Cavco Industries, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended April 3, 2021, a 53-week year; FY2020 ended March 28, 2020, and had 52 weeks. The filing is an annual report, not a standalone fourth-quarter report.
Business context
Cavco designs and manufactures factory-built homes, modular homes, park model RVs and related structures, and also provides home financing and manufactured-home insurance. It reported two segments: factory-built housing and financial services. Operations continued through the COVID-19 pandemic, with most factories and retail locations open.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $1,108.1 million | $1,061.8 million | +4.4% |
| Gross profit | $239.0 million | $230.5 million | +3.7% |
| Gross margin | 21.6% | 21.7% | -0.1 percentage point |
| Income from operations | $88.8 million | $84.9 million | +4.6% |
| Net income | $76.6 million | $75.1 million | +2.1% |
| Diluted earnings per share | $8.25 | $8.10 | +1.9% |
| Operating cash flow | $114.0 million | $101.7 million | +$12.3 million |
- Factory-built housing revenue was $1,037.9 million, up 3.9%. Homes sold fell 5.9% to 14,214; revenue per home sold rose 10.3% to $73,019, reflecting price increases and a shift toward multi-section homes.
- Financial services revenue rose 12.4% to $70.2 million. Segment income before tax increased 24.4% to $18.0 million, aided partly by market gains on equity investments and favorable loan-loss valuation adjustments.
- Factory-built housing gross margin decreased to 19.2% from 19.5%; financial services gross margin decreased to 56.1% from 56.5%. Consolidated SG&A was $150.2 million, or 13.6% of revenue, compared with 13.7%.
- Cash, cash equivalents and restricted cash totaled $339.3 million at year-end, versus $255.6 million a year earlier. Investing activities used $23.3 million, including $25.5 million of capital expenditures; financing activities used $7.0 million.
- Total secured financings and other borrowings were $11.9 million, with an additional $0.3 million of finance lease obligations; the balance sheet reported $12.2 million of total securitized financings and other, including finance leases. Stockholders’ equity was $683.6 million.
Changes, outlook and management commentary
- Orders strengthened markedly after an initial pandemic-related slowdown. Backlog was approximately $603 million at April 3, 2021, up from $124 million a year earlier. Orders may be canceled without penalty before production begins, so backlog is not all firm.
- Factory capacity utilization was approximately 75% in the fourth quarter, below pre-pandemic levels above 80%. Absenteeism, hiring challenges and building-material shortages constrained production despite strong demand.
- The filing provides no quantified earnings or revenue guidance. Management said cash and operating cash flow should fund operations and growth for the next 12 months and into the foreseeable future, while noting uncertainty around pandemic effects and potential financing needs.
- A new $100 million share-repurchase authorization was approved in October 2020. Cavco repurchased 6,600 shares for approximately $1.4 million during FY2021; no common-stock dividends were paid.
- Capital expenditures included investment in a new Arizona park model RV facility, expected to become operational in December 2021.
Risks, contingencies and unusual items
- Key risks include continued COVID-19 disruption, labor and material availability and costs, consumer and distributor financing access, interest rates, cyclical housing demand, competition, and geographic concentration. The filing notes that future pandemic effects cannot be reliably estimated.
- Repurchase agreements for distributor floor-plan financing had maximum contingent exposure of $74.2 million before considering resale value; the recorded reserve was $2.3 million. CountryPlace also had $23.8 million of remaining commitments to fund construction-period mortgages.
- Since 2018, the SEC has investigated securities trading in personal and Company accounts directed by former CEO Joseph Stegmayer. The SEC issued Wells Notices to former CFO Daniel Urness and to Cavco, indicating staff intended to recommend enforcement action. Cavco said it was exploring settlement; it recorded an accrual in FY2021 and stated the matter was not expected to materially adversely affect the financial statements. The ultimate outcome remains uncertain.
- A California wage-and-hour class action was settled in the fourth quarter; the settlement was recorded in SG&A and was not material to the consolidated financial statements. Other pending matters were not expected by management to have a material adverse effect, subject to uncertainty.
- Insurance claim reserves were $7.5 million, up from $5.6 million, and were identified by the auditor as a critical audit matter because estimation requires significant judgment. Reinsurance mitigates some losses, but Cavco remains exposed if reinsurers fail to meet obligations.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the $603 million backlog converts to shipments and revenue, given pre-production cancellation rights and constrained factory capacity.
- Whether labor, absenteeism and supply constraints improve enough to raise utilization and protect margins amid material-cost inflation.
- The status, potential cost and resolution of the SEC investigation and Wells Notices, including any settlement or enforcement action.
- Credit performance, forbearance-related cash obligations and loss reserves in consumer and commercial lending, and the adequacy of insurance and repurchase reserves.
- Cash available for general use versus restricted cash, future capital spending, and deployment of the remaining share-repurchase authorization.