10-Q 1 legh-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission file number 001-38761

Legacy Housing Corporation

(Exact name of registrant as specified in its charter)

Texas

20-2897516

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1600 Airport Freeway, #100

Bedford, Texas 76022

(Address of principal executive offices)

(Zip Code)

(817) 799-4900

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No  .

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock ($0.001 par value)

LEGH

NASDAQ Global Market

There were 24,316,488 shares of Common Stock ($0.001 par value) outstanding as of May 6, 2024.

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

LEGACY HOUSING CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)

    

March 31, 

    

December 31, 

2024

2023

Assets

Current assets:

 

  

 

  

Cash

$

621

$

748

Accounts receivable, net

 

4,314

 

4,656

Current portion of contracts - dealer financed

34,041

32,538

Current portion of consumer loans receivable

 

7,903

 

7,682

Current portion of notes receivable from mobile home parks (“MHP”)

 

45,178

 

18,156

Current portion of other notes receivable

 

14,669

 

6,013

Inventories

 

34,250

 

33,176

Prepaid expenses and other current assets

 

5,310

 

4,915

Total current assets

 

146,286

 

107,884

Contracts - dealer financed

 

 

Consumer loans receivable, net

 

151,282

 

148,818

Notes receivable from mobile home parks (“MHP”), net

 

137,384

 

163,824

Other notes receivable, net

 

15,526

 

28,577

Inventories, net

8,727

7,793

Other assets - leased mobile homes

5,049

7,601

ROU assets - operating leases

1,661

1,794

Other assets

 

3,296

 

2,571

Property, plant and equipment, net

 

40,760

 

37,880

Total assets

$

509,971

$

506,742

Liabilities and Stockholders' Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

3,604

$

4,090

Accrued liabilities

 

19,761

 

18,504

Customer deposits

 

4,109

 

4,146

Escrow liability

 

10,953

 

10,104

Operating lease obligation

474

489

Total current liabilities

 

38,901

 

37,333

Long‑term liabilities:

 

  

 

  

Operating lease obligation, less current portion

1,274

1,396

Lines of credit

 

11,797

 

23,680

Deferred income taxes, net

2,338

2,338

Dealer incentive liability

 

5,300

 

5,260

Total liabilities

 

59,610

 

70,007

Commitments and contingencies (Note 15)

 

  

 

  

Stockholders' equity:

Preferred stock, $.001 par value, 10,000,000 shares authorized: no shares issued or outstanding

Common stock, $.001 par value, 90,000,000 shares authorized; 24,852,740 and 24,843,494 issued and 24,316,488 and 24,398,429 outstanding at March 31, 2024 and December 31, 2023, respectively

31

30

Treasury stock at cost, 536,252 and 445,065 shares at March 31, 2024 and December 31, 2023, respectively

(6,348)

(4,477)

Additional paid-in-capital

181,780

181,424

Retained earnings

274,898

259,758

Total stockholders' equity

450,361

436,735

Total liabilities and stockholders' equity

$

509,971

$

506,742

See accompanying notes to unaudited interim condensed financial statements.

2

LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)

Three months ended March 31, 

    

2024

    

2023

Net revenue:

 

  

 

 

Product sales

$

30,833

$

43,318

Consumer, MHP and dealer loans interest

 

10,633

 

7,705

Other

 

1,777

 

1,834

Total net revenue

 

43,243

 

52,857

Operating expenses:

 

  

 

  

Cost of product sales

 

20,466

 

28,960

Selling, general and administrative expenses

 

5,889

 

5,412

Dealer incentive

 

138

 

131

Total operating expenses

26,493

34,503

Income from operations

 

16,750

 

18,354

Other income (expense):

 

  

 

  

Non‑operating interest income

 

1,302

 

695

Miscellaneous, net

 

737

 

753

Interest expense

 

(276)

 

(91)

Total other income

 

1,763

 

1,357

Income before income tax expense

 

18,513

 

19,711

Income tax expense

 

(3,373)

 

(3,435)

Net income

$

15,140

$

16,276

Weighted average shares outstanding:

Basic

24,393,003

24,374,677

Diluted

25,125,016

25,177,502

Net income per share:

Basic

$

0.62

$

0.67

Diluted

$

0.60

$

0.65

See accompanying notes to unaudited interim condensed financial statements.

