What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-04 compared with 2023-02-03 · 297 added, 252 removed, 441 unchanged (55% of the section changed)

43 unchanged sentences

Treasury stock, at cost;

556,344 and 241,773 shares, respectively

671,801 shares

( 164,452 ) ( 164,452 )

8 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended Nine Months Ended

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

$ 475,875 $ 588,338

6 unchanged sentences

56,199 78,588

Interest income 4,618 1,314

Interest expense

( 266 ) ( 161 )

Other income, net

3,233 4,258 6,455 11,387

Other income (expense), net 126 ( 431 )

Income before income taxes

60,677 79,310

Income tax (expense) benefit ( 16,492 ) 20,680 ( 54,721 ) 910

Income tax expense ( 14,266 ) ( 19,616 )

46,411 59,694

8 unchanged sentences

Applicable income taxes

( 23 ) 27 86 34

Comprehensive income 46,369 59,582

11 unchanged sentences

(Dollars in thousands)

Nine Months Ended

2022 January 1,

Three Months Ended

OPERATING ACTIVITIES

6 unchanged sentences

Non-cash interest income, net ( 297 ) ( 257 )

Gain on sale or retirement of property, plant and equipment, net ( 116 ) ( 307 )

Loss (gain) on sale or retirement of property, plant and equipment, net 190 ( 232 )

Gain on investments and sale of loans, net ( 3,165 ) ( 288 )

Distributions of earnings from equity method investments 4,306 —

Changes in operating assets and liabilities, net of acquisitions

1 unchanged sentence

Consumer loans receivable originated ( 36,737 ) ( 47,467 )

Proceeds from sales of consumer loans 146,050 142,445

Proceeds from sales of consumer loans receivable 42,363 47,881

Principal payments received on consumer loans receivable 1,819 2,421

1 unchanged sentence

Prepaid expenses and other current assets 15,151 7,359

Commercial loans receivable ( 9,652 ) 8,080

Commercial loans receivable originated ( 28,726 ) ( 22,776 )

Principal payments received on commercial loans receivable 25,216 18,981

Accounts payable and accrued expenses and other current liabilities 3,111 12,989

2 unchanged sentences

Purchases of property, plant and equipment ( 4,183 ) ( 25,007 )

Payments for acquisitions, net — ( 141,428 )

Proceeds from sale of property, plant and equipment 4,434 283

1 unchanged sentence

Proceeds from sale of investments 3,545 4,553

Return of invested capital from equity method investments 12,213 —

Net cash used in investing activities ( 29,199 ) ( 147,842 )

Net cash provided (used) by investing activities 2,086 ( 24,399 )

FINANCING ACTIVITIES

1 unchanged sentence

Proceeds from exercise of stock options 150 —

Proceeds from secured financings and other — 47

Payments on finance leases and other secured financings ( 157 ) ( 165 )

11 unchanged sentences

Right-of-use assets recognized and operating lease obligations incurred $ 687 $ 1,159

Fair value of assets acquired under finance leases $ — $ 7,158

Finance lease obligations incurred $ — $ 6,351

See accompanying Notes to Consolidated Financial Statements

8 unchanged sentences

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.

Certain prior period amounts have been reclassified including from Other income (expense), net to Interest income 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 there were no disclosable subsequent events.

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 2023 Annual Report on Form 10-K for the year ended April 1, 2023, filed with the SEC ("Form 10-K").

4 unchanged sentences

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.

The current fiscal year will end on March 30, 2024 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.

We design and build a wide variety of affordable manufactured homes, modular homes and park model RVs through 29 homebuilding production lines located throughout the United States and two production lines in Mexico.

We distribute our homes through a large network of independent distribution points in 48 states and Canada and 68 Company-owned U.S.

retail stores, of which 41 are located in Texas.

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.

CountryPlace is an approved Federal National Mortgage Association ("'FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer and a Government National Mortgage Association ("GNMA" or "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.

During fiscal 2023, we completed the acquisition of Solitaire Inc.

and other related entities (collectively "Solitaire Homes"), including their four manufacturing facilities and twenty-two retail locations by acquiring 100% of the outstanding stock of Solitaire Homes.

