Results of Operations
Total revenues in the first quarter of 2021 were $9,071,511 compared to
$9,443,852 in first quarter 2020. The Company reported net income of $1,065,765
in the first quarter of 2021, compared to a net income of $1,400,141 during the
first quarter of 2020. The demand for affordable manufactured housing in Florida
has been adversely impacted by COVID-19 and actions taken in response thereto.
According to the Florida Manufactured Housing Association, shipments for the
industry in Florida for the period from November 2020 through January 2021 were
flat from the same period last year. In addition, the lack of lenders in our
industry, partly as a result of an increase in government regulations, still
adversely affects our results by limiting many affordable manufactured housing
buyers from purchasing homes. Since May of 2020 the Company has experienced
unprecedented inflation in forest products, with no immediate relief in sight
resulting in significant increases to our material costs. The Company is
monitoring these costs and have adjusted our selling prices accordingly to help
offset the higher costs.
The following table summarizes certain key sales statistics and percent of gross
profit.
Three Months Ended
January 30, February 1,
2021 2020
New homes sold through Company owned sales centers 82 72
Pre-owned homes sold through Company owned sales
centers: 1 2
Homes sold to independent dealers 40 56
Total new factory built homes produced 150 123
Average new manufactured home price - retail $ 88,250 $ 95,390
Average new manufactured home price - wholesale $ 47,515 $ 44,584
As a percent of net sales:
Gross profit from the Company owned retail sales
centers 18 % 20 %
Gross profit from the manufacturing facilities -
including intercompany sales 15 % 25 %
Maintaining our strong financial position is vital for future growth and
success. Because of very challenging business conditions during economic
recessions in our market area, management will continue to evaluate all expenses
and react in a manner consistent with maintaining our strong financial position,
while exploring opportunities to expand our distribution and manufacturing
operations.
Our many years of experience in the Florida market, combined with home buyers'
increased need for more affordable housing, should serve the Company well in the
coming years. Management remains convinced that our specific geographic market
is one of the best long-term growth areas in the country.
On June 5, 2020 the Company celebrated its 53rd anniversary in business
specializing in the design and production of quality, affordable manufactured
homes. With multiple retail sales centers in Florida for over 30 years and an
insurance agency subsidiary, we are the only vertically integrated manufactured
home company headquartered in Florida.
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Insurance agent commission revenues in the first quarter of 2021 were $65,971
compared to $66,748 in the first quarter of 2020. Revenues are generated by new
and renewal policies being written which affects agent commission earned. The
Company establishes appropriate reserves for policy cancellations based on
numerous factors, including past transaction history with customers, historical
experience and other information, which is periodically evaluated and adjusted
as deemed necessary. In the opinion of management, no reserve was deemed
necessary for policy cancellations at January 30, 2021 and October 31, 2020.
Gross profit as a percentage of net sales was 28% in first quarter of 2021
compared to 31% for the first quarter of 2020. The gross profit in the first
quarter of 2021 was $2,497,447 compared to $2,889,849 in the first quarter of
2020. The gross profit is dependent on the sales mix of wholesale and retail
homes and number of pre-owned homes sold. The reduction in gross profit as a
percentage of net sales is due to the decrease in sales and primarily due to the
significant increases in material costs, primarily as a result of forest based
products, which were not offset by additional increases in the sales price of
each home manufactured in first quarter 2021.
Selling, general and administrative expenses as a percent of net sales was 14%
in first quarter of 2021 compared to 13% in the first quarter of 2020. Selling,
general and administrative expenses in first quarter of 2021 was $1,273,381
compared to $1,256,144 in the first quarter of 2020. The increase in expenses in
2021 were due to the increase in variable expenses which were direct results of
employee benefits compensation.
We earned interest income of $30,656 for the first quarter of 2021 compared to
$101,883 for the first quarter of 2020. The decrease is primarily due to the
decrease in the balance and applicable interest rate in the money market
accounts and certificates of deposit.
