CAVCO INDUSTRIES, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements 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. 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; 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; 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 disclaim any obligation 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 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 2026 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "Form 10-K"). Introduction The following should be read in conjunction with the Company's unaudited 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 unaudited 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. 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 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. Our insurance subsidiary, Standard Casualty Company, provides property and casualty insurance primarily to owners of manufactured homes. 18 Table of Contents We operate a total of 33 homebuilding production lines with domestic locations in Millersburg and Woodburn, Oregon; Riverside, California; Nampa, Idaho; Glendale, Goodyear and Phoenix, Arizona; Deming, New Mexico; Duncan, Oklahoma; Austin, Fort Worth (two lines), Lancaster, Seguin and Waco, Texas; Montevideo, Minnesota; Dorchester, Wisconsin; Nappanee and Goshen, Indiana; Lafayette, Tennessee; Douglas and Moultrie, Georgia; Shippenville (two lines) and Emlenton, Pennsylvania; Martinsville and Rocky Mount, Virginia; Crouse and Hamlet, North Carolina; Ocala and Plant City, Florida; and two international lines in Ojinaga, Mexico. We distribute our homes through a large network of independent distribution points and 92 Company-owned U.S. retail stores, of which 57 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 2026 were 41,453, a decrease of 7.7% compared to 44,927 shipments in the same calendar period last year. 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. " 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 custom 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, including higher utilization of renewable materials and provide lower utility costs. 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 8, Commercial Loans Receivable, to the unaudited Consolidated Financial Statements included in this report). 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 result in higher borrowing costs for home-only loans and continue to constrain industry growth. We work independently and with other industry participants to develop secondary market opportunities for manufactured home-only loans 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. 19 Table of Contents From time to time and to varying degrees, we may experience shortages in the availability of materials and/or labor in the markets served. Key building materials include wood and wood products, gypsum wallboard, steel, windows, appliances, insulation and other petroleum-based products. There can be no assurance that sufficient supplies of these and other raw materials will continue to be available to us. Sudden increases in price or lack of availability of raw materials can be caused by a natural disaster, regulation or other market forces, as has occurred in recent years. We have experienced production halts from shortages of primary building materials in the past, and although we attempt to increase the sales prices of our homes in response to higher materials costs, such increases may lag behind the escalation of material costs. 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 27, 2026 was $298 million compared to $195 million at March 28, 2026, an increase of $103 million, and up $98 million compared to $200 million at June 28, 2025. While it is difficult to predict the future of housing demand, employee availability, supply chain and Company performance and operations, maintaining an appropriately sized and well-trained workforce is key to meeting demand. We continually review the wage rates of our production employees and have established other monetary incentive and benefit programs, with a goal of providing competitive compensation. We are also working to more extensively use web-based recruiting tools, update our recruitment brochures and improve the appearance and appeal of our manufacturing facilities to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates. Results of Operations Net Revenue Three Months Ended ($ in thousands, except revenue per home sold) June 27, 2026 June 28, 2025 Change Factory-built housing $ 585,972 $ 535,694 $ 50,278 9.4 % Financial services 23,987 21,163 2,824 13.3 % $ 609,959 $ 556,857 $ 53,102 9.5 % Factory-built homes sold by Company-owned retail sales centers 1,378 1,023 355 34.7 % to independent retailers, builders, communities and developers 4,279 4,393 (114) (2.6) % 5,657 5,416 241 4.4 % Net factory-built housing revenue per home sold $ 103,584 $ 98,910 $ 4,674 4.7 % Factory-built housing Net revenue increased for the three months ended June 27, 2026 due to the acquisition of American Homestar which contributed $52.8 million. This was partially offset by reduced sales volume excluding American Homestar. Net factory-built housing revenue per home sold is a volatile metric dependent upon several factors. A primary factor is the price disparity between sales of homes to independent distributors, builders, communities and developers and sales of homes to consumers by Company-owned retail stores. Wholesale sales prices are primarily comprised of the home and the cost to ship the home from a homebuilding facility to the home-site. Retail home prices include these items and retail markup, as well as items that are largely subject to home buyer discretion, including, but not limited to, installation, utility connections, site improvements, landscaping and additional services. Our homes are constructed in one or more floor sections ("modules") which are then installed on the customer's site. Changes in the number of modules per home, the selection of different home types/models and optional home upgrades create changes in product mix, also causing fluctuations in this metric. For the three months ended June 27, 2026, Financial services Net revenue increased primarily due to i ncreased loan sales in the mortgage division and unrealized gains on the Financial services equity portfolio. 