Legacy Housing Corp: Form 10-Q for the period ended Jun 30, 2025

The following discussion should be read in conjunction with the financial statements and accompanying notes and the information contained in other sections of this Form 10-Q. It contains forward looking statements that involve risks and uncertainties, and is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those anticipated by our management in these forward looking statements as a result of various factors, including those discussed in this Form 10-Q and in our Registration Statement on Form S-1, particularly under the heading “Risk Factors.” Dollar amounts are in thousands unless otherwise noted.

Overview

We build, sell and finance manufactured homes and “tiny houses” that are distributed through a network of independent retailers and company-owned stores and are sold directly to manufactured housing communities. We are one of the largest producers of manufactured homes in the United States. With current operations focused primarily in the southern United States, we offer our customers an array of quality homes ranging in size from approximately 395 to 2,667 square feet consisting of 1 to 5 bedrooms, with 1 to 31/2 bathrooms. Our homes range in price, at retail, from approximately $33 to $180. For the three months ended June 30, 2025 and 2024 we sold 697 and 578 home sections (which are entire homes or single floors that are combined to create complete homes), respectively. For the six months ended June 30, 2025 and 2024 we sold 1,124 and 1,223 home sections respectively.

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 coordinating or providing transportation for dealers. We also provide financing options for customers to facilitate home sales. 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.

We believe our company is one of the most vertically integrated in the manufactured housing industry, allowing us to offer a complete solution to our customers. We manufacture custom-made homes using quality materials, distribute those homes through our expansive network of independent retailers and company-owned distribution locations and provide tailored financing solutions for our customers. Our homes are constructed in the United States at one of our three manufacturing facilities in accordance with the construction and safety standards of the U.S. Department of Housing and Urban Development (“HUD”). Our factories employ high-volume production techniques that allow us to produce up to, on average, approximately 70 home sections, or 60 fully-completed homes depending on product mix, in total per week. We use quality materials and operate our own component manufacturing facilities for many of the items used in the construction of our homes. Each home can be configured according to a variety of floor plans and equipped with features such as fireplaces, central air conditioning and state-of-the-art kitchens.

Our homes are marketed under our premier “Legacy” brand name and currently are sold primarily across 15 states through a large network of independent retail locations, 13 company-owned retail locations and through direct sales to owners of manufactured home communities. Our 13 company-owned retail locations, including 12 Heritage Housing stores and one Tiny House Outlet stores exclusively sell our homes.

For the six months ended June 30, 2025, approximately 58% of our manufactured homes were sold in Texas, followed by 10% in Georgia, 7% in Oklahoma, 4% in Tennessee and 3% in Alabama. For the six months ended June 30, 2024, approximately 49% of our manufactured homes were sold in Texas, followed by 12% in North Carolina, 9% in Georgia, 7% in Oklahoma and 4% in Michigan.

We offer three types of financing solutions to our customers. We provide inventory financing for our independent retailers who purchase homes from us and then sell them to consumers. We provide consumer financing for our products which are sold to end-users through both independent and company-owned retail locations. We also provide financing solutions to manufactured housing community owners that buy our products for use in their manufactured housing communities. Our ability to offer competitive financing options at our retail locations provides us with several competitive advantages and allows us to capture sales which may not have otherwise occurred without our ability to offer consumer financing.

Factors Affecting Our Performance

We believe that the growth of our business and our future success depend on various opportunities, challenges, trends and other factors, including the following:

• We have acquired several properties in our market area for the purpose of developing manufactured housing communities and subdivisions. As of June 30, 2025, these properties include the following (dollars in thousands):

(1) Land and improvement values do not include the value of Company owned homes located in this community

