SEC Filing - Legacy Housing Corporation

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Table of Contents

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 June 30, 2024

☐	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 August 6, 2024.

Table of Contents

LEGACY HOUSING CORPORATION

TABLE OF CONTENTS


			Page
PART I - FINANCIAL INFORMATION			2

	Item 1.	Financial Statements (Unaudited)	2

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

	Item 4.	Controls and Procedures	37

PART II - OTHER INFORMATION			39

	Item 1.	Legal Proceedings	39

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

	Item 3.	Defaults Upon Senior Securities	39

	Item 4.	Mine Safety Disclosures	39

	Item 5.	Other Information	39

	Item 6.	Exhibits	40

SIGNATURES			41

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

LEGACY HOUSING CORPORATION

CONDENSED BALANCE SHEETS

(in thousands, except share and per share data)


	June 30,		December 31,
	2024		2023
Assets
Current assets:
Cash	$	60	$	748
Accounts receivable, net		4,285		4,656
Current portion of contracts - dealer financed		32,987		32,538
Current portion of consumer loans receivable		8,100		7,682
Current portion of notes receivable from mobile home parks (“MHP”)		42,459		18,156
Current portion of other notes receivable		15,058		6,013
Inventories		30,997		33,176
Prepaid expenses and other current assets		5,430		4,915
Total current assets		139,376		107,884
Consumer loans receivable, net		153,703		148,818
Notes receivable from mobile home parks (“MHP”), net		140,328		163,824
Other notes receivable, net		15,784		28,577
Inventories, net		9,650		7,793
Other assets - leased mobile homes		4,880		7,601
ROU assets - operating leases		1,548		1,794
Other assets		9,198		2,571
Property, plant and equipment, net		40,460		37,880
Total assets	$	514,927	$	506,742
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,186	$	4,090
Accrued liabilities		13,066		18,504
Customer deposits		2,226		4,146
Escrow liability		11,785		10,104
Operating lease obligation		475		489
Total current liabilities		31,738		37,333
Long‑term liabilities:
Operating lease obligation, less current portion		1,157		1,396
Lines of credit		11,861		23,680
Deferred income taxes, net		2,338		2,338
Dealer incentive liability		4,614		5,260
Total liabilities		51,708		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; 24,860,090 and 24,843,494 issued and 24,153,496 and 24,398,429 outstanding at June 30, 2024 and December 31, 2023, respectively		31		30
Treasury stock at cost, 706,594 and 445,065 shares at June 30, 2024 and December 31, 2023, respectively		(9,853)		(4,477)
Additional paid-in-capital		181,954		181,424
Retained earnings		291,087		259,758
Total stockholders' equity		463,219		436,735
Total liabilities and stockholders' equity	$	514,927	$	506,742

See accompanying notes to unaudited interim condensed financial statements.

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LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(unaudited)


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Net revenue:
Product sales	$	31,652	$	42,316	$	62,484	$	85,497
Consumer, MHP and dealer loans interest		9,844		8,488		20,477		16,193
Other		999		1,832		2,777		3,803
Total net revenue		42,495		52,636		85,738		105,493
Operating expenses:
Cost of product sales		21,558		29,709		42,024		58,670
Selling, general and administrative expenses		5,574		5,527		11,463		10,938
Dealer incentive		(667)		(100)		(529)		32
Total operating expenses		26,465		35,136		52,958		69,640
Income from operations		16,030		17,500		32,780		35,853
Other income (expense):
Non‑operating interest income		986		626		2,288		1,321
Miscellaneous, net		3,015		159		3,752		912
Interest expense		(235)		(195)		(511)		(285)
Total other income		3,766		590		5,529		1,948
Income before income tax expense		19,796		18,090		38,309		37,801
Income tax expense		(3,607)		(3,070)		(6,980)		(6,505)
Net income	$	16,189	$	15,020	$	31,329	$	31,296
Weighted average shares outstanding:
Basic		24,165,320		24,380,894		24,279,038		24,377,803
Diluted		24,780,903		25,101,937		24,899,616		25,085,158
Net income per share:
Basic	$	0.67	$	0.62	$	1.29	$	1.28
Diluted	$	0.65	$	0.60	$	1.26	$	1.25

See accompanying notes to unaudited interim condensed financial statements.

