CAVCO INDUSTRIES, INC. 10-Q

Item 1. Financial Statements CAVCO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) December 31, 2022 April 2, 2022 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 376,148 $ 244,150 Restricted cash, current 9,911 14,849 Accounts receivable, net 80,062 96,052 Short-term investments 16,607 20,086 Current portion of consumer loans receivable, net 13,763 20,639 Current portion of commercial loans receivable, net 33,899 32,272 Current portion of commercial loans receivable from affiliates, net 298 372 Inventories 215,458 243,971 Prepaid expenses and other current assets 86,408 71,726 Total current assets 832,554 744,117 Restricted cash 335 335 Investments 21,822 34,933 Consumer loans receivable, net 26,903 29,245 Commercial loans receivable, net 40,727 33,708 Commercial loans receivable from affiliates, net 3,049 2,214 Property, plant and equipment, net 194,329 164,016 Goodwill 100,577 100,993 Other intangibles, net 26,948 28,459 Operating lease right-of-use assets 17,230 16,952 Total assets $ 1,264,474 $ 1,154,972 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 26,788 $ 43,082 Accrued expenses and other current liabilities 251,635 251,088 Total current liabilities 278,423 294,170 Operating lease liabilities 13,058 13,158 Other liabilities 7,898 10,836 Deferred income taxes 8,663 5,528 Redeemable noncontrolling interest 932 825 Stockholders' equity Preferred stock, $ 0.01 par value; 1,000,000 shares authorized; No shares issued or outstanding — — Common stock, $ 0.01 par value; 40,000,000 shares authorized; Issued 9,319,700 and 9,292,278 shares, respectively 93 93 Treasury stock, at cost; 556,344 and 241,773 shares, respectively ( 134,270 ) ( 61,040 ) Additional paid-in capital 268,423 263,049 Retained earnings 821,998 628,756 Accumulated other comprehensive loss ( 744 ) ( 403 ) Total stockholders' equity 955,500 830,455 Total liabilities, redeemable noncontrolling interest and stockholders' equity $ 1,264,474 $ 1,154,972 See accompanying Notes to Consolidated Financial Statements 1 Table of Contents CAVCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Net revenue $ 500,603 $ 431,714 $ 1,666,333 $ 1,121,679 Cost of sales 368,635 316,506 1,232,042 842,530 Gross profit 131,968 115,208 434,291 279,149 Selling, general and administrative expenses 58,904 60,322 191,934 146,526 Income from operations 73,064 54,886 242,357 132,623 Interest expense ( 216 ) ( 209 ) ( 610 ) ( 576 ) Other income, net 3,233 4,258 6,455 11,387 Income before income taxes 76,081 58,935 248,202 143,434 Income tax (expense) benefit ( 16,492 ) 20,680 ( 54,721 ) 910 Net income 59,589 79,615 193,481 144,344 Less: net income attributable to redeemable noncontrolling interest 65 196 239 269 Net income attributable to Cavco common stockholders $ 59,524 $ 79,419 $ 193,242 $ 144,075 Comprehensive income Net income $ 59,589 $ 79,615 $ 193,481 $ 144,344 Reclassification adjustment for securities sold ( 13 ) ( 16 ) ( 19 ) ( 15 ) Applicable income taxes 3 3 4 3 Net change in unrealized position of investments held 107 ( 127 ) ( 412 ) ( 161 ) Applicable income taxes ( 23 ) 27 86 34 Comprehensive income 59,663 79,502 193,140 144,205 Less: comprehensive income attributable to redeemable noncontrolling interest 65 196 239 269 Comprehensive income attributable to Cavco common stockholders $ 59,598 $ 79,306 $ 192,901 $ 143,936 Net income per share attributable to Cavco common stockholders Basic $ 6.71 $ 8.66 $ 21.72 $ 15.68 Diluted $ 6.66 $ 8.57 $ 21.55 $ 15.54 Weighted average shares outstanding Basic 8,870,565 9,174,224 8,897,405 9,187,828 Diluted 8,936,075 9,270,438 8,969,104 9,270,855 See accompanying Notes to Consolidated Financial Statements 2 Table of Contents CAVCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Nine Months Ended December 31, 2022 January 1, 2022 OPERATING ACTIVITIES Net income $ 193,481 $ 144,344 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 12,174 6,750 Provision for credit losses ( 585 ) ( 220 ) Deferred income taxes 3,225 1,186 Stock-based compensation expense 4,855 3,460 Non-cash interest income, net ( 527 ) ( 1,115 ) Gain on sale or retirement of property, plant and equipment, net ( 116 ) ( 307 ) Gain on investments and sale of loans, net ( 6,647 ) ( 18,379 ) Distributions of earnings from equity method investments 4,306 — Changes in operating assets and liabilities, net of acquisitions Accounts receivable 15,988 4,366 Consumer loans receivable originated ( 135,552 ) ( 122,872 ) Proceeds from sales of consumer loans 146,050 142,445 Principal payments received on consumer loans receivable 7,206 8,861 Inventories 28,513 ( 29,899 ) Prepaid expenses and other current assets ( 16,525 ) ( 33,746 ) Commercial loans receivable ( 9,652 ) 8,080 Accounts payable and accrued expenses and other current liabilities ( 16,075 ) 13,013 Net cash provided by operating activities 230,119 125,967 INVESTING ACTIVITIES Purchases of property, plant and equipment ( 40,850 ) ( 8,938 ) Payments for acquisitions, net — ( 141,428 ) Proceeds from sale of property, plant and equipment 406 1,291 Purchases of investments ( 10,198 ) ( 8,224 ) Proceeds from sale of investments 9,230 9,457 Return of invested capital from equity method investments 