% price increase from our suppliers, we get a 40 or 50% price increase.
Our customers understand that I don't know worthy and is.
I can tell you our average payment.
Owns that we originate is up 25% 24 months it doesn't seem to stifle.
Demand I don't know where the end is we're still inexpensive relative to the counterpart.
Counterpart by a wide margin and that's our that's our number one calling card in the industry.
And.
The last one for me I just wanted to look a little bit at this this big repayment that you had in your MH portfolio right at the end of the quarter kind of the impact on that going forward and is there anything else to read into that.
As far as continued partnership with this kind of partner or is there anything that we should be reading into given that big repayment.
Well I was kind of hoping to somebody else should take one of these questions, but just one on this.
This would probably be out there for questions is the one I'm most familiar with this this has been our number one customer very well heeled customer all along we knew this prepayment was coming for quite a while to get with water for award.
But they are still buying from us and they are still buying from us on a finance basis.
But let me just translate what you.
You asked for a number of point of view.
When we finally and somebody we generally mega 5% delta between our cost of borrowing and our.
The price that we finance, sometimes it's even more than 5%.
So you can do the math and figure out if we're unable to replace that $45 million prepayment.
That would potentially.
Potentially do to our bottom line youre out back.
In fact, the matter is we do replace it with other things, including sales to that paid.
Pay this off directly.
We have no plans on the horizon.
Once again take care.
Our.
Our loan back up to 50 60 million in March So we're getting some leverage on our prior.
Financial statements on leverage we still do pretty doggone, good from an ROE point of view I think you would agree.
But when you have a good customer and they're trying to lend money to let's just say 7%.
He has an opportunity to pay it off early and get a free personnel.
We're not going to compete with that source of gas.
It doesn't make sense for us and we're gonna be on those types of vouchers for a good while longer that's why we have to find ways to keep our <unk>.
The spread on what we're selling the product for versus our cost healthy I think we're roughly 30% this quarter, which is very healthy and from a gross margin point of view as long as we can make money on the product.
And still be able to deliver the our Aro <unk>.
Excellent perfect. Thanks, Kurt.
Our next we have Alex Rygiel from B Riley Your line is open.
Thanks, Curt Kenny and Tom Great quarter.
Thank you.
Couple of questions here lets start with the community develop program. So.
You mentioned Austin.
First on Austin, when should we expect homes to start to be delivered to that property.
And then what is your longer term view on liquidating that asset.
Well.
As you May know, Alex I live in Austin, So it was pretty much in my backyard.
In an ideal world you wouldn't liquidated most of the golf for the rest of your life.
The slowness in development.
Where our pricing is spread throughout the United States.
It's just hard to get government regulators and the contractors to do much in 2021.
Couple that with the fact that we really don't need the orders, it's hard to get really excited about.
Developing that project.
At the risk of.
That would apply in my neighborhood broke ground in the third quarter. So I would expect that we can be.
Can be up and running as far as product sales within 12 months.
The other way.
We might not do that just because we don't have the manufacturing capacity with the project. So.
Doing extremely well its very very exciting project only a few miles south of the two tests that facility.
So it's sort of saying, but we also have another 2000 spaces. Besides those that are under redevelopment.
Of about $20 million common you answer that.
Land land and improvements in the company that have been sitting dormant from an ROE point of view there.
Even for the right time and place here.
It turned in in waves.
That's coming out of the one in south of Austin.
I would say in the calendar year 'twenty two 2022.
It's gonna have.
Her experience on younger ours building road, putting water system are there right now so.
As far as the extra strategy.
It's gonna be tempting to sell it to one of the one of the Reits because they are paying top dollar.
Where there are spaces, so it'll be a contest between what we think is best for the company long term.
It's obviously best for the company short term.
Long term.
Our ideal.
Lloyds should own them forever short term, it's hard to turn down two or three years you spend what you got in it.
We'll see what that time Congress.
And then next question are there any other strategic initiatives or activities that are ongoing right now either as it relates to your Georgia plant or as it relates to the type of home you're building the size of the home you're building or.
The geography of the trend.
We think we're the most innovative company on the planet.
What you're asking I can be answered with the word, yes, but I really don't want to use.
A lot of details that would be.
For you announce what we're doing to our competitors, but yes, we are.
We're having a big show this weekend will be 250 attendees is the biggest show of the industry.
And they will get a glimpse of what a product point of view.
Next year.
And then.
As far as our strategic initiatives.
I'm just not I'm just not going to go down then it's a question I don't really want to answer.
Oh, I'm sorry, Alex.
Fair enough.
This quarter good luck.
All right anybody else.
Next we have Michael Chapman.
