Cavco Industries, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended April 2, 2022 (52 weeks), compared with the 53-week fiscal year ended April 3, 2021. This is an annual filing, not a quarterly report; it notes fourth-quarter plant capacity utilization exceeded 80%.
Business context
Cavco designs and manufactures factory-built homes, including HUD-code and modular homes, park model RVs, and commercial structures. Its financial services segment includes CountryPlace mortgage lending and servicing and Standard Casualty insurance. Results include Craftsman from July 4, 2021 and Commodore from September 24, 2021; Commodore added six manufacturing facilities and two retail locations.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Net revenue | $1,627.2 million | $1,108.1 million | +46.8% |
| Gross profit / margin | $408.7 million / 25.1% | $239.0 million / 21.6% | Margin +3.5 percentage points |
| Income from operations | $202.5 million | $88.8 million | +128.0% |
| Net income attributable to Cavco common stockholders | $197.7 million | $76.6 million | +158.0% |
| Diluted EPS | $21.34 | $8.25 | +158.7% |
| Net cash provided by operating activities | $144.2 million | $114.0 million | +$30.2 million |
Factory-built housing revenue rose 49.9% to $1,556.3 million; financial services revenue increased 1.0% to $70.9 million. Factory-built housing gross margin increased to 23.9% from 19.2%, while financial services gross margin declined to 51.5% from 56.1%. Total homes sold increased 17.5% to 16,697, and factory-built housing revenue per home sold rose 27.6% to $93,207.
At year-end, cash and cash equivalents were $244.2 million and restricted cash was $15.2 million, versus $322.3 million and $17.0 million, respectively, a year earlier. Net cash used in investing was $159.1 million, primarily reflecting the acquisitions and capital expenditures; net cash used in financing was $65.1 million, primarily stock repurchases and debt payments. Total assets were $1,155.0 million and stockholders’ equity was $830.5 million. Secured financings and other obligations totaled $11.6 million, including finance leases and a mandatorily redeemable noncontrolling interest; secured term loans were paid in full by January 1, 2022. Management said cash and operating cash flow were expected to fund operations and obligations for the next 12 months and into the foreseeable future.
Material changes versus the prior year
- Revenue and earnings increased substantially, driven by higher home prices, increased sales volume and acquisitions. Legacy home price increases contributed approximately $302.0 million to factory-built housing revenue; acquisitions contributed $180.5 million in revenue (Craftsman $13.8 million and Commodore $166.7 million).
- Factory-built housing gross profit benefited from higher selling prices and unit volume, partly offset by $181.3 million of higher material costs. SG&A increased 37.4%, but declined as a share of revenue to 12.7% from 13.6%.
- Home order backlog rose to approximately $1.1 billion from $603 million, including $264 million attributable to Commodore. Orders may be canceled without penalty before production begins and therefore are not all firm commitments.
- Cash declined by $80.0 million, reflecting acquisition spending, capital expenditures, debt repayment and $59.6 million of share repurchases.
Outlook, risks and unusual items
- Management described housing demand as strong, with order rates moderated from pandemic-era highs but remaining above pre-pandemic levels. It cited hiring difficulties and building-material disruptions, while reporting improved staffing and above-pre-pandemic capacity utilization. No numerical revenue or earnings guidance was provided.
- FY2022 income tax expense was $14.2 million, an effective rate of 6.7%, versus 20.9% the prior year. The lower rate primarily reflected an estimated $35.7 million of non-recurring net tax credits related mainly to energy-efficient homes under IRC Section 45L; that credit expired in its then-current form on December 31, 2021.
- Commodore’s $146.2 million purchase-price allocation remained preliminary, including valuations of acquired commercial loans, intangible assets, goodwill and deferred taxes. Commodore added $166.7 million of revenue and $6.6 million of net income after acquisition. Integration and realization of expected efficiencies remain execution considerations.
- The SEC’s September 2021 civil complaint names Cavco and former senior executives and alleges securities-law violations related to trading in another company’s shares. The case was in discovery; Cavco said it could not predict the outcome and did not believe the matter would materially adversely affect its financial statements.
- Key risks include labor and materials availability and cost, inflation, interest-rate increases, financing access for home buyers and distributors, order cancellations, cyclicality, acquisition integration, loan and insurance credit exposure, catastrophe claims, and regulatory requirements. Contingencies include $141.0 million of maximum distributor floor-plan repurchase obligations before resale recoveries, loan-sale representations and warranties, and mortgage funding commitments.
Important facts for investors to verify
- How much of the $1.1 billion backlog converts to shipments, given pre-production cancellation rights and production constraints.
- Whether home pricing continues to offset material, labor and transportation cost inflation without weakening demand or margins.
- Final Commodore purchase accounting, integration performance and whether expected operational benefits are achieved.
- The sustainability of earnings after the non-recurring tax credits, and the final tax treatment of those credits.
- Developments in the SEC litigation and any resulting costs, penalties or other consequences.
- Actual exposure from repurchase guarantees, mortgage representations and warranties, loan servicing advances, and insurance claims or reinsurer recoverability.
- Capital allocation following the fiscal-year repurchases: the company used the remaining approximately $39 million under the prior program after year-end and authorized a new $100 million repurchase program on May 25, 2022.