The results of operations are included in our Consolidated Financial Statements from the date of acquisition.

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.

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,

The following table summarizes Net revenue disaggregated by reportable segment and source (in thousands):

Three Months Ended

Factory-built housing

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

Home sales $ 439,744 $ 555,276

Delivery, setup and other revenues 17,365 17,321

457,109 572,597

1 unchanged sentence

Insurance agency commissions received from third-party insurance companies

887 1,304 3,313 3,027

All other sources 17,867 14,344

7 unchanged sentences

14,145 12,063

Current portion ( 9,911 ) ( 14,849 )

Less current portion ( 13,560 ) ( 11,728 )

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):

2022 January 1,

Cash and cash equivalents $ 352,234 $ 238,072

5 unchanged sentences

Marketable equity securities

14,103 16,780

Non-marketable equity investments

3 unchanged sentences

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.

We record investments in fixed maturity securities classified as available-for-sale at fair value and record the difference between fair value and cost in Accumulated other comprehensive loss in the Consolidated Balance Sheets.

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

July 1, 2023 April 1, 2023

Value Amortized Cost Fair

7 unchanged sentences

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

Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties.

Due in less than one year $ 3,590 $ 3,510

5 unchanged sentences

Net investment gains and losses on marketable equity securities were as follows (in thousands):

Three Months Ended Nine Months Ended

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

Marketable equity securities

22 unchanged sentences

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

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

Allowance for loan losses at beginning of period $ 1,153 $ 2,115

8 unchanged sentences

Weighted average months to maturity 153 150

The following table is a consolidated summary of the delinquency status of the principal value of outstanding consumer loans receivable (in thousands):

The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands):

2023 April 1,

4 unchanged sentences

$ 40,910 $ 45,669

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

The following table disaggregates gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):

2024 2023 2022 2021 2020 Prior Total

19 unchanged sentences

$ 11,250 $ 185 $ 2,082 $ 3,164 $ 2,765 $ 26,223 $ 45,669

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.

As of July 1, 2023, 39 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 15 % was concentrated in Florida.

As of April 1, 2023, 44 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 13 % was 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 July 1, 2023 or April 1, 2023.

Repossessed homes totaled approximately $ 1.1 million as of both July 1, 2023 and April 1, 2023 and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets.

Foreclosure or similar proceedings in progress totaled approximately $ 0.6 million and $ 0.5 million as of July 1, 2023 and April 1, 2023, respectively.

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):

The commercial loans receivable balance consists of direct financing arrangements for the home product needs of our independent distributors, community owners and developers.

Commercial loans receivable, net consisted of the following (in thousands):

2023 April 1,

3 unchanged sentences

105,459 101,977

Less current portion ( 34,197 ) ( 32,644 )

Less current portion of commercial loans receivable (including from affiliates), net ( 50,263 ) ( 44,054 )

$ 55,196 $ 57,923

4 unchanged sentences

The following table represents changes in the estimated allowance for loan losses (in thousands):

Three Months Ended Nine Months Ended

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

Balance at beginning of period

1 unchanged sentence

Change in estimated loan losses, net

132 304 244 314

Balance at end of period

2 unchanged sentences

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

As of July 1, 2023 and April 1, 2023, there were no commercial loans considered watch list or nonperforming.

The following table disaggregates our commercial loans receivable by credit quality indicator and fiscal year of origination (in thousands):

2024 2023 2022 2021 2020 Prior Total

3 unchanged sentences

$ 80,193 $ 16,028 $ 4,071 $ 2,203 $ 1,231 $ — $ 103,726

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 .

As of July 1, 2023, 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 July 1, 2023 and April 1, 2023, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 17 % and 18 %, respectively.

No other state had concentrations in excess of 10 % of the outstanding principal balance of the commercial loans receivable as of July 1, 2023 or April 1, 2023.

As of July 1, 2023 and April 1, 2023, one independent third-party and its affiliates comprised 13 % and 12 %, respectively, of the net commercial loans receivable principal balance outstanding, all of which was secured .

Property, Plant and Equipment, net

9 unchanged sentences

$ 223,663 $ 228,278

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.