3

LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

Three months ended March 31, 

    

2024

    

2023

    

Operating activities:

 

  

 

 

Net income

$

15,140

$

16,276

Adjustments to reconcile net income to net cash used in operating activities:

 

  

 

  

Depreciation and amortization expense

 

423

 

430

Amortization of deferred revenue

(729)

(290)

Provision for accounts and notes receivable

(171)

(43)

Provision for long term inventory

89

19

Gain from sale of leased property

(57)

(507)

Non-cash operating lease expense

 

(12)

 

14

Share based payment expense

257

192

Other non cash items

17

(21)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

237

 

915

Consumer loans activity, net

 

(2,428)

 

(2,287)

Notes receivable MHP activity, net

 

(1,245)

 

(11,667)

Dealer inventory loan activity, net

(1,228)

(2,189)

Inventories

 

(2,097)

 

(726)

Prepaid expenses and other current assets

 

(754)

 

305

Other assets - leased mobile homes

2,427

Other assets

 

(694)

 

(538)

Accounts payable and accrued liabilities

 

772

 

109

Right of use activity, net

 

7

 

(14)

Customer deposits

 

(37)

 

(2,369)

Escrow liability

849

(380)

Dealer incentive liability

 

40

 

80

Net cash provided by (used in) operating activities

 

10,806

 

(2,691)

Investing activities:

 

  

 

  

Purchases of property, plant and equipment

 

(871)

 

(761)

Proceeds from sale of leased property

1,108

Proceeds from sale of property

22

Issuance of notes receivable

 

(590)

 

(3,107)

Notes receivable collections

4,107

468

Collections from purchased loans

53

106

Net cash provided by (used in) investing activities

 

2,721

 

(2,186)

Financing activities:

 

  

 

  

Proceeds from exercise of stock options

100

Purchases of treasury stock

(1,871)

Proceeds from lines of credit

 

12,736

 

20,188

Payments on lines of credit

 

(24,619)

 

(14,896)

Net cash (used in) provided by financing activities

 

(13,654)

 

5,292

Net (decrease) increase in cash

 

(127)

 

415

Cash at beginning of period

 

748

 

2,818

Cash at end of period

$

621

$

3,233

Supplemental disclosure of cash flow information:

 

  

 

  

Cash paid for interest

$

411

$

59

Cash paid for taxes

$

$

3,827

See accompanying notes to unaudited interim condensed financial statements.

4

LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

Common Stock

Treasury

Additional

Retained

    

Shares

    

Amount

    

stock

    

paid-in-capital

    

earnings

    

Total

Balances, December 31, 2022

24,814,695

$

30

$

(4,477)

$

180,555

$

205,996

$

382,104

Cumulative change in accounting principle, net of taxes (Note 1)

(698)

(698)

Balances, January 1, 2023 (as adjusted for change in accounting principle)

24,814,695

$

30

$

(4,477)

$

180,555

$

205,298

$

381,406

Share based compensation

8,571

191

191

Net income

16,276

16,276

Balances, March 31, 2023

24,823,266

$

30

$

(4,477)

$

180,746

$

221,574

$

397,873

Common Stock

Treasury

Additional

Retained

    

Shares

    

Amount

    

stock

paid-in-capital

    

earnings

    

Total

Balances, December 31, 2023

24,843,494

$

30

$

(4,477)

$

181,424

$

259,758

$

436,735

Share based compensation

3,000

257

257

Proceeds from exercise of stock options

6,246

1

99

100

Purchase of treasury stock

(1,871)

(1,871)

Net income

15,140

15,140

Balances, March 31, 2024

24,852,740

$

31

$

(6,348)

$

181,780

$

274,898

$

450,361

See accompanying notes to unaudited interim condensed financial statements.

5

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

1. NATURE OF OPERATIONS

Legacy Housing Corporation (referred herein as ”Legacy”, “we”, “our”, “us”, or the “Company”) was formed on January 1, 2018 as a Delaware corporation through a corporate conversion of Legacy Housing, Ltd. (the “Partnership”), a Texas limited partnership formed in May 2005. Effective December 31, 2019, the Company reincorporated from a Delaware corporation to a Texas corporation. The Company is headquartered in Bedford, Texas. 