<unk> capital your line is open.
Great. Thanks, just a couple of follow ups on the.
Homes leased.
71 increase what's the total number of homes you have leased now in the portfolio.
Colin do you now take the question were Yep.
<unk>.
I believe my schedule tells me 398 is our total count that's where I got in front of me.
Okay.
And then when given that Youre kind of capacity constrained is how do you decide what goes into that obviously you put that in at cost.
I'm, assuming there is plenty of demand there.
Lease rates don't seem to be that great on that so what's the what's the decision.
How do you decide whether you put more into that.
Opposed to sell them to third parties.
I can answer that one.
We've kind of left the decisions of who gets what.
To the general manager level it keeps upper management.
Out of the politics and it.
Is that it seems to be more satisfied so that general manager is line, whether or not it's a lease or a sale for cash or finance sale or even a sale to our own line you might be blind to that he's looking to to maximize production.
Florida.
Number one priority number two priority is to look at the customer and decide whether or not that personality that situation is going to be long term or whether it's just appeared because of the imbalance between supply and demand. So we don't really recognize that.
Your belly shot at something that you're already observed.
I think I could mathematically pay you something that will be of interest.
The lease rate that we're getting as close to 2%.
The bases, we have in that property on a monthly basis. So those 398 leases will be paying dividends.
[noise] form of earnings in top line for many many years to come.
And on top of that these are not closed and leases that are open end leases, where we get the residual.
And the residual has gone up in value markedly since most of these leases were put in place. So it's one of many hidden gems in our balance sheet, while we might be showing it ex the actual cash flow and residual value of that.
It was probably closer to it maybe more.
Okay and so on on those do you get inbound calls from investors wanting to buy those from you and you just hold onto them because of the basically annuity that you guys get on that and the increased kind of residual value.
Well the only interest we have in getting us out of it as the lessee is himself he calls and say, okay, let's forget.
And thus far when we do a cash analysis on return on investment.
They think they're going to get a discount from the original invoice price but.
It's just not that way.
Between the rate of return, we get on the lease payments and what the expected residual value risk.
<unk> value.
If anything increase they've appreciated some safety first win.
Yes.
So it would be like buying.
Two car for $30000 three years later, it's worth 40000, Skus I mean, that's kind of the market that we're in right now.
Right.
Okay.
And then just kind of on capacity.
It sounds like you're kind of tapped out on capacity in Texas. If you didn't have the labor constraints that you do have.
Is there the possibility in those plants to run more than than one shift or run on weekends.
We've looked at that possibility several times before and of course those decisions that were made 10 years ago aren't necessarily the same disease she would make today.
But.
Story Klee No plan has succeeded that I know of running multiple shifts in one geographic location.
The cost building is not that material. So if you were to add that type of capacity and you had a little lead time, you're probably better off building their sister plant right next to it.
The workers want to come back to their home environment, where their tools.
They can pick up where they left off the day before.
That's my sense of it we've never tried to double shifts, but when we looked at it.
Prior imbalanced situations between supply and demand.
We came to the conclusion after a lot of thinking and analysis and discussion of fund me old timers.
It just wasn't yet or pay we've found sometimes it tends to bode well for the ninth well at home.
The plant is actually unprofitable theres, a sweet spot of these plant.
If we could get the labor shortage stabilized so the people that stay here for at least 12 weeks before they find that nice.
And I think we have about a 10, maybe 12% capacity, we don't have a geographic problem.
We got a revolving door when it comes to laborers everybody's outbidding.
<unk> Guy and so everybody's name when you have the same ground war, let's say Fort worth will have the same core 120 workers and then we'll have another 100.
They're showing up for the first time or it seems like every day.
The same we have another problem.
Attendance is not that good.
So right nobody nobody works for five consecutive days anymore, it's kind of hard to run an assembly plant. If you don't show up in a while.
I mean, so that that must be systematic across the industry. So I mean do you think that a lot of the pricing that you're getting is just capacity constraints industry wide in production.
And.
Everybody's kind of assuming that that's going to be consistent unless there's some change in either the work ethic or the <unk>.
The ability to bring.
And outside worldwide everywhere, when you got boats going around in circles out specific because they can land. It report on load or systemic problems and everything that I think let's just take <unk>.
Something too.
To.
To get that back to the stabilized deals.
I talked at very at people at my suppliers and I begged them for shingles right.
Rick.
Apologetically say I'm, sorry, I'm, sorry, I'm, sorry, I know this doesn't make any sense, but we can't so we don't have the steel that we don't have the.
Asphalt or something like that so we have worldwide.
And supply.
And our staff spends more time begging for the product and they do think negotiating the price when will that change.
