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Deer Valley Product
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Deer Valley Corporation strives to give the end customer the look and feel
of living in a permanent home with their high-end
HUD Code houses
Deer Valley Corporation
4902 Eisenhower Blvd. Suite 185
Tampa, FL 33634
Charles G. Masters
Chief Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
Published February 15, 2007
CHARLES G. MASTERS, Chief Executive Officer, President and Chairman of the Board of
Directors of Deer Valley Corporation since January 2006. Mr. Masters was the founder of
Deer Valley Acquisitions Corporation, and, since its inception in July 2005, has served as
its Chief Executive Officer. In March 1998, Mr. Masters founded and has since served as
CEO and CFO of Bumgarner Enterprises, Inc., an oil/gas development and a
business-consulting firm. Since 2001, Mr. Masters has also served as Director, CEO and CFO
of Ranger Industries, Inc., a public company, which is the sole shareholder of Bumgarner
Enterprises. Ranger Industries engages in business consulting, due diligence research, and
oil and gas exploration and development. Mr. Masters has founded and previously served as
the CEO and CFO of several private companies involved in the development of military
electronic communications and test equipment, pioneering the introduction of
microprocessors into point of sale equipment, medical equipment, artificial intelligence
devices, and the development of laser scanners. Mr. Masters received a B.S.E.E. (1961)
from Duke University, an M.S.E.E. (1964) from the University of Pittsburgh and a M.S.M.S.
(1966) from Johns Hopkins University.
Through its wholly owned subsidiary, Deer Valley Homebuilders, Inc., Deer Valley
Corporation designs, produces and sells manufactured homes in the southeastern and south
central United States. It manufactures and sells a line of semi custom built, heavily
constructed, on-frame, HUD Code, single and multi-section manufactured homes. The largest
of the companys home are 32 by 90. The company offers 22 standard models
with various decors marketed under the Deer Valley brand name. It sells its products
through a network of independent dealers operating approximately 110 retail centers. The
company is headquartered in Tampa, Florida. Deer Valleys two operating plants are
located Guin, Alabama and Sulligent, Alabama. The company began operations in 2004.
CEOCFO: Mr. Masters,
what was the vision when the company started and how has that developed?
Mr. Masters: The company was started by Joel Logan and
a group of guys that had known each other for a long time and were actively involved in
the manufactured housing business. They began the company in 2004 with the vision of doing
exactly what they, and now we have done, which is grow the company.
Give a little history and tell us what attracted you?
Mr. Masters: The company shipped its first house in
March of 2004 and at the time that it opened, the eight guys that were the founders, knew
the industry and had been involved in the industry. Joel Logan had started his first
company in the manufactured housing business when he was 27 years old and now he is 37 and
starting another company. When they opened the door, because of contacts in the industry,
they started out with a 100-unit backlog, which is very unusual. The net result was that
by the second month that they were in business, they were profitable, and by the end of
2004 they were at $16 million a year revenue and earning about eight percent on that in a
pre-tax basis. They were off to a good start. We learned of them and in January of 2006
after the company had now grown to a $35 million dollar a year company, we acquired
control and put it into a public vehicle. The net result is now all the original founders
are still there making the company operate, and it is still growing. Our run-rate right
now is probably about $72 million a year in revenue as evidenced by our 2nd
Quarter results. As you will see in the EDGAR filings, revenues for that quarter were
close to $19 million. You can find financial details on the EDGAR system. Part of the
growth has come from the fact that exactly two years after the first house was shipped
from the original main plant, our second plant opened and shipped its first house. We now
have two facilities. Both of them are located in northwestern Alabama.
Will you tell us a bit about the manufactured housing industry in general?