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LEGACY HOUSING CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)


	Six months ended June 30,
	2024		2023
Operating activities:
Net income	$	31,329	$	31,296
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization expense		898		849
Amortization of deferred revenue		(1,078)		(573)
Provision for accounts and notes receivable		169		86
Provision for long term inventory		174		45
Gain from sale of assets		(1,341)		(507)
Non-cash operating lease expense		(23)		(26)
Share based payment expense		431		387
Other non cash items		34		(52)
Changes in operating assets and liabilities:
Accounts receivable		421		(695)
Consumer loans activity, net		(4,952)		(7,000)
Notes receivable MHP activity, net		(5,428)		(23,339)
Dealer inventory loan activity, net		(183)		(2,386)
Inventories		148		(1,810)
Prepaid expenses and other current assets		(1,259)		(288)
Other assets - leased mobile homes		2,427		—
Other assets		(1,557)		(10)
Accounts payable and accrued liabilities		(5,076)		(1,894)
Right of use activity, net		15		20
Customer deposits		(1,920)		(1,441)
Escrow liability		1,682		370
Dealer incentive liability		(646)		(496)
Net cash provided by (used in) operating activities		14,265		(7,464)
Investing activities:
Purchases of property, plant and equipment		(2,608)		(1,537)
Proceeds from sale of leased property		—		1,108
Proceeds from sale of property		1,573		—
Sale of investments - treasury notes		—		8,500
Issuance of notes receivable		(1,731)		(5,250)
Notes receivable collections		4,799		946
Collections from purchased loans		109		170
Net cash provided by investing activities		2,142		3,937
Financing activities:
Proceeds from exercise of stock options		100		100
Purchases of treasury stock		(5,376)		—
Proceeds from lines of credit		30,237		42,242
Payments on lines of credit		(42,056)		(40,102)
Net cash (used in) provided by financing activities		(17,095)		2,240
Net decrease in cash		(688)		(1,287)
Cash at beginning of period		748		2,818
Cash at end of period	$	60	$	1,531
Supplemental disclosure of cash flow information:
Cash paid for interest	$	680	$	209
Cash paid for taxes	$	9,176	$	10,395

See accompanying notes to unaudited interim condensed financial statements.

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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
Share based compensation	7,350		—		—		196		—		196
Proceeds from exercise of stock options	6,246		—		—		100		—		100
Net income	—		—		—		—		15,020		15,020
Balances, June 30, 2023	24,836,862	$	30	$	(4,477)	$	181,042	$	236,594	$	413,189


	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
Share based compensation	7,350		—		—		174		—		174
Purchase of treasury stock	—		—		(3,505)		—		—		(3,505)
Net income	—		—		—		—		16,189		16,189
Balances, June 30, 2024	24,860,090	$	31	$	(9,853)	$	181,954	$	291,087	$	463,219

See accompanying notes to unaudited interim condensed financial statements.

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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 and six months ended June 30, 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. Significant estimates made in connection with the accompanying condensed financial statements primarily relate to the determination and valuation of accounts receivable, loans to mobile home parks, consumer loans receivable, other notes receivable, loans to dealers, 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 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.

Revenue Recognition

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 contract deposit forfeitures, 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 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 is 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 June 30, 2024, December 31, 2023 and December 31, 2022, the allowance for doubtful accounts totaled $601, $651 and $279, respectively.

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, the title for the mobile homes remains with the Company, and the lease is accounted for as an operating lease.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 $169 and $157 for the three months ended June 30, 2024 and 2023, respectively, and $294 and $317 for the six months ended June 30, 2024 and 2023, respectively.

Future minimum lease income under all operating leases for each of the next five years at June 30, 2024, is as follows:


2024	$	601
2025		1,202
2026		1,202
2027		1,029
2028		841
Thereafter		578
Total	$	5,453

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 and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Warranty liability, beginning of period	$	3,314	$	3,057	$	2,910	$	3,049
Product warranty reserve accrued (released)		(579)		537		257		1,174
Warranty costs incurred		(381)		(765)		(813)		(1,394)
Warranty liability, end of period	$	2,354	$	2,829	$	2,354	$	2,829

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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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 $381 and $765 for the three months ended June 30, 2024 and 2023, respectively, and $813 and $1,394 for the six months ended June 30, 2024 and 2023, respectively.

