Cavco Industries, Inc. (Nasdaq: CVCO) today announced financial
results for the second fiscal quarter ended September 26,
2020.
- Net revenue decreased 4.0% to $258.0 million
for the second quarter of fiscal year 2021 compared to $268.7
million in the same quarter last year. Net revenue for the first
six months of fiscal 2021 was $512.8 million, a 3.7% decrease from
$532.7 million in the comparable prior year period.
- In the Factory-built housing segment, Net revenue decreased
4.6% to $241.0 million for the second quarter of fiscal year 2021
compared to $252.7 million in the same quarter last year.
Factory-built housing Net revenue for the first six months of
fiscal 2021 was $479.1 million, a 4.5% decrease from $501.5 million
in the comparable prior year period. Note that Destiny Homes was
purchased in August 2019 and Lexington Homes was closed in June
2020. The decrease was primarily from 9% and 11% lower home sales
volume during the three and six months ended September 26, 2020,
respectively, partially offset by higher home selling prices
compared to last year. Strong incoming order rates that began in
the last half of the first quarter continued throughout the second
quarter of fiscal year 2021. Production inefficiencies from
challenges related to the novel coronavirus COVID-19 ("COVID-19")
pandemic limited factory delivery volume, causing factory backlogs
to increase dramatically, as discussed further below.
- Financial services segment Net revenue increased primarily due
to $0.7 million and $1.7 million of unrealized gains on marketable
equity investments in the insurance subsidiary's portfolio during
the three and six months ended September 26, 2020, respectively,
compared to $0.2 million in unrealized gains in each of the prior
year periods. These unrealized gains resulted mainly from the
recovery of the underlying equity markets during the relevant
periods.
- Income from operations decreased 19.2% to
$18.1 million for the second quarter of fiscal year 2021 compared
to $22.4 million in the same quarter last year. Income from
operations for the first six months of fiscal 2021 was $38.1
million, a 19.6% decrease from $47.4 million in the comparable
prior year period.
- In the factory-built housing segment, gross profit was lower in
the three and six months ended September 26, 2020 due to fewer home
sales as a result of COVID-19 related production inefficiencies.
During the second quarter of fiscal year 2021, the Company incurred
$0.5 million in expenses related to the Securities and Exchange
Commission ("SEC") inquiry. However, the Company also received a
$0.8 million insurance recovery of prior expenses, resulting in a
net benefit of $0.3 million for the second quarter of fiscal year
2021 compared to $0.8 million in expense in the second quarter of
fiscal year 2020. For the six months ended September 26, 2020, the
Company has recorded a net benefit of $0.2 million for
investigation related expenses compared to $1.6 million in expense
in the comparable prior year period. Both periods incurred
identical charges for the amortization of additional director and
officer ("D&O") insurance premium, which is now fully
amortized.
- In the financial services segment, Income from operations was
adversely impacted by $3.3 million and $4.4 million of higher
weather-related claims volume compared to the three and six months
ended September 28, 2019, respectively. Interest income earned on
the acquired loan portfolios that continue to amortize was also
lower. These declines were partially offset by unrealized gains on
marketable equity investments, as described above.
- Income before income taxes for the second
quarter of fiscal year 2021 was $19.6 million, down 28.2% from
$27.3 million for the second quarter of fiscal year 2020. For the
six months ended September 26, 2020, Income before income
taxes was $41.3 million, down 24.4% from $54.6 million. Interest
expense for the period decreased due to the repurchase of the
2007-1 securitized loan portfolio in August 2019, thereafter
eliminating the related interest expense. Other income, net,
declined primarily due to a $3.4 million net gain on the sale of
idle land that was recorded in the second quarter of fiscal year
2020, as well as a reduction in interest earned in the current
periods on cash and commercial loan receivables, given the lower
interest rate environment.
- Income taxes totaled $4.5 million in the
second quarter of fiscal year 2021 compared to $6.4 million, in the
second quarter of fiscal year 2020. For the six months ended
September 26, 2020, Income taxes totaled $9.6 million compared
to $12.5 million for the same period of the prior year.
- Net income decreased 28.2% to $15.0 million
for the second quarter of fiscal year 2021, compared to net income
of $20.9 million in the same quarter of the prior year. For the six
months ended September 26, 2020, net income was $31.7 million, down
24.9% from net income of $42.2 million in the prior year period.
Diluted net income per share was $1.62 and $3.42 for the three and
six months ended September 26, 2020, respectively, compared to
$2.25 and $4.56 for the same periods last year.
Items ancillary to our core operations had the
following impact on the results of operations (in millions):
|
|
Three Months Ended |
|
Six Months Ended |
|
September 26, 2020 |
|
September 28, 2019 |
|
September 26, 2020 |
|
September 28, 2019 |
Net
revenue |
|
Unrealized gains on marketable equity securities in the financial
services segment |
$ |
0.7 |
|
|
$ |
0.2 |
|
|
$ |
1.7 |
|
|
$ |
0.2 |
|
Selling,
general and administrative expenses |
|
|
|
Amortization of additional
D&O insurance premiums |
(2.1 |
) |
|
(2.1 |
) |
|
(4.2 |
) |
|
(4.2 |
) |
|
Legal and other expense
related to the SEC inquiry, net of recovery |
0.3 |
|
|
(0.8 |
) |
|
0.2 |
|
|
(1.6 |
) |
Other
income, net |
|
Unrealized gains on corporate
marketable equity securities |
0.6 |
|
|
0.2 |
|
|
1.6 |
|
|
1.1 |
|
|
Gain on sale of idle land |
— |
|
|
3.4 |
|
|
— |
|
|
3.4 |
|
Income
tax expense |
|
Tax benefits from stock option
exercises |
0.4 |
|
|
0.3 |
|
|
0.7 |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Update on the COVID-19
Pandemic
In March 2020, the World Health Organization
declared COVID-19 a global pandemic. As the business was considered
essential, 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 was approximately 65% during the second fiscal
quarter of 2021, ending the quarter at approximately 70%. This is
lower than pre-pandemic levels of more than 80%.
Sales order activity has continued to improve
during the second fiscal quarter of 2021 to the point where home
sales order rates were nearly 65% higher than the comparable prior
year quarter. 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 134% to $321 million at September 26,
2020, compared to $137 million at September 28, 2019 and $157
million at June 27, 2020. The backlog of home orders excludes
orders that have been paused or canceled at the request of the
customer.
Commenting on the quarter, Bill Boor, President
and Chief Executive Officer said, "Across the company, our teams
have done a tremendous job safely continuing operations over the
last two quarters. In manufacturing, while our ability to produce
homes has been hampered by labor and supply challenges, the rapid
increase in our backlog has largely been driven by a sustained and
unprecedented level of orders. That demand is clearly indicative of
the long-term shortage of affordable housing and has been enabled
by record low interest rates. We are working very hard to increase
production by addressing significant labor challenges. Throughout
this period of time, we have demonstrated our ability to generate
cash and our strong financial position continues to support our
strategic direction."
Cavco's management will hold a conference call
to review these results tomorrow, October 30, 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.
2020 Stock Repurchase
Program
On October 27, 2020, the Company’s Board of
Directors approved a $100 million stock repurchase program that may
be used to purchase its outstanding common stock. This program
replaces a previously standing $10 million authorization, which is
now canceled.
The purchases may be made in the open market or
one or more privately negotiated transactions in compliance with
applicable securities laws and other legal requirements. The actual
timing, number and value of shares repurchased under the program
will be determined by the Company in its discretion and will depend
on a number of factors, including market conditions, applicable
legal requirements and other strategic capital needs and
opportunities. The plan does not obligate Cavco to acquire any
particular amount of common stock and may be suspended or
discontinued at any time.
The Company expects to finance the program from
existing cash resources. As of September 26, 2020, the Company had
cash and short term investments of approximately $329 million.
"Our priorities for capital remain unchanged. As
we've continually evaluated those priorities alongside our growing
cash balance, we have become convinced that we have the opportunity
to return value directly to our stockholders without compromising
our ability to create long-term value through investment. We remain
committed to growth, both organically and through acquisitions,"
said Mr. Boor.
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 and 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 SEC and its ongoing investigation, including the risk of
potential litigation or regulatory action, and costs and expenses
arising from the SEC subpoenas and investigation and the events
described in or covered by the SEC subpoenas and investigation,
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, which 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.
CAVCO INDUSTRIES,
INC.CONSOLIDATED BALANCE SHEETS(Dollars
in thousands, except per share amounts)
|
September 26, 2020 |
|
March 28, 2020 |
ASSETS |
(Unaudited) |
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
312,243 |
|
|
$ |
241,826 |
|
Restricted cash, current |
16,691 |
|
|
13,446 |
|
Accounts receivable, net |
36,852 |
|
|
42,800 |
|
Short-term investments |
16,589 |
|
|
14,582 |
|
Current portion of consumer loans receivable, net |
39,023 |
|
|
32,376 |
|
Current portion of commercial loans receivable, net |
13,261 |
|
|
14,657 |
|
Current portion of commercial loans receivable from affiliates,
net |
1,700 |
|
|
766 |
|
Inventories |
111,872 |
|
|
113,535 |
|
Prepaid expenses and other current assets |
49,193 |
|
|
42,197 |
|
Total current assets |
597,424 |
|
|
516,185 |
|
Restricted cash |
335 |
|
|
335 |
|
Investments |
30,278 |
|
|
31,557 |
|
Consumer loans receivable,
net |
42,817 |
|
|
49,928 |
|
Commercial loans receivable,
net |
20,946 |
|
|
23,685 |
|
Commercial loans receivable
from affiliates, net |
5,571 |
|
|
7,457 |
|
Property, plant and equipment,
net |
77,836 |
|
|
77,190 |
|
Goodwill |
75,090 |
|
|
75,090 |
|
Other intangibles, net |
14,736 |
|
|
15,110 |
|
Operating lease right-of-use
assets |
17,477 |
|
|
13,894 |
|
Total assets |
$ |
882,510 |
|
|
$ |
810,431 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
32,919 |
|
|
$ |
29,924 |
|
Accrued expenses and other current liabilities |
173,184 |
|
|
139,930 |
|
Current portion of secured credit facilities and other |
2,118 |
|
|
2,248 |
|
Total current liabilities |
208,221 |
|
|
172,102 |
|
Operating lease
liabilities |
14,602 |
|
|
10,743 |
|
Secured credit facilities and
other |
11,933 |
|
|
12,705 |
|
Deferred income taxes |
7,066 |
|
|
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 9,188,162 and 9,173,242 shares, respectively |
92 |
|
|
92 |
|
Additional paid-in capital |
254,297 |
|
|
252,260 |
|
Retained earnings |
386,134 |
|
|
355,144 |
|
Accumulated other comprehensive income |
165 |
|
|
90 |
|
Total stockholders’
equity |
640,688 |
|
|
607,586 |
|
Total liabilities and
stockholders’ equity |
$ |
882,510 |
|
|
$ |
810,431 |
|
|
|
|
|
|
|
|
|
CAVCO INDUSTRIES,
INC.CONSOLIDATED STATEMENTS OF