• We also may provide financing solutions to certain manufactured housing community-owner customers in a manner that includes developing new sites for products in or near urban locations where there is a shortage of sites to place our products. These solutions are structured to give us an attractive return on investment when coupled with the gross margin we expect to make on products specifically targeted for sale to these new manufactured housing communities.
• Inflation rates have been high in the U.S. Our ability to maintain gross margins can be adversely impacted by sudden increases in specific costs, such as the increases in material and labor. In addition, measures used to combat inflation, such as increases in interest rates, could also have an impact on the ability of home buyers to obtain affordable financing. We continue to explore opportunities to minimize the impact of inflation on our future profitability.
• Finally, our financial performance may be impacted by our ability to fulfill current orders for our manufactured homes from dealers and customers. Our Georgia manufacturing facility has space available and with additional investment can add capacity to increase the number of homes that can be manufactured. In order to continue to grow, we must be able to properly estimate future volumes when making commitments regarding the level of business that we will seek and accept, the mix of products that we intend to manufacture, the timing of production schedules and the levels and utilization of inventory, equipment and personnel. We actively review organic and inorganic opportunities to add production capacity in attractive regions to meet future demand.

Results of Operations

The following discussion should be read in conjunction with the information set forth in the financial statements and the accompanying notes appearing elsewhere in this Form 10-Q.

Comparison of Three Months ended June 30, 2025 and 2024 (in thousands)

Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales. Product sales increased $6.7 million, or 21.3%, during the three months ended June 30, 2025 as compared to the same period in 2024. This increase was driven by an increase in unit volumes shipped, primarily in inventory finance sales, retail sales and mobile home park sales categories.

Net revenue attributable to our factory-built housing consisted of the following during the three months ended June 30, 2025 and 2024:

(in thousands)

For the three months ended June 30, 2025, our net revenue per product sold increased by 10.5% as compared to the same period in 2024. The increase is primarily due to an increase in units sold to consumers, which are sold at higher retail prices. We had increases in inventory finance sales, retail sales and commercial sales, partially offset by decreases in direct sales and other product sales Inventory finance sales increased $4.9 million, or 53.3% during the three months ended June 30, 2025 as compared to the same period in 2024. Retail sales increased $2.9 million, or 64.2% during the three months ended June 30, 2025 as compared to the same period in 2024. Commercial sales increased $0.6 million, or 5.3% during the three months ended June 30, 2025 as compared to the same period in 2024. Direct sales decreased $0.6 million, or 16.9% during the three months ended June 30, 2025 as compared to the same period in 2024. Other product sales decreased $1.0 million, or 29.7% during the three months ended June 30, 2025 as compared to the same period in 2024. Our revenue increased primarily due to a higher volume of shipments and an increase in inventory finance sales and retail sales.

Consumer, MHP and dealer loans interest income increased $1.0 million, or 10.6% during the three months ended June 30, 2025 as compared to the same period in 2024. Between June 30, 2025 and June 30, 2024 our consumer loan portfolio increased by $24.6 million, our MHP loan portfolio increased by $20.3 million, and our dealer finance notes decreased by $0.5 million.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees and other miscellaneous income and decreased $0.1 million, or 10.8%, during the three months ended June 30, 2025 as compared to the same period in 2024. This decrease was primarily due to a $0.2 million decrease in forfeited deposits partially offset by a net $0.1 million increase in other miscellaneous revenue.

The cost of product sales increased $4.4 million, or 20.3%, during the three months ended June 30, 2025 as compared to the same period in 2024. The increase in costs is primarily related to the increase in units sold. The cost of other sales was $0.6 million during the three months ended June 30, 2025.

Selling, general and administrative expenses increased $1.1 million, or 19.1%, during the three months ended June 30, 2025 as compared to the same period in 2024. We had a $1.1 million increase in warranty expense, $0.5 million increase in repossessed home expense, a $0.2 million increase in bad debt expense, a $0.1 million increase in loan loss provision offset by a $0.6 million decrease in legal expense, $0.1 million decrease in property tax and a net $0.1 million decrease in other miscellaneous expense.

Other income (expense) decreased $2.8 million, or 74.5%, during the three months ended June 30, 2025 as compared to the same period in 2024. We had a (i) decrease of $0.5 million in Non-operating interest income reflecting a lower balance of other notes receivable, (ii) a $2.5 million decrease in miscellaneous income primarily due to land sales and a reversal of accrued liabilities during the three months ended June 30, 2024 that did not occur during the three months ended June 30, 2025, and (iii) a decrease of $0.2 million in interest expense.