The Company (1) manufactures and provides for the transport of mobile homes, (2) provides wholesale financing to dealers and mobile home parks, (3) provides retail financing to consumers and (4) is involved in financing and developing new manufactured home communities. The Company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. The Company relies on a network of dealers to market and sell its mobile homes. The Company also sells homes directly to consumers, through its own retail stores, and to dealers and mobile home parks. 

Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") as required by Regulation S-X, Rule 8-03. In the opinion of management, the unaudited interim condensed financial statements have been prepared on the same basis as the audited annual financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company's financial position for the periods presented. The results for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024, or any other period. The accompanying balance sheet as of December 31, 2023 was derived from audited financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2023 (the “Form 10-K”), filed on March 15, 2024. The accompanying financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in the Form 10-K.

Use of Estimates

The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting period. Material estimates that are susceptible to significant change in the near term primarily relate to the determination and valuation of accounts receivable, loans to mobile home parks, consumer loans receivable, other notes receivable, inventory obsolescence, income taxes, fair value of financial instruments and contingent liabilities. Actual results could differ from these estimates.

Segment

The Company has one reportable segment. All of our activities are interrelated, and each activity is dependent and assessed based on how each of the activities of the Company supports the others. For example, the sale of manufactured homes includes providing transportation for dealers. We also provide financing options to the customers to facilitate such sale of homes. In addition, the sale of homes is directly related to financing provided by us. Accordingly, all significant operating and strategic decisions by the chief operating decision maker, the Chief Executive Officer, are based upon analyses of our company as one operating segment.

6

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Revenue Recognition

Product sales primarily consist of sales of mobile homes to consumers and mobile home parks through various sales channels, which include Direct Sales, Commercial Sales, Inventory Finance Sales, and Retail Store Sales. Direct Sales include homes sold directly to independent retailers or customers that are not financed by the Company and are not sold under an inventory finance arrangement. These types of homes are generally paid for prior to shipment. Commercial Sales include homes sold to mobile home parks under commercial loan programs or paid for upfront. Inventory Finance Sales include sales of homes to independent retailers, or dealers, who then resell the homes to consumers. Retail Store Sales are homes sold through Company-owned retail locations. Inventory Finance Sales and Retail Store Sales of homes may be financed by the Company or a third party, or they may be paid in cash.

Consumer, MHP and dealer loans interest includes interest income from the consumer, MHP and dealer finance loan portfolios. Other revenue consists of consignment fees, commercial lease rents, service fees and other miscellaneous income.

Share-Based Compensation

The Company accounts for share-based compensation in accordance with the provisions of Accounting Standards Codification (“ASC”) 718, Compensation—Stock Compensation. Share-based compensation expense is recognized based on an award’s estimated grant date fair value in order to recognize compensation cost for those shares expected to vest. The Company has elected to record forfeitures as they occur. Compensation cost is recognized on a straight-line basis over the vesting period of the awards and adjusted as forfeitures occur.

The fair value of each option grant with only service-based conditions is estimated using the Black-Scholes pricing model. The fair value of each restricted stock grant with only service-based conditions is calculated based on the closing price of the Company’s common stock on the grant date.

The fair value of stock option awards on the date of grant is estimated using the Black-Scholes option pricing model, which requires the Company to make certain predictive assumptions. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon securities that correspond to the expected life of the award. The volatility is estimated based on the historical volatility of the Company’s common stock. The expected life of awards granted represents the period of time that the awards are expected to be outstanding based on the “simplified” method, which is allowed for companies that cannot reasonably estimate the expected life of options based on its historical award exercise experience. The Company does not expect to pay dividends on its common stock.

Accounts Receivable

“Accounts receivable, net” includes receivables from direct sales of mobile homes, sales of parts and supplies to customers, inventory finance fees and interest.

“Accounts receivable, net” related to inventory finance fees and interest generally are due upon receipt, and all other accounts receivable generally are due within 30 days. Accounts receivable “net” are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history. The Company establishes an allowance for doubtful accounts for amounts that are deemed to be uncollectible. On March 31, 2024, December 31, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $757, $651 and $279, respectively.

7

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Leased Property

The Company offers mobile home park operators the opportunity to lease mobile homes for rent in lieu of purchasing the homes for cash or under a longer-term financing agreement. In this arrangement title for the mobile homes remains with the Company, and the lease is accounted for as an operating lease.

Our typical lease agreement is for 96 months or 120 months. It requires the lessee to maintain the home and to return the home to us at the end of the lease in good condition. It provides the lessee with a termination option for a fee, an option to extend the lease and a purchase option at fair market value.