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,

Operating lease assets Operating lease right-of-use assets $ 17,230 $ 16,952

Finance lease assets Property, plant and equipment, net (1)

Total lease assets $ 23,362 $ 24,022

Lease Liabilities

Operating lease liabilities Accrued expenses and other current liabilities $ 5,389 $ 5,085

Finance lease liabilities Accrued expenses and other current liabilities 347 347

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.

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,

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

2022 January 1,

2022 December 31,

2022 January 1,

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

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 %

Depreciation expense for the three months ended July 1, 2023 and July 2, 2022 was $ 4.2 million and $ 3.4 million, respectively.

Goodwill and Other Intangibles

Goodwill and other intangibles, net, consisted of the following (in thousands):

December 31, 2022 April 2, 2022

July 1, 2023 April 1, 2023

Amount Accumulated

12 unchanged sentences

$ 149,692 $ ( 4,796 ) $ 144,896 $ 150,641 $ ( 6,304 ) $ 144,337

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.

During the three months ended July 1, 2023, fair value adjustments were made to certain assets and liabilities of Solitaire Homes in connection with purchase accounting measurement period adjustments.

This resulted in additional Goodwill of $ 1.0 million.

Amortization expense recognized on intangible assets for the three months ended July 1, 2023 and July 2, 2022 was $ 0.4 million and $ 0.5 million, respectively.

Customer relationships have a weighted average remaining life of 7.6 years and other finite lived intangibles have a weighted average remaining life of 3.3 years.

Expected amortization for future fiscal years is as follows (in thousands):

12 unchanged sentences

Activity in the liability for estimated warranties was as follows (in thousands):

Three Months Ended Nine Months Ended

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

Balance at beginning of period $ 31,368 $ 26,250

Purchase accounting additions — — — 6,928

Charged to costs and expenses 13,409 15,004

2 unchanged sentences

Other Liabilities

The following table summarizes the non-current portion of our other liabilities (in thousands):

The following table summarizes secured financings and other obligations (in thousands):

2023 April 1,

5 unchanged sentences

$ 7,909 $ 7,820

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.

We are party to a Credit Agreement that expires in 2027 with Bank of America, N.A., providing for a $ 50 million revolving credit facility (the "Revolving Credit Facility"), which may be increased up to an aggregate amount of $100 million.

Borrowings under the Revolving Credit Facility generally bear interest at the Secured Overnight Financing Rate plus a credit spread and a margin based on our Consolidated Total Leverage Ratio .

As of July 1, 2023 and April 1, 2023, there were no borrowings outstanding under the Revolving Credit Facility and we were in compliance with all covenants.

Reinsurance and Insurance Loss Reserves

3 unchanged sentences

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

July 1, 2023 July 2, 2022

Written Earned Written Earned

6 unchanged sentences

$ 14,052 $ 11,119 $ 12,527 $ 10,778

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.

Typical insurance policies written or assumed have a maximum coverage of $ 0.4 million per claim, of which we cede $ 0.2 million of the risk of loss per reinsurance.

Therefore, our risk of loss is limited to $ 0.2 million 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 $ 3.0 million per occurrence, up to a maximum of $ 100 million in the aggregate for that occurrence.

1 unchanged sentence

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

2022 January 1,

2022 December 31,

2022 January 1,

The following details the activity in the reserve for the three months ended July 1, 2023 and July 2, 2022 (in thousands):

Three Months Ended

Balance at beginning of period $ 10,939 $ 8,149

2 unchanged sentences

Balance at end of period $ 13,001 $ 8,574

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.

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.

The maximum amount for which the Company was liable under the terms of repurchase agreements with financial institutions that provide inventory financing to independent distributors of our products approximated $ 157 million and $ 178 million at July 1, 2023 and April 1, 2023, respectively, without reduction for the resale value of the homes.

During the fourth quarter of fiscal 2023, we received one repurchase demand notice and the inventory was acquired during the current quarter.

Our reserve for repurchase commitments, recorded in Accrued expenses and other current liabilities, was $ 3.9 million at July 1, 2023 and $ 5.2 million at April 1, 2023 .

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):

4 unchanged sentences

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.

