May 2008 - Interview with: Deer Valley Corporation (DVLY-OTC: BB), Chairman, President and CEO, Charles G. Masters - featuring: their valued employees, dealers and developers, supporting their efforts to be the best providers of manufactured and modular homes in our industry.
|Deer Valley Corporation (DVLY-OTC: BB)|
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Revenue Growth From Startup To $63 million In Four Years And A Proven
Ability To Create Strong Earnings In A Down Housing Marketplace Deer Valley
Is Unquestionably An Exceptional Company
Deer Valley Homebuilders was founded in January
2004 by eight men with over 125 years of experience in the manufactured
housing industry. The eight men continue as part of the current management
team. This team strives to operate to the highest standard of business,
moral ethics, and approaches business with an open mind through
communication, positive attitude, and teamwork. Deer Valley operates with a
family atmosphere. Our focus remains on our valued employees, dealers and
developers, supporting their efforts to be the best providers of
manufactured and modular homes in our industry. Our employees’, dealers’ and
developers’ reciprocal commitment translates into top quality for our
business associates and most importantly, our homeowners.
Mr. Masters: “Lynn, when Deer Valley’s brief history is viewed against the drab background of today’s housing industry, things always seem to be exciting at this company. In the four years since Deer Valley shipped its first HUD code manufactured house, we have grown to a publically traded, $65 million a year run rate. In the last year, we have expanded the breadth of our product line to include modular homes and hybrid crossovers, which meet both the requirements of HUD code and modular requirements. These units are designed for emergency housing in the Gulf Coast region and can be deployed for either “on-frame” temporary use or “off-frame” permanent use. The twin-townhome contract that we just announced is the largest contract that we have ever had from any single source. As the name implies, this contract is for the production of large group of modular homes that will be rented, but are configured to allow future sale to the occupants.”
CEOCFO: Would you please give us more detail about your new contract?
Mr. Masters: “In seeking modular projects, we have historically avoided architecturally complex homes with a high degree of customization. In order to achieve the benefits of manufacturing efficiency, we have sought projects that require multiple homes with a high degree of similarity. This formula is profitable for us and it meets the objectives of the affordable housing market. The particular project that we have undertaken here which the contract announced today is for a large number of New Orleans style twin-town homes. Our participation in this development represents many firsts for us. It will be the first time we have ever done multi-story units and it is the first time we have done multi-family units.” We are delighted to be undertaking the development with a well-established company that has been in the development and construction business for many years in the State of Mississippi. We think it is a great opportunity for us to move forward; it is not only a large contract but it is a large step forward in terms of the scope of out product offerings.”
CEOCFO: Why did they choose Deer Valley?
Mr. Masters: “Because we are a unique company. We go to a lot of effort to develop and maintain a special relationship with all parties that work with us whether they are vendors, dealers, employees or clients. This aspect of our reputation is well-known in the manufactured and modular home industry. The developer on this project, our customer, was seeking to offer high quality, affordable rental housing in a planned community in the State of Mississippi. With our successful history of supplying large quantities of emergency housing units to the State of Mississippi as well as many other homes that were sold through or independent dealers in that state, we were well known in the state. As you have said, we are really excited about this phase of our corporate growth!”
CEOCFO: Is this scheduled to begin quite quickly?
Mr. Masters: “Quite quickly. The first units will be delivered before mid- summer.”
CEOCFO: What is the nature of what you build; why you are able to do it so quickly and how can your facilities accommodate large projects?
Mr. Masters: “These modular units are actually smaller than many of the homes that we built as part of our manufactured housing process. We can build what is called a floor, or section that is up to 16 feet wide and 90 feet long. The individual sections for our twin-townhome contract will only be 12 feet wide and 54 feet long. While in the factory, each “floor” becomes a complete section of a home including complete kitchens with appliances and countertops, bathrooms, or living rooms with fireplaces. In our plants, we typically build complete houses each day. Stated another way, we build an entire house in 2 ½ days. This is done on a production line type process that is fascinating to watch, I wish all your readers could visit our plant and see homes going together. It is an amazing process that produces an extremely high-quality home in a very short period of time.”
CEOCFO: Energy efficiency is on everyone’s mind; please tell us about this aspect of your product.
Mr. Masters: “All of our homes are designed for affordable living which in today’s environment means high energy efficiency. Many of our homes qualify for various energy efficient even tax credits. The units we built for the state of Mississippi were at the far-end of the more generous tax credit simply because of the fact that they were so energy efficient.”
CEOCFO: Would you explain your product line and the new additions?
Mr. Masters: “By new additions, I assume you are referring to our Copper Ridge Line of manufactured, HUD Code, homes. Until we introduced the Copper Ridge product line, we have only built our flagship line of HUD Code homes, which are sold under the “Deer Valley” label. These heavy built, finished drywall homes with oak cabinets and many options are built for the very high-end of the so-called “HUD code” home market. The new Copper Ridge homes are designed for consumers that are looking for a lower price-point product. It is much like General Motors with Cadillac and Hummer at the upper-end of their product line, complimented with various lower price-point products depending on the market they were trying to reach. The Copper Ridge product line opens up the capability for us meet the needs of consumers looking for a lower priced product and sets the stage for Deer Valley to have exclusive dealers for the mobile home type product. Exclusive dealerships are not economically possible unless the dealer can offer a wide range of different products at different price-points.”
CEOCFO: How has the current housing crisis affected Deer Valley?