The leased mobile homes are included in other assets on the Company’s balance sheet, capitalized at manufactured cost and depreciated over a 15 year useful life. Homes returned to the Company upon expiration of the lease or in the event of default are sold by the Company through its standard sales and distribution channels. Depreciation expense for the leased property was $124 and $160 for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, the Company sold 120 leased mobile homes for $5.5 million to a mobile home park customer.

Future minimum lease income under all operating leases for each of the next five years at March 31, 2024, is as follows:

2024

    

$

901

2025

 

1,202

2026

 

1,202

2027

 

1,029

2028

 

841

Thereafter

 

578

Total

$

5,753

Product Warranties

The Company provides retail home buyers with a one-year warranty from the date of purchase on manufactured inventory. Product warranty costs are accrued when the covered homes are sold to customers. Product warranty expense is recognized based on the terms of the product warranty and the related estimated costs. Factors used to determine the warranty liability include the number of homes under warranty and the historical costs incurred in servicing the warranties. The accrued warranty liability is reduced as costs are incurred and the warranty liability balance is included as part of accrued liabilities in the Company’s balance sheet.

The following table summarizes activity within the warranty liability for the three months ended March 31, 2024 and 2023:

    

Three Months Ended March 31,

2024

    

2023

Warranty liability, beginning of period

$

2,910

$

3,048

Product warranty accrued

 

941

 

636

Warranty costs incurred

 

(537)

 

(627)

Warranty liability, end of period

$

3,314

$

3,057

8

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016 13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write down and affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The Company used the longer phase in period for adoption, and accordingly this ASU became effective for the Company’s fiscal year beginning January 1, 2023. The adoption of ASU 2016-13 resulted in an increase in portfolio allowances of $900 at transition. The $900 was comprised of a $225 increase for MHP notes, a $187 increase for dealer financed contracts and a $488 increase for other notes receivable. The cumulative effect of the adoption was a net decrease of $698 to beginning retained earnings at January 1, 2023.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this update extend the transition relief period for reference rate reform from December 31, 2022 to December 31, 2024. The amendments in ASU 2022-06 apply to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2022-06 was effective upon issuance. The new standard has had no material impact on the Company's financial statements.

In November, 2023 the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 aims to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. The update also requires disclosure regarding the chief operating decision maker and expands the interim segment disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We currently are evaluating the impact of ASU 2023-07 on our financial statements.

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted by the Company as of the specified effective dates. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

2. REVENUE

Product sales primarily consist of sales of mobile homes to consumers and mobile home parks through various sales channels, which include Direct Sales, Commercial Sales, Inventory Finance Sales, and Retail Store Sales. Direct Sales include homes sold directly to independent retailers or customers that are not financed by the Company and are not sold under an inventory finance arrangement. These types of homes are generally paid for prior to shipment. Commercial Sales include homes sold to mobile home parks under commercial loan programs or paid for upfront. Inventory Finance Sales include sales of homes to independent retailers, or dealers, who then resell the homes to consumers. Retail Store

9

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Sales are homes sold through Company-owned retail locations. Inventory Finance Sales and Retail Store Sales of homes may be financed by the Company or a third party, or they may be paid in cash.

Revenue from product sales is recognized when the performance obligation under the terms of a contract with our customer is satisfied, which typically occurs upon delivery and transfer of title of the home, as this depicts when control of the promised good is transferred to our customers.

For inventory financed sales, the independent dealer enters into a financing arrangement with the Company and is required to make monthly interest payments. Interest income is recorded separately in the statement of income. For other financed sales by the Company, the individual customer enters into a sales and financing contract and is required to make a down payment. These financed sales contain a significant financing component and any interest income is recorded separately in the statement of income.

Revenue is measured as the amount of consideration expected to be received in exchange for transferring the homes to the customers. Sales and other similar taxes collected concurrently with revenue-producing activities are excluded from revenue.

The Company made an accounting policy election to account for any shipping and handling costs that occur after the transfer of control as a fulfillment cost that is accrued when control is transferred. Warranty obligations associated with the sale of a unit are assurance-type warranties for a period of twelve months that are a guarantee of the home’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract. The Company has elected to use the practical expedient to expense the incremental costs of obtaining a contract if the amortization period of the asset that the Company would have otherwise recognized is one year or less. Contract costs, which include commissions incurred related to the sale of homes, are expensed at the point-in-time when the related revenue is recognized. Warranty costs and contract costs are included in selling, general and administrative expenses in the statements of income. Warranty and contract costs were $537 and $627 for the three months ended March 31, 2024 and 2023, respectively.

