CVCO - Earnings call transcript Q3 2019

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Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter and Fiscal Year 2019 Cavco Industries Earnings Call Webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Director of Financial Reporting, Mr. Fulser. Mark

sir. begin may You

Mark Fulser

could without Securities differ to behalf you share, you. And comments will and forward-looking or operational of be per expressed results efficiencies. uncertainties, statements statements risks and the cause flow of Forms All the the forward-looking in begin, from revenues, expectations forward-looking that and any encourage I limitation, which recent statements. including to of or review before during factors specific actual performance, its this Cavco's we cost actual described including, to Private in XX-Q, and identify on Cavco. of made Cavco's about materially provisions forward-looking management filings under results assumptions please cause materially Reform conference most Act made statements XX-K XXXX, actual advised the may statements or results the Thank differ with could or Litigation by call contain events financial use, Cavco's Securities those operational earnings the cash company's and affect Exchange savings and those by which from involve Commission,

finance, SEC Tuesday, insurance, include, that potential and business, fluctuations, including business litigation sensitive the or investigation, are suffer information certain call executive may accurate integrated affecting that factors action of regulation federal in Cavco industry time undertakes housing, and turn internal concentrated involvement SEC, risk a of This company's also subpoenas date date demand and call, of its the consumer shutdowns February related conditions, the vertically the results manufactured reputational broadcast, the findings, Acting investigation to conference housing. affect X, of obligation statement loss our result of of of of forward-looking we Cavco of the conference only potential adverse regulatory housing officers, XXXX. commercial as by matters market under that regions, to as limited the any and our contains Some President begin now in live damage Dan and may arising to, lines I'll operations litigation geographical call circumstances or conference forces government revise any from extensive is Urness, except finance to not over CEO. Dan? but no manufactured risk reflect as law. after our arising the or events required regulatory the or received this from from action update and this

Daniel Urness

are Thank recognize they market answer with are the our these families you, of Chief the with before and of quality to Accounting home but that desire unparalleled our match a are allows Consistent Mark. and many interests homeownership to to maintenance baby for We there derived for the market. group new homes. large up and residents comprise that housing claim homeowners, results homes understand today's modern their appreciate listening and not. be amenities likely characteristics are construction this indicate first homeowners on sized that properly affordability period. well Surveys seek surveys newly homes follow and of They construction process. satisfied Officer, those prospective and factory-built others. and a XX% factory manufactured who individuals have home. manufactured established question They provide with to These up additional make households. today manufactured perspectives discuss the lifestyle. priced cost will I but a conscious largest to and boomers of our with updates. corporate of seeking Y Josh, of a joining additional quarter, financial reasonably fit that want Millennials financially I flexible them low our and the then maintain provide will call are review our will primarily Generation with part webcast. and that in percentage homebuyers, presently Meanwhile, homebuying a the homebuyers, of XX% from indicated Many are U.S. value the recommend our experience are looking and of their the working commentary also

homeownership to proud and array for affordable a are We customers. options attractive wide of our provide

I to SEC discuss Before ongoing like I to the disclosed call an last that over turn quarter. results, provide to would our Josh the to financial matter update we

since the announcement announced SEC yesterday. previously received outside conducted internal the continues have subpoena audit the to described as additional which a by progress. not lot our do company in document last Also, the being an is by investigation quarter, I committee our release independent to counsel share from Although request earnings

resolve are to work with We fully cooperating matter. SEC this and the

and million, During $XX.X were SEC the The its purchase by by officers’ quarter, insurance. directors the coverage premiums company sufficiency reviewed clearly is to policy and additional the insurance issue the which insurance. decided new covered of this elevated

would are in the over course of normal the seven to this quarters. the adequate maintaining expected next be the in insurance Any be sum noted release, As company. D&O press incurred for additional adjustments

at you details we disclosing Before be know time. questions on matters, further want fielding will these that I this let to not