Our earnings from Majestic 21 in the first quarter of 2021 were $13,708 compared
to $19,872 for the first quarter of 2020. The earnings from Majestic 21
represent the allocation of profit and losses which are owned 50% by 21st
Mortgage Corporation and 50% by the Company.
We received distributions of $45,868 in the first quarter of 2021 compared to
$83,109 in the first quarter of 2020. The distributions are from an escrow
arrangement related to a Finance Revenue Sharing Agreement between 21st Mortgage
Corporation and the Company. The distributions from the escrow arrangement,
relates to certain loans financed by 21st Mortgage Corporation, are recorded as
income by the Company when received.
The Company realized pre-tax income in the first quarter of 2021 of $1,401,574
as compared to $1,845,721 in the first quarter of 2020.
The Company recorded an income tax expense in the amount of $335,809 in the
first quarter of 2021 as compared to $445,580 in first quarter 2020.
We reported net income of $1,065,765 for the first quarter of 2021 or $0.29 per
basic and diluted share, compared to $1,400,141 or $0.38 per basic and diluted
share, for the first quarter of 2020.
Liquidity and Capital Resources
Cash and cash equivalents were $32,963,523 at January 30, 2021 compared to
$30,305,902 at October 31, 2020. Certificates of deposit were $3,082,111 at
January 30, 2021 compared to $4,602,307 at October 31, 2020. Short-term
investments were $438,916 at January 30, 2021 compared to $358,960 at
October 31, 2020. Working capital was $39,420,939 at January 30, 2021 as
compared to $38,865,240 at October 31, 2020. The Company purchased the land for
the Tavares retail sales center in January 2021 for $245,000. On February 1,
2021, the Company purchased land in Ocala for a future retail sales center for
$1,040,000. We own the entire inventory for our Prestige retail sales centers
which includes new, pre-owned, repossessed or foreclosed homes and do not incur
any third party floor plan financing expenses. We have no material commitments
for capital expenditures.
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The Company currently has no line of credit facility and no debt and does not
believe that such a facility is currently necessary to its operations. The
Company also has approximately $3.8 million of cash surrender value of life
insurance which it may be able to access as an additional source of liquidity
though the Company has not currently viewed this to be necessary. As of
January 30, 2021, the Company continued to report a strong balance sheet which
included total assets of approximately $63 million which was funded primarily by
stockholders' equity of approximately $52 million.
Critical Accounting Policies and Estimates
In Item 7 of our Form 10-K, under the heading "Critical Accounting Policies and
Estimates," we have provided a discussion of the critical accounting policies
and estimates that management believes affect its more significant judgments and
estimates used in the preparation of our Consolidated Financial Statements. No
significant changes have occurred since that time.
Forward-Looking Statements
Certain statements in this report are unaudited or forward-looking statements
within the meaning of the federal securities laws. Although Nobility believes
that the amounts and expectations reflected in such forward-looking statements
are based on reasonable assumptions, there are risks and uncertainties that may
cause actual results to differ materially from expectations. These risks and
uncertainties include, but are not limited to, the potential adverse impact on
our business caused by the COVID-19 pandemic or other health pandemic,
competitive pricing pressures at both the wholesale and retail levels,
increasing material costs (including forest based products) or availability of
materials due to potential supply chain interruptions (such as current inflation
with forest products and supply issues with vinyl siding and PVC piping),
changes in market demand, changes in interest rates, availability of financing
for retail and wholesale purchasers, consumer confidence, adverse weather
conditions that reduce sales at retail centers, the risk of manufacturing plant
shutdowns due to storms or other factors, the impact of marketing and
cost-management programs, reliance on the Florida economy, impact of labor
shortage, impact of materials shortage, increasing labor cost, cyclical nature
of the manufactured housing industry, impact of rising fuel costs, catastrophic
events impacting insurance costs, availability of insurance coverage for various
risks to Nobility, market demographics, management's ability to attract and
retain executive officers and key personnel, increased global tensions, market
disruptions resulting from terrorist or other attack, any armed conflict
involving the United States and the impact of inflation.
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