For the three months ended March 31, 2024, mobile home park (“MHP”) sales to two independent third parties and their affiliates accounted for $5,450 or 17.7% and $2,799 or 9.1% of our product sales. The $5,450 represents sales of 120 leased mobile homes to a mobile home park customer, and these sales are included in Commercial Sales in the Disaggregation of Revenue table below. For the three months ended March 31, 2023, mobile home park (“MHP”) sales to an independent third party and its affiliates accounted for $5,647 or 13.0% of our product sales. No other customer accounted for more than 5.0% of our product sales.

For the three months ended March 31, 2024 and 2023, total cost of product sales included $1,408 and $2,623 of costs relating to subcontracted production for commercial sales, transportation and delivery costs, and certain other costs incurred for retail store and commercial sales.

Other revenue consists of contract deposit forfeitures, consignment fees, commercial lease rents, service fees and other miscellaneous income. Consignment fees are charged to independent retailers on a monthly basis for homes held by the independent retailers pursuant to a consignment arrangement until the home is sold to an individual customer. Consignment fees are determined as a percentage of the home’s wholesale price to the independent dealer. Revenue recognition for consignment fees is recognized over time using the output method as it provides a faithful depiction of the Company’s performance toward completion of the performance obligation under the contract and the value transferred to the independent retailer for the time the home is held under consignment. The Company transitioned most of its independent retailers from consignment arrangements to inventory finance arrangements in late 2022. As a result, consignment fees transitioned to interest income for inventory finance arrangements, and this interest income is included in Consumer, MHP and dealer loans interest on the accompanying statement of income. Revenue for commercial leases is recognized as earned monthly over a contractual period of 96 or 120 months. Revenue for service fees and miscellaneous income is recognized at a point in time when the performance obligation is satisfied.

10

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Disaggregation of Revenue. The following table summarizes customer contract revenues disaggregated by the source of the revenue for the three months ended March 31, 2024 and 2023:

Three months ended

March 31, 

2024

    

2023

Product sales:

Direct sales

$

1,795

$

7,426

Commercial sales

 

13,602

 

15,565

Inventory finance sales

8,463

13,615

Retail store sales

4,796

3,967

Other product sales (1)

 

2,177

 

2,745

Total product sales

 

30,833

 

43,318

Consumer, MHP and dealer loans interest:

 

  

 

  

Interest - consumer installment notes

 

5,100

 

4,657

Interest - MHP notes

 

4,608

 

3,048

Interest - dealer finance notes

925

Total consumer, MHP and dealer loans interest

 

10,633

 

7,705

Other

 

1,777

 

1,834

Total net revenue

$

43,243

$

52,857

(1)Other product sales revenue from ancillary products and services including parts, freight and other services

3. CONSUMER LOANS RECEIVABLE

Consumer loans receivable result from financing transactions entered into with retail consumers of mobile homes sold through independent retailers and company-owned retail locations. Consumer loans receivable generally consist of the sales price and any additional financing fees, less the buyer’s down payment. Interest income is recognized monthly per the terms of the financing agreements. The average contractual interest rate per loan was approximately 13.2% as of March 31, 2024 and December 31, 2023. Consumer loans receivable have maturities that range from 2 to 30 years.

The Company reviews loan applications in an underwriting process which considers credit history, among other things, to evaluate credit risk of the consumer and determines interest rates on approved loans based on consumer credit score, payment ability and down payment amount.

The Company uses payment history to monitor the credit quality of the consumer loans on an ongoing basis.

The Company may also receive escrow payments for property taxes and insurance included in its consumer loan collections. The liabilities associated with these escrow collections totaled $10,953 and $10,104 as of March 31, 2024 and December 31, 2023, respectively, and are included in escrow liability in the accompanying balance sheets.

Allowance for Loan Losses—Consumer Loans Receivable

The allowance for loan losses reflects management’s estimate of losses inherent in the consumer loans that may be uncollectible based upon review and evaluation of the consumer loan portfolio as of the date of the balance sheet. An allowance for loan losses is determined after giving consideration to, among other things, the loan characteristics,

11

Table of Contents

LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

including the financial condition of borrowers, the value and liquidity of collateral, delinquency and historical loss experience.