The reserve for contingent repurchases and indemnification obliga tions was $ 0.7 million as of July 1, 2023 and April 1, 2023, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

There were no claim requests that resulted in the repurchase of any loans during the three months ended July 1, 2023.

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.

As of July 1, 2023, we had outstanding IRLCs with a notional amount of $ 31.1 million.

For the three months ended July 1, 2023 and July 2, 2022, we recognized insignificant non-cash gains on outstanding IRLCs.

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.

As of July 1, 2023, we had $ 1.1 million in outstanding forward sales commitments ("Commitments").

During the three months ended July 1, 2023, we recognized an insignificant gain and during the three months ended July 2, 2022, we recognized a non-cash loss of $ 0.3 million relating to our Commitments.

Legal Matters.

3 unchanged sentences

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):

The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the three months ended July 1, 2023 (dollars in thousands):

Equity Attributable to Cavco Stockholders

6 unchanged sentences

Stock-based compensation — — — 1,438 — — 1,438 —

Common stock repurchases — — ( 38,960 ) — — — ( 38,960 ) —

Distributions — — — — — — — ( 120 )

Valuation adjustment — — — — — — — ( 33 )

Balance, July 1, 2023 9,347,220 $ 93 $ ( 164,452 ) $ 272,175 $ 915,667 $ ( 657 ) $ 1,022,826 $ 1,120

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

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

Treasury stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Redeemable noncontrolling interest

Shares Amount

5 unchanged sentences

Common stock repurchases — — ( 38,960 ) — — — ( 38,960 ) —

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 — — — — — — — ( 240 )

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

Balance, July 2, 2022 9,298,235 $ 93 $ ( 100,000 ) $ 263,626 $ 688,358 $ ( 515 ) $ 851,562 $ 677

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

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

Net income attributable to Cavco common stockholders $ 46,357 $ 59,602

9 unchanged sentences

The book value and estimated fair value of our financial instruments were as follows (in thousands):

December 31, 2022 April 2, 2022

July 1, 2023 April 1, 2023

Value Estimated

13 unchanged sentences

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.

Mortgage Servicing Rights ("MSRs") are recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets.

2023 April 1,

6 unchanged sentences

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.

We have non-marketable equity investments in other distribution operations outside of Company-owned retail stores.

In the ordinary course of business, we sell homes and lend to certain of these operations through our commercial lending programs.

For the three months ended July 1, 2023 and July 2, 2022, the total amount of sales to related parties was $ 15.1 million and $ 17.2 million, respectively.

As of July 1, 2023, receivables from related parties included $ 6.5 million of accounts receivable and $ 5.1 million of commercial loans outstanding.

As of April 1, 2023, receivables from related parties included $ 5.7 million of accounts receivable and $ 4.7 million of commercial loans outstanding.

On January 3, 2023 (the "Acquisition Date"), we completed the acquisition of Solitaire Homes, including their four manufacturing facilities and twenty-two retail locations by acquiring 100% of the outstanding stock of Solitaire Homes for $ 110.8 million, subject to customary adjustments.

Our provisional estimates of the fair values of the assets that we acquired and the liabilities that we assumed were based on the information that was available as of the Acquisition Date.

We are continuing to evaluate the underlying inputs and assumptions used in our valuations.

Accordingly, these provisional estimates are subject to change during the measurement period, which is up to one year from the Acquisition Date.

During the first quarter of fiscal 2024, we made certain adjustments to the assets and liabilities based on information that became available.

The following table presents our provisional estimates of the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date as of the end of the 2024 first quarter (in thousands):

2023 Adjustments January 3, 2023

(as Adjusted at July 1, 2023)

Cash $ 5,119 $ ( 77 ) $ 5,042

Investments 334 — 334

Accounts receivable 3,536 ( 778 ) 2,758

Inventories 58,045 ( 54 ) 57,991

Property, plant and equipment 36,109 ( 70 ) 36,039

Other current assets 1,519 — 1,519

Intangible assets (1)

3,400 — 3,400

Total identifiable assets acquired 108,062 ( 979 ) 107,083

Accounts payable and accrued liabilities 11,251 ( 28 ) 11,223

Net identifiable assets acquired 96,811 ( 951 ) 95,860

13,970 951 14,921

Net assets acquired $ 110,781 $ — $ 110,781

(1) Includes $ 1.3 million assigned to trade names, which are considered indefinite lived intangible assets and are not subject to amortization, $ 1.9 million assigned to customer-related intangibles, subject to a useful life of 10 years amortized on a straight-line basis, and $ 0.2 million for covenants not to compete from the sellers amortized on a straight-line basis over the term of 5 years.

