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Cavco Industries Reports Fiscal 2023 Second Quarter Results, Discusses Planned Acquisition of Solitaire Homes and Provides Further Business Updates
Source: Nasdaq GlobeNewswire / 03 Nov 2022 15:05:02 America/Chicago
PHOENIX, Nov. 03, 2022 (GLOBE NEWSWIRE) -- Cavco Industries, Inc. (Nasdaq: CVCO) ("we," "our," the "Company" or "Cavco") today announced financial results for the second fiscal quarter ended October 1, 2022, provided further discussion on the planned acquisition of Solitaire Homes, Inc. and provided updates on other business items.
Second Quarter Highlights
- Net revenue increased to $577 million, or 60.6%, compared to $360 million in the second quarter of the prior year, and Net income attributable to Cavco common stockholders increased to $74 million, or 97.1%, compared to the same period last year.
- Gross profit as a percentage of Net revenue increased 230 bps to 27.3% and Factory-built housing gross profit as a percentage of Net revenue increased 260 bps to 26.7% compared to the second fiscal quarter of 2022.
- Earnings per diluted share totaled $8.25 compared to $4.06 in the prior year quarter.
- Backlogs were $651 million at the end of the quarter, down $347 million sequentially from three months prior.
- Commenced operations at our new park model manufacturing facility in Glendale, Arizona.
Commenting on the quarter, President and Chief Executive Officer Bill Boor said, "Our teams across the company continue to achieve outstanding results even as market conditions are shifting. Near-term demand is being impacted by rising interest rates, inflation and other economic drivers. However, there are opportunities for manufactured housing in this market environment and the current dynamics do not change the massive affordable housing deficit. We are fully prepared to maneuver through the market transition while staying focused on that long-term need for our homes."
He continued, "The recent start-ups of the Hamlet and Glendale plants and the addition of Solitaire Homes are right in line with our strategy to grow our impact on the affordable housing problem. Since the beginning of fiscal 2022, we have committed $244 million to strategic acquisitions, $52 million to internal capital projects including Hamlet and Glendale and $99 million to share repurchases. After the commitment of cash to the Solitaire deal, we still have well over $200 million in cash providing ongoing flexibility."
Financial Results
Three Months Ended ($ in thousands, except revenue per home sold) October 1,
2022October 2,
2021Change Net revenue Factory-built housing $ 559,602 $ 342,094 $ 217,508 63.6 % Financial services 17,790 17,449 341 2.0 % $ 577,392 $ 359,543 $ 217,849 60.6 % Factory-built modules sold 8,863 6,256 2,607 41.7 % Factory-built homes sold (consisting of one or more modules) 5,111 3,597 1,514 42.1 % Net factory-built housing revenue per home sold $ 109,490 $ 95,105 $ 14,385 15.1 % Six Months Ended ($ in thousands, except revenue per home sold) October 1,
2022October 2,
2021Change Net revenue Factory-built housing $ 1,132,199 $ 654,377 $ 477,822 73.0 % Financial services 33,531 35,588 (2,057 ) (5.8) % $ 1,165,730 $ 689,965 $ 475,765 69.0 % Factory-built modules sold 18,105 12,574 5,531 44.0 % Factory-built homes sold (consisting of one or more modules) 10,457 7,297 3,160 43.3 % Net factory-built housing revenue per home sold $ 108,272 $ 89,678 $ 18,594 20.7 % - In the factory-built housing segment, the increase in Net revenue for both the three and six months ended October 1, 2022 compared to the respective periods in the prior year was due to higher home sales volume and higher home selling prices. Home sales volume increased from the Commodore acquisition, completed in the second quarter of fiscal year 2022, which provided $107 million and $208 million in Net revenue for the three and six months ended October 1, 2022, respectively. The three and six months also benefited from higher factory capacity utilization which enabled higher sales volume.
- Financial services segment Net revenue increased for the three months ended October 1, 2022 from higher volume in home loans sales in the period. For the six months ended October 1, 2022, Net revenues decreased primarily due to realized and unrealized losses on marketable equity securities in the insurance subsidiary's portfolio during the current period and lower interest income earned on the acquired consumer loan portfolios, and lower volume in home loan sales. These items were partially offset by more insurance policies in force in the current year compared to the prior year.