20 Table of Contents Gross Profit Three Months Ended ($ in thousands) June 27, 2026 June 28, 2025 Change Factory-built housing $ 122,019 $ 120,845 $ 1,174 1.0 % Financial services 12,571 8,661 3,910 45.1 % $ 134,590 $ 129,506 $ 5,084 3.9 % Gross profit as % of Net revenue Consolidated 22.1 % 23.3 % N/A (1.2) % Factory-built housing 20.8 % 22.6 % N/A (1.8) % Financial services 52.4 % 40.9 % N/A 11.5 % Factory-built housing Gross profit for the three months ended June 27, 2026 increased due to an increase in home sales volume and price. Gross profit as a percentage of Net revenue for the three months decreased due to higher input costs. Financial services Gross profit in dollars and as a percentage of Financial services Net revenue for the three months increased due to primarily lower claims loss, increased loan sales, and unrealized gains on the Financial services equity portfolio. Selling, General and Administrative Expenses Three Months Ended ($ in thousands) June 27, 2026 June 28, 2025 Change Factory-built housing $ 73,970 $ 63,154 $ 10,816 17.1 % Financial services 7,865 5,994 1,871 31.2 % $ 81,835 $ 69,148 $ 12,687 18.3 % Selling, general and administrative expenses as % of Net revenue 13.4 % 12.4 % N/A 1.0 % Factory-built housing Selling, general and administrative expenses increased for the three months ended June 27, 2026 primarily due to the acquisition of American Homestar which added $7.3 million. Additionally, the first quarter of fiscal year 2027 saw increases in compensation and employee related expenses, as well as sales and marketing expense. Financial services Selling, general and administrative expenses for the three months increased primarily due to a headcount increase to handle increased loan activity due to a forward flow agreement signed in the fourth quarter of the prior year and higher incentive compensation on better results. 21 Table of Contents Other Components of Net Income Three Months Ended ($ in thousands) June 27, 2026 June 28, 2025 Change Interest income $ 3,263 $ 5,103 $ (1,840) (36.1) % Interest expense (132) (164) (32) (19.5) % Other expense, net (98) — 98 NM Income tax expense (13,517) (13,655) (138) (1.0) % Effective tax rate 24.2 % 20.9 % N/A 3.3 % 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, 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. The effective tax rate increased compared to the prior year period primarily due to a reduction in expected Energy Star tax credits. As a result of the passage of the One Big Beautiful Bill Act, the Energy Star tax credit was repealed for homes acquired after June 30, 2026. Consequently, fewer of our homes are expected to qualify for the credit compared to the prior year, reducing the amount of tax credits anticipated to be received during fiscal 2027 and increasing our expected annual effective tax rate. Liquidity and Capital Resources We believe that cash and cash equivalents at June 27, 2026, 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 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 $75.0 million Revolving Credit Facility, of which no amounts were outstanding at June 27, 2026. The Revolving Credit Facility is part of the Credit Agreement which 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 and negative covenants. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year. 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 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. 22 Table of Contents The following is a summary of the Company's cash flows for the three months ended June 27, 2026 and June 28, 2025, respectively: Three Months Ended (in thousands) June 27, 2026 June 28, 2025 $ Change Cash, cash equivalents and restricted cash at beginning of the fiscal year $ 257,612 $ 375,345 $ (117,733) Net cash provided by operating activities 74,452 55,523 18,929 Net cash used in investing activities (27,490) (7,715) (19,775) Net cash used in financing activities (38,357) (54,729) 16,372 Cash, cash equivalents and restricted cash at end of the period $ 266,217 $ 368,424 $ (102,207) Net cash provided by operating activities increased primarily due to changes in Accounts payable, accrued expenses and other liabilities compared to the prior year due primarily to an $18.6 million increase in cash provided by Customer deposits. Consumer loan originations increased $11.7 million to $26.9 million for the three months ended June 27, 2026 from $15.2 million for the three months ended June 28, 2025, and proceeds from consumer loan sales and principal payments received increased $16.6 million to $30.4 million for the three months ended June 27, 2026 from $13.8 million for the three months ended June 28, 2025. Commercial loan originations increased $1.3 million to $43.7 million for the three months ended June 27, 2026 from $42.4 million for the three months ended June 28, 2025. Proceeds from the collection on commercial loans provided $38.6 million this year, compared to $34.5 million in the prior year, a net increase of $4.1 million. The change in Net cash used in investing activities is primarily due to an increase in cash paid for property, plant and equipment in the current year due to large planned capital expenditures. The change in Net cash used in financing activities was primarily due to the repurchase of fewer shares of common stock, partially offset by a higher average price per share. 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 June 27, 2026, 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. Item 3. 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 Part II, Item 7a of the Form 10-K.