(2) Attributable to the Factory-built housing segment, all of which will be deductible for income tax purposes.

Pro Forma Impact of Acquisition (Unaudited) .

The following table presents supplemental pro forma information as if the above acquisition had occurred on April 3, 2022 (in thousands, except per share data):

Three Months Ended

Net revenue $ 624,511

Net income attributable to Cavco common stockholders 61,645

Diluted net income per share 6.86

Business Segment Information

2 unchanged sentences

The following table provides selected financial data by segment (in thousands):

Three Months Ended Nine Months Ended

2022 January 1,

2022 December 31,

2022 January 1,

Three Months Ended

Factory-built housing $ 457,109 $ 572,597

1 unchanged sentence

$ 475,875 $ 588,338

Income before income taxes

Income (loss) before income taxes:

Factory-built housing $ 61,825 $ 79,772

8 unchanged sentences

$ 1,353,047 $ 1,307,975

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.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements in this Report on Form 10-Q ("Report") include "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "will," "intends," "plans," or "anticipates," or by discussions of strategy, plans or intentions.

Forward-looking statements include, for example, discussions regarding the manufactured housing and site-built housing industries;

our financial performance and operating results;

our strategy;

our liquidity and financial resources;

our outlook with respect to Cavco Industries, Inc.

and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") and the manufactured housing business in general;

the expected effect of certain risks and uncertainties on our business, financial condition and results of operations;

economic conditions, including concerns of a possible recession, and consumer confidence;

trends in interest rates and inflation;

potential acquisitions, strategic investments and other expansions;

the sufficiency of our liquidity;

that we may seek alternative sources of financing in the future;

operational and legal risks;

how we may be affected by any pandemic or outbreak;

geopolitical conditions (including the continuing Russia-Ukraine conflict);

the cost and availability of labor and raw materials;

governmental regulations and legal proceedings;

the availability of favorable consumer and wholesale manufactured home financing;

and the ultimate outcome of our commitments and contingencies.

Forward-looking statements contained in this Report speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document.

We do not intend to publicly update or revise any forward-looking statement contained in this Report or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by law.

Forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, many of which are beyond our control.

To the extent that our assumptions and expectations differ from actual results, our ability to meet such forward-looking statements, including the ability to generate positive cash flow from operations, may be significantly hindered.

Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include, without limitation, those discussed under Risk Factors in Part I, Item 1A of our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "Form 10-K").

The following should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes that appear in Part I, Item 1 of this Report.

References to "Note" or "Notes" pertain to the Notes to our Consolidated Financial Statements.

Company Overview

Headquartered in Phoenix, Arizona, we design and produce factory-built homes primarily distributed through a network of independent and Company-owned retailers, planned community operators and residential developers.

We are one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments.

Our products are marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood, MidCountry and Solitaire.

We are also a leading producer of park model RVs, vacation cabins and factory-built commercial structures.

Our finance subsidiary, CountryPlace Acceptance Corp.

("CountryPlace"), is an approved Federal National Mortgage Association ("FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer, and a Government National Mortgage Association ("GNMA" or "Ginnie Mae") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes.

Our insurance subsidiary, Standard Casualty Company ("Standard Casualty"), provides property and casualty insurance primarily to owners of manufactured homes.

We operate a total of 31 homebuilding production lines in Millersburg and Woodburn, Oregon;

Riverside, California;

Nampa, Idaho;

Phoenix, Glendale and Goodyear, Arizona;

Deming, New Mexico;

Duncan, Oklahoma;

Austin, Fort Worth, Seguin and Waco, Texas;

Montevideo, Minnesota;

Dorchester, Wisconsin;

Nappanee and Goshen, Indiana;

Lafayette, Tennessee;

Douglas and Moultrie, Georgia;

Shippenville and Emlenton, Pennsylvania;

Martinsville and Rocky Mount, Virginia;

Crouse and Hamlet, North Carolina;

Ocala and Plant City, Florida;

and two in Ojinaga, Mexico.