Three Months Ended ($ in thousands) October 1,
2022October 2,
2021Change Gross Profit Factory-built housing $ 149,665 $ 82,299 $ 67,366 81.9 % Financial services 7,934 7,629 305 4.0 % $ 157,599 $ 89,928 $ 67,671 75.3 % Gross profit as % of Net revenue Consolidated 27.3 % 25.0 % N/A 2.3 % Factory-built housing 26.7 % 24.1 % N/A 2.6 % Financial services 44.6 % 43.7 % N/A 0.9 % Selling, general and administrative expenses Factory-built housing $ 61,640 $ 40,347 $ 21,293 52.8 % Financial services 5,254 5,025 229 4.6 % $ 66,894 $ 45,372 $ 21,522 47.4 % Income from Operations Factory-built housing $ 88,025 $ 41,952 $ 46,073 109.8 % Financial services 2,680 2,604 76 2.9 % $ 90,705 $ 44,556 $ 46,149 103.6 % Six Months Ended ($ in thousands) October 1,
2022October 2,
2021Change Gross Profit Factory-built housing $ 289,251 $ 148,572 $ 140,679 94.7 % Financial services 13,072 15,369 (2,297 ) (14.9)% $ 302,323 $ 163,941 $ 138,382 84.4 % Gross profit as % of Net revenue Consolidated 25.9 % 23.8 % N/A 2.1 % Factory-built housing 25.5 % 22.7 % N/A 2.8 % Financial services 39.0 % 43.2 % N/A (4.2 )% Selling, general and administrative expenses Factory-built housing $ 122,563 $ 75,844 $ 46,719 61.6 % Financial services 10,467 10,360 107 1.0 % $ 133,030 $ 86,204 $ 46,826 54.3 % Income from Operations Factory-built housing $ 166,688 $ 72,728 $ 93,960 129.2 % Financial services 2,605 5,009 (2,404 ) (48.0 )% $ 169,293 $ 77,737 $ 91,556 117.8 % - In the factory-built housing segment, the Gross profit percentage and total gross profit for both the three and six months increased from higher home sales prices. Selling, general and administrative expenses increased primarily due to higher salary and incentive compensation expense on improved earnings, as well as from higher legal and professional fees.
- In the financial services segment, Gross profit and Income from operations for the three months increased primarily due to higher mortgage loan sales. For the six months, Gross profit and Income from operations were negatively affected by higher insurance claims from New Mexico and Arizona weather related events, and greater unrealized losses on marketable equity securities compared to the same period last year.
Three Months Ended ($ in thousands, except per share amounts) October 1,
2022October 2,
2021Change Net Income attributable to Cavco common stockholders $ 74,116 $ 37,610 $ 36,506 97.1 % Diluted net income per share $ 8.25 $ 4.06 $ 4.19 103.2 % Six Months Ended ($ in thousands, except per share amounts) October 1,
2022October 2,
2021Change Net Income attributable to Cavco common stockholders $ 133,718 $ 64,656 $ 69,062 106.8 % Diluted net income per share $ 14.88 $ 6.97 $ 7.91 113.5 % - For the three and six months ended October 1, 2022, Income tax expense was reduced by approximately $2.7 million due to estimated non-recurring net tax credits related to the sale of energy efficient homes, available under the Internal Revenue Code §45L. This program expired on December 31, 2021 and was recently extended in its current form through December 31, 2022, which resulted in the current period benefit.
Items ancillary to our core operations had the following impact on the results of operations:
Three Months Ended Six Months Ended ($ in millions) October 1,
2022October 2,
2021October 1,
2022October 2,
2021Net revenue Unrealized losses recognized during the period on securities held in the financial services segment $ — $ (0.5 ) $ (1.2 ) $ (0.1 ) Selling, general and administrative expenses Expenses incurred in engaging third-party consultants in relation to the non-recurring energy efficient home tax credits (1.9 ) (0.4 ) (4.5 ) (0.4 ) Legal and other expense related to the SEC inquiry, net of recovery (1.4 ) (0.5 ) (2.8 ) (0.6 ) Commodore acquisition deal costs — (2.1 ) — (2.4 ) Other income, net Corporate unrealized gains (losses) recognized during the period on securities held — 0.5 (1.1 ) 1.7 Gain on consolidation of equity method investment — 3.3 — 3.3 Income tax benefit Energy efficient home tax credits, net 2.7 — 2.7 — Tax benefits from stock option exercises — 0.5 — 0.7 Housing Demand and Production Updates
Our backlog at October 1, 2022 was $651 million compared to $1.0 billion last quarter, a decrease of $347 million or 34.8%. This was largely due to lower home order rates, net of cancellations, which are down from the extreme highs we saw during the summer of 2020 to the summer of 2021. Additionally, our efforts in product simplification and production staffing improvement have increased our total average plant capacity utilization. For the second fiscal quarter of 2023, our capacity utilization was approximately 80%, compared to 75% in the second fiscal quarter of 2022. Compared to the sequential quarter, the lower utilization is due to market and weather driven downtime.
Planned Acquisition of Solitaire Homes
As announced on October 27, 2022, we have signed a binding agreement to acquire the business of Solitaire Homes, Inc. and other related entities (collectively “Solitaire Homes”), including its four manufacturing facilities, twenty-two retail locations and its dedicated transportation operations. The addition of Solitaire Homes strengthens our position in the Southwest, with high quality products that complement our existing home offerings.
