Texas-based Legacy Housing Corporation builds, sells and finances manufactured homes in the southern United States. Exhibiting business growth of 25% CAGR between 2009 and 2017, the company seems a business to be studied closely once the IPO goes live.
With a total net revenue of $128 million in 2017 and 110 million in 2016, the company should be seducing financial analysts. Expenses are also not increasing as Legacy Housing delivered income from operations of $28 million and $18 million in 2017 and 2016 respectively. On the top of it, the CFO was also enhanced in 2017. After reporting cash flow from operations of -$1.9 million in 2016, the company reported positive CFO, equal to $4.6 million in 2017. Finally, on the bottom line, the company reported net income of $26 million and $17 million in 2017 and 2016 respectively.
The financial situation seems in a very good shape with total assets of $208 million and $84 million in total liabilities. In addition, the financial risk does not seem elevated as debt is expected to be equal to $61.82 million after the IPO.
The use of proceeds is another interesting feature to appreciate. The company expects to use its proceeds to expand into other territories in the United States, increase its sales efforts and be able to provide further financing to consumers. With many other IPOs using proceeds to pay existing shareholders, investors should appreciate Legacy Housing. The text below provides additional information regarding the use of proceeds:
“Consistent with our long-term strategy of conservatively deploying our capital to achieve above average rates of return, we intend to use the net proceeds of this offering to expand our retail presence in the geographic markets we now serve, particularly in the southern United States. Each retail center requires between $1,000,000 and $2,000,000 to acquire the location, situate an office, provide inventory, and allocate the initial working capital. We expect to open 10 to 15 additional retail centers by the end of 2020. We also expect, based on our current financial position, that we will opportunistically increase our credit lines on terms that will allow us to rapidly expand the pace of our financing solutions for our retail consumers, giving our new retail centers the support they need to generate sales.” Source: Form S-1
The market opportunity is very large. The company’s customers are young individuals and working class families having annual income below $60k. The interesting fact is that there are many individuals out there, who may be interested in acquiring affordable house. In 2016, according to the U.S. Census Bureau, 63 million individuals were reporting income below $60k. That’s a large target market for Legacy Housing. It explains why the company is reporting impressive revenue growth and business expansion.
Disclosure: We hold no position in Legacy Housing Corporation either long or short and we have not been compensated for this article.