We distribute our homes through a large network of independent distribution points in 48 states and Canada and 68 Company-owned U.S.

retail stores, of which 41 are located in Texas.

Company and Industry Outlook

According to data reported by the Manufactured Housing Institute, industry home shipments for the calendar year through May 2023 were 35,714, a decrease of 29.0% compared to 50,278 shipments in the same calendar period last year.

Higher interest rates and continued inflationary pressures have tempered industry demand.

However, the manufactured housing industry offers solutions to the housing crisis with lower average price per square foot than a site-built home and the comparatively low cost associated with manufactured home ownership remains competitive with rental housing.

The two largest manufactured housing consumer demographics, young adults and those who are age 55 and older, are both growing.

" First-time" and "move-up" buyers of affordable homes are historically among the largest segments of new manufactured home purchasers.

Included in this group are lower-income households that are particularly affected by periods of low employment rates and underemployment.

Consumer confidence is especially important among manufactured home buyers interested in our products for seasonal or retirement living.

We employ a concerted effort to identify niche market opportunities where our diverse product lines and flexible building capabilities provide us with a competitive advantage.

We are focused on building quality, energy efficient homes for the modern home buyer.

Our green building initiatives involve the creation of an energy efficient envelope resulting in lower utility costs, as well as the higher utilization of renewable materials in our manufacturing process.

We also build homes designed to use alternative energy sources, such as solar.

We maintain a conservative cost structure in an effort to build added value into our homes and we work diligently to maintain a solid financial position.

Our balance sheet strength, including the position in cash and cash equivalents, helps avoid liquidity problems and enables us to act effectively as market opportunities or challenges present themselves.

We continue to make certain commercial loan programs available to members of our wholesale distribution chain.

Under direct commercial loan arrangements, we provide funds for financed home purchases by distributors, community operators and residential developers (see Note 7 to the Consolidated Financial Statements).

Our involvement in commercial lending helps to increase the availability of manufactured home financing to distributors, community operators and residential developers and provides additional opportunities for product exposure to potential home buyers.

While these initiatives support our ongoing efforts to expand product distribution, they also expose us to risks associated with the creditworthiness of this customer base and our inventory financing partners.

The lack of an efficient secondary market for manufactured home-only loans and the limited number of institutions providing such loans results in higher borrowing costs for home-only loans and continues to constrain industry growth.

We work independently and with other industry participants to develop secondary market opportunities for manufactured home-only loan and non-conforming mortgage portfolios and expand lending availability in the industry.

Additionally, we continue to invest in community-based lending initiatives that provide home-only financing to residents of certain manufactured home communities.

We also develop and invest in home-only lending programs to grow sales of homes through traditional distribution points.

We believe that growing our investment and participation in home-only lending may provide additional sales growth opportunities for our factory-built housing operations and reduce our exposure to the actions of independent lenders.

Key housing building materials include wood, wood products, steel, gypsum wallboard, windows, doors fiberglass insulation, carpet, vinyl, fasteners, plumbing materials, aluminum, appliances and electrical items .

Fluctuations in the cost of materials and labor may affect gross margins from home sales to the extent that costs cannot be efficiently matched to the home sal es price.

Pricing and availability of certain raw materials have been volatile due to a number of factors in the current environment.

We continue to monitor and react to inflation in these materials by maintaining a focus on our product pricing in response to higher materials costs, but such product pricing increases may lag behind the escalation of such costs.

From time to time and to varying degrees, we may experience shortages in the availability of materials and/or labor in the markets served.

Availability of these inputs has not caused significant production halts in the current period, but we have experienced periodic shutdowns in other periods and shortages of primary building materials have caused production inefficiencies as we have needed to change processes in response to the delay in materials.

These shortages may also result in extended order backlogs, delays in the delivery of homes and reduced gross margins from home sales.