The purchase price totals $93 million, before certain adjustments that will be determined upon close of the transaction. We expect to fund the acquisition entirely with cash on hand. The transaction is expected to close early in the Company's fourth quarter of fiscal year 2023, subject to applicable regulatory approvals and the satisfaction of certain customary conditions.
Update on Facilities in Arizona and North Carolina
During the quarter, we commenced production at our facility in Glendale, Arizona. The 118,000 square-foot-facility is used for production of park models, cabins and cottages built under standards approved by the American National Standards Institute.
On October 4, 2022, we opened our 28th production line in Hamlet, North Carolina. Known as “Cavco Homes of North Carolina,” the 184,000 square-foot-plant will produce homes built under the standards of the U.S. Department of Housing and Urban Development. The opening comes approximately seven months after Cavco acquired the facility from Volumetric Building Companies.
SEC Litigation Update
As announced on September 23, 2022, the United States District Court for the District of Arizona approved the settlement of the Securities and Exchange Commission action against the Company. Without admitting or denying the findings of the consent judgment, the Company agreed to the imposition of an injunction against future violations of the antifraud and internal accounting control provisions of the Securities Exchange Act of 1934 and paid a monetary penalty of $1.5 million. The settlement resolves all claims in the action against the Company.
Conference Call Details
Cavco's management will hold a conference call to review these results tomorrow, November 4, 2022, at 1:00 p.m. (Eastern Time). Interested parties can access a live webcast of the conference call on the Internet at https://investor.cavco.com or via telephone. To participate by phone, please register here to receive the dial in number and your PIN. An archive of the webcast and presentation will be available for 90 days at https://investor.cavco.com.
About Cavco
Cavco Industries, Inc., headquartered in Phoenix, Arizona, designs and produces factory-built housing products primarily distributed through a network of independent and Company-owned retailers. We are one of the largest producers of manufactured and modular homes in the United States, based on reported wholesale shipments. Our products are marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood and MidCountry. We are also a leading producer of park model RVs, vacation cabins and factory-built commercial structures. Cavco's finance subsidiary, CountryPlace Mortgage, is an approved Fannie Mae and Freddie Mac seller/servicer and a Ginnie Mae mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty, provides property and casualty insurance to owners of manufactured homes.
Forward-Looking Statements
Certain statements contained in this release are forward-looking statements. In general, all statements that are not historical in nature are forward-looking. Forward-looking statements are typically included, for example, in discussions regarding the manufactured housing industry; our financial performance and operating results; and the expected effect of certain risks and uncertainties on our business, financial condition and results of operations. All forward-looking statements are subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results or performance may differ materially from anticipated results or performance. Factors that could cause such differences to occur include, but are not limited to: the impact of local or national emergencies including the COVID-19 pandemic, including such impacts from state and federal regulatory action that restricts our ability to operate our business in the ordinary course and impacts on (i) customer demand and the availability of financing for our products, (ii) our supply chain and the availability of raw materials for the manufacture of our products, (iii) the availability of labor and the health and safety of our workforce and (iv) our liquidity and access to the capital markets; labor shortages and the pricing and availability of transportation or raw materials; increased health and safety incidents; our ability to negotiate reasonable collective bargaining agreements with the unions representing certain employees; increases in the rate of cancellations of home sales orders; our ability to successfully integrate past acquisitions or future acquisitions; involvement in vertically integrated lines of business, including manufactured housing consumer finance, commercial finance and insurance; information technology failures or cyber incidents; our ability to maintain the security of personally identifiable information of our customers, suppliers and employees; our participation in certain financing programs for the purchase of our products by industry distributors and consumers, which may expose us to additional risk of credit loss; our exposure to significant warranty and construction defect claims; our exposure to claims and liabilities relating to products supplied to the Company or work done by subcontractors; our contingent repurchase obligations related to wholesale financing provided to industry distributors; a write-off of all or part of our goodwill; our ability to maintain relationships with independent distributors; our business and operations being concentrated in certain geographic regions; taxation authorities initiating or successfully asserting tax positions which are contrary to ours; governmental and regulatory disruption, including prolonged delays by Congress and the President to approve budgets or continuing appropriations resolutions to facilitate the operation of the federal government; curtailment of available financing from home-only lenders and increased lending regulations; the effect of increasing interest rates on our customer's ability to finance home purchases; availability of wholesale financing and limited floor plan lenders; market forces, rising interest rates and housing demand fluctuations; the cyclical and seasonal nature of our business; competition; general deterioration in economic conditions and turmoil in the financial markets; unfavorable zoning ordinances; extensive regulation affecting the production and sale of manufactured housing; potential financial impact on the Company from the recently settled regulatory action by the SEC against the Company, including potential higher insurance costs as a result of such action, potential reputational damage that the Company may suffer and the Company's potential ongoing indemnification obligations related to ongoing litigation not involving the Company; losses not covered by our director and officer insurance, which may be large, adversely impacting financial performance; loss of any of our executive officers; liquidity and ability to raise capital may be limited; and organizational document provisions delaying or making a change in control more difficult; together with all of the other risks described in our filings with the SEC. Readers are specifically referred to the Risk Factors described in Item 1A of the Company's Annual Report on Form 10-K for the year ended April 2, 2022 as may be updated from time to time in future filings on Form 10-Q and other reports filed by the Company pursuant to the Securities Exchange Act of 1934, which identify important risks that could cause actual results to differ from those contained in the forward-looking statements. Cavco expressly disclaims any obligation to update any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise, as required by law. Investors should not place undue reliance on any such forward-looking statements.