quarter. over Josh it review of Now, for the financial let me to a turn

Joshua Barsetti

fiscal Thank XXXX of third quarter revenue quarter fiscal year $XXX third to during year for million X% you, the of Dan. the XXXX. million, compared Net $XXX was up

partially larger million, segment a homes factory-built $XX home home cost number housing of this result the offset reduction the nearly higher Within sales is by sold. and of input grew the prices from in sizes, revenue net inflation modestly

of in rather year year's unrealized statement new reported prior this one-time income costs part million losses revenue required implementation changes fiscal we pass-through prior decreased from of of the equities included period. gross number standards gains standards balance associated net of net equity recording home related we $X.X sheet. and a from revenue where from These segment the Financial certain year than subcontracted retail their FEMA, did following operating quarter to at includes services services a accounting this whereby on instruments accumulated our model. of on of recognize in variances losses unrealized is are in comprehensive the $XXX,XXX of made in as limited implementation losses amounts Our on instead marketable impacted on subsidiary net approximately revenue production sales by basis relief reported for the were quarter's on investing are in on other quarter-over-quarter. revenue in units these income housing the insurance business as accounting results disaster factory-built The addition

net financial loan $XXX,XXX the from quarter costs gross third in items. in several as $X.X in XX%, large quarter. policies with adversely favorable a volume Consolidated same claims of from more insurance by offset was benefited in to were million percentage revenue prior from a In impacted in decreases impacted associated by services down force Gross storm compared and home was resolution. quarter sales dispute fiscal These by Prior revenue period also partially the year. higher addition, Arizona last year. during XX.X% one-time the a year's the profit profit was settlement

which our subsidiary did major resulted year, quarter. not insurance for events the last in weather any lower claims Additionally, experience

loss inquiry, of related of weather are percentage limited directors The was year. Selling, claims contracts officers’ $XXX,XXX related and experienced net expenses quarter primarily insurance revenue administrative $X.X response from XX.X% events SEC increase the and additional was insurance to same from fiscal purchased quarter during million our during subsidiary internal million. Arizona the this expense quarter. compared above, and company's the by insurance to general, reinsurance of XX.X% policies mentioned investigation as the premiums from in for quarter claims the to $X.X large the in XXXX Lossse event. in last to a high As the excess third and related weather

result million tax last other caused to the by a to income net prior earlier. of X.X% revaluation compared Act increase share reduced March year. recorded discussed and other benefit the compared Comparing rate the in quarter. was quarter was quarter. The approximately commercial from $X.XX year. third in of the Inventories retail Net quarters. The this in to our statutory which million XXXX As loan The expect increased compared our same tax months year the income for of income net prior $X.X the the Tax losses net fiscal loss from of company's income offered. D&O, recorded million of year the comprehensive the general, third to of prior million the million in XXXX. of effective $XX.X year the increased of referred cash quarter third fiscal fiscal was tax net XX% was changes unrealized Total of $X.X The working $XXX result be the higher as Other that current additional selling, in expense December the to of of million $XX.X balance in incur sheet quarter diluted $X.X purchase balance and Net through under XXXX the quarter U.S. as includes XX, The XX, compared Government XXXX. administrative corporate of rate versus fiscal finished of amortization offset rate the $X.X tax additional of per company now the net quarter year's per ending year million federal legislation a in inventory quarter which approximately income investments $XXX,XXX Act fiscal the Tax the loans commonly corporate at income XX, the a in balance year to this on owned year second prior receivable quarter was same tax policy the locations. March prior the we $XXX in borrowings $X.XX required income for capital. goods was are premiums income million mainly XXXX related quarter quarter. company's XX% to in the was to to nine income from deferred tax this for prior was income programs result enacting quarter

D&O that In QX be other addition, included early payoffs in several Prepaid for effect will XXXX. and balance that assets through additional received programs mainly were on the policies insurance the fiscal deflating balance. year cash of from significantly paid grew prior

$XX approximately a $XXX the the held quarter the XXXX the million and up on Dan, balance and in balance. XX, $XX.X planned, million approximately sheet. subsidiary the of financial as XXX that completes On December our outlay note, successfully from planned was equity of stockholders XXXX, after mortgage report. retirement liability we bonds another at XX, related our of Lastly, repurchase resulting securitized cash as a March the of completed million

Daniel Urness

Josh. you, Thank

at million. million the pleased backlog to of is XXXX of backlog for are this The these be previous as relief was appears earnings last disaster The few replacements. December backlog the at $XX report hurricane of homes number December of We end company's reduction although than solid The the lower quarter. year a orders $XXX included in quarter, result FEMA to by ordered December induced strong as the the units as Harvey well a factors. year's

We seasonal winter slowdown. rate what certain fall the during beyond also months for decline an is late winter in typical markets experienced normal order and a

been Specifically slowdown have to homes excluding Florida. price southeastern primarily concentrated point this and south-central on in lower states the appears

play. While interest the XXXX. environment cause rate One clear at of factors there several mortgage most rising is not the during is were

lowest finance affordability their increases to housing manufactured customers points. interest purchase the price definitive those have can a Within impact market our seeking rate at on

even In Separately, caused volume addition, such home we home XXXX a caused recently. in impacting are when earlier believe need work new to inventory new in orders delivery than further slowdown inventory. home higher buildup most excess retailer year longer affordability. by order home a down during any of were product a prices Retailers immediately times anticipatory general

driven markets demand Another remains affordable concerns continue core believe for concerns have and global These housing issues. homes. to investment the impeding some homebuyers trade factor headline economic need our drive for and been aside, to we may will related strength

order products will future for XXXX. housing flows, the predict into quality the believe as positive of order cannot enter we rates translate we our and demand underlying we While affordable

remain order our homes, the footage for rates larger by amenities. strong price note characterized square and also more We higher

desired open the for meet now, continue will for to our customers. to we delivery And to order work like questions. times We monitor overall line and up rates Demetrious would home

Operator

Moore you. Daniel [Operator question our with And Thank from Securities. CJS Instructions] comes first

proceed. may You

Daniel Moore

good Good taking Josh, morning, Dan, questions. time for thanks the morning the and

Daniel Urness

morning. Good

Daniel Moore

a to trying one will? that peak to the am of fiscal how for I sense would units. disclose shipments FEMA of with many start to get of end wanted if that I kind know was growth we market, ex if be you wondering units QX height kind fiscal to shipped so QX? unit FEMA the to and time I willing that you of last

Joshua Barsetti

is Josh. Sure, Dan this

So is and that we the last shipments more did of they on out last have I year QX so do the in we What and actually so FEMA that intend unit QX were haven’t detail today. QX an as we in year and in the than FEMA to shipments historically also broken don't of recorded were will both quarters numbers more in impact meaningful period, QX. QX say

Daniel Urness

then Dan, ended and for And will and says, FEMA number industry to homes out, number just the there of so, Well we don't do at too. I'll know as we which built jump XXXX we that we factor report we try industry were is and and the we think we it Josh digits. look of to disclose we certainly in compared XXXX in maybe look the high-single attempt it's don’t FEMA what as excluding that the think entire all a to

Daniel Moore

you be Helpful, order the basis? get in to to – some that buying a the order what may terms Is it. in at question of great may line ahead rates, factors year-over-year impacting of I on trying extent year gave ahead, as wondering reason I'm Dan crowding last at look appreciate is, color you this know it the out that rates dealers have you time impacted for

Daniel Urness

pretty was resulted year. mentioned direct last Yes, had recent, yet yet to and on orders think certain last to areas don’t additional company, based there, hurricane storms our such industry It a the addition I the factors. have event. there was for some details some devastating guess, don't size of significant devastating period really orders year we most related the translated and we into FEMA storms, in again not we which still there orders but didn’t is in know Harvey - of in and we those of Southeast, but number we This for the have

like So, there coming or anticipatory we is mentioned part but otherwise. it, that's of potentially some that be potential orders whether it business could for in

Daniel Moore

it. I more gears, if Got one Switching may.