I don't know I could be asking you that question you might be able but you might be more right.
It won't be this month it might be next year sometime.
Okay, and so the number of floors that you guys can do is pretty well tapped out right now even even if you had the ability if they're.
There was demand pull I'm, assuming there's demand pull out of the Georgia plant, where you do have the ability to add.
Some production facilities, you cant add to production facilities, because you don't have the workers that would fill that production facility. So it's kind of like a in.
An infinite loop until something loosens up does that is that fair to say.
I feel like if we build a plant right next to that why don't we have at Fort worth we Couldnt believe more houses because we've enjoyed everybody that knows roquefort knows how to do electrical work within a five mile radius as it is so.
The capacity problems arent physical.
As an industry there are people in materials.
These buildings aren't that hard.
Put up.
So 24 months for that.
I should say less than $10 million.
It's the staffing in our materials in the system.
Place, it's hard to duplicate.
All sitting there there are many plants in the United States that are actually yard construction at least in our industry and I understand the RV industry has got quite a bit under construction in Indiana, but.
Our industry, you can probably count the number of new plants under construction in one hand.
The entire United States, even would be a balance between supply and demand.
Okay I appreciate that color. Thank you very much guys.
Uh huh.
Remind you again to ask a question. Please press star one on your telephone keypad and next we have Deforest hinman from Walt passengers and company. Your line is open.
Hey, Thanks for taking my question and somewhat new to the name.
Just to get a little bit more color on that comment.
<unk>.
Valuations for developed parcels I believe you are referencing that UMH call they put out a number.
I think it was in excess of $100000 for a oh.
Developed pad is that that type of number you're referencing or is that something different.
Oh, that's an excellent question first time, it's ever been asked.
The number you are hearing is the market value what they're trading at.
They are trading at upper five is.
Where they are trading at the.
The actual replacement cost.
The diversity of majors bubble, which you can buy the land, but the improvements in and fill it out for.
Under $50000 this place.
So there is an imbalance between market value and replacement value in this space and the space business a significant imbalance.
And even at our best properties were intended to be all in for less than $50.
All in including holding got everything so.
I mean in some cases, we're going to be in for <unk>.
Can be in for 30 to $35000. This place so there's a big imbalance.
Between market value and replacement cost.
The rights think that there is.
Hey.
And if there is a.
There's a limited supply of land that can be developed.
Almost place.
Here in Texas, which is the number one state in our states.
I've lived here for most of my life and Ive been in this industry for over 41 years.
That's just not the case I mean, all you have to do is have a four year plan.
Politics fine.
Idled mines.
And you can put thousands of spaces here those same four years yeah.
Yeah.
But theres not.
Theres not a barrier to entry that people think of an Oklahoma space. So if you want to compete in that space you still have a good location.
Good School district.
Within Commutable distance to unemployment center, you can just put it out and going nowhere, but up.
I think if you if you're following the rates you best probably the best question I've heard.
I don't understand why the reach you priced it two or three times replacement costs, but they are so yeah. That's.
What are some of those people with my customers.
It is what it is oh.
In my short an uninformed answer is people are very impatient so.
The asset is there and they don't have to deal with the four years of development pain.
They pay that they pay that premium.
More specifically on your <unk>.
Locations that you've disclosed in the Q I believe you had seven.
Parks that are that are disclosed.
Can you just help investors understand where are those parks are in that in that timeline that you just described.
Our two parks, placing units right now one parks Dawn I mean any.
Color you can provide there I think would be very helpful for shareholders to just really get a better understanding of.
What you have done.
And what you're hoping to accomplish and how much revenue stream.
Those developments are currently providing.
Some color on that and all of those locations are already titled two.
Our project to develop manufactured housing communities are parks.
I mean, the subdivision of parks, we don't have any entitlement.
Barriers whatsoever, little engineering barrier between the water supply in the electric supply and contractors and getting the platts filed but there's no entitlement barriers any of those so part of it is the slowness of the systems during the Covid era.
And the other part is it's hard to press forward and create even more demand for our factories.
And we have now so I guess, we're kind of incubating them until we need them.
The other question I wanted to answer because it's a follow up to your first question.
Just doing the math a little bit in my head.
I believe our land cost.
It was somewhere around four or $5000 first place.
Of all the different lands that we all were in that range 456 of the outside.
Land cost first place so any.
Additional cost per space is strictly development White road your water.
That may help you look at it we're active in.
Most of the major markets in Texas.
We have feelers out not only do we own.
Those seven things, but we provide financing.
The key developers that are in this space.
We make loans I think we have another.
I don't know close to 15 or $20 million out loans to people who are developing.