The allowance for loan losses is comprised of two components: the general reserve and specific reserves. The Company’s calculation of the general reserve considers the historical loan default rates and collateral recovery rates for the last three years and any qualitative factors both internal and external to the Company. Specific reserves are determined based on probable losses on specific classified impaired loans.

The Company’s policy is to place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which generally is when either principal or interest is past due and remains unpaid for more than 90 days. Management implemented this policy based on an analysis of historical data, current performance of loans and the likelihood of recovery once principal or interest payments became delinquent and were aged more than 90 days. Payments received on nonaccrual loans are accounted for on a cash basis, first to interest and then to principal, as long as the remaining book balance of the asset is deemed to be collectible. The accrual of interest resumes when the past due principal or interest payments are brought within 90 days of being current.

Impaired loans are those loans for which it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impaired loans, or portions thereof, are charged off when deemed uncollectible. A loan is generally deemed impaired if it is more than 90 days past due on principal or interest, is in bankruptcy proceedings, or is in the process of repossession. A specific reserve is created for impaired loans based on fair value of underlying collateral value, less estimated selling costs. The Company uses various factors to determine the value of the underlying collateral for impaired loans. These factors include: (1) the length of time the unit remained unsold after construction; (2) the amount of time the house was occupied; (3) the cooperation level of the borrowers (for example, loans requiring legal action or extensive field collection efforts may have a reduced value); (4) the physical location of the home; (5) the length of time the borrower has lived in the house without making payments; (6) the size of the home and market conditions; and (7) the experience and expertise of the particular dealer assisting in collection efforts.

Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell. At repossession, the collateral is recorded at the same amount as the principal balance as the loan. The fair value of the collateral is then computed based on the historical recovery rates of previously charged off loans, the loan is charged off and the loss is charged to the allowance for loan losses. At each reporting period, the fair value of the collateral is adjusted to the lower of the amount recorded at repossession or the estimated sales price less estimated costs to sell, based on current information. Repossessed homes totaled $2,940 and $2,215 as of March 31, 2024 and December 31, 2023, respectively, and are included in other assets in the accompanying balance sheets.

Consumer loans receivable, net of allowance for loan losses and deferred financing fees, consists of the following:

    

As of March 31, 

    

As of December 31, 

2024

2023

Consumer loans receivable

$

162,196

$

159,738

Loan discount and deferred financing fees

 

(2,447)

 

(2,473)

Allowance for loan losses

 

(564)

 

(765)

Consumer loans receivable, net

$

159,185

$

156,500

12

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The following table presents a detail of the activity in the allowance for loan losses:

Three Months Ended March 31, 

2024

    

2023

    

Allowance for loan losses, beginning of period

$

765

$

830

Provision for loan losses

 

(268)

 

(70)

Charge offs

 

67

 

56

Allowance for loan losses, end of period

$

564

$

816

The following table presents impaired and general reserve for allowance for loan losses:

    

As of March 31, 

    

As of December 31, 

2024

2023

Total consumer loans

$

162,196

$

159,738

Allowance for loan losses

$

564

$

765

Impaired loans individually evaluated for impairment

$

2,041

$

1,565

Specific reserve against impaired loans

$

554

$

562

Other loans collectively evaluated for allowance

$

160,155

$

158,173

General allowance for loan losses

$

10

$

203

As of March 31, 2024 and December 31, 2023, the total principal outstanding for consumer loans on nonaccrual status was $2,041 and $1,565, respectively. A detailed aging of consumer loans receivable that are past due is as follows:

As of March 31, 

    

    

As of December 31, 

    

2024

%

2023

%

Total consumer loans receivable

$

162,196

 

100.0

   

$

159,738

 

100.0

Past due consumer loans:

 

  

 

  

 

  

 

  

31 - 60 days past due

$

1,696

 

1.0

$

624

 

0.4

61 - 90 days past due

 

357

 

0.2

 

149

 

0.1

91 - 120 days past due

 

414

 

0.3

 

123

 

0.1

Greater than 120 days past due

 

1,892

 

1.2

 

1,449

 

0.9

Total past due

$

4,359

 

2.7

$

2,345

 