Income tax decreased $0.5 million during the three months ended June 30, 2025 as compared to the same period in 2024. The effective tax rate for the three months ended June 30, 2025 was 17.3% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and a federal tax credit purchased by the Company in this second quarter, both partially offset by state income taxes. The effective tax rate for the three months ended June 30, 2024 was 18.2% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction, partially offset by state income taxes.

Comparison of Six Months ended June 30, 2025 and 2024 (in thousands)

Product sales primarily consist of direct sales, commercial sales, inventory finance sales and retail store sales. Product sales increased $0.2 million, or 0.3%, during the six months ended June 30, 2025 as compared to the same period in 2024. This increase was driven by a $7.5 million increase in inventory finance sales and a $1.4 million increase in retail sales, offset by a decrease of $6.2 million in mobile home park sales, a $0.9 million decrease in direct sales, and a $1.6 million decrease in other product sales.

Net revenue attributable to our factory-built housing consisted of the following during the six months ended June 30, 2025 and 2024:

($ in thousands)

For the six months ended June 30, 2025, our net revenue per product sold increased by 16.4% as compared to the same period in 2024. The increase is primarily due to a decrease in units sold to mobile home parks, which are sold at wholesale prices, and an increase in units sold to consumers, which are sold at higher retail prices. We had increases in inventory finance sales and retail sales, partially offset by decreases in commercial sales, direct sales, and other product sales. Inventory finance sales increased $7.5 million, or 42.8% during the six months ended June 30, 2025 as compared to the same period in 2024. Retail sales increased $1.4 million, or 15.1% during the six months ended June 30, 2025 as compared to the same period in 2024. Commercial sales decreased $6.2 million, or 25.0% during the six months ended June 30, 2025 as compared to the same period in 2024. Direct sales decreased $0.9 million, or 16.9% during the six months ended June 30, 2025 as compared to the same period in 2024. Other product sales decreased $1.7 million, or 29.6% during the six months ended June 30, 2025 as compared to the same period in 2024.

Consumer, MHP and dealer loans interest income increased $1.1 million, or 5.2%, during the six months ended June 30, 2025 as compared to the same period in 2024. Between June 30, 2025 and June 30, 2024 our consumer loan portfolio increased by $24.6 million, our MHP loan portfolio increased by $20.3 million, and our dealer finance notes decreased by $0.5 million.

Other revenue primarily consists of contract deposit forfeitures, consignment fees, commercial lease rents, land sales, service fees and other miscellaneous income and decreased $1.2 million, or 41.8%, during the six months ended June 30, 2025 as compared to the same period in 2024. This decrease was primarily due to a $1.3 million decrease in forfeited deposits and a $0.2 million decrease in service sales partially offset by a $0.3 million increase in portfolio fees and service revenue.

The cost of product sales increased $1.1 million, or 2.6%, during the six months ended June 30, 2025 as compared to the same period in 2024. The increase in costs is primarily related to moderate increases in material and labor costs. The cost of other sales was $1.1 million during the six months ended June 30, 2025.

Selling, general and administrative expenses increased $1.5 million, or 12.8%, during the six months ended June 30, 2025 as compared to the same period in 2024. We had a $0.7 million increase in warranty expense, a $0.6 million increase in loan loss provision and a $0.6 million increase repossessed home expense, a $0.2 million increase in bad debt expense offset by a $0.3 million decrease in payroll and related expense, a $0.2 million decrease in professional fees and a net $0.1 million decrease in other miscellaneous expense.

Other income (expense) decreased $3.4 million, or 62.1%, during the six months ended June 30, 2025 as compared to the same period in 2024. We had (i) a decrease of $1.3 million in Non-operating interest income reflecting a lower balance of other notes receivable, (ii) a $2.5 million decrease in miscellaneous income primarily due to land sales and a reversal of accrued liabilities during the six months ended June 30, 2024 that did not occur during the six months ended June 30, 2025, and (iii) a decrease of $0.4 million in interest expense.