A new factor to housing communities in other states. Besides Texas, there are customers, who make money lending money to make money building homes.
So I'm pretty familiar with what's going on.
Our market all the way from South Carolina actually though.
And.
Pretty familiar with the ones that are on the drawing boards of what their expected development cost is.
There isn't that many that are breaking ground because they couldn't get product, even if they built them but.
They're all.
I'd say there is.
I don't know if I was picking a number.
20, 30000 spaces that are pretty far along on the drawing board.
Market to yourself.
Is it more than that which is significant but not that significant.
That's all that's very helpful. And then if we look at those seven parks that you have discussed right now it is the math.
For.
Pads per acre is that a number that makes sense or is that is that off base, there's kind of a fork in the road.
If it is a subdivision of where we're selling the land.
It's probably.
At one point something per acre less than two because they're usually inspecting system environment in that case.
That's gonna be a rental community.
And.
Our lives saved venous we have one there.
Try to get around five break or you can do six but it's better if you do five because no one wants to live on it.
And that way they can.
Whether where they don't have the land part of the advantage of lives and get them all but there is a place where you.
It could swing set until you're probably dogs to live is better than an apartment.
Take that away that pattern is probably.
Yeah.
The number one developer that we are financing.
Millions out with this offer.
They should be about five or 6000 square feet per pad and heat netting something less than five per acre.
With that though.
The scheme.
A little bit smaller than what we're doing ourselves, but we're probably between five and six.
So closer to five and six.
Okay. That's very helpful. And then just just kind of maybe last question on the development side.
Can you just talk about how you envision.
Capital and I know you said you can't.
Build a parking up it doesn't make sense at the park.
Putting units on it but.
In terms of what mathematically what it cost to kind of build out the parks.
Way that you envision them from a just a ballpark dollar.
Expectation.
In one year, but just in total how much money would cost to pull out all the parks.
While all in if we were to develop everything that we have on the drawing board probably about $100 million.
Now where does that money come from.
Apparently we're making about 14 or 15, a quarter, we got a buying some place to put it so its.
It shouldn't be hard to.
To grow it through.
Organically as far as the availability of money to develop.
It must not be that great.
Writing a bunch doosan pretty experienced people so.
I'm glad we don't have any real cash needs or.
It might be.
A lot of money chasing finished product, but theres not much money chasing developments that I know of any warehouse.
Okay. That's very helpful. And then just really big picture at some point.
Hypothetically may.
Some of the demand for.
Units falls from.
The three customer groups I believe you laid out retail.
Dealer and then the.
<unk> Park owners.
<unk> reached et cetera.
I mean do you envision transitioning these at these high levels of production.
Over to our own parks to fulfill their needs and then having said that.
Is this a.
A period of time.
Thinking about two or three.
Plus years of very high levels of production.
Well I think there's going to be at least another year.
Ultimately the industry has stopped being Jim Walters homes and start being.
Pulte homes, we have to be more integrated providing place for the cars in a place like gets into place sidewalks.
So on and so forth.
Been pounding that table for years.
Unless the industry become less competitive.
Subdivisions built by the major homebuilders that were.
Of a boutique industry. So that's what we're doing what we're trying to be more integrated and give consumers.
A more more finished approach to what we're doing now whether we sell it or we ratchet right now there's a big trend towards renting houses so.
In today's market you'd think about running things things for 12, 13 1400 dollar for months, but historically homeownership is preferred to rentals.
So.
I don't know if I'm dancing around your question, but I think the development philosophy of legacy.
As is.
Fix because of.
The lack of a do it yourself or as of the end user.
Even though we know how to build their own carports anymore at this point.
Sure.
I think you've got to be prepared to give them a more complete package or or we're going to be just.
Very boutique industry, we can still compete with D. R Horton and pulte on a heads up basis. So we can do it yourself on the house itself.
Gotta be more comprehensive than that that's our movement, we're going to be more and more comprehensive whether we take to the bottom line rental dollars or sales dollars isn't all that relevant.
Our philosophy is to be more complete more comprehensive more like more like a true homebuilder.
I appreciate that color and I am a young guy, but I do remember Jim Walter home. So that's that's a good good comparison I guess just in terms of educating shareholders at some point does it make sense to you.
Do something on.
An investor deck, where we kind of talk more about the development projects, maybe some pictures to help people.
Visualize what you guys are doing and what you're trying to accomplish means that something that.
Yes, they do.
What created opening in our Investor Relations Department and you guys can you guys can figure out who [laughter].
We're not very good at Investor relations, but I I meant to weave in and factor that you know I'm 67, 63 recently.
Have a succession plan is starting to develop.
But we both grew up in very.