1.5

We evaluate the credit quality of our consumer loan portfolio based on the aging status of the loan and by payment activity. Loan delinquency reporting generally is based on borrower payment activity relative to the contractual terms of the loan. The following table disaggregates the outstanding principal balance of consumer loans receivable by credit quality indicator based on delinquency status and fiscal year of origination:

Year of Origination

2024

2023

2022

2021

2020

Prior

Total

% of Portfolio

< 30 days past due

$

7,224

$

30,879

$

24,317

$

21,050

$

12,713

$

61,654

$

157,837

%

97.3

30-90 days past due

509

311

429

316

489

2,054

1.3

> 90 days past due

155

165

546

110

1,329

2,305

1.4

Total

$

7,224

$

31,543

$

24,793

$

22,025

$

13,139

$

63,472

$

162,196

%

100.0

13

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

4. NOTES RECEIVABLE FROM MOBILE HOME PARKS

The notes receivable from mobile home parks (“MHP Notes”) relate to mobile homes sold to mobile home parks and financed through notes receivable. The MHP Notes have varying maturity dates and require monthly principal and interest payments. The interest rate on the MHP Notes can be fixed or variable, and the interest rates range from 6.9% to 12.5%, excluding the Default Loans defined below. The average interest rate per loan, excluding the Default Loans below, was approximately 8.0% as of March 31, 2024 and December 31, 2023, with maturities that range from 1 to 10 years. The collateral underlying the MHP Notes are individual mobile homes which can be repossessed and resold. The MHP Notes are generally personally guaranteed by borrowers with substantial financial resources.

As of March 31, 2024, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 24.0%, 17.2% and 13.4% of the principal balance outstanding, all of which was secured by the mobile homes. As of December 31, 2023, the Company had concentrations of MHP Notes with three independent third-parties and their respective affiliates that equated to 24.5%, 17.9% and 14.0% of the principal balance outstanding, all of which was secured by the mobile homes.

MHP Notes are stated at amounts due from customers, net of allowance for loan losses. The Company determines the allowance by considering several factors, including the aging of the past due balance, the customer’s payment history, and the Company’s previous loss history. The Company establishes an allowance composed of specific and general reserve amounts. As of March 31, 2024 and December 31, 2023, the MHP Notes balance is presented net of unamortized finance fees of $1,257 and $1,565, respectively. The finance fees are amortized over the life of the MHP Notes.

As of March 31, 2024 and December 31, 2023 there were past due balances of $262 and $98, respectively, on the MHP Notes excluding the Default Loans, as defined below. For the three months ended March 31, 2024 and 2023, there were no charge offs recorded for MHP Notes. Allowance for loan loss for the MHP Notes was $616 and $735 as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 and December 31, 2023, there was a minimal impaired balance of MHP Notes. Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell.

Approximately $54 million of MHP Notes and Other notes receivable is with borrowers either owned or operated by one individual. Approximately $36 million of these notes currently is in default (the “Default Loans”) and is the subject of ongoing litigation in which the Company is the plaintiff. These notes are collateralized by mobile homes and land and are personally guaranteed by multiple borrowers. The Company evaluated the recoverability of these notes as of March 31, 2024 and determined a provision for expected loan losses is not deemed necessary based on the analysis of the underlying collateral. The Company accelerated the Default Loans at the end of January, 2024. Upon acceleration, the loans accrue interest at a rate of 17.5% and are due on demand. At March 31, 2024 the Default Loans are presented on the accompanying balance sheets under the heading Current assets, with $26 million in Current portion of notes receivable from mobile home parks (“MHP”) and $10 million in Current portion of other notes receivable. During the three months ended March 31, 2024, the Company foreclosed on property and homes of $2.3 million that is included on the accompanying balance sheets in Property, plant and equipment, net.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

Notes receivable from mobile home parks, net of allowance for loan losses and deferred financing fees, consisted of the following at March 31, 2024 and December 31, 2023:

As of March 31, 

As of December 31, 

2024

2023

Outstanding principal balance

$

184,435

$

184,280

Loan discount and deferred financing fees

(1,257)

(1,565)

Allowance for loan losses

 

(616)

 

(735)

Total

$

182,562

$

181,980

The following table presents a detail of the activity in the allowance for loan losses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Three months ended March 31,

2024

2023

Allowance for loan losses, beginning of period

$

735

$

Provision for loan losses

(119)