12,213 — Net cash used in investing activities ( 29,199 ) ( 147,842 ) FINANCING ACTIVITIES Payments for taxes on stock option exercises and releases of equity awards ( 1,072 ) ( 26 ) Proceeds from exercise of stock options 1,591 4,328 Proceeds from secured financings and other — 47 Payments on finance leases and other secured financings ( 549 ) ( 9,213 ) Payments for common stock repurchases ( 73,230 ) ( 29,126 ) Distributions to noncontrolling interest ( 600 ) ( 300 ) Net cash used in financing activities ( 73,860 ) ( 34,290 ) Net increase (decrease) in cash, cash equivalents and restricted cash 127,060 ( 56,165 ) Cash, cash equivalents and restricted cash at beginning of the fiscal year 259,334 339,307 Cash, cash equivalents and restricted cash at end of the period $ 386,394 $ 283,142 Supplemental disclosures of cash flow information Cash paid for income taxes $ 71,137 $ 21,573 Cash paid for interest $ 430 $ 302 Supplemental disclosures of noncash activity Change in GNMA loans eligible for repurchase $ ( 2,914 ) $ ( 13,185 ) Right-of-use assets recognized and operating lease obligations incurred $ 3,535 $ 2,455 Fair value of assets acquired under finance leases $ — $ 7,158 Finance lease obligations incurred $ — $ 6,351 See accompanying Notes to Consolidated Financial Statements 3 Table of Contents CAVCO INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In addition, references throughout to numbered "Notes" refer to these Notes to Consolidated Financial Statements, unless otherwise stated. In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified from secured financings to Accrued expenses and other current liabilities to conform to current period classification. We have evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC; and except for the events set forth in Note 23, there were no subsequent events requiring disclosure. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K for the year ended April 2, 2022, filed with the SEC ("Form 10-K"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Due to uncertainties, actual results could differ from the estimates and assumptions used in preparation of the Consolidated Financial Statements. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 31 st of each year. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to March 31 st . The current fiscal year will end on April 1, 2023 and will include 52 weeks. We operate in two segments: (1) factory-built housing, which includes wholesale and retail factory-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance. We design and build a wide variety of affordable manufactured homes, modular homes and park model RVs through 27 homebuilding production lines located throughout the United States, which are sold to a network of independent distributors, community operators and residential developers and through our 42 Company-owned retail stores. The financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Company ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") seller/servicer and a Government National Mortgage Association ("Ginnie Mae") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes. During fiscal 2022, we acquired an additional 20 % ownership in Craftsman Homes, LLC and Craftsman Homes Development, LLC (collectively known as "Craftsman"), which gave us a 70 % majority controlling ownership and therefore became a consolidated entity. We also purchased certain manufactured housing assets and assumed certain liabilities of The Commodore Corporation ("Commodore"). Craftsman is a manufactured home retailer with four locations in Nevada selling Company and other manufacturer branded homes. Commodore added six manufacturing facilities and two wholly-owned retail locations, and also participates in commercial lending operations with its dealers. In addition to the below, for a description of significant accounting policies we used in the preparation of our Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K. 4 Table of Contents 2. Revenue from Contracts with Customers The following table summarizes customer contract revenues disaggregated by reportable segment and source (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Factory-built housing U.S. Housing and Urban Development code homes $ 398,859 $ 357,453 $ 1,402,805 $ 905,790 Modular homes 36,498 30,451 108,072 88,454 Park model RVs 20,102 10,709 44,359 30,108 Other 25,734 14,977 58,156 43,615 481,193 413,590 1,613,392 1,067,967 Financial services Insurance agency commissions received from third-party insurance companies 887 1,304 3,313 3,027 All other sources 18,523 16,820 49,628 50,685 19,410 18,124 52,941 53,712 $ 500,603 $ 431,714 $ 1,666,333 $ 1,121,679 3. Restricted Cash Restricted cash consisted of the following (in thousands): December 31, 2022 April 2, 2022 Cash related to CountryPlace customer payments to be remitted to third parties $ 9,309 $ 13,857 Other restricted cash 937 1,327 10,246 15,184 Current portion ( 9,911 ) ( 14,849 ) $ 335 $ 335 Corresponding amounts for customer payments to be remitted to third parties are recorded in Accounts payable. The following table provides a reconciliation of Cash and cash equivalents and Restricted cash reported within