Profitable Tiny House Maker Repays $ 6.5 Million PPP Loan
Updated 04/27/2020 10:30 AM: Legacy Housing has decided to repay its loan after this article was originally posted.
Global response to COVID-19 is throwing people out of work – more than 26 million people had filed for unemployment as of April 23, according to the New York Times.
The $ 349 billion Paycheck Protection Program (PPP) was supposed to go to small businesses to pay their employees for just over two months – and loans will be canceled if at least 75% of the loan – which carries a fixed interest rate of 1% – used to cover salary costs, depending on the Treasury Department.
Not all PPP beneficiaries were small businesses. 103 publicly traded companies have received more than $ 380 million in PPP loans, according to the the Wall Street newspaper.
And among the 40 public enterprises twho received the largest PPP loans, reported by Market surveillance, is Legacy Housing Corporation which achieved a whopping 17% net profit margin – $ 28.8 million in net income to $ 169 million in revenue – during the last twelve months.
Not only is it highly profitable, it employs far more than the 500 people the Treasury Department has designated as the limit for PPP loans. According to its latest 10K, Legacy had around 800 people on its payroll at the end of 2019.
Legacy’s PPP loan stood at $ 6.5 million at an interest rate of 1% per annum, according to an SEC filing. Until November 10, Legacy does not have to make any payments and the loan can be canceled as long as the company uses the proceeds “for salary costs, costs used to continue group health care benefits, mortgage payments, rent, utilities and interest on other debt obligations.
On April 25, two days after asking the company for feedback, Legacy Housing told me it had decided to return the funds.
According to a statement from Legacy President and CEO Kenny Shipley, “We sought P3 funds for very simple reasons – we wanted to make sure that our operations would continue to provide affordable housing, maintain our payroll and keep our employees … Before being approved by the SBA and receiving PPP funds, we had undertaken a series of layoffs, lowered the prices of our products and lowered wages throughout the company … However, at In light of recent SBA guidelines, we have made the decision to return the funds difficult.
(I have no financial interest in the securities mentioned in this article).
Legacy – whose stock is trading 44% below its high of $ 16.76 in December 2019 – saw revenue growth of 4.4% for 2019 while net profit rose 24%, according to a March 30 results press release.
Legacy is excited about its 2019 results. As Curtis D. Hodgson, Executive Chairman of the Board, “2019 was the best revenue year in Legacy history. We are especially happy to have ended the year, which is generally a slower part of our sales cycle, with a lot of momentum, increasing our fourth quarter revenue by around 24% compared to the same period in 2018 and our net profit of 147%. compared to the fourth quarter of 2018. “
COVID-19 is hurting Legacy’s business and the company is responding with price discounts and some cost reduction. We are “offering discounts for the sale of aging inventory on lots of dealer and company owned stores … and new units, and reducing down payment requirements for some community manufactured home operators,” he said. -he declares.
Legacy has “suspended most overtime and changed rates of pay for non-production workers” and “slightly reduced” production labor in “anticipation of reduced demand in the immediate future,” Hodgson said .
Still, Legacy – whose homes range from 390 to 2,667 square feet and cost between $ 22,000 and $ 140,000 – expects things to turn around. “Our order book is still strong and we are well positioned once the situation begins to normalize,” he concluded.
Along with its PPP loan, Legacy was also able to secure a strong increase in its bank line. On April 1, Legacy Housing increased its line of credit 56 percent to $ 70 million, according to SeekingAlpha, at a interest rate less than one-month LIBOR plus 2%.
Legacy is happy with the deal. CFO Cornelius “Cork” Van Den Handel said: “The new agreement will provide the company with operational liquidity at extremely competitive rates and allow continued business growth and financial flexibility. “