Mr. Masters: Manufactured housing takes on all sorts of
phases because one of the major elements of manufactured housing today is its so-called
modular housing; that can take the form of multi-story apartment buildings and everything
else. We build a more simple form of that in that we build to the HUD code so that we can
theoretically ship to any state in the nation, under one building code. Those are all
so-called on-frame houses, that means that the steel frame which as it goes down the road
to its destination, has wheels on that frame. It is part of the integral construction of
the house and the steel frame stays with it forever. Modular houses, by contrast are
usually lifted off of some sort of transport mechanism by a crane and set down on a
permanent foundation. To draw an analogy that people are used to, these are very high-end
houses that are still of the double-wide concept that people are used to. The history of
the manufactured housing, which goes back to World War II when the first pre-fab houses
were first introduced. After several evolutionary phases, higher end HUD code house
and modular homes have developed. Our specific niche in the market is in the high-end of
the HUD code houses. Our houses are finished almost exactly like the interior of a
site-built house. When you look at or touch a wall in our homes, it has the same look and
feel as you would have in a site-built house with sheet rock construction, full height
ceilings. We build what is called a heavy built house. We coined the term
because as far as we know, we build the heaviest house. All of our floor joists, for
example, are two by eights on sixteen-inch centers. The HUD code will allow you to build
them on 22-inch centers. Our exterior walls are two-by-sixes, where even most site-built
houses are two-by-fours. The same thing in the roofing structure and everything else; we
just build a very solid permanent house. When you are inside one of our houses, you have
no idea it was not built on-site.
Who is buying your homes?
Mr. Masters: There is a range of buyers. A certain
portion are young families buying starter homes, but for the most part our homes are
bought by people who have places in the country; generally in the 45-65 years old range.
Often they have sold a house somewhere else and this is either a second home or a
retirement home. Our best selling house is our largest home, which is 32 by 90 feet; that
is essentially 2800 square foot house. It is a big house. All of our homes are very
competitively priced relative to site built houses and as such, fall into the general
category of affordable housing. Of course, when measured in dollars, what is affordable
varies from state to state, and with the region of the country.
Are these sold through dealers?
Mr. Masters: HUD code houses are sold in different
manners depending on the manufacturer. We are strictly a manufacturer; we sell only to
independent dealers. Right now our dealer base is about 80 dealers who consolidated, own
about 110 retail sales lots through the southeast. We do not have any that are exclusively
Deer Valley dealers because we offer a limited product line. Most of our independent
dealers also sell other manufactures that are built to reach a lower price point buyer. At
this time, we do build for the lower priced market. The only entry we have that would
reach a portion of that market is that we do build one single section unit, but it is
built to the same high-end specifications as our double section homes. Our single units
are a beautiful unit and it is in demand in certain parts of the country. Nevertheless, it
is a fairly unusual product for us, and it not targeted to general buyer looking for the
cheapest house per square foot of living area.
Do you do advertising or does the local dealer advertise your homes?
Mr. Masters: For the most part the local dealer does it
all. We sell as a wholesaler directly to the dealer; he sells to the end user. He arranges
financing, insurance, and site preparation with the homeowner. He is responsible, in
general, for finishing the product once it is onsite. Remember, you are taking a house and
shipping it down the road in two big pieces and once it gets to the site, you have to put
those two pieces together. Either the dealer has to have a skilled crew that goes out and
finishes that interior mating process or through the dealer, we send a factory team to do
Do you someday envision people asking a dealer for a Deer Valley home, where brand
recognition comes into play, or does it make a difference?
Mr. Masters: Brand recognition makes a huge difference
already. We are only two years into the business, but right now if a new purchaser has any
friend that has ever had a modular house or mobile home, and if the friend has a Deer Valley,
then the purchaser will come to the dealer lot looking for a Deer Valley by name. In
general, our dealers can quickly evaluate serious new customer determine how much house
they need and roughly how much house they can afford. However, assuming that minimum price
per square foot is not the main issue, and then he will usually say we will start with a Deer
Valley. This usually leads to a shorter sales cycle because most people, once they
have seen the Deer Valley, will not buy another alternative. The houses are simply that
desirable. The feel of a permanent house is not universal in all homes offer by the HUD
code manufacturers, but when guest come into a Deer Valley home to an share the
evening with your friends, they walk away feeling like they were in a permanent residence,
not just something temporarily put there until the host upgrade to a site built
Does the current mortgage and home-building situation work for you or against you?
