Cavco Industries, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended July 3, 2021; comparable period ended June 27, 2020. Amounts are in U.S. dollars. Cavco designs and builds factory-built homes and operates consumer finance and insurance businesses.
Financial performance and position
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $330.4 million | $254.8 million | +29.7% |
| Gross profit / margin | $74.0 million / 22.4% | $55.3 million / 21.7% | +33.8%; margin +0.7 points |
| Operating income / margin | $33.2 million / 10.0% | $20.0 million / 7.8% | +65.9% |
| Net income | $27.0 million | $16.7 million | +62.2% |
| Diluted earnings per share | $2.92 | $1.80 | +62.2% |
| Operating cash flow | $24.3 million | $35.7 million | Down $11.4 million |
Factory-built housing revenue rose 31.2% to $312.3 million; financial services revenue increased 8.5% to $18.1 million. Homes sold grew 10.5% to 3,700, while revenue per home rose 18.7% to $84,401. Factory-built housing gross margin improved to 21.2%; financial services gross margin declined to 42.7% from 49.9%, partly reflecting higher weather-related claims and lower unrealized investment gains.
Cash and cash equivalents were $329.8 million at July 3, 2021; cash, cash equivalents and restricted cash totaled $346.8 million. Current assets were $667.9 million against current liabilities of $242.2 million. Secured financings and finance lease obligations totaled $11.7 million, including $8.0 million of converted loans with a 4.9% weighted average rate. Total assets were $970.9 million and stockholders’ equity was $699.1 million. The company repurchased $12.8 million of stock during the quarter.
Material changes and management commentary
- Management attributed higher factory-built housing revenue mainly to more units sold and higher average prices, reflecting pricing actions and a shift toward multi-section homes.
- Sales orders were nearly 50% above the prior-year quarter. Backlog reached $792 million at July 3, up 31.3% from April 3 and 404.5% from June 2020; paused or canceled customer orders are excluded.
- Average plant capacity utilization was approximately 75%, constrained by hiring and absenteeism challenges, material shortages and production inefficiencies. Management said materials-price volatility could outpace product price increases.
- Operating cash flow fell year over year, primarily due to higher raw-material purchases and costs; consumer loan sale proceeds partly offset the decrease.
- Management believes available cash and operating cash flow will fund operations and growth for at least the next 12 months. No specific earnings or revenue guidance was provided.
Outlook, risks, contingencies and unusual items
- On July 23, 2021, Cavco agreed to acquire The Commodore Corporation for $153 million before adjustments; estimated cash outlay is $140 million including transaction fees. The company expected to fund it with cash on hand and anticipated closing in fiscal Q3 2022, subject to approvals and customary conditions. Commodore reported approximately $258 million in sales for the 12 months ended March 31, 2021.
- Material risks include labor availability, supply constraints and inflation, demand and consumer financing conditions, and possible future impacts of COVID-19-related loan forbearance on servicing cash requirements.
- Cavco disclosed an ongoing SEC enforcement staff investigation concerning securities trading in personal and company accounts directed by its former CEO. The SEC issued a Wells Notice in November 2020; management said it could not predict the outcome but did not expect a material adverse financial effect.
- Repurchase agreements for distributor inventory financing exposed Cavco to maximum contingent liability of approximately $80.9 million, before considering resale value; the related reserve was $2.3 million. Construction-period mortgage commitments for future advances were $17.7 million.
- Other items to monitor include $32.1 million of interest-rate lock commitments, $42.9 million of forward sales commitments, and the company’s exposure to reinsurer performance. Management reported no material changes to contractual obligations or market-risk disclosures.
Most important facts for investors to verify
- Whether the strong order backlog can be converted into shipments despite workforce and supply-chain constraints, and whether pricing keeps pace with input-cost inflation.
- The closing, final cost, funding and integration of the Commodore acquisition.
- Factory-built housing and financial services margin trends, including weather-related claims and investment gains.
- Consumer-loan portfolio performance, servicing cash obligations and contingent repurchase exposures.
- Developments and potential consequences of the SEC investigation and other disclosed contingencies.