Legacy Housing Corporation

Thank you for standing by and welcome to the Legacy Housing Corporation third quarter 2020 earnings call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's call may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Kurt Hodgson, Executive Chairman of the Board. Please go ahead.

Thank you for joining the call today. Before we begin, may I remind the listeners that management's prepared remarks today will contain forward-looking statements, which are subject to risk 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 we refer you to a more detailed discussion of the risks and uncertainties in the company's annual report, followed with the Securities and Exchange Commission. In addition, any projections as to the company's future performance represents management's estimates As of today's call, Legacy Housing assumes no obligation to update these projections in the future unless otherwise required by applicable law. Now let me turn to a discussion of our third quarter performance and provide additional corporate updates. I will then turn the call over to our Chief Financial Officer, Thomas Kirkhart, to discuss the financials in more detail. Overall, we're pleased with the third quarter results. Net revenue increased to $43.7 million in the third quarter of 2020 compared to $41.9 million in the third quarter of 2019. On a trailing 12-month basis, we have increased net revenue by $11 million, or 6.9%. We have also experienced solid improvement in our income from operations for the quarter. Third quarter 2020 income from operations was $10.8 million. compared to $8.1 million for the third quarter last year, up 34.5%. Net income of $8.4 million for the quarter was increased 37.6% from last year. Earnings per share increased as well, expanding from $0.25 per share last year to $0.35 per share this year. Looking at the trailing 12 months, Net income is up $9.6 million, or 38.9%. We have also continuously increased tangible book value per share, as it has grown from $8.85 per share in the third quarter of last year to now $10.27 per share in the third quarter of this year. A $1.42 per share increase over the last 12 months or 16%. Looking at the remainder of 2020, overall market demand is good, orders are good, backlog is good, and our loan portfolio book remains strong and is performing well. Interest revenue on the loan portfolio continues to grow. At the current 12-month run rate, interest revenue from loan portfolios will contribute $25.7 million over the next year to our top line. We are dealing effectively with the fallout from COVID, especially as it impacts manufacturing and production levels. We have brought on additional labor to increase production and raise prices to address cost increases in the lumber market during the third quarter. We also have subcontracted Dow production up north in the Midwest, to meet demand as manufacturing adapts to current constraints. With that, I will now turn it over to our CFO, Tom Kirkhart, to provide additional commentary on the quarter.

Thank you, Kurt. Total product sales were $36.6 million for the third quarter, compared to $35.4 million for the same period in 2019. As has been the case in recent quarters, sales to manufactured home parks is the largest part of our product sales, coming in at $17.7 million for the third quarter. That $17.7 million is 48.4% of total product sales for the quarter, compared to 47.7% of total product sales for the same period last year. Interest revenue has continued to grow as a component of overall net revenue. Total interest revenue of $6.4 million increased represented 14.7% of net revenue for the third quarter of 2020 compared to 5.7 million or 13.6% of net revenue for Q3 2019. In particular, the interest revenue from our manufactured home park notes increased 48.8% to over 2.4 million for the third quarter of 2020 from 1.6 million in the third quarter of 2019. Overall, interest revenue was up 13% for the quarter compared to last year. Interest revenue from the consumer loan portfolio was roughly flat year over year. Similarly, the manufactured home park loan portfolio increased by $9.5 million or 7.9% to $129.6 million for the third quarter 2020 compared to $120.1 million for the second quarter of 2020. Year over year, the manufactured home park loan portfolio increased by 58% from 82 million at the end of September 2019. The consumer loan portfolio increased by 1.3% to 108.6 million, inclusive of allowances for loan loss and other discounts, compared to 107.2 million for the second quarter of 2020. Gross margin realized on product sales was 23.9% for the third quarter of 2020, up from 22.2% in the third quarter of 2019, suggesting that our pricing increases and cost mitigation efforts have kept pace with unavoidable cost increases and the cost of disruption from the global health situation. Product gross margin year-to-date was 26.7%, which is down from 27.6% in 2019, This year over year decline has its origins in the health disruptions and the changes to our supply chain, which impacted us most dramatically in the first half of 2020. The company has seen significant reductions across the board in our SG&A expense. SG&A expense for the third quarter of 2020 was $4.5 million, which is a 28% decrease from $6.3 million in the third quarter of 2019. The realized savings were broad-based and included the cost of salaries and benefits, warranty, and delivery costs. Additionally, our third quarter 2020 loan losses were favorable compared to the prior year, as the quality of our notes receivables has held up very well in these otherwise very trying times. Other operational measures implemented from the start of the COVID-19 pandemic have resulted in and about $2.6 million in savings through the end of the third quarter. These reductions are continuing into Q4, and we're continuing to evaluate what additional measures may be needed on a go-forward basis as situations arise. Finally, net income increased to $27.5 million for the nine months ending September 2020, compared to $22 million for the same period last year. This is a 25% increase in net income, which we achieved while net revenue has increased 1.9%. I believe this highlights the efficiency of our cost containment measures. Looking ahead to the fourth quarter, we think the fourth quarter is going to be strong, and we believe it will deliver a good outcome, which is similar to and possibly better than the quarter that we just reported. Kurt, that completes our financial report.