Our backlog at July 1, 2023 was $177 million compared to $244 million at April 1, 2023, a decrease of $67 million and down $823 million c ompared to $1.0 billion at July 2, 2022.

While it is difficult to predict the future of housing demand, employee availability, supply chain and Company performance and operations, maintaining an appropriately sized and well-trained workforce is key to meeting demand.

We continually review the wage rates of our production employees and have established other monetary incentive and benefit programs, with a goal of providing competitive compensation.

We are also working to more extensively use web-based recruiting tools, update our recruitment brochures and improve the appearance and appeal of our manufacturing facilities to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates.

Results of Operations

Three Months Ended

($ in thousands, except revenue per home sold) July 1,

Factory-built housing $ 457,109 $ 572,597 $ (115,488) (20.2) %

Financial services 18,766 15,741 3,025 19.2 %

$ 475,875 $ 588,338 $ (112,463) (19.1) %

Factory-built homes sold

by Company-owned retail sales centers 959 873 86 9.9 %

to independent retailers, builders, communities and developers 3,623 4,473 (850) (19.0) %

4,582 5,346 (764) (14.3) %

Net factory-built housing revenue per home sold $ 99,762 $ 107,108 $ (7,346) (6.9) %

In factory-built housing, Net revenue decreased compared to the respective period in the prior year due to lower home sales volume and lower home selling prices, partially offset by the addition of Solitaire Homes.

Net factory-built housing revenue per home sold is a volatile metric dependent upon several factors.

A primary factor is the price disparity between sales of homes to independent distributors, builders, communities and developers and sales of homes to consumers by Company-owned retail stores.

Wholesale sales prices are primarily comprised of the home and the cost to ship the home from a homebuilding facility to the home-site.

Retail home prices include these items and retail markup, as well as items that are largely subject to home buyer discretion, including, but not limited to, installation, utility connections, site improvements, landscaping and additional services.

Our h omes are constructed in one or more floor sections ("modules") which are then installed on the customer's site.

Changes in the number of modules per home, the selection of different home types/models and optional home upgrades create changes in product mix, also causing fluctuations in this metric.

For the three months ended July 1, 2023, Net revenue in Financial Services increased 19.2% primarily due to realized and unrealized gains on marketable equity securities in the insurance subsidiary's portfolio compared to losses during the prior year period and more insurance policies in force in the current period compared to the prior period.

This was partially offset by lower interest income earned on the acquired consumer loan portfolios.

Three Months Ended

($ in thousands) July 1,

Factory-built housing $ 113,368 $ 139,586 $ (26,218) (18.8) %

Financial services 4,511 5,138 (627) (12.2) %

$ 117,879 $ 144,724 $ (26,845) (18.5) %

Gross profit as % of Net revenue

Consolidated 24.8 % 24.6 % N/A 0.2 %

Factory-built housing 24.8 % 24.4 % N/A 0.4 %

Financial services 24.0 % 32.6 % N/A (8.6) %

Factory-built housing Gross profit percentage increased primarily due to favorable material costs.

In Financial services, Gross profit and Gross profit percentage decreased primarily due to higher insurance claims from Arizona and Texas weather related events partially offset by greater realized and unrealized gains on marketable equity securities in the current period compared to the same period last year.

Selling, General and Administrative Expenses

Three Months Ended

($ in thousands) July 1,

Factory-built housing $ 56,021 $ 60,923 $ (4,902) (8.0) %

Financial services 5,659 5,213 446 8.6 %

$ 61,680 $ 66,136 $ (4,456) (6.7) %

Selling, general and administrative expenses as % of Net revenue 13.0 % 11.2 % N/A 1.8 %

Selling, general and administrative expenses decreased primarily from lower legal expenses, professional fees and incentive compensation expense, partially offset by higher expenses reflecting the addition of Solitaire Homes.

Other Components of Net Income

Three Months Ended

($ in thousands) July 1,

Interest income $ 4,618 $ 1,314 $ 3,304 251.4 %

Interest expense (266) (161) (105) 65.2 %

Other income (expense), net 126 (431) 557 N/M

Income tax expense (14,266) (19,616) (5,350) (27.3) %

Effective tax rate 23.5 % 24.7 % N/A (1.20) %

Interest income consists primarily of interest earned on cash balances held in money market accounts, and interest earned on commercial floorplan lending.