INCOME(Dollars in thousands, except per share
amounts)(Unaudited)
|
Three Months Ended |
|
Six Months Ended |
|
September 26, 2020 |
|
September 28, 2019 |
|
September 26, 2020 |
|
September 28, 2019 |
Net revenue |
$ |
257,976 |
|
|
$ |
268,675 |
|
|
$ |
512,777 |
|
|
$ |
532,717 |
|
Cost of sales |
204,435 |
|
|
210,208 |
|
|
403,913 |
|
|
413,952 |
|
Gross profit |
53,541 |
|
|
58,467 |
|
|
108,864 |
|
|
118,765 |
|
Selling, general and
administrative expenses |
35,453 |
|
|
36,083 |
|
|
70,776 |
|
|
71,347 |
|
Income from operations |
18,088 |
|
|
22,384 |
|
|
38,088 |
|
|
47,418 |
|
Interest expense |
(194 |
) |
|
(302 |
) |
|
(390 |
) |
|
(788 |
) |
Other income, net |
1,702 |
|
|
5,173 |
|
|
3,578 |
|
|
7,987 |
|
Income before income taxes |
19,596 |
|
|
27,255 |
|
|
41,276 |
|
|
54,617 |
|
Income tax expense |
(4,547 |
) |
|
(6,370 |
) |
|
(9,553 |
) |
|
(12,450 |
) |
Net income |
$ |
15,049 |
|
|
$ |
20,885 |
|
|
$ |
31,723 |
|
|
$ |
42,167 |
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
Basic |
$ |
1.64 |
|
|
$ |
2.29 |
|
|
$ |
3.46 |
|
|
$ |
4.63 |
|
Diluted |
$ |
1.62 |
|
|
$ |
2.25 |
|
|
$ |
3.42 |
|
|
$ |
4.56 |
|
Weighted average shares
outstanding: |
|
|
|
|
|
|
|
Basic |
9,182,945 |
|
|
9,119,835 |
|
|
9,178,609 |
|
|
9,111,260 |
|
Diluted |
9,295,409 |
|
|
9,266,085 |
|
|
9,280,080 |
|
|
9,241,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CAVCO INDUSTRIES,
INC.OTHER OPERATING DATA(Dollars in
thousands)(Unaudited)
|
Three Months Ended |
|
Six Months Ended |
|
September 26, 2020 |
|
September 28, 2019 |
|
September 26, 2020 |
|
September 28, 2019 |
Net revenue: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
240,967 |
|
|
$ |
252,690 |
|
|
$ |
479,057 |
|
|
$ |
501,458 |
|
Financial services |
17,009 |
|
|
15,985 |
|
|
33,720 |
|
|
31,259 |
|
Total net revenue |
$ |
257,976 |
|
|
$ |
268,675 |
|
|
$ |
512,777 |
|
|
$ |
532,717 |
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
46,155 |
|
|
$ |
48,639 |
|
|
$ |
93,147 |
|
|
$ |
100,774 |
|
Financial services |
7,386 |
|
|
9,828 |
|
|
15,717 |
|
|
17,991 |
|
Total gross profit |
$ |
53,541 |
|
|
$ |
58,467 |
|
|
$ |
108,864 |
|
|
$ |
118,765 |
|
|
|
|
|
|
|
|
|
Income from operations: |
|
|
|
|
|
|
|
Factory-built housing |
$ |
15,430 |
|
|
$ |
17,059 |
|
|
$ |
31,685 |
|
|
$ |
38,443 |
|
Financial services |
2,658 |
|
|
5,325 |
|
|
6,403 |
|
|
8,975 |
|
Total income from
operations |
$ |
18,088 |
|
|
$ |
22,384 |
|
|
$ |
38,088 |
|
|
$ |
47,418 |
|
|
|
|
|
|
|
|
|
Capital expenditures |
$ |
1,917 |
|
|
$ |
1,881 |
|
|
$ |
3,773 |
|
|
$ |
3,944 |
|
Depreciation |
$ |
1,382 |
|
|
$ |
1,257 |
|
|
$ |
2,808 |
|
|
$ |
2,417 |
|
Amortization of other
intangibles |
$ |
187 |
|
|
$ |
151 |
|
|
$ |
374 |
|
|
$ |
231 |
|
|
|
|
|
|
|
|
|
Total factory-built homes
sold |
3,427 |
|
|
3,781 |
|
|
6,776 |
|
|
7,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information,
contact:
Mark FuslerDirector of Financial Reporting and
Investor Relationsinvestor_relations@cavco.com
Phone: 602-256-6263On the
Internet: www.cavco.com
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