Small rural environments.
We're basically farmers.
Farmer environments.
We do know how to make hay, while the Sun shines, which is of course, what youre seeing in not only our financial report.
Other people's money as well, but we also know what.
It doesn't shock.
That's where.
The age will really show up we had a great week I don't know what happened in the industry.
In the past week and those that we've ever had.
But our better weeks on a comparative basis it will be a sudden stop China, then you'll really see how curt and Kenny for them, but they are value citizens.
For those of you that are more long term oriented and your investments.
I mean, we've never lost money and we've always made a double digit return on equity.
Ever since we've been in business so.
I don't I'm not worried about that.
Churn events that could be negative.
Sometimes I just wish it would hurry up and happened. So I can prove has pointed out several years.
Well.
We are shareholders and I don't want you guys are shortchanged yourself I mean, I can certainly follow up.
Give you guys. Some ideas that we have in terms of.
And what you're doing because we'll try to be more transparent on some of these things exist.
If you have your choice between talking about it and doing it.
And Oh right.
That's kind of where I'll leave it I mean.
I know I've done most of the talking on this because these questions. If you everybody at my Bailiwick, if we could talk about retailer with Mckinney, we'd had talked about ratios that had been time, but you keep asking questions that are within hertz.
Daily with them.
We're going to do just fine.
And in future we will.
Comparatively would be.
Extremely well if there is a downturn, we keep talking about the downturn the dog in the months or years.
I mean, who would have guessed that COVID-19 would have lasted two months our stock by their place.
It didn't have that analysis I would have been wrong on that.
Our backlog has never been better our margins are good our relationship with our customers is good and we continue to innovate.
We're doing things of the show and this week that are mindboggling as far as the products themselves.
Okay, well I look forward to learning more the strategy makes a lot of sense and I'll circle back with the team and we will have.
A detailed conversation I appreciate you taking the call.
Keep up Covid work.
Well. Thank you. Thank you for many shareholder.
Next we have Brian Glenn from Oftentimes Square investment partners. Your line is open.
Hey, good morning, guys.
Good morning.
I had a question. This goes back to I know you guys are huge proponents of lending.
The strategic asset this goes all the way back to that.
Letter you write the Cavalier when you guys for shareholders with that entity at the time it was.
Selling its lending environment and I'm sure years before that all through your time in the industry I wanted to see if you could walk through.
Complaint English a debt structure that you would do with dealers with your third party dealers in terms of that preferred return in terms of the split on the residual and then I know theres that gross margin hold back is that part of that dealer incentive liability or is that separate and I guess I know.
When I talk to people. They view the loan side is particularly risky and I think thats something thats just misunderstood I know, it's spelled out in the K.
I just wanted to see if you could walk through that a little bit because it's a.
An interesting structure that you guys do on the risk mitigation and set aside.
We have four significant lending arms and you're hitting on one of them.
So if we sell to independent retailer.
And he wants to.
Avail themselves of a financing retail financing through us.
And we give him 80% of his profit upfront and then he participates who kind of owns 20% of the backside province.
So far that arrangement has meant that we sent out over $6 million for their participation checks.
There's no one has lost money in that arrangement of course has been mostly in the up market for this period, so it might not be.
Right now.
We get real down payments, we have credit.
Analysts do their job and more importantly, we have a eight person bilingual collection collection team.
So that our delinquency rate right now is at an all time low.
Part of that's because no one's upside down and what they bought five years ago.
Wanted to replace that they might have to place.
Clients were three times, what we owe them product.
So the existing portfolio of $133 million of retail papers is solid.
Yeah.
And our yields this yield team or yields or joint venture.
Somewhere in the 13% 14% range we are lucky.
We are selling the biggest ticket item probably in the world.
The end user is able and willing to pay.
<unk> 13, 14% rates and internal rates of return.
The debt so I don't want to do we make that on the product and we make a margin on that product.
Service and fee.
So that's.
I'm not going to pay what it brings to our bottom line because I'm not sure I would now, but it's a significant bump with now.
Earnings is the fact that retail fine yes.
Thanks, that's helpful.
That's all I had guys. Thanks.
Yes.
And there are no further questions at this time I will now turn the call back to Craig Hudson.
So in your models.
Yes.
Well. Thank you all for attending I know, we Didnt give you much notice of the earnings call.
Uh huh.
About that.
I appreciate it's probably the most questions we've had and I got some new faces on the line I appreciate you all.
In there for us.
The more following and we get better we offer we are so well.
A little bit we'll have another earnings call in three months.
Appreciate you all good day.
This concludes today's conference call. Thank you all for your participation you. The rest of your day and you may now disconnect.