CAVCO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)October 1,
2022April 2,
2022ASSETS (Unaudited) Current assets Cash and cash equivalents $ 333,249 $ 244,150 Restricted cash, current 14,535 14,849 Accounts receivable, net 96,614 96,052 Short-term investments 16,367 20,086 Current portion of consumer loans receivable, net 18,400 20,639 Current portion of commercial loans receivable, net 32,452 32,272 Current portion of commercial loans receivable from affiliates, net 211 372 Inventories 233,965 243,971 Prepaid expenses and other current assets 73,998 71,726 Total current assets 819,791 744,117 Restricted cash 335 335 Investments 38,323 34,933 Consumer loans receivable, net 28,570 29,245 Commercial loans receivable, net 41,420 33,708 Commercial loans receivable from affiliates, net 2,022 2,214 Property, plant and equipment, net 189,968 164,016 Goodwill 100,577 100,993 Other intangibles, net 27,450 28,459 Operating lease right-of-use assets 16,210 16,952 Total assets $ 1,264,666 $ 1,154,972 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 42,655 $ 43,082 Accrued expenses and other current liabilities 263,396 251,088 Total current liabilities 306,051 294,170 Operating lease liabilities 12,289 13,158 Other liabilities 10,420 10,836 Deferred income taxes 6,048 5,528 Redeemable noncontrolling interest 926 825 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 9,314,152 and 9,292,278 shares, respectively 93 93 Treasury stock, at cost; 404,813 and 241,773 shares, respectively (100,000 ) (61,040 ) Additional paid-in capital 267,183 263,049 Retained earnings 762,474 628,756 Accumulated other comprehensive loss (818 ) (403 ) Total stockholders' equity 928,932 830,455 Total liabilities, redeemable noncontrolling interest and stockholders' equity $ 1,264,666 $ 1,154,972 CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)Three Months Ended Six Months Ended October 1,
2022October 2,
2021October 1,
2022October 2,
2021Net revenue $ 577,392 $ 359,543 $ 1,165,730 $ 689,965 Cost of sales 419,793 269,615 863,407 526,024 Gross profit 157,599 89,928 302,323 163,941 Selling, general and administrative expenses 66,894 45,372 133,030 86,204 Income from operations 90,705 44,556 169,293 77,737 Interest expense (233 ) (203 ) (394 ) (367 ) Other income, net 2,339 4,668 3,222 7,129 Income before income taxes 92,811 49,021 172,121 84,499 Income tax expense (18,613 ) (11,338 ) (38,229 ) (19,770 ) Net income 74,198 37,683 133,892 64,729 Less: net income attributable to redeemable noncontrolling interest 82 73 174 73 Net income attributable to Cavco common stockholders $ 74,116 $ 37,610 $ 133,718 $ 64,656 Net income per share attributable to Cavco common stockholders Basic $ 8.32 $ 4.09 $ 15.01 $ 7.03 Diluted $ 8.25 $ 4.06 $ 14.88 $ 6.97 Weighted average shares outstanding Basic 8,903,703 9,190,866 8,910,933 9,194,577 Diluted 8,978,997 9,273,136 8,983,425 9,274,440 CAVCO INDUSTRIES, INC.
OTHER OPERATING DATA
(Dollars in thousands)
(Unaudited)Three Months Ended Six Months Ended October 1,
2022October 2,
2021October 1,
2022October 2,
2021Capital expenditures $ 8,181 $ 2,078 $ 33,188 $ 4,671 Depreciation $ 3,836 $ 1,448 $ 7,274 $ 2,851 Amortization of other intangibles $ 502 $ 166 $ 1,010 $ 339 For additional information, contact:
Mark Fusler
Corporate Controller and Investor Relations
investor_relations@cavco.com
Phone: 602-256-6263
On the Internet: www.cavcoindustries.com