Income tax decreased $1.4 million during the six months ended June 30, 2025 as compared to the same period in 2024. The effective tax rate for the six months ended June 30, 2025 was 18.1% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction and a federal tax credit purchased by the Company in this second quarter, both partially offset by state income taxes. The effective tax rate for the six months ended June 30, 2024 was 18.2% and differs from the federal statutory rate of 21% primarily due to a federal tax credit for energy efficient construction, partially offset by state income taxes.

Liquidity and Capital Resources

Liquidity

We believe that cash flow from operations and cash at June 30, 2025, and availability on our lines of credit will be sufficient to fund our operations and provide for growth for the next 12 to 18 months and into the foreseeable future. On July 28, 2023, we terminated our credit agreement with Capital One, N.A. and entered into a new credit agreement with Prosperity Bank that expanded and extended our credit availability (see Lines of Credit, below).

Cash

We maintain cash balances in bank accounts that may, at times, exceed federally insured limits. We have not incurred any losses from such accounts, and management considers the risk of loss to be minimal. As of June 30, 2025, we had approximately $2.6 million in cash, compared to $1.1 million as of December 31, 2024. We consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents.

Cash Flow Activities

(in thousands)

Comparison of Cash Flow Activities from June 30, 2025 to June 30, 2024

Net cash provided by operating activities was $11.0 million during the six months ended June 30, 2025, compared to net cash of $14.3 million provided by operating activities during the six months ended June 30, 2024. This change was predominantly the result of decreased net income, increased consumer loan originations net of collections and change in inventories, partially offset by decreased MHP loan originations net of collections, and change in other assets – leased mobile homes.

Net cash used in investing activities of $3.1 million during the six months ended June 30, 2025 was primarily attributable to $3.6 million used in improvements and development of property, plant and equipment and $1.3 million used to issue notes to third parties for the development of manufactured housing parks, offset by $1.6 million of collections of loans we made to third parties for development of manufactured housing parks and $0.2 million in proceeds from the sale of property. Net cash provided by investing activities of $2.1 million during the six months ended June 30, 2024 was primarily attributable to $4.8 million of collections of loans we made to third parties for development of manufactured housing parks and $1.6 million in proceeds from the sale of property, offset by $2.6 million used in improvements and development of property, plant and equipment and $1.7 million used to issue notes to third parties for the development of manufactured housing parks.

Net cash used in financing activities of $6.3 million during the six months ended June 30, 2025 was attributable $6.5 million of stock repurchases offset by net uses of $0.2 million on our lines of credit. Net cash used in financing activities of $17.1 million during the six months ended June 30, 2024 was attributable to net payments of $11.8 million on our lines of credit, $5.4 million of stock repurchases and $0.1 million received from the exercise of stock options.

In November 2022, our Board of Directors approved a share repurchase program to authorize the repurchase of up to $10.0 million of the Company’s common stock. On August 6, 2024, our Board of Directors authorized the repurchase of an additional $10.0 million of the Company’s common stock under the share repurchase program. We repurchased 262,530 shares of common stock for $5,398 in the open market during the year ended December 31, 2024. We repurchased 29,385 shares of common stock for $675 in the open market during the three months ended March 31, 2025. We repurchased 260,635 shares of common stock for $5,817 in the open market during the three months ended June 30, 2025. As of June 30, 2025, we had a remaining authorization of approximately $8,110.