For the three months ended June 30, 2024 and 2023, total cost of product sales included $1,340 and $3,949 of costs relating to subcontracted production for commercial sales, transportation and delivery costs, and certain other costs incurred for retail store and commercial sales. For the six months ended June 30, 2024 and 2023, total cost of product sales included $2,748 and $6,573 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. 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.

Sales Concentration. The following table presents mobile home park (“MHP”) sales to independent third parties and their affiliates that are greater than 5.0% of our total product sales for the three and six months ended June 30, 2024 and 2023:


	Three months ended June 30,						Six months ended June 30,
	2024			2023			2024			2023
			% of			% of			% of			% of
			Product			Product			Product			Product
	Sales		Sales	Sales		Sales	Sales		Sales	Sales		Sales
Independent 3rd party	$	2,471	7.8	$	3,886	9.6	$	5,450	8.7		9,534	11.8
Independent 3rd party		2,114	6.7		2,092	5.2		3,677	5.9

No other MHP customer accounted for more than 5.0% of our total product sales.

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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 and six months ended June 30, 2024 and 2023:


	Three months ended				Six months ended
	June 30,				June 30,
	2024		2023		2024		2023
Product sales:
Direct sales	$	3,372	$	3,752	$	5,167	$	11,178
Commercial sales		11,248		15,893		24,850		31,458
Inventory finance sales		9,154		15,675		17,618		29,290
Retail store sales		4,441		4,282		9,236		8,248
Other product sales (1)		3,437		2,714		5,613		5,323
Total product sales		31,652		42,316		62,484		85,497
Consumer, MHP and dealer loans interest:
Interest - consumer installment notes		5,155		4,825		10,255		9,482
Interest - MHP notes		3,987		3,663		8,595		6,711
Interest - dealer finance notes		702		—		1,627		—
Total consumer, MHP and dealer loans interest		9,844		8,488		20,477		16,193
Other		999		1,832		2,777		3,803
Total net revenue	$	42,495	$	52,636	$	85,738	$	105,493

(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 June 30, 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 $11,785 and $10,104 as of June 30, 2024 and December 31, 2023, respectively, and are included in escrow liability in the accompanying balance sheets.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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, 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 from the consumer loan portfolio totaled $3,296 and $2,215 as of June 30, 2024 and December 31, 2023, respectively, and are included in other assets in the accompanying balance sheets.

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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


	As of June 30,		As of December 31,
	2024		2023
Consumer loans receivable	$	164,750	$	159,738
Loan discount and deferred financing fees		(2,421)		(2,473)
Allowance for loan losses		(526)		(765)
Consumer loans receivable, net	$	161,803	$	156,500

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


	Three months ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Allowance for loan losses, beginning of period	$	564	$	816	$	765	$	830
Provision for loan losses		(154)		7		(421)		(63)
(Charge offs) recoveries		116		44		182		100
Allowance for loan losses, end of period	$	526	$	867	$	526	$	867

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


	As of June 30,		As of December 31,
	2024		2023
Total consumer loans	$	164,750	$	159,738
Allowance for loan losses	$	526	$	765
Impaired loans individually evaluated for impairment	$	2,250	$	1,565
Specific reserve against impaired loans	$	516	$	562
Other loans collectively evaluated for allowance	$	162,500	$	158,173
General allowance for loan losses	$	10	$	203

As of June 30, 2024 and December 31, 2023, the total principal outstanding for consumer loans on nonaccrual status was $2,250 and $1,565, respectively. A detailed aging of consumer loans receivable that are past due is as follows:


	As of June 30,			As of December 31,
	2024		%	2023		%
Total consumer loans receivable	$	164,750	100.0	$	159,738	100.0
Past due consumer loans:
31 - 60 days past due	$	1,251	0.8	$	624	0.4
61 - 90 days past due		628	0.4		149	0.1
91 - 120 days past due		443	0.3		123	0.1
Greater than 120 days past due		1,807	1.1		1,449	0.9
Total past due	$	4,129	2.6	$	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

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LEGACY HOUSING CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

(dollars in thousands)

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: