CAVCO INDUSTRIES, INC. 10-Q

Item 1. Financial Statements CAVCO INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) September 30, 2023 April 1, 2023 ASSETS (Unaudited) Current assets Cash and cash equivalents $ 377,264 $ 271,427 Restricted cash, current 17,180 11,728 Accounts receivable, net 88,560 89,347 Short-term investments 14,358 14,978 Current portion of consumer loans receivable, net 10,503 17,019 Current portion of commercial loans receivable, net 48,583 43,414 Current portion of commercial loans receivable from affiliates, net 1,959 640 Inventories 244,476 263,150 Prepaid expenses and other current assets 72,560 92,876 Total current assets 875,443 804,579 Restricted cash 585 335 Investments 20,507 18,639 Consumer loans receivable, net 25,233 27,129 Commercial loans receivable, net 40,998 53,890 Commercial loans receivable from affiliates, net 2,928 4,033 Property, plant and equipment, net 223,664 228,278 Goodwill 116,015 114,547 Other intangibles, net 29,005 29,790 Operating lease right-of-use assets 34,413 26,755 Total assets $ 1,368,791 $ 1,307,975 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 41,095 $ 30,730 Accrued expenses and other current liabilities 264,380 262,661 Total current liabilities 305,475 293,391 Operating lease liabilities 30,529 21,678 Other liabilities 7,792 7,820 Deferred income taxes 5,740 7,581 Redeemable noncontrolling interest — 1,219 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 9,356,421 and 9,337,125 shares, respectively 94 93 Treasury stock, at cost; 844,742 and 671,801 shares, respectively ( 211,646 ) ( 164,452 ) Additional paid-in capital 274,204 271,950 Retained earnings 957,206 869,310 Accumulated other comprehensive loss ( 603 ) ( 615 ) Total stockholders' equity 1,019,255 976,286 Total liabilities, redeemable noncontrolling interest and stockholders' equity $ 1,368,791 $ 1,307,975 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 Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenue $ 452,030 $ 577,392 $ 927,905 $ 1,165,730 Cost of sales 345,073 419,793 703,069 863,407 Gross profit 106,957 157,599 224,836 302,323 Selling, general and administrative expenses 61,506 66,894 123,186 133,030 Income from operations 45,451 90,705 101,650 169,293 Interest income 5,812 1,851 10,430 3,165 Interest expense ( 257 ) ( 233 ) ( 523 ) ( 394 ) Other income, net 655 488 781 57 Income before income taxes 51,661 92,811 112,338 172,121 Income tax expense ( 10,088 ) ( 18,613 ) ( 24,354 ) ( 38,229 ) Net income 41,573 74,198 87,984 133,892 Less: net income attributable to redeemable noncontrolling interest 34 82 88 174 Net income attributable to Cavco common stockholders $ 41,539 $ 74,116 $ 87,896 $ 133,718 Comprehensive income Net income $ 41,573 $ 74,198 $ 87,984 $ 133,892 Reclassification adjustment for securities sold 3 ( 6 ) 6 ( 6 ) Applicable income taxes — 1 ( 1 ) 1 Net change in unrealized position of investments held 65 ( 377 ) 9 ( 519 ) Applicable income taxes ( 14 ) 79 ( 2 ) 109 Comprehensive income 41,627 73,895 87,996 133,477 Less: comprehensive income attributable to redeemable noncontrolling interest 34 82 88 174 Comprehensive income attributable to Cavco common stockholders $ 41,593 $ 73,813 $ 87,908 $ 133,303 Net income per share attributable to Cavco common stockholders Basic $ 4.80 $ 8.32 $ 10.15 $ 15.01 Diluted $ 4.76 $ 8.25 $ 10.05 $ 14.88 Weighted average shares outstanding Basic 8,656,537 8,903,703 8,663,430 8,910,933 Diluted 8,731,419 8,978,997 8,742,734 8,983,425 See accompanying Notes to Consolidated Financial Statements 2 Table of Contents CAVCO INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Six Months Ended September 30, 2023 October 1, 2022 OPERATING ACTIVITIES Net income $ 87,984 $ 133,892 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 9,234 8,284 Provision for credit losses ( 204 ) ( 263 ) Deferred income taxes ( 1,845 ) 630 Stock-based compensation expense 2,989 3,525 Non-cash interest income, net ( 1,413 ) ( 280 ) Loss (gain) on sale or retirement of property, plant and equipment, net 40 ( 25 ) Gain on investments and sale of loans, net ( 4,278 ) ( 3,303 ) Changes in operating assets and liabilities, net of acquisitions Accounts receivable 144 ( 562 ) Consumer loans receivable originated ( 56,158 ) ( 97,155 ) Proceeds from sales of consumer loans receivable 65,113 100,537 Principal payments received on consumer loans receivable 3,567 4,961 Inventories 19,683 10,006 Prepaid expenses and other current assets 17,823 ( 4,832 ) Commercial loans receivable originated ( 51,768 ) ( 49,491 ) Principal payments received on commercial loans receivable 59,378 41,839 Accounts payable, accrued expenses and other liabilities 9,911 15,179 Net cash provided by operating activities 160,200 162,942 INVESTING ACTIVITIES Purchases of property, plant and equipment ( 8,470 ) ( 33,188 ) Payments for acquisitions, net ( 1,298 ) — Proceeds from sale of property, plant and equipment 4,490 402 Purchases of investments ( 6,499 ) ( 9,742 ) Proceeds from sale of investments 5,356 7,595 Net cash used in investing activities ( 6,421 ) ( 34,933 ) FINANCING ACTIVITIES Payments for taxes on stock option exercises and releases of equity awards ( 1,643 ) ( 982 ) Proceeds from exercise of stock options 909 1,591 Payments on finance leases and other secured financings ( 295 ) ( 393 ) Payments for common stock repurchases ( 40,911 ) ( 38,960 ) Distributions to noncontrolling interest ( 300 ) ( 480 ) Net cash used in financing activities ( 42,240 ) ( 39,224 ) Net increase in cash, cash equivalents and restricted cash 111,539 88,785 Cash, cash equivalents and restricted cash at beginning of the fiscal year 283,490 259,334 Cash, cash equivalents and restricted cash at end of the period $ 395,029 $ 348,119 Supplemental disclosures of cash flow information Cash paid for income taxes $ 18,641 $ 48,027 Cash paid for interest $ 368 $ 142 Supplemental disclosures of noncash activity Change in GNMA loans eligible for repurchase $ ( 3,250 ) $ ( 3,286 ) Right-of-use assets recognized and operating lease obligations incurred $ 10,490 $ 1,445 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 (Unaudited), unless otherwise stated. In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, which are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified including from Other income, 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"). 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 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 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 as well as 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 and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association ("GNMA") 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. 4 Table of Contents 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. See Note 21. We have a 70% interest in Craftsman Homes, LLC and Craftsman Homes Development, LLC (collectively "Craftsman"). On September 28, 2023, we executed an amendment to the Membership Interest Purchase Agreement for Craftsman to acquire the remaining 30% ownership for cash on December 31, 2023. Under the original agreement, we were obligated to purchase 20% on December 31, 2023, and the remaining 10% was under a put/call arrangement with no specified timetable. As the remaining 10% was not mandatorily redeemable, it was classified as a temporary equity mezzanine item between liabilities and stockholders' equity in the Consolidated Balance Sheets as Redeemable noncontrolling interest. As the remaining 10% is now mandatorily redeemable, the value attributed to this noncontrolling interest is included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets at fair value. 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. 2. Revenue from Contracts with Customers The following table summarizes Net revenue disaggregated by reportable segment and source (in thousands): Three Months Ended Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Factory-built housing Home sales $ 410,040 $ 544,501 $ 849,784 $ 1,099,777 Delivery, setup and other revenues 24,026 15,101 41,391 32,422 434,066 559,602 891,175 1,132,199 Financial services Insurance agency commissions received from third-party insurance companies 1,017 1,029 1,916 2,426 All other sources 16,947 16,761 34,814 31,105 17,964 17,790 36,730 33,531 $ 452,030 $ 577,392 $ 927,905 $ 1,165,730 3. Restricted Cash Restricted cash consisted of the following (in thousands): September 30, 2023 April 1, 2023 Cash related to CountryPlace customer payments to be remitted to third parties $ 15,567 $ 11,123 Other restricted cash 2,198 940 17,765 12,063 Less current portion ( 17,180 ) ( 11,728 ) $ 585 $ 335 Corresponding amounts for customer payments to be remitted to third parties are recorded in Accounts payable. 5 Table of Contents 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): September 30, 2023 October 1, 2022 Cash and cash equivalents $ 377,264 $ 333,249 Restricted cash 17,765 14,870 $ 395,029 $ 348,119 4. Investments Investments consisted of the following (in thousands): September 30, 2023 April 1, 2023 Available-for-sale debt securities $ 19,821 $ 18,555 Marketable equity securities 10,121 9,989 Non-marketable equity investments 4,923 5,073 34,865 33,617 Less short-term investments ( 14,358 ) ( 14,978 ) $ 20,507 $ 18,639 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 other retail distribution operations and community-based initiatives. 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): September 30, 2023 April 1, 2023 Amortized Cost Fair Value Amortized Cost Fair Value Residential mortgage-backed securities $ 2,254 $ 2,168 $ 2,567 $ 2,488 State and political subdivision debt securities 5,911 5,687 6,023 5,769 Corporate debt securities 12,419 11,966 10,745 10,298 $ 20,584 $ 19,821 $ 19,335 $ 18,555 6 Table of Contents 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). Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties. September 30, 2023 Amortized Cost Fair Value Due in less than one year $ 3,422 $ 3,365 Due after one year through five years 14,269 13,651 Due after five years through ten years 250 250 Due after ten years 389 387 Mortgage-backed securities 2,254 2,168 $ 20,584 $ 19,821 Net investment gains and losses on marketable equity securities were as follows (in thousands): Three Months Ended Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Marketable equity securities Net (loss) gain recognized during the period $ ( 185 ) $ ( 233 ) $ 275 $ ( 2,575 ) Less: Net (gain) loss recognized on securities sold during the period ( 110 ) 216 ( 130 ) 290 Unrealized (loss) gain recognized during the period on securities still held $ ( 295 ) $ ( 17 ) $ 145 $ ( 2,285 ) 5. Inventories Inventories consisted of the following (in thousands): September 30, 2023 April 1, 2023 Raw materials $ 85,663 $ 92,045 Work in process 28,290 29,022 Finished goods 130,523 142,083 $ 244,476 $ 263,150 7 Table of Contents 6. Consumer Loans Receivable The following table summarizes consumer loans receivable (in thousands): September 30, 2023 April 1, 2023 Loans held for investment, previously securitized $ 18,756 $ 21,000 Loans held for investment 13,045 13,117 Loans held for sale 5,208 10,846 Construction advances 84 706 37,093 45,669 Deferred financing fees and other, net ( 312 ) ( 368 ) Allowance for loan losses ( 1,045 ) ( 1,153 ) 35,736 44,148 Less current portion ( 10,503 ) ( 17,019 ) $ 25,233 $ 27,129 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 Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Allowance for loan losses at beginning of period $ 1,144 $ 1,905 $ 1,153 $ 2,115 Change in estimated loan losses, net ( 99 ) ( 166 ) ( 108 ) ( 376 ) Charge-offs — — — ( 19 ) Recoveries — — — 19 Allowance for loan losses at end of period $ 1,045 $ 1,739 $ 1,045 $ 1,739 The consumer loans held for investment had the following characteristics: September 30, 2023 April 1, 2023 Weighted average contractual interest rate 8.1 % 8.2 % Weighted average effective interest rate 9.2 % 8.8 % Weighted average months to maturity 164 150 The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands): September 30, 2023 April 1, 2023 Current $ 35,457 $ 43,252 31 to 60 days 157 1,247 61 to 90 days 185 213 91+ days 1,294 957 $ 37,093 $ 45,669 8 Table of Contents The following table disaggregates gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands): September 30, 2023 2024 2023 2022 2021 2020 Prior Total Prime- FICO score 680 and greater $ 4,009 $ 668 $ 182 $ 991 $ 1,945 $ 16,007 $ 23,802 Near Prime- FICO score 620-679 546 — — 1,217 1,062 9,238 12,063 Sub-Prime- FICO score less than 620 — — — 18 50 834 902 No FICO score — — — — — 326 326 $ 4,555 $ 668 $ 182 $ 2,226 $ 3,057 $ 26,405 $ 37,093 April 1, 2023 2023 2022 2021 2020 2019 Prior Total Prime- FICO score 680 and greater $ 9,471 $ 185 $ 1,051 $ 1,982 $ 1,191 $ 16,601 $ 30,481 Near Prime- FICO score 620-679 1,695 — 1,012 1,131 1,550 8,244 13,632 Sub-Prime- FICO score less than 620 84 — 19 51 — 1,033 1,187 No FICO score — — — — 24 345 369 $ 11,250 $ 185 $ 2,082 $ 3,164 $ 2,765 $ 26,223 $ 45,669 As of September 30, 2023, 40 % of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 14 % 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 September 30, 2023 or April 1, 2023. Repossessed homes totaled approximately $ 0.6 million and $ 1.1 million as of September 30, 2023 and April 1, 2023, respectively, and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets. Homes undergoing foreclosure or similar proceedings in progress totaled approximately $ 0.8 million and $ 0.5 million as of September 30, 2023 and April 1, 2023, 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 owners and developers. Commercial loans receivable, net consisted of the following (in thousands): September 30, 2023 April 1, 2023 Loans receivable $ 96,148 $ 103,726 Allowance for loan losses ( 1,497 ) ( 1,586 ) Deferred financing fees, net ( 183 ) ( 163 ) 94,468 101,977 Less current portion of commercial loans receivable (including from affiliates), net ( 50,542 ) ( 44,054 ) $ 43,926 $ 57,923 9 Table of Contents The commercial loans receivable balance had the following characteristics: September 30, 2023 April 1, 2023 Weighted average contractual interest rate 7.5 % 7.6 % Weighted average months outstanding 11 9 The following table represents changes in the estimated allowance for loan losses (in thousands): Three Months Ended Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Balance at beginning of period $ 1,614 $ 1,054 $ 1,586 $ 1,011 Change in estimated loan losses, net ( 117 ) 69 ( 89 ) 112 Balance at end of period $ 1,497 $ 1,123 $ 1,497 $ 1,123 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 September 30, 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): September 30, 2023 2024 2023 2022 2021 2020 Prior Total Performing $ 34,942 $ 47,827 $ 8,306 $ 2,652 $ 1,538 $ 883 $ 96,148 April 1, 2023 2023 2022 2021 2020 2019 Prior Total Performing $ 80,193 $ 16,028 $ 4,071 $ 2,203 $ 1,231 $ — $ 103,726 As of September 30, 2023 and April 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 September 30, 2023, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 16 % and California of 11 %. As of April 1, 2023, 18 % of our outstanding principal balance of the commercial loans receivable balance was in New York. No other state had concentrations in excess of 10 % of the outstanding principal balance of the commercial loans receivable as of September 30, 2023 or April 1, 2023. As of September 30, 2023 and April 1, 2023, one independent third-party and its affiliates comprised 12 % 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): September 30, 2023 April 1, 2023 Property, plant and equipment, at cost Buildings and improvements $ 169,331 $ 167,291 Machinery and equipment 75,381 76,826 Land 39,822 39,822 Construction in progress 8,228 5,472 292,762 289,411 Accumulated depreciation ( 69,098 ) ( 61,133 ) $ 223,664 $ 228,278 Depreciation expense for the three and six months ended September 30, 2023 was $ 4.3 million and $ 8.4 million, respectively. Depreciation expense for the three and six months ended October 1, 2022 was $ 3.8 million and $ 7.3 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 September 30, 2023 and April 1, 2023 (in thousands): Classification September 30, 2023 April 1, 2023 ROU assets Operating lease assets Operating lease right-of-use assets $ 34,413 $ 26,755 Finance lease assets Property, plant and equipment, net (1) 6,044 6,088 Total lease assets $ 40,457 $ 32,843 Lease Liabilities Current: Operating lease liabilities Accrued expenses and other current liabilities $ 5,027 $ 6,262 Finance lease liabilities Accrued expenses and other current liabilities 78 347 Non-current: Operating lease liabilities Operating lease liabilities 30,529 21,678 Finance lease liabilities Other liabilities 6,127 5,896 Total lease liabilities $ 41,761 $ 34,183 (1) Recorded net of accumulated amortization of $ 0.3 million as of September 30, 2023 and April 1, 2023. 11 Table of Contents The present value of minimum payments for future fiscal years under non-cancelable leases as of September 30, 2023 was as follows (in thousands): Operating Leases Finance Leases Total Remainder of fiscal 2024 $ 3,254 $ 178 $ 3,432 Fiscal 2025 6,582 356 6,938 Fiscal 2026 6,160 356 6,516 Fiscal 2027 3,655 356 4,011 Fiscal 2028 3,141 356 3,497 Fiscal 2029 3,072 356 3,428 Thereafter 18,140 10,230 28,370 44,004 12,188 56,192 Less: Amount representing interest ( 8,448 ) ( 5,983 ) ( 14,431 ) $ 35,556 $ 6,205 $ 41,761 10. Goodwill and Other Intangibles Goodwill and other intangibles, net, consisted of the following (in thousands): September 30, 2023 April 1, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Indefinite-lived Goodwill $ 116,015 $ — $ 116,015 $ 114,547 $ — $ 114,547 Trademarks and trade names 16,980 — 16,980 16,980 — 16,980 State insurance licenses 1,100 — 1,100 1,100 — 1,100 134,095 — 134,095 132,627 — 132,627 Finite-lived Customer relationships 15,000 ( 4,616 ) 10,384 16,900 ( 5,818 ) 11,082 Other 1,114 ( 573 ) 541 1,114 ( 486 ) 628 $ 150,209 $ ( 5,189 ) $ 145,020 $ 150,641 $ ( 6,304 ) $ 144,337 During the six months ended September 30, 2023, fair value adjustments were made to certain assets and liabilities of Solitaire Homes in connection with the purchase accounting measurement period. This resulted in additional Goodwill of $ 1.0 million. See Note 21. 12 Table of Contents Amortization expense recognized on intangible assets for the three and six months ended September 30, 2023 was $ 0.4 million and $ 0.8 million, respectively. Amortization expense recognized on intangible assets for the three and six months ended October 1, 2022 was $ 0.5 million and $ 1.0 million, respectively. Customer relationships have a weighted average remaining life of 7.4 years and other finite lived intangibles have a weighted average remaining life of 3.0 years. Expected amortization for future fiscal years is as follows (in thousands): Remainder of fiscal year 2024 $ 785 Fiscal 2025 1,530 Fiscal 2026 1,488 Fiscal 2027 1,415 Fiscal 2028 1,299 Fiscal 2029 1,265 Thereafter 3,143 $ 10,925 11. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): September 30, 2023 April 1, 2023 Salaries, wages and benefits $ 45,250 $ 47,100 Customer deposits 43,477 45,193 Estimated warranties 33,015 31,368 Unearned insurance premiums 30,449 27,901 Accrued volume rebates 23,925 22,858 Other 88,264 88,241 $ 264,380 $ 262,661 12. Warranties Activity in the liability for estimated warranties was as follows (in thousands): Three Months Ended Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Balance at beginning of period $ 32,401 $ 28,802 $ 31,368 $ 26,250 Charged to costs and expenses 12,206 13,623 25,615 28,627 Payments and deductions ( 11,592 ) ( 11,584 ) ( 23,968 ) ( 24,036 ) Balance at end of period $ 33,015 $ 30,841 $ 33,015 $ 30,841 13 Table of Contents 13. Other Liabilities The following table summarizes secured financings and other obligations (in thousands): September 30, 2023 April 1, 2023 Finance lease payables $ 6,205 $ 6,243 Mandatorily redeemable noncontrolling interest 2,442 2,268 Other secured financing 2,067 2,379 10,714 10,890 Less current portion included in Accrued expenses and other current liabilities ( 2,922 ) ( 3,070 ) $ 7,792 $ 7,820 14. Debt We are party to a Credit Agreement (the "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 . 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. The Credit Agreement also contains customary representations and warranties, and affirmative negative covenants. As of September 30, 2023 and April 1, 2023, 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. 14 Table of Contents The effects of reinsurance on premiums written and earned were as follows (in thousands): Three Months Ended September 30, 2023 October 1, 2022 Written Earned Written Earned Direct premiums $ 10,067 $ 9,371 $ 7,168 $ 7,338 Assumed premiums—nonaffiliated 9,505 8,851 8,818 8,211 Ceded premiums—nonaffiliated ( 6,438 ) ( 6,438 ) ( 4,414 ) ( 4,414 ) $ 13,134 $ 11,784 $ 11,572 $ 11,135 Six Months Ended September 30, 2023 October 1, 2022 Written Earned Written Earned Direct premiums $ 20,446 $ 18,047 $ 14,896 $ 14,388 Assumed premiums—nonaffiliated 19,305 17,421 17,846 16,168 Ceded premiums—nonaffiliated ( 12,565 ) ( 12,565 ) ( 8,643 ) ( 8,643 ) $ 27,186 $ 22,903 $ 24,099 $ 21,913 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. 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 six months ended September 30, 2023 and October 1, 2022 (in thousands): Three Months Ended Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Balance at beginning of period $ 13,001 $ 8,574 $ 10,939 $ 8,149 Net incurred losses during the period 8,586 7,809 19,663 16,586 Net claim payments during the period ( 12,433 ) ( 8,593 ) ( 21,448 ) ( 16,945 ) Balance at end of period $ 9,154 $ 7,790 $ 9,154 $ 7,790 16. Commitments and Contingencies Repurchase Contingencies . 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 September 30, 2023 and April 1, 2023, respectively, without reduction for the resale value of the homes. During the second quarter of fiscal 2024, we received one repurchase demand notice and the inventory was obtained shortly after period end. As the fair value of the inventory exceeded its carrying value, no reserve was deemed necessary. During the fourth quarter of fiscal 2023, we received one repurchase demand notice and the inventory was acquired during the first quarter of fiscal 2024. Our reserve for repurchase commitments, recorded in Accrued expenses and other current liabilities, was $ 3.7 million at September 30, 2023 and $ 5.2 million at April 1, 2023 . 15 Table of Contents Construction-Period Mortgages. Loan contracts with off-balance sheet commitments are summarized below (in thousands): September 30, 2023 April 1, 2023 Construction loan contract amount $ 371 $ 2,214 Cumulative advances ( 84 ) ( 706 ) $ 287 $ 1,508 Representations and Warranties of Mortgages Sold . The reserve for contingent repurchases and indemnification obliga tions was $ 0.6 million as of September 30, 2023 and $ 0.7 million as of 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 six months ended September 30, 2023 or October 1, 2022 . Interest Rate Lock Commitments ("IRLCs") . As of September 30, 2023, w e had outstanding IRLCs with a notional amount of $ 31.6 million. For the three and six months ended September 30, 2023, we recognized insignificant non-cash losses on outstanding IRLCs. For the three and six months ended October 1, 2022, we recognized insignificant non-cash losses and gains, respectively, on outstanding IRLCs. Forward Sales Commitments . As of September 30, 2023, we had $ 1.5 million in outstanding forward sales commitments ("Commitments"). During the three and six months ended September 30, 2023, we recognized insignificant non-cash gains. During the three and six months ended October 1, 2022, we recognized non-cash gains and losses of $ 0.2 million and $ 0.1 million, respectively, relating to our Commitments. 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. 16 Table of Contents 17. 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 six months ended September 30, 2023 (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 1, 2023 9,337,125 $ 93 $ ( 164,452 ) $ 271,950 $ 869,310 $ ( 615 ) $ 976,286 $ 1,219 Net income — — — — 46,357 — 46,357 54 Other comprehensive loss, net — — — — — ( 42 ) ( 42 ) — Issuance of common stock under stock incentive plans, net 10,095 — — ( 1,213 ) — — ( 1,213 ) — Stock-based compensation — — — 1,438 — — 1,438 — 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 — — — — 41,539 — 41,539 34 Other comprehensive income, net — — — — — 54 54 — Issuance of common stock under stock incentive plans, net 9,201 1 — 478 — — 479 — Stock-based compensation — — — 1,551 — — 1,551 — Common stock repurchases — — ( 47,194 ) — — — ( 47,194 ) — Distributions — — — — — — — ( 180 ) Conversion to mandatorily redeemable noncontrolling interest — — — — — — — ( 974 ) Balance, September 30, 2023 9,356,421 $ 94 $ ( 211,646 ) $ 274,204 $ 957,206 $ ( 603 ) $ 1,019,255 $ — 17 Table of Contents The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the six months ended October 1, 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 ) Valuation adjustment — — — — — — — 407 Balance, October 1, 2022 9,314,152 $ 93 $ ( 100,000 ) $ 267,183 $ 762,474 $ ( 818 ) $ 928,932 $ 926 18. 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 Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net income attributable to Cavco common stockholders $ 41,539 $ 74,116 $ 87,896 $ 133,718 Weighted average shares outstanding Basic 8,656,537 8,903,703 8,663,430 8,910,933 Effect of dilutive securities 74,882 75,294 79,304 72,492 Diluted 8,731,419 8,978,997 8,742,734 8,983,425 Net income per share attributable to Cavco common stockholders Basic $ 4.80 $ 8.32 $ 10.15 $ 15.01 Diluted $ 4.76 $ 8.25 $ 10.05 $ 14.88 Anti-dilutive common stock equivalents excluded 335 413 320 596 18 Table of Contents 19. Fair Value Measurements The book value and estimated fair value of our financial instruments were as follows (in thousands): September 30, 2023 April 1, 2023 Book Value Estimated Fair Value Book Value Estimated Fair Value Available-for-sale debt securities $ 19,821 $ 19,821 $ 18,555 $ 18,555 Marketable equity securities 10,121 10,121 9,989 9,989 Non-marketable equity investments 4,923 4,923 5,073 5,073 Consumer loans receivable 35,736 38,537 44,148 50,686 Commercial loans receivable 94,468 86,328 101,977 97,106 Other secured financing ( 2,067 ) ( 1,972 ) ( 2,379 ) ( 2,332 ) See Note 20, 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 recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets. September 30, 2023 April 1, 2023 Number of loans serviced with MSRs 3,949 4,070 Weighted average servicing fee (basis points) 34.75 34.71 Capitalized servicing multiple 181.0 % 98.99 % Capitalized servicing rate (basis points) 62.90 34.36 Serviced portfolio with MSRs (in thousands) $ 502,162 $ 520,458 MSRs (in thousands) $ 3,159 $ 1,788 20. Related Party Transactions 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 and six months ended September 30, 2023, the total amount of sales to related parties was $ 16.0 million and $ 31.0 million, respectively. For the three and six months ended October 1, 2022, the total amount of sales to related parties was $ 20.1 million and $ 37.3 million, respectively. As of September 30, 2023, receivables from related parties included $ 6.0 million of accounts receivable and $ 4.9 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. 19 Table of Contents 21. Acquisition 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 six months ended September 30, 2023, 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 second quarter (in thousands): January 3, 2023 Adjustments January 3, 2023 (as Adjusted at September 30, 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 3,400 — 3,400 Total identifiable assets acquired 108,062 ( 979 ) 107,083 Accounts payable and accrued liabilities 11,251 21 11,272 Net identifiable assets acquired 96,811 ( 1,000 ) 95,811 Goodwill 13,970 1,000 14,970 Net assets acquired $ 110,781 $ — $ 110,781 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): October 1, 2022 Three Months Ended Six Months Ended Net revenue $ 613,566 $ 1,238,077 Net income attributable to Cavco common stockholders 76,159 137,804 Diluted net income per share 8.48 15.34 20 Table of Contents 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 Six Months Ended September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net revenue: Factory-built housing $ 434,066 $ 559,602 $ 891,175 $ 1,132,199 Financial services 17,964 17,790 36,730 33,531 $ 452,030 $ 577,392 $ 927,905 $ 1,165,730 Income before income taxes: Factory-built housing $ 50,226 $ 90,374 $ 112,051 $ 170,146 Financial services 1,435 2,437 287 1,975 $ 51,661 $ 92,811 $ 112,338 $ 172,121 September 30, 2023 April 1, 2023 Total assets: Factory-built housing $ 1,168,127 $ 1,107,555 Financial services 200,664 200,420 $ 1,368,791 $ 1,307,975 21 Table of Contents