205

Charge offs (recoveries)

 

 

Allowance for loan losses, end of period

$

616

$

205

The following table presents impaired and general reserve for allowance for loan losses at March 31, 2024 and December 31, 2023:

As of March 31, 

As of December 31, 

2024

2023

Total MHP loans

$

184,435

$

184,280

Allowance for loan losses

616

735

Impaired loans individually evaluated for impairment

29,884

31,215

Specific reserve against impaired loans

5

5

Other loans collectively evaluated for allowance

 

154,552

 

153,065

General allowance for loan losses

611

730

We evaluate the credit quality of our MHP portfolio based on the aging status of the loan and by payment activity. Loan delinquency reporting is generally based upon borrower payment activity relative to the contractual terms of the loan. The following table disaggregates the outstanding principal balance of MHP receivable by credit quality indicator based on delinquency status and fiscal year of origination and is presented as of March 31, 2024:

Year of Origination

2024

2023

2022

2021

2020

Prior

Total

% of Portfolio

< 30 days past due

$

6,247

$

44,028

$

46,610

$

25,829

$

31,134

$

3,855

$

157,703

%

85.5

30-90 days past due

11,950

4,340

8,328

1,948

26,566

14.4

> 90 days past due

120

46

166

0.1

Total

$

6,247

$

56,098

$

50,996

$

34,157

$

33,082

$

3,855

$

184,435

%

100

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

5. OTHER NOTES RECEIVABLE

Other notes receivable relate to notes issued to mobile home park owners and dealers and are not directly tied to the sale of mobile homes. These other notes have varying maturity dates and generally require monthly principal and interest payments. They are collateralized by mortgages on real estate, mobile homes that we have financed for which the borrower uses as offices, as well as vehicles. These notes typically are personally guaranteed by the borrowers. The interest rates on the other notes generally are fixed and range from 5.00% to 17.90%. The Company reserves for estimated losses on the other notes based on current economic conditions that may affect the borrower’s ability to pay, the borrower’s financial strength, and historical loss experience.

As of March 31, 2024 and December 31, 2023 there were past due balances of $286 and $22, respectively, on the other notes excluding the Default Loans, as defined below. For the three months ended March 31, 2024 and 2023, there were no charge offs recorded for other notes. Allowance for loan loss for the other notes was $176 and $236 as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024 and December 31, 2023, the impaired balance of other notes was $76 and $84, respectively. Collateral for repossessed loans is acquired through foreclosure or similar proceedings and is recorded at the estimated fair value of the home, less the costs to sell.

Approximately $54 million of MHP Notes and Other notes receivable is with borrowers either owned or operated by one individual. Approximately $36 million of these notes currently is in default (the “Default Loans” as defined in Note 4 above) and is the subject of ongoing litigation in which the Company is the plaintiff. These notes are collateralized by mobile homes and land and are personally guaranteed by multiple borrowers. The Company evaluated the recoverability of these notes as of March 31, 2024 and determined a provision for expected loan losses is not deemed necessary based on the analysis of the underlying collateral. The Company accelerated the Default Loans at the end of January, 2024. Upon acceleration, the loans accrue interest at a rate of 17.5% and are due on demand. At March 31, 2024 the Default Loans are presented on the accompanying balance sheets under the heading Current assets, with $26 million in Current portion of notes receivable from mobile home parks (“MHP”) and $10 million in Current portion of other notes receivable. During the three months ended March 31, 2024, the Company foreclosed on property and homes of $2.3 million that is included on the accompanying balance sheets in Property, plant and equipment, net.

Other notes receivable, net of allowance for loan losses and deferred financing fees, consisted of the following at March 31, 2024 and December 31, 2023:

    

As of March 31, 

    

As of December 31, 

2024

2023

Outstanding principal balance

$

30,694

$

35,353

Loan discount and deferred financing fees

(323)

(527)

Allowance for loan losses

 

(176)

 

(236)

Total

$

30,195

$

34,590

The following table presents a detail of the activity in the allowance for loan losses for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

Three months ended March 31,

2024

2023

Allowance for loan losses, beginning of period

$

236

$

Provision for loan losses

(60)

433

Charge offs (recoveries)

 

 

Allowance for loan losses, end of period

$

176

$

433

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

The following table presents impaired and general reserve for allowance for loan losses at March 31, 2024 and December 31, 2023: