Cavco Industries, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended April 1, 2023 (52 weeks), compared primarily with the 52-week fiscal year ended April 2, 2022. This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement. Cavco designs and manufactures factory-built homes and operates consumer-finance and property-insurance businesses.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | $2,142.7 million | $1,627.2 million | +31.7% |
| Gross profit / margin | $554.9 million / 25.9% | $408.7 million / 25.1% | Margin +0.8 percentage points |
| Operating income | $296.6 million | $202.5 million | +46.5% |
| Income before taxes | $306.8 million | $212.0 million | +44.7% |
| Net income attributable to Cavco common stockholders | $240.6 million | $197.7 million | +21.7% |
| Diluted EPS | $26.95 | $21.34 | +26.3% |
| Operating cash flow | $255.7 million | $144.2 million | +$111.5 million |
- Factory-built housing revenue rose 33.0% to $2,069.5 million. Homes sold increased 16.0% to 19,376, while revenue per home sold rose 14.6% to $106,805. Management attributed growth to higher selling prices, increased unit volume and $28.3 million of revenue from Solitaire Homes after its acquisition.
- Factory-built housing gross margin increased to 25.3% from 23.9%, reflecting higher prices and volume, partly offset by input-cost inflation. Financial-services revenue increased 3.4% to $73.3 million, but gross profit fell 14.0% to $31.4 million and segment pretax income declined 29.6% to $10.3 million, primarily reflecting higher weather-related insurance claims and investment-market fluctuations.
- The effective tax rate was 21.5%, versus 6.7% in FY2022. The prior-year rate benefited from $35.7 million of net tax credits, principally related to energy-efficient homes; FY2023 tax credits totaled $10.8 million.
Liquidity, debt and capital
- Cash and cash equivalents were $271.4 million at year-end; cash, cash equivalents and restricted cash totaled $283.5 million. Current assets were $804.6 million and current liabilities $293.4 million.
- Operating cash flow was $255.7 million; investing activities used $129.3 million, including $105.7 million for acquisitions and $44.1 million in capital expenditures. Financing activities used $102.2 million, primarily for $103.4 million of share repurchases.
- Cavco had no borrowings outstanding on its $50 million unsecured revolving credit facility at year-end and reported covenant compliance. Other secured financing was $2.4 million; lease liabilities totaled $34.2 million. Management said cash and expected operating cash flow should fund operations and obligations for at least the next 12 months.
- The board authorized a $100 million repurchase program in May 2022. Approximately $64.3 million had been used by April 1, 2023, leaving $35.7 million available. Cavco paid no common dividends in the two most recent fiscal years.
Material changes and notable items
- Home order backlog fell to approximately $244 million from $1.1 billion a year earlier. Orders can be canceled without penalty before production begins, so management does not consider unstarted orders firm.
- Cavco acquired Solitaire Homes on January 3, 2023, for estimated consideration of $110.8 million, adding four manufacturing lines and 22 retail locations. Solitaire contributed $28.3 million of revenue and a $0.9 million net loss after acquisition. Purchase-accounting values remained subject to finalization.
- The company repurchased 430,028 shares during FY2023 for $103.4 million. The weighted-average share count declined year over year.
- The SEC action concerning trading in another company’s shares, directed by the former CEO, was settled in September 2022. Cavco agreed to an injunction and a $1.5 million penalty without admitting or denying the findings; the settlement resolved the claims against the company. The filing reports ongoing indemnification obligations for a former officer.
Outlook, risks and contingencies
- No numerical revenue, earnings or shipment guidance is provided. Management says housing demand, labor availability, supply conditions and company performance are difficult to predict, and it is adjusting production and workforce levels to demand.
- Key risks include higher interest rates and reduced consumer or distributor financing, a sharp backlog decline and order cancellations, cyclical housing demand, inflation in materials and labor, supply-chain constraints, and labor availability. Management cautions that price increases may lag cost escalation.
- CountryPlace must remit scheduled principal and interest on certain serviced loans even when borrowers do not pay; collections exceeded required remittances in FY2023, but future forbearance could pressure cash flows. Limited secondary markets for manufactured-home loans also constrain financing availability.
- Maximum contingent repurchase obligations for distributor floor-plan financing were approximately $177.9 million, before considering home resale value; the recorded reserve was $5.2 million. One repurchase demand was received in the fourth quarter, and the acquired inventory’s fair value exceeded the repurchase price.
- Insurance risks include weather-related claims and reliance on reinsurance, substantially all assumed reinsurance being with one entity, and geographic concentration. Other disclosed risks include warranty claims, mortgage-sale representations and warranties, acquisition integration, cybersecurity, regulation and foreign-exchange exposure.
- The auditor issued unqualified opinions on the financial statements and internal controls. The warranty reserve, $31.4 million at year-end, was identified as a critical audit matter. Solitaire Homes, representing about 11% of assets, was excluded from the year-end internal-control assessment and audit scope.
Investor facts to verify
- Whether the backlog decline to $244 million translates into weaker shipments, pricing or factory utilization in subsequent periods.
- Whether margins can be sustained as material and labor costs, interest rates and housing demand change.
- Solitaire’s finalized purchase accounting, integration progress and contribution to earnings and cash flow.
- Financial-services credit performance, insurance claims and reinsurance recoverability, including required investor remittances on serviced loans.
- Potential cash exposure from distributor repurchase commitments, mortgage representations and warranties, and former-officer indemnification.
- How share repurchases, acquisition spending and the available revolving facility affect capital allocation and liquidity.