Mr. Masters: As mortgage rates go up, they go up they
drive people towards more affordable housing. When you walk into one of our larger houses
and ask how much this is going to cost verses one built onsite, it is generally 20% less
than what is built onsite. Then you ask yourself, when I can get one that is built onsite.
Chances are it is several months and maybe a year from then that you can actually move in
the door. On the other hand, if ask your dealer when you can have a Deer Valley, we used
to say it will take three months to get them out of the factory. However, we have opened a
second plant now, so the dealer can now say that he can have it for you in less than two
months. In addition, it will be operational so that you can be cooking dinner and having
friends over in less than sixty days plus you are going to significantly less for it.
Interest rates drive people that are marginally able to afford a so-called site-built
house towards a manufactured home in general and towards HUD code specifically if they
want it quickly. Therefore, that helps us. On the other hand, if we had buyers that were
buying our homes that were marginal and being able to afford one, it works against
everyone in the housing industry. It can work both ways. For the most part, the niche that
we are in does not target people that are straining to make a payment. Usually, they are
looking for value, but they can afford a high-end house in this industry because it is
well below what they would pay for an equivalent site-built house.
There is one other aspect of financing that unless you knew the manufactured housing
business you would not know to ask. Financing for a HUD code home, has historically been
different than financing for a site-built house and with a higher interest rate. It varies
and can fluctuate with the availability of the money supply in the country. If you look at
the history of HUD code and manufactured housing in general, it peaked in 1999 and then
has fallen to about half of the number of units sold per year that was done in 1999; the
exception being if you include the FEMA units being built in response to Hurricane
Katrina. Our company born in a depressed industry and it has succeeded essentially when
the tide was still out. You can imagine what will the future of this company
could be if the tide came in driven by changes in financing or whatever took
place enough where it forced a big movement back towards the manufactured housing
business. I can tell you there is such a tide building. The manufactured housing industry
has not has the same financing privileges and access to money as the real estate market in
general. At tighter money supply often affects the dealers ability to get money
because they floor plan the houses on the their sales lots the same way an
automobile dealer does, but automobile dealer does it through different financing sources
for the most part. Finally, if the retail market were to experience a real crunch on
financing, it would definitely hurt us.
Do you see greater geographic distribution and are there other dealers that you would like
to be with?
Mr. Masters: We have been blessed by having
relationships with the top dealers in many of the areas we that we serve, but we would
like to see additional dealers in underserved areas of several states. We are not
particularly interested in increasing the number of states until we can add a third plant,
because the transportation is significant for a large unit like this. Essentially, it only
makes economic since to deliver into about a 600-mile radius around your plants. In
addition, our growth plan is not built on trying to dramatically increase the number of
dealers in the area where we are, but rather to add modular housing to our product line.
To do that, we are probably going have to open a third plant because modular housing is
built to different state controlled codes. It is a different distribution mechanism in
that you do not usually sell through dealers. You usually sell through people in the
construction business or developers that are using the manufactured housing manufacturer
essentially as a large subcontractor. This is so that when he buys a modular house from
you, instead of having a dozen contractors hammering nails or whatever else, he buys
housing modules with most of the subcontract functions already done. When you change from
being an on frame HUD code manufacturer to a modular manufacturer, you take on the aspects
of being a large subcontractor. That is the best way I can describe the difference between
those two and the difference in the way our modular products would find their way to the
What is ahead for the next few years and the affect of the overall market on your plans?
