Cavco Industries, Inc. (Nasdaq: CVCO) today announced financial
results for the first fiscal quarter ended June 27, 2020. On
August 2, 2019, the Company completed the acquisition of Destiny
Homes, which operates a manufactured and modular housing factory in
Moultrie, Georgia. The results from this acquired operation since
the acquisition date are included in the consolidated financial
statements presented herein.
Financial highlights include the following:
- Net revenue for
the first quarter of fiscal year 2021 was $254.8 million, down 3.5%
from $264.0 million for the first quarter of fiscal year 2020.
- The decrease is primarily from 12% lower home sales volume in
the factory-built housing segment during the quarter. However, the
Net revenue decline was partially mitigated by homes sold from the
Destiny Homes operation acquired less than a year ago and higher
home selling prices compared to the same quarter last year. While
the Company entered the quarter with solid factory backlogs and
incoming order rates were strong in the last half of the quarter,
production inefficiencies limited factory delivery volume causing
lower quarterly home sales. The production inefficiencies and
decline in Net revenue resulted from challenges related to the
novel coronavirus COVID-19 ("COVID-19") pandemic, as discussed
further below.
- Financial services segment revenue increased primarily from
$1.0 million of unrealized gains on marketable equity investments
in the insurance subsidiary's portfolio compared to minimal
unrealized gains in the prior year period. These unrealized gains
resulted mainly from the recovery of the underlying equity markets
during the quarter.
- Income from operations decreased 20.0% to
$20.0 million for the first quarter of fiscal year 2021 compared to
$25.0 million in the same quarter last year.
- In the factory-built housing
segment, the Company recorded lower gross profit margins from fewer
home sales resulting from COVID-19 related production
inefficiencies and expenses. Costs related to the Securities and
Exchange Commission ("SEC") inquiry were $0.1 million in the first
quarter of fiscal year 2021, net of a $0.5 million insurance
recovery of prior expenses, compared to $0.8 million in the
comparable period. Both periods incurred $2.1 million in charges
for the amortization of additional director and officer ("D&O")
insurance premiums.
- In the financial services segment,
Income from operations was adversely impacted by $1.1 million of
higher weather related claims volume compared to the same period in
the prior year. Interest income earned on the acquired loan
portfolios that continue to amortize was also lower. These declines
were offset by unrealized gains on marketable equity investments,
as described above.
- Income before income
taxes for the first quarter of fiscal year 2021 was $21.7
million, down 20.8% from $27.4 million for the first quarter of
fiscal year 2020. Other income, net, declined primarily from a $0.9
million reduction in interest earned on cash and commercial loan
receivables, given the lower interest rate environment. However,
Interest expense declined from the repurchase of the 2007-1
securitized loan portfolio in August 2019, thereafter eliminating
the related interest expense.
- Income taxes
totaled $5.0 million in the first quarter of fiscal 2021, a 23.1%
reported effective tax rate compared to $6.1 million in the first
quarter of fiscal 2020, a 22.2% effective tax rate. The higher
effective tax rate in the current quarter was primarily from lower
tax benefits for the exercise of stock options compared to the same
period last year.
- Net income was
$16.7 million for the first quarter of fiscal year 2021, compared
to net income of $21.3 million in the same quarter of the prior
year, a 21.6% decrease. Diluted net income per share was $1.80 for
the three months ended June 27, 2020, compared to $2.31 for the
comparable period last year.
During each quarterly period, items ancillary to
our core operations had the following impact on the results of
operations (in millions):
|
Three Months Ended |
|
June 27, 2020 |
|
June 29, 2019 |
Net
revenue |
Unrealized gains on marketable equity investments in the financial
services segment |
$ |
1.0 |
|
|
$ |
— |
|
Selling,
general and administrative expenses |
|
|
Amortization of additional D&O insurance premiums |
(2.1 |
) |
|
(2.1 |
) |
Legal and other expenses related to the SEC inquiry |
(0.1 |
) |
|
(0.8 |
) |
Other
income, net |
Unrealized gains on corporate marketable equity securities |
1.0 |
|
|
0.9 |
|
Income tax
expense |
Tax benefits from stock option exercises |
0.3 |
|
|
0.6 |
|
Business Update on the COVID-19
Pandemic
In March 2020, the World Health Organization
declared COVID-19 a global pandemic. The Company continued to
operate substantially all of its homebuilding and retail sales
facilities while working to follow COVID-19 health guidelines. The
Company has worked to minimize exposure and transmission risks by
implementing enhanced facility cleaning, social distancing and
related protocols while continuing to serve its customers.
Operational efficiencies declined from adjusting home production
processes to comply with health guidelines, managing higher factory
employee absenteeism, limited new-hire availability and certain
building material supply shortages. Accordingly, the Company's
total average plant capacity utilization rate fell to as low as
approximately 45% during the early part of the first fiscal year
quarter, compared to pre-pandemic levels of more than 80%. By the
end of the quarter, overall plant capacity utilization rates were
approximately 70% compared to approximately 80% during last year's
first fiscal quarter as the Company continues to work to increase
production.
Sales order activity also declined substantially
at the beginning of the quarter due to the onset of COVID-19.
Pandemic restrictions that began in March 2020 had a cascading
effect on every point in the home sales process, including delaying
some orders and sales late into the first quarter. Sales activity
continuously improved over the balance of the quarter to the point
where sales order rates were somewhat higher than the comparable
prior year at quarter's end. Increased order volume is the result
of a higher number of well-qualified home-buyers making purchase
decisions supported by reduced home loan interest rates. Increased
orders outpaced the challenging production environment during the
quarter, raising order backlogs 20% to $157 million at
June 27, 2020, compared to $131 million at June 29, 2019.
This backlog of home orders excludes orders that have been paused
or canceled at the request of the customer.
It is difficult to predict the future impacts on
housing demand or the nature of operations at each of our locations
due to the COVID-19 pandemic. However, our wholesale customers have
been positive about continuing the process of delivering homes and
supportive of our efforts to continue production to meet housing
needs.
During the quarter, the Company ceased
production and closed its Lexington, Mississippi plant, as
previously announced. The Company remains available to serve
wholesale customers previously served by the Lexington facility
from its other production lines in the southeast.
Commenting on the quarter, Bill Boor, President
and Chief Executive Officer said, "The COVID-19 pandemic has
created unprecedented disruption and uncertainty, leading to
operational inefficiencies in the quarter. However, we acted
quickly with the safety and continued employment of our co-workers
at the forefront of every decision. We remain committed to our
customers, and, to the extent we can do so safely, resolve to
continue our important work. Market uncertainty remains and we
expect challenges to persist. After months into this pandemic, the
resilience, creativity, and, most importantly, the commitment of
people throughout Cavco, coupled with continuing cash generation,
give me confidence that we will successfully navigate the
challenges that lie ahead."
Cavco’s management will hold a conference call
to review these results tomorrow, July 31, 2020, at 1:00 PM
(Eastern Time). Interested parties can access a live webcast of the
conference call on the Internet at https://investor.cavco.com or
via telephone at + 1 (844) 348-1686 (domestic) or + 1 (213)
358-0891 (international). An archive of the webcast and
presentation will be available for 90 days at
https://investor.cavco.com.
Cavco Industries, Inc., headquartered in
Phoenix, Arizona, designs and produces factory-built housing
products primarily distributed through a network of independent and
Company-owned retailers. The Company is one of the largest
producers of manufactured homes in the United States, based on
reported wholesale shipments, marketed under a variety of brand
names including Cavco, Fleetwood, Palm Harbor, Fairmont,
Friendship, Chariot Eagle, and Destiny. The Company is also a
leading producer of park model RVs, vacation cabins and
systems-built commercial structures, as well as modular homes.
Cavco’s finance subsidiary, CountryPlace Mortgage, is an approved
Fannie Mae and Freddie Mac seller/servicer and a Ginnie Mae
mortgage-backed securities issuer that offers conforming mortgages,
non-conforming mortgages and home-only loans to purchasers of
factory-built homes. Our insurance subsidiary, Standard Casualty,
provides property and casualty insurance to owners of manufactured
homes.
Forward-Looking Statements
Certain statements contained in this release are forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, Section 21E of the Securities and Exchange Act of 1934 and
the Private Securities Litigation Reform Act of 1995. In general,
all statements that are not historical in nature are
forward-looking. Forward-looking statements are typically included,
for example, in discussions regarding the manufactured housing and
site-built housing industries; our financial performance and
operating results; and the expected effect of certain risks and
uncertainties on our business, financial condition and results of
operations. All forward-looking statements are subject to risks and
uncertainties, many of which are beyond our control. As a result,
our actual results or performance may differ materially from
anticipated results or performance. Factors that could cause such
differences to occur include, but are not limited to: the impact of
local or national emergencies including the COVID-19 pandemic,
including such impacts from state and federal regulatory action
that restricts our ability to operate our business in the ordinary
course and impacts on (i) customer demand and the availability of
financing for our products, (ii) our supply chain and the
availability of raw materials for the manufacture of our products,
(iii) the availability of labor and the health and safety of our
workforce and (iv) our liquidity and access to the capital markets;
our ability to successfully integrate past acquisitions or future
acquisitions and the ability to attain the anticipated benefits of
such acquisitions; the risk that any past or future acquisition may
adversely impact our liquidity; involvement in vertically
integrated lines of business, including manufactured housing
consumer finance, commercial finance and insurance; information
technology failures or cyber incidents; curtailment of available
financing from home-only lenders; availability of wholesale
financing and limited floor plan lenders; our participation in
certain wholesale and retail financing programs for the purchase of
our products by industry distributors and consumers, which may
expose us to additional risk of credit loss; significant warranty
and construction defect claims; our contingent repurchase
obligations related to wholesale financing; market forces and
housing demand fluctuations; net losses were incurred in certain
prior periods and our ability to generate income in the future; a
write-off of all or part of our goodwill; the cyclical and seasonal
nature of our business; limitations on our ability to raise
capital; competition; our ability to maintain relationships with
independent distributors; our business and operations being
concentrated in certain geographic regions; labor shortages and the
pricing and availability of raw materials; unfavorable zoning
ordinances; loss of any of our executive officers; organizational
document provisions delaying or making a change in control more
difficult; volatility of stock price; general deterioration in
economic conditions and turmoil in the credit markets; governmental
and regulatory disruption, including federal government shutdowns;
extensive regulation affecting manufactured housing; potential
financial impact on the Company from the subpoenas we received from
the Securities and Exchange Commission ("SEC"), including the risk
of potential litigation or regulatory action, and costs and
expenses arising from the SEC subpoenas and the events described in
or covered by the SEC subpoenas, which include the Company's
indemnification obligations and insurance costs regarding such
matters, and potential reputational damage that the Company may
suffer; and losses not covered by our director and officer
insurance may be large, adversely impacting financial performance;
together with all of the other risks described in our filings with
the SEC. Readers are specifically referred to the Risk Factors
described in Item 1A of the 2020 Form 10-K, as may be amended from
time to time, which identify important risks that could cause
actual results to differ from those contained in the
forward-looking statements. Cavco expressly disclaims any
obligation to update any forward-looking statements contained in
this release, whether as a result of new information, future events
or otherwise. Investors should not place undue reliance on any such
forward-looking statements.
For additional information, contact:
Mark FuslerDirector of Financial Reporting and
Investor Relationsinvestor_relations@cavco.com
Phone: 602-256-6263On the
Internet: www.cavco.com
CAVCO INDUSTRIES,
INC.CONSOLIDATED BALANCE SHEETS(Dollars
in thousands, except per share amounts)
|
June 27, 2020 |
|
March 28, 2020 |
ASSETS |
(Unaudited) |
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
270,547 |
|
|
$ |
241,826 |
|
Restricted cash, current |
19,600 |
|
|
13,446 |
|
Accounts receivable, net |
38,171 |
|
|
42,800 |
|
Short-term investments |
16,374 |
|
|
14,582 |
|
Current portion of consumer loans receivable, net |
44,830 |
|
|
32,376 |
|
Current portion of commercial loans receivable, net |
13,628 |
|
|
14,657 |
|
Current portion of commercial loans receivable from affiliates,
net |
803 |
|
|
766 |
|
Inventories |
106,396 |
|
|
113,535 |
|
Prepaid expenses and other current assets |
37,642 |
|
|
42,197 |
|
Total current assets |
547,991 |
|
|
516,185 |
|
Restricted cash |
335 |
|
|
335 |
|
Investments |
30,506 |
|
|
31,557 |
|
Consumer loans receivable,
net |
44,129 |
|
|
49,928 |
|
Commercial loans receivable,
net |
20,097 |
|
|
23,685 |
|
Commercial loans receivable from
affiliates, net |
9,481 |
|
|
7,457 |
|
Property, plant and equipment,
net |
77,326 |
|
|
77,190 |
|
Goodwill |
75,090 |
|
|
75,090 |
|
Other intangibles, net |
14,923 |
|
|
15,110 |
|
Operating lease right-of-use
assets |
18,378 |
|
|
13,894 |
|
Total assets |
$ |
838,256 |
|
|
$ |
810,431 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
34,658 |
|
|
$ |
29,924 |
|
Accrued expenses and other current liabilities |
142,193 |
|
|
139,930 |
|
Current portion of secured credit facilities and other |
2,205 |
|
|
2,248 |
|
Total current liabilities |
179,056 |
|
|
172,102 |
|
Operating lease liabilities |
15,398 |
|
|
10,743 |
|
Secured credit facilities and
other |
12,307 |
|
|
12,705 |
|
Deferred income taxes |
7,488 |
|
|
7,295 |
|
Stockholders’ equity: |
|
|
|
Preferred stock, $0.01 par value; 1,000,000 shares authorized; No
shares issued or outstanding |
— |
|
|
— |
|
Common stock, $0.01 par value; 40,000,000 shares authorized;
Outstanding 9,177,064 and 9,173,242 shares, respectively |
92 |
|
|
92 |
|
Additional paid-in capital |
252,672 |
|
|
252,260 |
|
Retained earnings |
371,085 |
|
|
355,144 |
|
Accumulated other comprehensive income |
158 |
|
|
90 |
|
Total stockholders’ equity |
624,007 |
|
|
607,586 |
|
Total liabilities and
stockholders’ equity |
$ |
838,256 |
|
|
$ |
810,431 |
|
|
|
|
|
|
|
|
|
CAVCO INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF
INCOME(Dollars in thousands, except per share
amounts)(Unaudited)
|
Three Months Ended |
|
June 27, 2020 |
|
June 29, 2019 |
Net revenue |
$ |
254,801 |
|
|
$ |
264,042 |
|
Cost of sales |
199,478 |
|
|
203,744 |
|
Gross profit |
55,323 |
|
|
60,298 |
|
Selling, general and
administrative expenses |
35,323 |
|
|
35,264 |
|
Income from operations |
20,000 |
|
|
25,034 |
|
Interest expense |
(196 |
) |
|
(486 |
) |
Other income, net |
1,876 |
|
|
2,814 |
|
Income before income taxes |
21,680 |
|
|
27,362 |
|
Income tax expense |
(5,006 |
) |
|
(6,080 |
) |
Net income |
$ |
16,674 |
|
|
$ |
21,282 |
|
|
|
|
|
Net income per share: |
|
|
|
Basic |
$ |
1.82 |
|
|
$ |
2.34 |
|
Diluted |
$ |
1.80 |
|
|
$ |
2.31 |
|
Weighted average shares
outstanding: |
|
|
|
Basic |
9,174,182 |
|
|
9,102,685 |
|
Diluted |
9,264,661 |
|
|
9,217,599 |
|
|
|
|
|
|
|
CAVCO INDUSTRIES,
INC.OTHER OPERATING DATA(Dollars in
thousands)(Unaudited)
|
Three Months Ended |
|
June 27, 2020 |
|
June 29, 2019 |
Net revenue: |
|
|
|
Factory-built housing |
$ |
238,090 |
|
|
$ |
248,768 |
|
Financial services |
16,711 |
|
|
15,274 |
|
Total net revenue |
$ |
254,801 |
|
|
$ |
264,042 |
|
|
|
|
|
Gross profit: |
|
|
|
Factory-built housing |
$ |
46,992 |
|
|
$ |
52,135 |
|
Financial services |
8,331 |
|
|
8,163 |
|
Total gross profit |
$ |
55,323 |
|
|
$ |
60,298 |
|
|
|
|
|
Income from operations: |
|
|
|
Factory-built housing |
$ |
16,255 |
|
|
$ |
21,384 |
|
Financial services |
3,745 |
|
|
3,650 |
|
Total income from
operations |
$ |
20,000 |
|
|
$ |
25,034 |
|
|
|
|
|
Capital expenditures |
$ |
1,856 |
|
|
$ |
2,063 |
|
Depreciation |
$ |
1,426 |
|
|
$ |
1,160 |
|
Amortization of other
intangibles |
$ |
187 |
|
|
$ |
80 |
|
|
|
|
|
Total factory-built homes
sold |
3,349 |
|
|
3,807 |
|
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