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Item 2. Management’s Discussion and Analysis

2024-11-01 compared with 2024-08-02 · 73 added, 31 removed, 151 unchanged (41% of the section changed)

1 unchanged sentence

Forward-Looking Statements

Statements in this Report on Form 10-Q (the "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.

Statements in this Quarterly Report on Form 10-Q (the "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.

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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 May 2024 were 42,650, an increase of 19.4% compared to 35,714 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 August 2024 were 68,550, an increase of 16.8% compared to 58,698 shipments in the same calendar period last year.

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

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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 June 29, 2024 was $232 million compared to $191 million at March 30, 2024 , an increase of $41 million and up $55 million c ompared to $177 million at July 1, 2023.

Our backlog at September 28, 2024 was $276 million compared to $232 million at June 29, 2024, an increase of $44 million and up $106 million compared to $170 million at September 30, 2023.

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) June 29,

($ in thousands, except revenue per home sold) September 28,

2024 September 30,

Factory-built housing $ 486,343 $ 434,066 $ 52,277 12.0 %

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Net factory-built housing revenue per home sold $ 98,991 $ 102,181 $ (3,190) (3.1) %

Factory-built housing Net revenue increased for the three months ended June 29, 2024 due to higher home sales volume, partially offset by lower home selling prices.

The decrease in lower selling prices was attributed to both our wholesale and retail channels, but whereas wholesale was small and generally showed relative stability.

The other component of lower product pricing is related to the product mix, where we saw a significant shift toward single section homes.

Six Months Ended

($ in thousands, except revenue per home sold) September 28,

2024 September 30,

Factory-built housing $ 944,391 $ 891,175 $ 53,216 6.0 %

Financial services 40,669 36,730 3,939 10.7 %

$ 985,060 $ 927,905 $ 57,155 6.2 %

Factory-built homes sold

by Company-owned retail sales centers 2,045 1,973 72 3.6 %

to independent retailers, builders, communities and developers 7,589 6,857 732 10.7 %

9,634 8,830 804 9.1 %

Net factory-built housing revenue per home sold $ 98,027 $ 100,926 $ (2,899) (2.9) %

Factory-built housing Net revenue increased for the three and six months ended September 28, 2024 due to higher home sales volume, partially offset by a decrease in revenue per home sold.

The decrease in revenue per home sold was attributed to a lower proportion of homes sold through our Company-owned stores and, to a lesser extent, product pricing decreases.

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 months ended June 29, 2024, Financial services Net revenue increased primarily due to more insurance policies in force, partially offset by reduced revenue from loan sales.

For the three and six months ended September 28, 2024, Financial services Net revenue increased primarily due to higher insurance premiums.

Three Months Ended

($ in thousands) June 29,

($ in thousands) September 28,

2024 September 30,

Factory-built housing $ 111,520 $ 100,507 $ 11,013 11.0 %

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Financial services 21.8 % 35.9 % N/A (14.1) %

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

Financial services Gross profit in dollars and as a percentage for the three months decreased due to higher insurance claims from extreme weather related events in Texas and New Mexico.

Six Months Ended

($ in thousands) September 28,

2024 September 30,

Factory-built housing $ 215,030 $ 213,875 $ 1,155 0.5 %

Financial services 4,494 10,961 (6,467) (59.0) %

$ 219,524 $ 224,836 $ (5,312) (2.4) %

Gross profit as % of Net revenue

Consolidated 22.3 % 24.2 % N/A (1.9) %

Factory-built housing 22.8 % 24.0 % N/A (1.2) %

Financial services 11.1 % 29.8 % N/A (18.7) %

Factory-built housing Gross profit as a percentage of Net revenue for the three and six months ended September 28, 2024 decreased primarily due to lower average selling price, partially offset by lower input costs per unit.

Factory-built housing Gross profit housing in dollars for the three and six months ended September 28, 2024 increased due to higher home sales volume, partially offset by lower average selling price.

Financial services Gross profit in dollars and as a percentage of Net revenue for the three and six months ended September 28, 2024 was negatively impacted by high insurance claims from Hurricane Beryl in July 2024 and multiple weather events in Texas, as well as the wildfires in New Mexico in the first quarter of this fiscal year.

Selling, General and Administrative Expenses

Three Months Ended

($ in thousands) June 29,

($ in thousands) September 28,

2024 September 30,

Factory-built housing $ 61,440 $ 56,455 $ 4,985 8.8 %

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Selling, general and administrative expenses as % of Net revenue 13.2 % 13.6 % N/A (0.4) %

Factory-built housing Selling, general and administrative expenses increased primarily as a result of increases in compensation including acquired retail locations, partially offset by reduced incentive compensation from lower earnings.

Financial services Selling, general and administrative expenses decreased for the three months primarily due to lower compensation cost.

Six Months Ended

($ in thousands) September 28,

2024 September 30,

Factory-built housing $ 121,160 $ 112,476 $ 8,684 7.7 %

Financial services 10,688 10,710 (22) (0.2) %

$ 131,848 $ 123,186 $ 8,662 7.0 %

Selling, general and administrative expenses as % of Net revenue 13.4 % 13.3 % N/A 0.1 %

Selling, general and administrative expenses increased for the three and six months ended September 28, 2024 as a result of increases in variable compensation driven by higher incentive compensation in the second quarter and as a result of increases in compensation related to acquired retail locations for both periods.

Other Components of Net Income

Three Months Ended

($ in thousands) June 29,

($ in thousands) September 28,

2024 September 30,

Interest income $ 5,692 $ 5,812 $ (120) (2.1) %

Interest expense (125) (257) (132) (51.4) %

Other (expense) income, net (111) 126 N/M N/M

Other income, net 258 655 397 (60.6) %

Income tax expense (11,135) (10,088) 1,047 10.4 %

Effective tax rate 20.3 % 19.5 % N/A 0.8 %

Six Months Ended

($ in thousands) September 28,

2024 September 30,

Interest income $ 11,203 $ 10,430 $ 773 7.4 %

Interest expense (215) (523) (308) (58.9) %

Other income, net 147 781 634 (81.2) %

Income tax expense (20,567) (24,354) (3,787) (15.5) %

Effective tax rate 20.8 % 21.7 % N/A (0.9) %

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 (expense) 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 months primarily due to lower profit before tax and a lower effective tax rate due to an increase in energy star tax credits.

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 increased for the three months ended September 28, 2024 compared to the prior year period primarily due to higher profit before income taxes, partially offset by a lower effective tax rate due to an increase in energy star tax credits.

Income tax expense for the six months ended September 28, 2024 compared to the prior year period decreased due to lower profit and a lower effective tax rate due to an increase in energy star tax credits.

Liquidity and Capital Resources

We believe that cash and cash equivalents at June 29, 2024, 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 September 28, 2024, 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.

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

We believe we have sufficient liquid resources including our $50 million Revolving Credit Facility, which may be increased from time to time through an additional $50 million of term loan tranches and no amounts were outstanding at June 29, 2024.

We believe we have sufficient liquid resources including our $50 million Revolving Credit Facility which may be increased from time to time through an additional Incremental Term Facility up to an aggregate amount of $100 million and no amounts are outstanding.

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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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 June 29, 2024 and July 1, 2023, respectively:

Three Months Ended

(in thousands) June 29,

The following is a summary of the Company's cash flows for the six months ended September 28, 2024 and September 30, 2023, respectively:

Six Months Ended

(in thousands) September 28,

2024 September 30,

2023 $ Change

1 unchanged sentence

Net cash provided by operating activities 102,074 160,200 (58,126)

Net cash (used in) provided by investing activities (5,349) 2,086 (7,435)

Net cash used in by investing activities (11,029) (6,421) (4,608)

Net cash used in financing activities (73,581) (42,240) (31,341)

Cash, cash equivalents and restricted cash at end of the period $ 386,217 $ 395,029 $ (8,812)

Net cash provided by operating activities decreased primarily from lower Net income and lower principal payments received on commercial loans, partially offset by fewer consumer loans being generated in the period.

Consumer loan originations decreased $15.9 million to $20.8 million for the three months ended June 29, 2024 from $36.7 million for the three months ended July 1, 2023, and proceeds from sales of consumer loans decreased $40.8 million to $1.6 million for the three months ended June 29, 2024 from $42.4 million for the three months ended July 1, 2023.

Commercial loan originations decreased $1.9 million to $26.8 million for the three months ended June 29, 2024 from $28.7 million for the three months ended July 1, 2023.

Proceeds from the collection on commercial loans provided $22.4 million this year, compared to $25.2 million in the prior year, a net increase of $2.8 million.

Net cash provided by operating activities decreased primarily from increases in working capital, primarily $20.5 million in Inventory and $17.4 million from Accounts receivable, and the spread between Consumer loans originated versus sold and Commercial loans originated versus principal payments received on commercial loans.

This was partially offset by changes in Accounts payable and accrued expenses due primarily to increased customer deposits and volume rebates due to customers.

Consumer loan originations decreased $16.3 million to $39.9 million for the six months ended September 28, 2024 from $56.2 million for the six months ended September 30, 2023, and proceeds from sales of consumer loans decreased $34.2 million to $30.9 million for the six months ended September 28, 2024 from $65.1 million for the six months ended September 30, 2023.

Commercial loan originations increased $2.9 million to $54.7 million for the six months ended September 28, 2024 from $51.8 million for the six months ended September 30, 2023.

Proceeds from the collection on commercial loans provided $55.1 million this year, compared to $59.4 million in the prior year, a net decrease of $4.3 million.

Net cash for investing activities consists of buying and selling debt and marketable equity securities in our Financial Services segment;

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and funding strategic growth acquisitions in our Factory-built Housing segment.

Cash provided in the prior year period reflects the proceeds from the sale of property, plant and equipment and cash used in the current year was primarily used for acquisitions of property, plant and equipment.

Net cash used in financing activities in the three months ended June 29, 2024 was primarily for the repurchase of common stock.

The change in cash used in the current period is primarily due to the prior year period including proceeds from the sale of property, plant and equipment that did not repeat in the current year.

The change in Net cash used in financing activities in the six months ended September 28, 2024 was primarily due to the repurchase of the more shares of common stock and at a higher average daily stock price.

Obligations and Commitments.

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Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the three months ended June 29, 2024, 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 six months ended September 28, 2024, 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