the Consolidated Balance Sheets to the combined amounts shown in the Consolidated Statements of Cash Flows (in thousands): December 31, 2022 January 1, 2022 Cash and cash equivalents $ 376,148 $ 267,265 Restricted cash 10,246 15,877 $ 386,394 $ 283,142 5 Table of Contents 4. Investments Investments consisted of the following (in thousands): December 31, 2022 April 2, 2022 Available-for-sale debt securities $ 19,036 $ 17,760 Marketable equity securities 14,103 16,780 Non-marketable equity investments 5,290 20,479 38,429 55,019 Less short-term investments ( 16,607 ) ( 20,086 ) $ 21,822 $ 34,933 Investments in marketable equity securities consist of investments in the common stock of industrial and other companies. Our non-marketable equity investments include investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities and other investments in manufactured housing distributors. The amortized cost and fair value of our investments in available-for-sale debt securities, by security type are shown in the table below (in thousands): December 31, 2022 April 2, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Residential mortgage-backed securities $ 2,670 $ 2,572 $ 1,668 $ 1,613 State and political subdivision debt securities 6,542 6,228 10,100 9,906 Corporate debt securities 10,765 10,236 6,502 6,241 $ 19,977 $ 19,036 $ 18,270 $ 17,760 The amortized cost and fair value of our investments in available-for-sale debt securities, by contractual maturity, are shown in the table below (in thousands). Actual maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties. December 31, 2022 Amortized Cost Fair Value Due in less than one year $ 1,740 $ 1,715 Due after one year through five years 14,172 13,355 Due after five years through ten years 1,003 1,004 Due after ten years 392 390 Mortgage-backed securities 2,670 2,572 $ 19,977 $ 19,036 6 Table of Contents Net investment gains and losses on marketable equity securities were as follows (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Marketable equity securities Net gain (loss) recognized during the period $ 707 $ 2,967 $ ( 1,868 ) $ 4,906 Less: Net (gain) loss recognized on securities sold during the period ( 107 ) ( 257 ) 183 ( 536 ) Unrealized gain (loss) recognized during the period on securities still held $ 600 $ 2,710 $ ( 1,685 ) $ 4,370 5. Inventories Inventories consisted of the following (in thousands): December 31, 2022 April 2, 2022 Raw materials $ 87,239 $ 95,929 Work in process 29,400 30,638 Finished goods 98,819 117,404 $ 215,458 $ 243,971 6. Consumer Loans Receivable The following table summarizes consumer loans receivable (in thousands): December 31, 2022 April 2, 2022 Loans held for investment, previously securitized $ 22,221 $ 26,014 Loans held for investment 14,513 14,771 Loans held for sale 5,049 8,500 Construction advances 757 3,547 42,540 52,832 Deferred financing fees and other, net ( 590 ) ( 833 ) Allowance for loan losses ( 1,284 ) ( 2,115 ) 40,666 49,884 Less current portion ( 13,763 ) ( 20,639 ) $ 26,903 $ 29,245 7 Table of Contents The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Allowance for loan losses at beginning of period $ 1,739 $ 2,799 $ 2,115 $ 3,188 Change in estimated loan losses, net ( 436 ) ( 327 ) ( 812 ) ( 384 ) Charge-offs ( 19 ) ( 85 ) ( 38 ) ( 417 ) Recoveries — — 19 — Allowance for loan losses at end of period $ 1,284 $ 2,387 $ 1,284 $ 2,387 The consumer loans held for investment had the following characteristics: December 31, 2022 April 2, 2022 Weighted average contractual interest rate 8.1 % 8.3 % Weighted average effective interest rate 8.9 % 9.2 % Weighted average months to maturity 156 151 The following table is a consolidated summary of the delinquency status of the principal value of outstanding consumer loans receivable (in thousands): December 31, 2022 April 2, 2022 Current $ 40,022 $ 49,546 31 to 60 days 1,140 1,202 61 to 90 days 163 41 91+ days 1,215 2,043 $ 42,540 $ 52,832 8 Table of Contents The following tables disaggregate the principal value of consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands): December 31, 2022 2023 2022 2021 2020 2019 Prior Total Prime- FICO score 680 and greater $ 4,788 $ 1,085 $ 1,059 $ 2,124 $ 1,198 $ 17,690 $ 27,944 Near Prime- FICO score 620-679 479 154 1,017 967 1,562 8,667 12,846 Sub-Prime- FICO score less than 620 125 — 20 51 — 1,106 1,302 No FICO score 69 — — — 25 354 448 $ 5,461 $ 1,239 $ 2,096 $ 3,142 $ 2,785 $ 27,817 $ 42,540 April 2, 2022 2022 2021 2020 2019 2018 Prior Total Prime- FICO score 680 and greater $ 8,155 $ 1,615 $ 2,371 $ 1,339 $ 853 $ 20,485 $ 34,818 Near Prime- FICO score 620-679 1,661 1,274 1,413 1,976 617 9,266 16,207 Sub-Prime- FICO score less than 620 45 20 52 — — 1,318 1,435 No FICO score — — — 26 — 346 372 $ 9,861 $ 2,909 $ 3,836 $ 3,341 $ 1,470 $ 31,415 $ 52,832 As of December 31, 2022 and April 2, 2022, 39 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas, and 18 % and 17 %, respectively, were concentrated in Florida. Other than Texas and Florida, no sta te had concentrations in excess of 10 % of the outstanding principal balance of the consumer loans receivable as of December 31, 2022 or April 2, 2022. Repossessed homes totaled approximately $ 649,000 and $ 499,000 as of December 31, 2022 and April 2, 2022, respectively, and are included in Prepaid expenses and other current assets on the Consolidated Balance Sheets. Foreclosure or similar proceedings in progress totaled approximately $ 535,000 and $ 1.1 million as of December 31, 2022 and April 2, 2022, respectively. 7. Commercial Loans Receivable The commercial loans receivable balance consists of direct financing arrangements for the home product needs of our independent distributors, community operators and residential developers. Commercial loans receivable (including from affiliates), net consisted of the following (in thousands): December 31, 2022 April 2, 2022 Loans receivable $ 79,345 $ 69,693 Allowance for loan losses ( 1,255 ) ( 1,011 ) Deferred financing fees, net ( 117 ) ( 116 ) 77,973 68,566 Less current portion ( 34,197 ) ( 32,644 ) $ 43,776 $ 35,922 9 Table of Contents The commercial loans receivable balance had the following characteristics: December 31, 2022 April 2, 2022 Weighted average contractual interest rate 6.7 % 6.4 % Weighted average months outstanding 9 9 The following table represents changes in the estimated allowance for loan losses (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Balance at beginning of period $ 1,123 $ 826 $ 1,011 $ 816 Change in estimated loan losses, net 132 304 244 314 Balance at end of period $ 1,255 $ 1,130 $ 1,255 $ 1,130 Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments 90 days or more past due. As of December 31, 2022 and April 2, 2022, there were no commercial loans considered watch list or nonperforming. The following table disaggregates the principal value of our commercial loans receivable by fiscal year of origination (in thousands): December 31, 2022 2023 2022 2021 2020 2019 Prior Total Performing $ 52,498 $ 18,324 $ 4,770 $ 2,321 $ 682 $ 750 $ 79,345 April 2, 2022 2022 2021 2020 2019 2018 Prior Total Performing $ 52,592 $ 10,181 $ 4,031 $ 1,391 $ 1,498 $ — $ 69,693 As of December 31, 2022, there were no commercial loans 90 days or more past due that were still accruing interest, and we were not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance. As of December 31, 2022 and April 2, 2022, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 22 % and 25 %, respectively. No other state had concentrations in excess of 10 % of the outstanding principal balance of the commercial loans receivable as of December 31, 2022 or April 2, 2022. As of December 31, 2022 and April 2, 2022, one independent third-party and its affiliates comprised 12 % and 14 %, respectively, of the net commercial loans receivable principal balance outstanding, all of which was secured . 10 Table of Contents 8. Property, Plant and Equipment, net Property, plant and equipment, net, consisted of the following (in thousands): December 31, 2022 April 2, 2022 Property, plant and equipment, at cost Land $ 36,193 $ 32,154 Buildings and improvements 142,420 100,775 Machinery and equipment 63,795 48,638 Construction in progress 8,713 29,281 251,121 210,848 Accumulated depreciation ( 56,792 ) ( 46,832 ) $ 194,329 $ 164,016 Depreciation expense for the three and nine months ended December 31, 2022 was $ 3.4 million and $ 10.7 million, respectively. Depreciation expense for the three and nine months ended January 1, 2022 was $ 3.0 million and $ 5.9 million, respectively. 9. Leases We lease certain production and retail locations, office space and equipment. The following table provides information about the financial statement classification of our lease balances reported within the Consolidated Balance Sheets as of December 31, 2022 and April 2, 2022 (in thousands): Classification December 31, 2022 April 2, 2022 ROU assets Operating lease assets Operating lease right-of-use assets $ 17,230 $ 16,952 Finance lease assets Property, plant and equipment, net (1) 6,132 7,070 Total lease assets $ 23,362 $ 24,022 Lease Liabilities Current: Operating lease liabilities Accrued expenses and other current liabilities $ 5,389 $ 5,085 Finance lease liabilities Accrued expenses and other current liabilities 347 347 Non-current: Operating lease liabilities Operating lease liabilities 13,058 13,158 Finance lease liabilities Other liabilities 5,914 5,969 Total lease liabilities $ 24,708 $ 24,559 (1) Recorded net of accumulated amortization of $ 219,000 and $ 87,000 as of December 31, 2022 and April 2, 2022, respectively. 11 Table of Contents The following table provides information about the financial statement classification of our lease expenses reported within the Consolidated Statements of Comprehensive Income for the three and nine months ended December 31, 2022 and January 1, 2022 (in thousands): Three Months Ended Nine Months Ended Lease Expense Category Classification December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Operating lease expense (2) : Cost of sales $ 297 $ 286 $ 898 $ 858 Selling, general and administrative expenses 1,057 910 3,012 2,640 Finance lease expense: Amortization of leased assets Cost of sales 44 9 131 26 Interest on lease liabilities Interest expense 71 73 212 80 Total lease expense $ 1,469 $ 1,278 $ 4,253 $ 3,604 (2) Excludes short-term and variable lease expenses, which are immaterial. Cash payments for operating and finance leases were as follows (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Operating leases $ 1,372 $ 1,190 $ 4,003 $ 2,277 Finance leases 89 18 267 37 The present value of the minimum payments for future fiscal years under non-cancelable leases as of December 31, 2022 was as follows (in thousands): Operating Leases Finance Leases Total Remainder of 2023 $ 1,405 $ 89 $ 1,494 2024 5,308 356 5,664 2025 4,318 356 4,674 2026 3,897 356 4,253 2027 1,686 356 2,042 2028 1,203 356 1,559 Thereafter 2,795 10,585 13,380 Total lease payments 20,612 12,454 33,066 Less amount representing interest ( 2,165 ) ( 6,193 ) ( 8,358 ) Present value of lease liabilities $ 18,447 $ 6,261 $ 24,708 12 Table of Contents The following table provides information about the weighted average remaining lease terms and weighted average discount rates as of December 31, 2022: Remaining Lease Term (Years) Discount Rate Operating leases 4.9 4.6 % Finance leases 34.9 4.5 % 10. Goodwill and Other Intangibles Goodwill and other intangibles, net, consisted of the following (in thousands): December 31, 2022 April 2, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Indefinite-lived Goodwill $ 100,577 $ — $ 100,577 $ 100,993 $ — $ 100,993 Trademarks and trade names 15,680 — 15,680 15,680 — 15,680 State insurance licenses 1,100 — 1,100 1,100 — 1,100 117,357 — 117,357 117,773 — 117,773 Finite-lived Customer relationships 15,000 ( 5,302 ) 9,698 19,500 ( 8,392 ) 11,108 Other 914 ( 444 ) 470 1,924 ( 1,353 ) 571 $ 133,271 $ ( 5,746 ) $ 127,525 $ 139,197 $ ( 9,745 ) $ 129,452 Amortization expense recognized on intangible assets was $ 501,000 and $ 1.5 million for the three and nine months ended December 31, 2022, respectively. Amortization expense recognized on intangible assets was $ 523,000 and $ 862,000 for the three and nine months ended January 1, 2022, respectively. Expected amortization for future fiscal years is as follows (in thousands): Remainder of fiscal year 2023 $ 501 2024 1,339 2025 1,300 2026 1,258 2027 1,185 2028 1,079 Thereafter 3,506 $ 10,168 13 Table of Contents 11. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2022 April 2, 2022 Customer deposits $ 46,399 $ 56,318 Salaries, wages and benefits 43,365 54,172 Estimated warranties 30,946 26,250 Unearned insurance premiums 25,758 24,917 Accrued volume rebates 25,660 18,641 Other 79,507 70,790 $ 251,635 $ 251,088 12. Warranties Activity in the liability for estimated warranties was as follows (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Balance at beginning of period $ 30,841 $ 25,745 $ 26,250 $ 18,032 Purchase accounting additions — — — 6,928 Charged to costs and expenses 12,036 10,883 40,663 28,002 Payments and deductions ( 11,931 ) ( 10,394 ) ( 35,967 ) ( 26,728 ) Balance at end of period $ 30,946 $ 26,234 $ 30,946 $ 26,234 13. Other Liabilities The following table summarizes the non-current portion of our other liabilities (in thousands): December 31, 2022 April 2, 2022 Finance lease payables $ 6,261 $ 6,316 Other secured financing 2,450 2,933 Mandatorily redeemable noncontrolling interest 2,318 2,371 11,029 11,620 Less current portion included in Accrued expenses and other current liabilities ( 3,131 ) ( 784 ) $ 7,898 $ 10,836 14 Table of Contents 14. Debt On November 22, 2022 , we entered into a Credit Agreement among the Company, Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and the guarantors party thereto (the "Credit Agreement"), providing for a $ 50.0 million revolving credit facility (the "Revolving Credit Facility"). Loans under the Revolving Credit Facility will bear interest at a rate equal to (i) the Secured Overnight Financing Rate, plus a credit spread adjustment of 0.10% (as adjusted, "Term SOFR"), plus the "applicable rate" or (ii) the "base rate" (defined as the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50%, and (c) Term SOFR plus 1.00%) plus the "applicable rate." The applicable rate will be determined in accordance with a pricing grid based on the Company's Consolidated Total Leverage Ratio (as defined in the Credit Agreement) ranging from 1.125% to 1.350% per annum for Term SOFR rate loans and from 0.125% to 0.350% per annum for base rate loans. In addition, the Company will pay a commitment fee on the unused portion of the Revolving Credit Facility of 0.15 % per annum. The Revolving Credit Facility is guaranteed, on a joint and several basis, by certain of the Company’s subsidiaries. The Credit Agreement contains customary representations and warranties, affirmative and negative covenants (including restrictions, subject to customary exceptions, qualifications, and baskets, on the ability of the Company and its subsidiaries to incur additional indebtedness or guarantees of indebtedness, pay dividends or distributions on, redeem, repurchase, or retire capital stock, make investments, loans, advances, or acquisitions, enter into sale and leaseback transactions, engage in transactions with affiliates, create liens, transfer, or sell assets, create restrictions on the payment of dividends or other amounts from their subsidiaries, and consolidate, merge, or transfer all or substantially all of the assets of the Company and its subsidiaries taken as a whole), and events of default (as defined in the Credit Agreement). In addition, the Credit Agreement includes the following financial covenants (i) as of the end of any fiscal quarter, the Consolidated Total Leverage Ratio (as defined in the Credit Agreement) cannot exceed 3.25 to 1.00 and (ii) a requirement to maintain Consolidated EBITDA (as defined in the Credit Agreement) for any period of four fiscal quarters of at least $75 million. As of December 31, 2022, there were no borrowings outstanding under the Revolving Credit Facility and we were in compliance with all covenants. 15. Reinsurance and Insurance Loss Reserves Certain of Standard Casualty's premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. We remain obligated for amounts ceded in the event that the reinsurers do not meet their obligations. 15 Table of Contents The effects of reinsurance on premiums written and earned were as follows (in thousands): Three Months Ended December 31, 2022 January 1, 2022 Written Earned Written Earned Direct premiums $ 7,454 $ 7,529 $ 6,380 $ 6,557 Assumed premiums—nonaffiliated 7,709 8,358 7,023 7,822 Ceded premiums—nonaffiliated ( 4,413 ) ( 4,413 ) ( 3,866 ) ( 3,866 ) $ 10,750 $ 11,474 $ 9,537 $ 10,513 Nine Months Ended December 31, 2022 January 1, 2022 Written Earned Written Earned Direct premiums $ 22,350 $ 21,917 $ 19,529 $ 18,876 Assumed premiums—nonaffiliated 25,555 24,526 23,837 22,830 Ceded premiums—nonaffiliated ( 13,056 ) ( 13,056 ) ( 11,227 ) ( 11,227 ) $ 34,849 $ 33,387 $ 32,139 $ 30,479 Typical insurance policies written or assumed have a maximum coverage of $ 300,000 per claim, of which we cede $ 125,000 of the risk of loss per reinsurance. Therefore, our risk of loss is limited to $ 175,000 per claim on typical policies, subject to the reinsurers meeting their obligations. After this limit, amounts are recoverable through reinsurance for catastrophic losses in excess of $ 2 million per occurrence, up to a maximum of $ 70 million in the aggregate for that occurrence. Standard Casualty establishes reserves for claims and claims expense on reported and incurred but not reported ("IBNR") claims of non-reinsured losses. Reserves for claims are included in the Accrued expenses and other current liabilities line item on the Consolidated Balance Sheets and claims expenses are recorded in Cost of sales on the Consolidated Statements of Comprehensive Income. The following details the activity in the reserve for the three and nine months ended December 31, 2022 and January 1, 2022 (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Balance at beginning of period $ 7,790 $ 7,350 $ 8,149 $ 7,451 Net incurred losses during the period 8,464 5,046 25,050 20,303 Net claim payments during the period ( 7,163 ) ( 4,916 ) ( 24,108 ) ( 20,274 ) Balance at end of period $ 9,091 $ 7,480 $ 9,091 $ 7,480 16. Income Taxes For the three and nine months ended December 31, 2022, Income tax (expense) benefit included $ 2.4 million and $ 5.1 million, respectively, of estimated tax credits related to the manufacture and sale of energy efficient homes. This credit was initially established under the Federal Energy Policy Act of 2005 and most recently extended in the Consolidated Appropriations Act, 2021. The three and nine months ended January 1, 2022 included $ 34.4 million of such credits, which included catch up credits for homes sold between 2018 through 2021, and resulted in a net Income tax benefit of $ 20.7 million and $ 0.9 million, respectively. 16 Table of Contents 17. Commitments and Contingencies Repurchase Contingencies . We are contingently liable under terms of repurchase agreements with financial institutions providing inventory financing to independent distributors of our products. These arrangements, which are customary in the industry, provide for the repurchase of products sold to distributors in the event of default by the distributor. The maximum amount for which the Company was liable under such agreements approximated $ 193.5 million and $ 141.0 million at December 31, 2022 and April 2, 2022, respectively, without reduction for the resale value of the homes. We had a reserve for repurchase commitments of $ 4.9 million at December 31, 2022 and $ 3.6 million at April 2, 2022, and there were no repurchases during either period. Construction-Period Mortgages. We fund construction-period mortgages through periodic advances during home construction. At the time of initial funding, we commit to fully fund the loan contract in accordance with a predetermined schedule. The total loan contract amount, less cumulative advances, represents an off-balance sheet contingent commitment to fund future advances. Loan contracts with off-balance sheet commitments are summarized below (in thousands): December 31, 2022 April 2, 2022 Construction loan contract amount $ 3,251 $ 9,330 Cumulative advances ( 757 ) ( 3,547 ) $ 2,494 $ 5,783 Representations and Warranties of Mortgages Sold . We sell loans to Government-Sponsored Enterprises ("GSEs") and whole-loan purchasers. In connection with these activities, we provide representations and warranties related to the loans sold or financed. Upon a breach of a representation, we may be required to repurch ase the loan or to indemnify a party for incurred losses. We maintain a reserve for these contingent repurchase and indemnification obliga tions. This reserve of $ 819,000 as of December 31, 2022 and $ 866,000 as of April 2, 2022, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets, reflects management's estimate of probable loss. There were no claim requests that resulted in the repurchase of a loan during the nine months ended December 31, 2022. Interest Rate Lock Commitments . In originating loans for sale, we issue interest rate lock commitments ("IRLCs") to prospective borrowers. These IRLCs bind us to fund the approved loan at the specified rate regardless of whether interest rates or market prices for similar loans have changed between the commitment date and the closing date. As of December 31, 2022, we had outstanding IRLCs with a notional amount of $ 41.0 million. For the three months ended December 31, 2022, we recognized gains of $ 12,000 on outstandin g IRLCs. There were no gains or losses on outstanding IRLCs for the three months ended January 1, 2022. For the nine months ended December 31, 2022 and January 1, 2022, we recognized gains of $ 43,000 and $ 42,000 , respectively. Forward Sales Commitments . We manage the risk profiles of a portion of the outstanding IRLCs and mortgage loans held for sale by entering into forward sales of mortgage-backed securities and whole loan sale commitments (collectively "Commitments"). As of December 31, 2022, we had $ 3.9 million in outstanding Commitments. We recognized non-cash losses of $ 197,000 and $ 61,000 during the three months ended December 31, 2022 and January 1, 2022 , respectively . During the nine months ended December 31, 2022 and January 1, 2022, we recognized losses of $ 282,000 and $ 329,000 , respectively. 17 Table of Contents Legal Matters. We are party to certain lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on our consolidated financial position, liquidity or results of operations after taking into account any existing reserves, which reserves are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets. However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods. 18. Stockholders' Equity and Redeemable Noncontrolling Interest The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the nine months ended December 31, 2022 (dollars in thousands): Equity Attributable to Cavco Stockholders Treasury stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Redeemable noncontrolling interest Common Stock Shares Amount Balance, April 2, 2022 9,292,278 $ 93 $ ( 61,040 ) $ 263,049 $ 628,756 $ ( 403 ) $ 830,455 $ 825 Net income — — — — 59,602 — 59,602 92 Other comprehensive loss, net — — — — — ( 112 ) ( 112 ) — Issuance of common stock under stock incentive plans, net 5,957 — — ( 848 ) — — ( 848 ) — Stock-based compensation — — — 1,425 — — 1,425 — Common stock repurchases — — ( 38,960 ) — — — ( 38,960 ) — Distributions — — — — — — — ( 240 ) Balance, July 2, 2022 9,298,235 $ 93 $ ( 100,000 ) $ 263,626 $ 688,358 $ ( 515 ) $ 851,562 $ 677 Net income — — — — 74,116 — 74,116 82 Other comprehensive loss, net — — — — — ( 303 ) ( 303 ) — Issuance of common stock under stock incentive plans, net 15,917 — — 1,457 — — 1,457 — Stock-based compensation — — — 2,100 — — 2,100 — Distributions — — — — — — — ( 240 ) Subsequent valuation adjustment — — — — — — — 407 Balance, October 1, 2022 9,314,152 $ 93 $ ( 100,000 ) $ 267,183 $ 762,474 $ ( 818 ) $ 928,932 $ 926 Net income — — — — 59,524 — 59,524 65 Other comprehensive income, net — — — — — 74 74 — Issuance of common stock under stock incentive plans, net 5,548 — — ( 90 ) — — ( 90 ) — Stock-based compensation — — — 1,330 — — 1,330 — Common stock repurchases — — ( 34,270 ) — — — ( 34,270 ) — Distributions — — — — — — — ( 120 ) Subsequent valuation adjustment — — — — — — — 61 Balance, December 31, 2022 9,319,700 $ 93 $ ( 134,270 ) $ 268,423 $ 821,998 $ ( 744 ) $ 955,500 $ 932 18 Table of Contents The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the nine months ended January 1, 2022 (dollars in thousands): Equity Attributable to Cavco Stockholders Treasury stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Redeemable noncontrolling interest Common Stock Shares Amount Balance, April 3, 2021 9,241,256 $ 92 $ ( 1,441 ) $ 253,835 $ 431,057 $ 97 $ 683,640 $ — Net income — — — — 27,046 — 27,046 — Other comprehensive loss, net — — — — — ( 13 ) ( 13 ) — Issuance of common stock under stock incentive plans, net 4,465 — — 136 — — 136 — Stock-based compensation — — — 1,100 — — 1,100 — Common stock repurchases — — ( 12,842 ) — — — ( 12,842 ) — Balance, July 3, 2021 9,245,721 $ 92 $ ( 14,283 ) $ 255,071 $ 458,103 $ 84 $ 699,067 $ — Initial value of noncontrolling interest upon transaction — — — — — — — 1,235 Net income — — — — 37,610 — 37,610 73 Other comprehensive loss, net — — — — — ( 13 ) ( 13 ) — Issuance of common stock under stock incentive plans, net 29,295 1 — 2,728 — — 2,729 — Stock-based compensation — — — 1,317 — — 1,317 — Common stock repurchases — — ( 7,594 ) — — — ( 7,594 ) — Distributions — — — — — — — ( 180 ) Balance, October 2, 2021 9,275,016 $ 93 $ ( 21,877 ) $ 259,116 $ 495,713 $ 71 $ 733,116 $ 1,128 Net income — — — — 79,419 — 79,419 196 Other comprehensive loss, net — — — — — ( 113 ) ( 113 ) — Issuance of common stock under stock incentive plans, net 14,592 — — 1,437 — — 1,437 — Stock-based compensation — — — 1,043 — — 1,043 — Common stock repurchases — — ( 8,690 ) — — — ( 8,690 ) — Distributions — — — — — — — ( 120 ) Balance, January 1, 2022 9,289,608 $ 93 $ ( 30,567 ) $ 261,596 $ 575,132 $ ( 42 ) $ 806,212 $ 1,204 19 Table of Contents 19. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Net income attributable to Cavco common stockholders $ 59,524 $ 79,419 $ 193,242 $ 144,075 Weighted average shares outstanding Basic 8,870,565 9,174,224 8,897,405 9,187,828 Effect of dilutive securities 65,510 96,214 71,699 83,027 Diluted 8,936,075 9,270,438 8,969,104 9,270,855 Net income per share attributable to Cavco common stockholders Basic $ 6.71 $ 8.66 $ 21.72 $ 15.68 Diluted $ 6.66 $ 8.57 $ 21.55 $ 15.54 Anti-dilutive common stock equivalents excluded 930 1,640 776 2,449 20. Fair Value Measurements The book value and estimated fair value of our financial instruments were as follows (in thousands): December 31, 2022 April 2, 2022 Book Value Estimated Fair Value Book Value Estimated Fair Value Available-for-sale debt securities $ 19,036 $ 19,036 $ 17,760 $ 17,760 Marketable equity securities 14,103 14,103 16,780 16,780 Non-marketable equity investments 5,290 5,290 20,479 20,479 Consumer loans receivable 40,666 47,039 49,884 53,354 Commercial loans receivable 77,973 73,343 68,566 65,942 Other secured financing ( 2,450 ) ( 2,357 ) ( 2,933 ) ( 3,119 ) See Note 19, Fair Value Measurements, and the Fair Value of Financial Instruments caption in Note 1, Summary of Significant Accounting Policies, in the Form 10-K for more information on the methodologies we use in determining fair value. Mortgage Servicing . Mortgage Servicing Rights ("MSRs") are the rights to receive a portion of the interest coupon and fees collected from the mortgagors for performing specified mortgage servicing activities. MSRs are recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets. December 31, 2022 April 2, 2022 Number of loans serviced with MSRs 4,101 4,346 Weighted average servicing fee (basis points) 34.72 34.76 Capitalized servicing multiple 114.0 % 85.07 % Capitalized servicing rate (basis points) 39.57 29.57 Serviced portfolio with MSRs (in thousands) $ 526,535 $ 560,178 MSRs (in thousands) $ 2,083 $ 1,656 20 Table of Contents 21. Related Party Transactions In addition to our Company-owned stores, we have non-marketable equity investments in other manufactured housing distributors. In the ordinary course of business, we sell homes and lend to certain of these distributors through our commercial lending programs. For the three and nine months ended December 31, 2022, the total amount of sales to related parties was $ 18.7 million and $ 56.0 million, respectively. For the three and nine months ended January 1, 2022, the total amount of sales to related parties was $ 15.8 million and $ 44.6 million, respectively. As of December 31, 2022, receivables from related parties included $ 6.3 million of accounts receivable and $ 3.3 million of commercial loans outstanding. As of April 2, 2022, receivables from related parties included $ 3.3 million of accounts receivable and $ 2.6 million of commercial loans outstanding. 22. Business Segment Information We operate principally in two segments: (1) factory-built housing, which includes wholesale and retail factory-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance. The following table provides selected financial data by segment (in thousands): Three Months Ended Nine Months Ended December 31, 2022 January 1, 2022 December 31, 2022 January 1, 2022 Net revenue Factory-built housing $ 481,193 $ 413,590 $ 1,613,392 $ 1,067,967 Financial services 19,410 18,124 52,941 53,712 $ 500,603 $ 431,714 $ 1,666,333 $ 1,121,679 Income before income taxes Factory-built housing $ 71,813 $ 52,905 $ 241,959 $ 133,357 Financial services 4,268 6,030 6,243 10,077 $ 76,081 $ 58,935 $ 248,202 $ 143,434 December 31, 2022 April 2, 2022 Total assets: Factory-built housing $ 1,072,652 $ 929,535 Financial services 191,822 225,437 $ 1,264,474 $ 1,154,972 23. Subsequent Event As announced on January 3, 2023 in a current report on Form 8-K, we completed the acquisition of Solitaire Inc. and other related entities (collectively "Solitaire Homes"), including their four manufacturing facilities and twenty-two retail locations. The addition of Solitaire Homes to our existing manufacturing and retail system strengthens our position in the Southwest and expands our manufacturing capabilities into Mexico. The purchase price totaled $ 93 million, before certain customary adjustments, and was funded with cash on hand. The allocation of the purchase price is still preliminary as of the date of this report and will be finalized upon completion of the analysis of the fair values of the acquired assets, liabilities assumed and intangible assets. We expect to finalize these amounts as soon as possible but no later than one year from the acquisition date. Accordingly, supplemental pro-forma information is not available and is therefore omitted. 21 Table of Contents