Interest expense consists primarily of interest related to finance leases.

Other income (expense), net primarily consists of realized and unrealized gains and losses on corporate investments and gains and losses from the sale of property, plant and equipment.

For the three months ended July 1, 2023, we recognized a $0.1 million gain on corporate marketable investments compared to a $1.1 million loss in the prior year.

Liquidity and Capital Resources

We believe that cash and cash equivalents at July 1, 2023, together with cash flow from operations, will be sufficient to fund our operations, cover our obligations and provide for growth for the next 12 months and into the foreseeable future.

We maintain cash in U.S.

Treasury and other money market funds, some of which are in excess of federally insured limits, but we have not experienced any losses with regards to such excesses.

We expect to continue to evaluate potential acquisitions of, or strategic investments in, businesses that are complementary to the Company, as well as other expansion opportunities.

Such transactions may require the use of cash and have other impacts on our liquidity and capital resources.

We have sufficient liquid resources including our recently implemented $50.0 million Revolving Credit Facility, of which no amounts were outstanding at July 1, 2023.

Regardless, depending on our operating results and strategic opportunities, we may choose to seek additional or alternative sources of financing in the future.

There can be no assurance that such financing would be available on satisfactory terms, if at all.

If this financing were not available, it could be necessary for us to reevaluate our long-term operating plans to make more efficient use of our existing capital resources at such time.

The exact nature of any changes to our plans that would be considered depends on various factors, such as conditions in the factory-built housing industry and general economic conditions outside of our control.

State insurance regulations restrict the amount of dividends that can be paid to stockholders of insurance companies.

As a result, the assets owned by our insurance subsidiary are generally not available to satisfy the claims of Cavco or its subsidiaries.

We believe that stockholders' equity at the insurance subsidiary remains sufficient and do not believe that the ability to pay ordinary dividends to Cavco at anticipated levels will be restricted per state regulations.

The following is a summary of the Company's cash flows for the three months ended July 1, 2023 and July 2, 2022, respectively:

Three Months Ended

(in thousands) July 1,

2022 $ Change

Cash, cash equivalents and restricted cash at beginning of the fiscal year $ 283,490 $ 259,334 $ 24,156

Net cash provided by operating activities 82,293 58,240 24,053

Net cash provided (used) by investing activities 2,086 (24,399) 26,485

Net cash used in financing activities (1,490) (40,213) 38,723

Cash, cash equivalents and restricted cash at end of the period $ 366,379 $ 252,962 $ 113,417

Net cash provided by operating activities increased primarily from reductions in accounts receivable, inventories and prepaid expenses and other current assets.

These increases were partially offset by lower net income, adjusted for non-cash items.

Consumer loan originations decreased $10.8 million to $36.7 million for the three months ended July 1, 2023 from $47.5 million for the three months ended July 2, 2022, and proceeds from sales of consumer loans decreased $5.5 million .

Commercial loan originations increased $5.9 million to $28.7 million for the three months ended July 1, 2023 from $22.8 million for the three months ended July 2, 2022.

Proceeds from the collection on commercial loans provided $25.2 million this year, compared to $19.0 million in the prior year, a net increase of $6.2 million.

Net cash for investing activities consists of buying and selling debt and marketable equity securities in our Financial Services segment, purchases of property, plant and equipment and funding strategic growth acquisitions.

Cash used in the prior year period reflects the purchase of our plant facilities in Hamlet, North Carolina.

Net cash used in financing activities for the prior year period was primarily for the repurchase of common stock.

See Note 15 to the Consolidated Financial Statements for a discussion of our off-balance sheet commitments, which discussion is incorporated herein by reference.

Obligations and Commitments.

There were no material changes to the obligations and commitments as set forth in the Form 10-K.

Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the three months ended July 1, 2023, as compared to those disclosed in Part II, Item 7 of the Form 10-K, under the heading "Critical Accounting Estimates," which provides a discussion of the critical accounting estimates that management believes are critical to the Company's operating results or may affect significant judgments and estimates used in the preparation of the Company's Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements