What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-02 compared with 2023-11-03 · 57 added, 51 removed, 166 unchanged (39% of the section changed)

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

discussions regarding our efforts and the efforts of other industry participants to develop the home-only loan secondary market;

our financial performance and operating results;

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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.

To the extent that our assumptions and expectations differ from actual results, our ability to meet such forward-looking statements 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").

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Douglas and Moultrie, Georgia;

Shippenville and Emlenton, Pennsylvania;

Shippenville (two lines) and Emlenton, Pennsylvania;

Martinsville and Rocky Mount, Virginia;

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Ocala and Plant City, Florida;

and two international locations in Ojinaga, Mexico.

and two international lines in Ojinaga, Mexico.

We distribute our homes through a large network of independent distribution points in 48 states and Canada and 73 Company-owned U.S.

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Company and Industry Outlook

According to data reported by the Manufactured Housing Institute, industry home shipments for the calendar year through August 2023 were 58,698, a decrease of 27.0% compared to 80,408 shipments in the same calendar period last year.

According to data reported by the Manufactured Housing Institute, industry home shipments for the calendar year through November 2023 were 82,784, a decrease of 22.2% compared to 106,454 shipments in the same calendar period last year.

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

However, the manufactured h ousing 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.

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

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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 unaudited Consolidated Financial Statements).

Under direct commercial loan arrangements, we provide funds for financed home purchases by distributors, community operators and residential developers (see Note 7, Commercial Loans Receivable to the unaudited 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.

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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 .

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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.

We continue to monitor and react to inflation in the cost of 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.

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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 September 30, 2023 was $170 million compared to $177 million at July 1, 2023, a decrease of $7 million and down $481 million c ompared to $651 million at October 1, 2022.

Our backlog at December 30, 2023 was $160 million compared to $170 million at September 30, 2023, a decrease of $10 million and down $267 million c ompared to $427 million at December 31, 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.

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Three Months Ended

($ in thousands, except revenue per home sold) September 30,

2023 October 1,

($ in thousands, except revenue per home sold) December 30,

2023 December 31,

Factory-built housing $ 426,939 $ 481,193 $ (54,254) (11.3) %

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Net factory-built housing revenue per home sold $ 102,630 $ 108,328 $ (5,698) (5.3) %

Six Months Ended

($ in thousands, except revenue per home sold) September 30,

2023 October 1,

Nine Months Ended

($ in thousands, except revenue per home sold) December 30,

2023 December 31,

Factory-built housing $ 1,318,114 $ 1,613,392 $ (295,278) (18.3) %

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Net factory-built housing revenue per home sold $ 101,471 $ 108,289 $ (6,818) (6.3) %

In Factory-built housing, Net revenue decreased for the three and six months ended September 30, 2023 compared to the respective periods in the prior year due to lower home sales volume and lower home selling prices, partially offset by the addition of Solitaire Homes.

Factory-built housing Net revenue decreased for the three and nine months ended December 30, 2023 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.

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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 and six months ended September 30, 2023, Net revenue in Financial services increased primarily due to 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.

For the three and nine months ended December 30, 2023, Financial services Net revenue increased primarily due to more insurance policies in force, partially offset by reduced revenue from loan sales.

Three Months Ended

($ in thousands) September 30,

2023 October 1,

($ in thousands) December 30,

2023 December 31,

Factory-built housing $ 95,756 $ 122,923 $ (27,167) (22.1) %

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Financial services 36.8 % 46.6 % N/A (9.8) %

Six Months Ended

($ in thousands) September 30,

2023 October 1,

Nine Months Ended

($ in thousands) December 30,

2023 December 31,

Factory-built housing $ 309,631 $ 412,174 $ (102,543) (24.9) %

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Financial services 32.3 % 41.8 % N/A (9.5) %

Factory-built housing Gross profit percentage decreased primarily from lower average selling prices.

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.

Factory-built housing Gross profit and Gross profit percentage decreased primarily due to lower average selling price, partially offset by lower input costs.

Financial services Gross profit and Gross profit percentage for the three months decreased primarily due to fewer loan sales.

The nine months were negatively affected by lower loan sales and higher insurance claims from weather related events.

Selling, General and Administrative Expenses

Three Months Ended

($ in thousands) September 30,

2023 October 1,

($ in thousands) December 30,

2023 December 31,

Factory-built housing $ 57,854 $ 54,127 $ 3,727 6.9 %

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Selling, general and administrative expenses as % of Net revenue 14.2 % 11.8 % N/A 2.4 %

Six Months Ended

($ in thousands) September 30,

2023 October 1,

Nine Months Ended

($ in thousands) December 30,

2023 December 31,

Factory-built housing $ 170,330 $ 176,690 $ (6,360) (3.6) %

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Selling, general and administrative expenses as % of Net revenue 13.6 % 11.5 % N/A 2.1 %

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.

Selling, general and administrative expenses increased for the three months primarily as a result of higher legal expenses, including SEC inquiry related expenses for the indemnification of a former officer, and the added cost of the Solitaire operations, partially offset by lower incentive compensation on reduced sales.

For the nine months, Selling, general and administrative expenses decreased primarily as a result of lower incentive compensation on reduced sales, partially offset by the addition of Solitaire.

Other Components of Net Income

Three Months Ended

($ in thousands) September 30,

2023 October 1,

($ in thousands) December 30,

2023 December 31,

Interest income $ 5,234 $ 3,581 $ 1,653 46.2 %

Interest expense (842) (216) 626 289.8 %

Other income, net 655 488 167 (34.2) %

Other (expense) income, net (224) (348) N/M N/M

Income tax expense (7,920) (16,492) (8,572) (52.0) %

Effective tax rate 18.0 % 21.7 % N/A (3.70) %

Six Months Ended

($ in thousands) September 30,

2023 October 1,

Nine Months Ended

($ in thousands) December 30,

2023 December 31,

Interest income $ 15,664 $ 6,746 $ 8,918 132.2 %

Interest expense (1,365) (610) 755 123.8 %

Other income, net 781 57 724 N/M

Other (expense) income, net 557 (291) N/M N/M

Income tax expense (32,274) (54,721) (22,447) (41.0) %

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Interest expense consists primarily of interest related to finance leases.

Interest income increased for the three and nine months ended December 30, 2023 primarily due to higher interest rates.

Other income, 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.

Income tax expense decreased for the three and nine months ended December 30, 2023 due to lower income before taxes.

Liquidity and Capital Resources

We believe that cash and cash equivalents at September 30, 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 believe that cash and cash equivalents at December 30, 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.

Treasury and other money market funds, some of which is 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 September 30, 2023.

We believe we have sufficient liquid resources including our $50.0 million Revolving Credit Facility, of which no amounts were outstanding at December 30, 2023.

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

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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.

As a result, the assets owned by our insurance subsidiary are generally not available to satisfy the claims of Cavco or its other 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 six months ended September 30, 2023 and October 1, 2022, respectively:

Six Months Ended

(in thousands) September 30,

2023 October 1,

The following is a summary of the Company's cash flows for the nine months ended December 30, 2023 and December 31, 2022, respectively:

Nine Months Ended

(in thousands) December 30,

2023 December 31,

2022 $ Change

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Cash, cash equivalents and restricted cash at end of the period $ 366,608 $ 386,394 $ (19,786)

Net cash provided by operating activities decreased primarily from lower Net income, partially offset by a reduction in prepaid expenses and other current assets and higher principal payments received on commercial loans.

Consumer loan originations decreased $41.0 million to $56.2 million for the six months ended September 30, 2023 from $97.2 million for the six months ended October 1, 2022, and proceeds from sales of consumer loans decreased $35.4 million to $65.1 million for the six months ended September 30, 2023 from $100.5 million for the six months ended October 1, 2022.

Commercial loan originations increased $2.3 million to $51.8 million for the six months ended September 30, 2023 from $49.5 million for the six months ended October 1, 2022.

Net cash provided by operating activities decreased primarily from lower Net income, partially offset by changes in working capital, and higher principal payments received on commercial loans.

Consumer loan originations decreased $61.3 million to $74.3 million for the nine months ended December 30, 2023 from $135.6 million for the nine months ended December 31, 2022, and proceeds from sales of consumer loans decreased $64.3 million to $81.8 million for the nine months ended December 30, 2023 from $146.1 million for the nine months ended December 31, 2022.

Commercial loan originations increased $12.3 million to $83.5 million for the nine months ended December 30, 2023 from $71.2 million for the nine months ended December 31, 2022.

Proceeds from the collection on commercial loans provided $87.6 million this year, compared to $61.6 million in the prior year, a net increase of $26.0 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 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 in our Factory-built Housing segment.

Cash used in the prior year period reflects the purchase of our plant facilities in Hamlet, North Carolina and cash used in the current year was primarily used for acquisitions.

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

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Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the six months ended September 30, 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.

There have been no significant changes to our critical accounting estimates during the nine months ended December 30, 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

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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 2. Management’s Discussion and Analysis