Cavco Industries Inc. 2027 Q2 Earnings Call

Please go ahead. Good day, and thank you for joining us for Cavco Industries second quarter fiscal year 2027 earnings conference call.

During this call, you will be hearing from Bill Boor, President and Chief Executive Officer, Allison Aden, Executive Vice President and Chief Financial Officer, and myself. Before we begin, we would like to remind you that comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our expected and future business and financial performance, and are not promises or guarantees of future performance. They are expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets, or future market conditions.

All forward-looking statements involve risks and uncertainties which could affect Cavco's actual results, and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Cavco. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our investor relations website and at sec.gov. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, October 30, 2026. Cavco undertakes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. Now I would like to turn the call over to Bill Boor, President and Chief Executive Officer.

Bill? Thanks, Mark. Welcome, and thank you for joining us today to review our second quarter results for fiscal 2027.

In the first quarter, we reported unit shipment and revenue records. Now in the second quarter, we were able to better those records. I will stop short of implying that the market is strong. It isn't. However, this quarter, orders continued to exceed our pace of shipments, resulting in another sequential increase in our backlog. We are entering the winter months, and orders are slowing as they typically do. At the same time, across the system, the end-of-quarter backlog averaged a healthy 8-10 weeks. Overall, we are shipping more than last year, orders are slowing but are well above last year's levels, and our backlog is 63% higher.

Heading into winter, we're in good position to lean in on production where backlogs allow, knowing we can respond to changing markets as needed. To provide some context about orders, on a same-plant basis, we were up high single digits compared to last year, and down sequentially from a very strong Q1. In the second quarter, we shipped a record 5,972 homes. Last quarter, revenue exceeded $600 million for the first time, and this quarter, it was up another 7.6% to $656 million. Year-over-year revenue was up about 17.9%. Our capacity utilization was about 75%, still well below levels we're able to sustain. From a longer-term perspective, there remains significant room to reach higher volumes, which I think is important given the regulatory momentum and the continuing affordable housing supply deficit. Factory-built gross margin increased 30 basis points from last quarter.

This was a good outcome given ongoing materials inflation. While differential across operating areas, we saw product pricing increase enough to offset the negative margin impact of growing materials costs. To be clear about consolidated average selling price, the overall increase was from both single-section and multi-section homes selling at higher prices, rather than driven by changes in product or distribution mix. It's important we discuss the increasing role being played by data center workforce housing in our orders, shipments, and backlogs. Data center orders and shipments increased significantly during the quarter. Like any other channel, we don't intend to specifically break out the units and orders, but I want to talk through how this dynamic impacted the quarter. First, because we had healthy backlogs going into the quarter, there was not a net meaningful impact on shipments.

In other words, had we not seen these workforce housing orders, we had plenty of other business and would have shipped a similar overall volume. Regarding price, these units are generally single sections, and they have a higher price than typical single-section homes, so there was an upward effect on average selling price. But having said that, my earlier comments about sequential product price increases still hold true for the base residential units. Workforce housing shipments added to what would have already been an increase in product pricing. Shifting to margin, the pricing is higher on workforce housing, mainly because the material cost of a unit is significantly higher. Generally, these units are built with six or seven self-contained living spaces with in-room toilets and showers. Taking all of this into account, there was no meaningful impact on our percent gross margin resulting from the workforce housing shipments.

Higher price, higher cost, neutral impact on gross margin percent. The big positive of these incremental workforce housing orders is that they're adding to the backlog, thereby enabling us to lean in on production despite heading into the winter months and with continued economic uncertainty. Overall, this is a developing opportunity, and frankly, we don't have a clear view about how much this will grow, how susceptible the orders may be to delays or cancellations, or how long we'll see a meaningful level of remote data center projects. Switching gears, I want to acknowledge the contribution our financial services operations continue to make. There's not a lot to discuss here except the continuing strong performance. Overall, pre-tax profit was up a couple percent over a very good quarter last year. Insurance had another in a string of strong quarters with low claims.

We are also benefiting from reduced reinsurance costs due to both the general reinsurance market improving and our dramatic improvement in claims performance the last couple years. CountryPlace Mortgage continued to ramp up originations after securing new investors for loan purchases, which we have mentioned in previous quarters. Shifting to capital allocation, we repurchased $30 million of company stock in the quarter. Since initiating our repurchases just over five years ago, we have returned $642 million to our shareholders through buybacks without hampering any strategic growth investment in our plants, greenfields, acquisitions, or otherwise. In Q2, we surpassed cumulative repurchases of 20% of our shares over that time, and we finished the quarter with a healthy $272 million of unrestricted cash. Now I will turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the fiscal second quarter of 2027 was $656.4 million, up 18% compared to $556.5 million during the prior year period. Sequentially, net revenues increased $46.4 million, driven by a higher unit sold and higher average revenue per home sold. Within the factory-built housing segment, net revenue was $633.5 million, up $98.6 million, or 18.4% from $535.1 million in the prior year quarter. This increase was primarily due to the addition of American Homestar, an increase in legacy homes sold, and an increase in legacy average revenue per home sold. The increase in legacy average revenue per home was primarily due to product pricing increases, partially offset by a lower proportion of homes sold through our company-owned stores and more single-wides in the mix.

Financial services segment net revenue was $22.6 million, up $1.2 million, or 5.6% from $21.4 million in the prior year quarter. This increase was due to higher loan sales in our mortgage division. Consolidated gross margin in the fiscal second quarter as a percentage of net revenue was 22.5%, down from 24.2% in the same period last year. In the factory-built housing segment, the gross profit was 21.1% in Q2 of 2027, slightly down from 22.9% in Q2 of 2026. The reduction is due to higher input costs, partially offset by increased product pricing. Financial services gross margin as a percentage of revenue increased to 60.2% in Q2 of 2027 from 55.6% in Q2 of 2026, driven primarily by improved underwriting margins.

Selling, general, and administrative expenses in the second quarter of 2027 were $77.7 million, or 11.8% of net revenue, compared to $72.2 million, or 13% of net revenue during the same quarter last year. The increase in these costs was primarily due to the addition of American Homestar, along with increased compensation and employee benefit expense. These expense increases were partially offset by a $7 million one-time return of premiums related to additional D&O insurance that was purchased back in 2019. Interest income for the second quarter was $3.6 million, down from $5 million in the prior year quarter, resulting from lower cash balances after the purchase of American Homestar. Pre-tax profit was up 9.1% this quarter to $73.4 million from $67.3 million for the prior year period.