Legacy Housing Corporation (NASDAQ: LEGH) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 15, 2024. This is an annual report, not a standalone fourth-quarter report. Legacy manufactures, sells and finances manufactured homes and tiny houses, primarily in the southern United States. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $189.1 | $257.0 | Down 26.4% |
| Product sales | $145.1 | $222.1 | Down 34.7% |
| Loan interest revenue | $37.4 | $28.6 | Up 31.0% |
| Operating income | $64.6 | $78.0 | Down 17.2% |
| Net income | $54.5 | $67.8 | Down 19.6% |
| Diluted EPS | $2.17 | $2.74 | Down 20.8% |
| Net cash used in operating activities | $13.5 | $1.7 | Greater cash use |
- Product gross profit was approximately $45.4 million, a 31.3% gross margin, compared with $71.9 million and 32.4% in 2022. Operating margin on total revenue was 34.2%, versus 30.4%; net margin was 28.8%, versus 26.4%.
- Cash at year-end was $0.7 million, down from $2.8 million. Current assets were $107.9 million and current liabilities $37.3 million.
- At year-end, the Prosperity Bank revolving facility had $23.7 million drawn at 7.95%, with $26.3 million available under its $50 million commitment. The facility includes a further $25 million accordion feature and matures July 2027. The company reported compliance with its financial covenants.
- Total assets were $506.7 million, total liabilities $70.0 million, and stockholders’ equity $436.7 million. The balance sheet included $412.3 million of principal in consumer, manufactured-housing-park (MHP), other and dealer-finance loan portfolios; the allowance for loan losses was $2.2 million.
Changes and business developments
- Product sales fell amid a weaker housing market and lower volumes. Management attributed part of the year-over-year decline to a 2022 dealer transition from consignment to inventory financing, which had increased 2022 product sales by approximately $29.1 million. Total product sales volume declined 27.1%; reported revenue per unit also fell, partly reflecting that comparison effect.
- Interest revenue grew with the loan portfolios: consumer loans increased $17.5 million, MHP loans $39.2 million, other notes $11.9 million and dealer-finance notes $2.5 million, based on year-end comparisons.
- Factory output was lower: average production was approximately 47 home sections per week in 2023 versus 70 in 2022. Product sales mix shifted: independent retailers accounted for 51% of 2023 product sales, company-owned stores 12%, and direct sales to manufactured-housing communities 37%.
- In July 2023, Legacy replaced its Capital One revolver with the Prosperity Bank facility. The company had previously disclosed a Capital One default and partial suspension of commitments in 2022; that facility was repaid and terminated in July 2023.
- Legacy adopted the expected-credit-loss standard in 2023, increasing portfolio allowances by $0.9 million at transition and reducing opening retained earnings by $0.7 million, net of tax.
Outlook, risks and unusual items
- Management said operating cash flow, cash and available credit should fund operations and growth for the next 12–18 months and into the foreseeable future. The filing provides no numerical earnings or revenue guidance.
- Management cited inflation in materials and labor, higher interest rates that may constrain buyer financing, slower home demand, and the need to manage production, inventory and capacity. It plans to evaluate increasing Georgia-facility output and other capacity opportunities, and to pursue financing and development opportunities for manufactured-housing communities.
- A significant credit and concentration issue: approximately $55 million of MHP and other notes involved borrowers owned or operated by one individual; approximately $37 million was in default and subject to litigation. The loans are collateralized and personally guaranteed. Management concluded no additional expected-loss provision was necessary based on collateral analysis. The loan-loss allowance was a critical audit matter.
- The independent auditor gave an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. Identified material weaknesses included inadequately designed, documented and monitored controls; insufficient qualified accounting personnel; and inadequate IT general controls. Management also concluded disclosure controls were ineffective at year-end.
- Other contingencies include ordinary-course litigation, with a $1.0 million recorded legal reserve, and dealer inventory repurchase commitments with a stated maximum exposure of $3.0 million at year-end; no reserve was recorded for those commitments. No cash dividends were paid in 2023 or 2022, and management reported no foreseeable plan to pay them.
Important facts for investors to verify
- Whether sales volumes and factory utilization stabilize, and how much of the sales decline reflects market weakness versus the 2022 dealer-financing transition.
- Performance, collateral values and expected credit losses across the expanding loan portfolios, especially the $37 million defaulted exposure and borrower concentrations.
- Cash generation and funding needs as loan originations, community-development lending and capital investment continue; confirm revolver availability and covenant compliance in subsequent filings.
- Management’s remediation of the material weaknesses and whether auditor assessments of internal controls improve.
- Potential outcomes and recoveries from the default-related litigation, other legal claims and dealer repurchase obligations.