Mr. Masters: The overall market is tough right now. It
is a little bit of a seasonal business in that the fall and winter preceding Christmas,
people just dont buy as many houses; it doesnt make a difference whether
it is manufactured or not, they just dont buy houses like they do in late spring and
early summer. There is a cyclical nature on an annual basis, and we are expecting to see
that. Many of our competitors are closing their plants for several days a week or several
weeks out of a quarter, fortunately, we are not doing that, we have a backlog, and our
sales force is working hard to maintain that. In terms of the growth for the long-term, we
are relatively near capacity at our present plants; we could increase capacity enough to
add 10% and maybe even 15 or 20%. However, our real growth will come from that third
plant. The third plant will either have to open up a new geographic region, but more
likely it will be to put us into the modular business. Because houses are built to a
different code, even though they are built to our current quality standards, we will have
to employ slightly different construction techniques and employ material handling
techniques that are quite different than those used in HUD code production. The overall
picture of what we will do is identical to what we do now; we just be taking a little
different approach in some production areas in order to produce a product that is suitable
for the modular market. Our vision is through either acquisition or opening a new plant
from scratch, in the next few months we will try to find our foothold in that market.
In terms of looking at where the company is going, you have to look at what our growth
rate has been. We did $16 million in 2004, $35 million in 2005, in 2006, our forecast is
we will pretty much stay on the course we are now as far as production, and if we do that,
it will produce something in the neighborhood of $60 to $70 million in revenue in 2006.
This management team has not changed except that I have been added and a new board has
been added. Our commitment is to grow. If I were looking at this company as an
investor, I would take a look at the two research reports that have been done on Deer Valley;
both of them are strong reports and recommend the stock for speculative growth. I
personally think we are the investors dream; we have grown rapidly, we are financially
strong with a highly liquid balance sheet, and we have never had a month where we
didnt make money on an operating basis. Therefore, this year the IRS is smiling from
ear-to-ear because we keep sending them money and that means we are making money. The
bottom line is that if a company can grow as fast has we have grown and never had a month
where we did not make money, it deserves the investors attention. Our startup expenses are
on our new plant were fully amortized in the first quarter of this year, and yet we made
money even in that quarter. For an investor, not a speculator, it is what you love to
Looking ahead, are there any challenges and how are you prepared?
Mr. Masters: One big bump is how big will be this drop
in the housing market. Even though we are a tiny piece of it so we can take market share,
we will feel the effects of a major recession in housing because there are more used
houses on the market; there is just less demand. No matter how much we compete, if the
tide in house purchases goes increasingly low, it will ultimately impact us, so that is
the main thing. The other thing could be self-generated. We are advancing very cautiously
on our plan to enter the modular market. Several of our competitors both large and small
have jumped off that bridge and have found it very difficult to make money there because
there is much more customization to the house. A HUD code house is a big rectangle with a
lot of flexibility on what you do inside of it. A modular house is completely
architectural free form so that every house can be as different as night and day. In a
manufacturing environment, a product that has a lot of similarity between the units that
go out the door, is much easier to make money than something with an enormous amount of
flexibility. Even with our extensive use of computer design, modular is still more
difficult, and it requires different distribution channels. We are proceeding cautiously
because our shareholders expect us to make money at every endeavor not just prove to the
industry that we could build modular houses.
Why do you feel you can pull it off when others have not?
Mr. Masters: We can be successful in building and
selling modular homes because we have a very experienced team in terms of the assembly
side. In addition, we are treading cautiously, and we will add the necessarily skills and
know we have them before we step off any bridges.
In closing, what should people remember most about Deer Valley?
Mr. Masters: This company has been ethically true to
its commitments. We value our employees, our dealers, our vendors and our customers. To
that end, we build houses that are designed and produced to meet the buyers quality
expectations. Our houses are built to avoid lot of warranty work, or lot of follow-up
fieldwork. All of that translates not only into the sales growth that we have experienced,
but it also means that we have endeavored to avoid downstream problems that could come
back and negatively affect our investors. Very importantly, we have not leveraged the
company to achieve sales growth. When we did the restructuring at the beginning of this
year at the time I got involved, we did not leverage the companys assets one dollar.
We brought in all new capital and that meant that the company continued to have a strong,
highly liquid, balance sheet. In summary, we have a financially strong, rapidly growing
company led by an aggressive, proven management team that is succeeding in a tough
industry environment. Deer Valleys has an unexcelled reputation for producing a high
quality product line backed by a history of meeting commitments to its customers, dealers
and vendors while consistently growing operating profits. Deer Valley Corporation is
the investors model company.
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