Cavco Industries, Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended July 2, 2022, compared with the three months ended July 3, 2021. Cavco operates factory-built housing and financial services businesses. The comparison includes Commodore from its September 2021 acquisition and Craftsman from July 2021, so reported growth is not wholly organic.
Financial results
| Metric | Q1 FY2023 | Prior-year quarter | Change |
|---|---|---|---|
| Net revenue | $588.3 million | $330.4 million | +78.1% |
| Gross profit / margin | $144.7 million / 24.6% | $74.0 million / 22.4% | Margin +2.2 percentage points |
| Operating income | $78.6 million | $33.2 million | +136.8% |
| Net income attributable to Cavco stockholders | $59.6 million | $27.0 million | +120.4% |
| Diluted earnings per share | $6.63 | $2.92 | +$3.71 |
| Operating cash flow | $58.2 million | $24.3 million | +$34.0 million |
- Factory-built housing revenue was $572.6 million, up 83.4%; financial services revenue was $15.7 million, down 13.2%. Housing units sold increased 44.5% to 5,346, and reported housing revenue per home rose 26.9% to $107,108.
- Factory-built housing gross margin improved to 24.4% from 21.2%, while financial services gross margin declined to 32.6% from 42.7%. Financial services recorded a pretax loss of $0.5 million versus pretax income of $1.9 million.
- At July 2, 2022, cash and cash equivalents were $238.1 million, with $14.9 million of restricted cash and $52.7 million of investments. Total assets were $1.184 billion; current assets were $748.0 million and current liabilities $304.7 million. Stockholders’ equity was $851.6 million.
- Cash, cash equivalents and restricted cash declined $6.4 million during the quarter to $253.0 million. Investing used $24.4 million, including $25.0 million of property and equipment purchases; financing used $40.2 million, primarily for $39.0 million of stock repurchases.
- Interest expense was $0.2 million. The filing does not present a conventional total-debt figure; noncurrent finance lease payables were $6.3 million and other secured financing was $2.8 million. Interest expense primarily relates to finance leases.
Changes, outlook and risks
- Management attributed housing growth to higher selling prices, more units sold, increased capacity utilization and the Commodore acquisition, which contributed $101 million of quarterly revenue. Housing gross profit also benefited from product mix and streamlined HUD-code offerings; higher material costs partly offset these gains.
- Financial services revenue and profit were pressured by amortization of acquired consumer loan portfolios, lower home-loan sales, and unrealized marketable-equity losses; higher weather-related insurance claims also reduced gross profit. Marketable-equity securities had a $2.3 million unrealized loss in the quarter, compared with a $1.6 million unrealized gain in the prior-year quarter.
- Management said home order rates had moderated from 2020–2021 highs. Backlog was $1.0 billion, versus $1.1 billion in the prior quarter and $792 million a year earlier; the year-over-year increase included $231 million from Commodore. Backlog excludes orders paused or canceled at customers’ request.
- Management believes cash and operating cash flow will fund operations, obligations and growth for at least the next 12 months. It provided no specific earnings or revenue guidance. Risks cited include inflation in materials and labor, potential delays in passing cost increases through pricing, labor and supply availability, rising interest rates and affordability, and constraints in manufactured-home financing. Management reported no significant production halts in the current period.
- The prior $100 million repurchase program was completed during the quarter: 163,040 shares were bought at an average $238.96 per share. A new $100 million program was authorized in May 2022; no shares had been repurchased under it by quarter-end.
- Contingencies include distributor inventory-financing repurchase agreements with a maximum stated exposure of $167.2 million and a $4.4 million reserve; no repurchases occurred in the quarter. Mortgage representations-and-warranties reserves were $1.0 million. A construction-period lending commitment to fund future advances was $3.5 million.
- The SEC civil action concerning trading directed by the former CEO had reached a settlement in principle with SEC staff, subject to SEC approval; the company did not expect a material financial impact. Other ordinary-course litigation was not expected by management to have a material adverse effect, subject to uncertainty.
Investor verification priorities
- Assess how much revenue and backlog growth reflects acquisition contributions versus underlying volume, pricing and product mix, and monitor backlog conversion and cancellations.
- Track material, labor and freight costs against selling-price increases, and evaluate whether margins remain resilient as demand and interest rates change.
- Review cash generation alongside elevated capital spending, consumer and commercial lending, and the new repurchase authorization; confirm reported debt and lease obligations in subsequent filings.
- Monitor financial-services credit quality, insurance claims and investment performance, as well as the SEC settlement’s final approval and terms.