Mr. Masters: “It is a mixed thing. Many of the retail consumers that buy through our independent dealers’ sales centers are cash buyers as result of retiring and selling their large family homes and generally moving to the south-central states. Because of the credit crunch and general glut of homes on the market, these retires cannot easily sell their family homes and hence, they are delaying the moves and other retirement plans. The result is that that sales through our retail dealers is down dramatically. Deer Valley as a corporation has filled in that gap by developing new modular products and related new sales channels. This expansion effort has resulted in our being awarded government sponsored contracts for emergency housing. Specifically, we have built over four hundred cottages for the state of Mississippi. That has been a very successful project for us and Mississippi has been very pleased at what we have provided for them. As a result of our timely move into modular housing and the related receipt of the Mississippi contracts, we have been able to make very good profits during a time when some of our competitors really struggled and some have disappeared. We have been thankful for that. At the same time, we have been working at taking our modular products into communities and the new contract we discussed earlier for twin townhomes is the first result of that effort. This contract expands our product line to include two-story modular homes; it puts us in the multi-family business. These are very affordable units and they are constructed in such a way that they can be rented, or they can go in a rent-to-own program, or they can be sold as condominiums. It is a very nice solution for affordable living in about thirteen hundred square feet with a townhome rather than an apartment environment.”
CEOCFO: Is there a trend in the government to be doing more of this building?
Mr. Masters: “The government is trying to approach housing from several directions. The one that could affect us most directly is through the tax credit program that is designed to encourage planned community development and redevelopment in urban areas as well as some economically depressed rural areas. This program is at least temporarily restricted in its effectiveness because most of the tax credits were being sold to large banking institutions. With the banks now having the huge write-offs, their need for tax credits has suddenly diminished so the tax credit tool that the government was using to meet some housing needs has become largely ineffective. On the other hand, we have clearly been the beneficiaries of the federal government’s direct funding of the experimentally MEMA cottage program through the State of Mississippi which was implemented to solve the emergency housing situations.”
CEOCFO: What is the financial picture; you have had record earnings?
Mr. Masters: “We have had record earnings and fortunately in our business we don’t have large hidden development costs like drug or technology companies. When we report a dollar in net earnings, we are one more dollar stronger financially. We are just renewing and consolidating our bank credit lines. That leaves us with ample cash and ample unused bank credit available. We continuing to look for different product line expansion opportunities and we are on the hunt for possible business combinations that would provide accretive earnings for our shareholders. Deer Valley is very strong financially, and with a youthful management staff, we are seeking grow even as the housing market continues to struggle!”
CEOCFO: Do you see the need to add to your management team as you grow?
Mr. Masters: “We are making a few changes and additions as we define specific needs. You may have read where Mr. Brad Bowling recently joined our staff. While he will initially be focused on building our modular business activity, his depth and breath of knowledge across the factory built housing industry adds significantly to the strength of our operating management team. We don’t run with a lot of surplus capacity in management so therefore if we were to make a dramatic expansion move, we would have to bring on one or more people that could participate in that. We are going to change our CFO office around a little bit, I have been acting CFO for a while, and we have a gentleman that has been doing our work at the home builders subsidiary and he is going to move into this role soon. That will probably mean we will bring on some more help in our accounting area and at a fairly high level.”
CEOCFO: You describe your homes as delivered with a sense of warmth, friendliness and personal pride; tell us about that.
Mr. Masters: “To have you appreciate that statement, you would have to go to one of the manufactured housing shows or to a multivendor retail sales center. If you did that, you would find even today, some homes meet minimum construction requirements, but they feel as if they are just temporary minimum shelters with utilities. It is much like buying a really low-end pickup truck. It has four wheels, a windshield, a roof and will carry products, but it will not provide much real comfort for a long trip. We try to provide something that is an affordable unit, but when you come home to it at night, you are glad you are there. It is home! We have really tried to create that feel with our homes, and I think we have accomplished it.”
CEOCFO: Why should potential investors look at Deer Valley and what might people miss that should be understood?
“Deer Valley is a money making company that was created and has thrived in
the midst of the worst housing market in forty years. Our operations have
been consistently profitable through the worst of this market. In contrast
to many higher profile home builders, we have no speculative real estate
that may have to be written down. By entering he modular market, we have
found ways to achieve profitable sales when our normal sales channels have
suffered setbacks. Deer Valley stock is undervalued simply because of the
market perception of all housing companies and because our shares not yet
trading on either the NASDAQ or AMEX. In short, this company is a value play
for the long-run as we continue to grow the company and build revenue and
earnings. In the short term, the undervalued position of the stock presents
a great opportunity. As word of our success begins to reach a broader group
of investors there is significant potential for immediate increase in share
“Deer Valley is a money making company that was created and has thrived in the midst of the worst housing market in forty years. Our operations have been consistently profitable through the worst of this market. In contrast to many higher profile home builders, we have no speculative real estate that may have to be written down. By entering he modular market, we have found ways to achieve profitable sales when our normal sales channels have suffered setbacks. Deer Valley stock is undervalued simply because of the market perception of all housing companies and because our shares not yet trading on either the NASDAQ or AMEX. In short, this company is a value play for the long-run as we continue to grow the company and build revenue and earnings. In the short term, the undervalued position of the stock presents a great opportunity. As word of our success begins to reach a broader group of investors there is significant potential for immediate increase in share value.” - Charles G. Masters
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