Lines of Credit

On July 28, 2023, the Company entered into a new Credit Agreement (the “Revolver”), by and among the Company as borrower, the financial institutions from time to time party thereto, as lenders, and Prosperity Bank as administrative agent. Subsequently, the Company repaid in full the balance due on its prior line of credit with Capital One, N.A. and all commitments under this prior line of credit were terminated. The Revolver provides for a four-year senior secured revolving credit facility with an initial commitment of $50,000 and an additional $25,000 commitment under an accordion feature. The Revolver is secured by the Company’s consumer loans receivables. At the Company's option, borrowings will bear interest at a per annum rate equal to, (i) Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin of 2.5% or 2.75% based upon the Company's average quarterly borrowings under the Revolver or (ii) a base rate plus an applicable margin of 2.5% or 2.75% based upon the Company's average quarterly borrowings under the Revolver. The Company paid certain arrangement fees and other fees in connection with the Revolver of approximately $271, which were capitalized as unamortized debt issuance costs and included within lines of credit balance in the accompanying balance sheets and are amortized to interest expense over the life of the Revolver. The Revolver matures July 28, 2027.

For the three months ended June 30, 2025 and 2024, interest expense under the Revolver was $3 and $235, respectively. For the six months ended June 30, 2025 and 2024, interest expense under the Revolver was $3 and $511, respectively. The outstanding balance of the Revolver as of June 30, 2025 and December 31, 2024 was $142 and $0, respectively. The interest rate in effect as of June 30, 2025 and December 31, 2024 for the Revolver was 6.76% and 7.61%, respectively. The amount of available credit under the Revolver was $49,858 and $50,000 as of June 30, 2025 and December 31, 2024, respectively. The Revolver requires the Company to comply with certain financial and non-financial covenants. As of June 30, 2025, the Company was in compliance with all financial covenants, including that it maintain a maximum leverage ratio of no more than 1.00 to 1.00 and a minimum fixed charge coverage ratio of no less than 1.75 to 1.00.

Contractual Obligations

The following table is a summary of contractual cash obligations as of June 30, 2025:

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, net sales, results of operations, liquidity or capital expenditures. However, we do have repurchase agreements with financial institutions providing inventory financing for independent retailers of our products. Under these agreements, we have agreed to repurchase homes at declining prices over the term of the agreement. Our obligation under these repurchase agreements ceases upon the purchase of the home by the retail customer. The maximum amount of our contingent obligations under such repurchase agreements was approximately $512 and $805 as of June 30, 2025 and December 31, 2024, respectively, without reduction for the resale value of the homes. We may be required to honor contingent repurchase obligations in the future and may incur additional expense as a consequence of these repurchase agreements. We consider our obligations on current contracts to be immaterial and accordingly we have not recorded any reserve for repurchase commitment as of June 30, 2025.

Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. Our critical accounting estimates are identified and described in our Annual Report on Form 10-K for the year ended December 31, 2024.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 1 – Nature of Operations, Recent Accounting Pronouncements to our June 30, 2025 Condensed Financial Statements, included in Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report.

Disclosure Controls and Procedures

We are subject to the periodic reporting requirements of the Exchange Act which requires designing disclosure controls and procedures to provide reasonable assurance that information we disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. Based on the evaluation of our disclosure controls and procedures as of June 30, 2025, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting.

In light of the conclusion that our disclosure controls and procedures are considered ineffective as of June 30, 2025, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting in regard to this quarterly report. Accordingly, the Company believes, based on its knowledge, that: (i) this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in this quarterly report.

Material Weaknesses in Internal Control Over Financial Reporting

As previously disclosed in our Annual report on Form 10-K filed with the SEC for the year ended December 31, 2024 we identified material weaknesses in our internal control over financial reporting during the preparation of our financial statements. Under standards established by the PCAOB, a material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

The material weaknesses in financial reporting as of June 30, 2025 are summarized as follows:

• We determined that we have not sufficiently designed, implemented, monitored or tested control activities, and we have not adequately maintained documentation or performed reviews and approvals of certain of these control activities;
• We determined that we do not have sufficient qualified accounting personnel to support the preparation of financial statements that comply with U.S. GAAP and SEC reporting requirements; and
• We determined that we have not sufficiently designed, implemented or maintained information technology general controls over in-scope business processes and financial reporting systems.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the first quarter of fiscal 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors, mistakes or fraud. Additionally, controls can be circumvented by individuals or groups of persons or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements in our public reports due to error or fraud may occur and not be detected.