Cavco Industries Inc. 2027 Q1 Earnings Call

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

During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer, Allison Aden, Executive Vice President and Chief Financial Officer, and Paul Bigbee, Chief Accounting Officer. Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our future or expected business and financial performance and are not promises or guarantees of future performance. There 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 focus factors that could affect our actual results, please refer to these contained in our statements and 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, July 31st, 2026. Cavco undertakes no obligation to revise or update any forward-looking statements, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer.

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

It's only been about two months since our year-end call in late May when we told you that March had showed a big pickup in orders, there was an associated backlog increase. The good news is that that order momentum has carried through the first quarter, even with sequential shipments being up 13%, our backlog still grew more than 50% from last quarter's ending level. Sequential orders were up double digits in every region, as a result, backlogs grew significantly across the country as well. The Q1 backlog is also 50% higher than a year ago, last year it was declining rather than growing. Shipment improvement across the country led to a quarterly record of 5,657 units.

Our production increases resulted in capacity utilization of 75%, still significantly below levels we're able to sustain. There remains significant room to reach higher volume levels, assuming strong orders persist. This is the first quarter in our history that revenue exceeded $600 million. It was up about 10% both sequentially and year over year. Just to conclude on these points, we raised production and shipments significantly and still saw a large increase in orders and backlogs, both sequentially and year over year. Factory build gross margin dropped 40 basis points from last quarter, driven by two factors. Part of the downward pressure came from increased costs in manufacturing. The other factor was related to retail pricing. Wholesale pricing to independents remained generally stable across all regions. That was not the driver.

In our company-owned retail markets, which are concentrated in the Texas area, we saw increased price competition. These lower retail prices contributed to the sequential gross margin decline. We do continue to see higher retail traffic in Texas. Closing rates declined. This indicates that demand is good. Competition for qualified buyers intensified during the quarter. Shifting to financial services, as reported last quarter, we have found reliable purchasers of meaningful loan volume, which has enabled a nice improvement in loan origination and sales. This quarter, the origination growth met our expectations. We anticipate we will be able to grow loan sales into future periods. Separately, while the first quarter is a seasonally higher insurance claims quarter, that operation continued their strong performance and exceeded our profit expectations. The favorable insurance claims results over the past couple years have resulted in lower reinsurance costs as well.

Very recently, we also received important outside confirmation of the strong insurance performance and trajectory when AM Best moved to a positive outlook for our financial strength and issuer credit ratings. Shifting to capital allocation, our strong cash generation enabled us to continue investing in planned expansions and strategic projects while still repurchasing another $30 million of company stock. In a little over five years since we began our buybacks, we have now deployed over $600 million in repurchases with the objective of maintaining a responsible balance sheet. Over 19% of our outstanding shares have been bought back through this return of capital to our shareholders. We finished the quarter with a healthy $243 million of unrestricted cash. Finally, a few weeks ago, the Road to Housing Act became law.

The bipartisan support for the new law and the prominence of manufactured housing elements within it are indicative of the growing awareness that our industry is an in-place solution to the affordable housing shortage in our country.

The benefits of this law will show themselves over time as we are able to place innovative home designs in urban and suburban locations with improved market acceptance, appropriate regulations, and better support for our homebuyers' funding needs. As I've commented in the past, pay attention to what's happening at the state level as well, where more states are engaged in lowering unnecessary barriers to our homes being placed where they are needed. Now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the first fiscal quarter of 2027 was $610 million, up 9.5% compared to $556.9 million during the prior year period. Sequentially, net revenues increased to $59.8 million, driven by an increase in units sold, partially offset by a decrease in average revenue per home sold. Within the factory-built housing segment, net revenue was $586 million, up $50.3 million or 9.4% from $535.7 million in the prior year quarter. The increase was primarily due to the addition of American Homestar and an increase in legacy average revenue per home sold. The increase in legacy average revenue per home was primarily due to a higher proportion of homes sold through our company-owned stores and more Multi-Wides in the mix, partially offset by product pricing decreases. Financial services segment net revenue was $24 million, up $2.8 million or 13.3% from $21.2 million in the prior year quarter.

This increase was generated by higher loan sales and gains on the insurance subsidiary's equity portfolio. Consolidated gross margin in the first fiscal quarter as a percentage of net revenue was 22.1%, down from 23.3% in the same period last year. In the factory-built housing segment, the gross profit was 20.8% in Q1 of 2027, down from 22.6% in Q1 of 2026. The reduction was due to higher cost per unit sold. Financial services gross margin as a percentage of revenue increased to 52.4% in Q1 of 2027 from 40.9% in Q1 of 2026. The increase was primarily due to the growing impact of premium rate increases, gains on the insurance subsidiary equity portfolio, and underwriting changes on policy in addition to higher loan sales.

Selling, general, and administrative expenses in the first quarter of 2027 were $81.8 million or 13.4% of net revenue, compared to $69.1 million or 12.4% of net revenue during the same quarter last year. The increase in these expenses was primarily due to the addition of American Homestar, along with the increases in compensation and employee-related costs, and sales and marketing efforts. Interest income for the first quarter was $3.3 million, down from $5.1 million in the prior year quarter, resulting from lower cash balances after the purchase of American Homestar. Pre-tax profit was down 14.6% this quarter to $55.8 million from $65.3 million for the prior year period. The effective income tax rate was 24.2% for the first fiscal quarter, compared to 20.9% in the same period of the prior year.