average sense increase raw give for by the that can a higher, much of ticking selling terms higher you pass-through driven materials? of us how mix price was versus In shifting of

Joshua Barsetti

the the homes year. pricing especially compared this Sure, we but quarter. so both certainly actually had ASP multi-section a some more know sales had which multi-section mix increased ASP higher you We that price an year little a have associated bit produced typically they higher played impact during certainly part then the that have increases, dollar raises And than auctioned also that last prior We’ve on so to as in those are kind period, and them with and they units, as homes well with Dan, a there. also. sales of

Daniel Moore

the bigger rank If order should you be which to the had impact? one or other,

Joshua Barsetti

Price.

Daniel Moore

Price, appreciate I I color. that's back what queue, I assumed. in will Perfect, the jump

Operator

with Palm Capital. from comes question next Greg our Craig-Hallum And

may You proceed.

Greg Palm

hoping Yes, you I'm has than the additional the a it's or that provide bit some less what know own little specifically you on independents, good retail there, demand guess end on morning, at looking environment the out whether your did could you for maybe stores, environment, thanks. recently? see more I differently trended I color your inventory more details was

Daniel Urness

spring on selling believe that and to We good. think won't can Well, have it lot season. any don't reason I even a coming of placed emphasis – be the we we summer that

able and I that had what some price of We that fall as the provide but inventory perspective it worked decline for go how order to mentioned deep-south And a we be that points, XXXX. to – it that hangover described attribute and think lower the that I overall, I of extensive the should industry should through. and areas an the south-central isn’t in be was rates. excess like think into we we

or far, be It's whether a point. that meaningful The we that's consumer that see forward. we So into well, and at good demand more, quarter whether about still as we we the trend it and this it a confidence know going spring, talk certainly at unemployment prospects. and demographic we a feel good continued but later so little we think rates get to there's all economic lower closely, factors looking will but how the bode and early this about look

Greg Palm

played is chance role? your order pretty some any of bit in spring fall still weather think just sort and or early change that too rates Any in specifically know I January season? specifically I was little in there, the guess it on answer Texas wet selling about to piggybacking

Daniel Urness

confidence. talk think The come as it that the course had We another that. probably That provides parts they but a think dampness, there early. I good. issue, January, quarter-to-quarter be though some homes that demand picture would can back significant and of makes and in bit. strength you overall, A and and mentioned. But impact The has tracking overall forward. it The decent rates strength yet, little events homes described A as to good don't country wasn't price a get way that that I [ph] -- discussed overall traffic they have the we been surrounding really set and temporary, to weather as of and difficult point in the homes. is still factor, things of expect there and and little think we these is we going is come I and that as order higher us weather, continues early but about see and Southeastern our earlier mentioned will a go,

Greg Palm

progress on to Fannie expand and and if get Yep, comments there? Advantage finance Duty-to-Serve, thoughts and the on MH that you Freddie and to and to for gears interested upon environment, the program your understood. some willing opportunity wondered really that specific some and so release under in Shifting you're made

Daniel Urness

in You latitude mortgage so land lending pilot whether specifications for programs. building that and Fannie qualifies the and for both including And include begun where a take Freddie bet, it it be that now experience the able happy to, mortgage loans making complies reference but a Code that have space, few certain involved and been education and programs are designed appraisal that the new more steps the programs HUD programs with their and initiated of the the our that. retailers just manufactured they're to greater agencies, home, place It home We've and educating building as these that we're these support to standards getting course some to challenges programs positive home take and sell manufacturers of have a involvement factories so has manufactured longstanding the time. overcome certainly that towards the see can so the these programs by step right about a of available the welcome are in ongoing public or produced. we're variety of The programs hold are put these appraisers It a The to homes, buyer. will facilitated agencies of with and home the limitations been to by recognition and the manufactured them, excited will are homes our the the be seeing education, and far has good. take development. into point we've

it. I think is the industry embracing

this, appropriate we building look at too the it's for for thing will term the is exciting already to the a them that think great planning those these we it's to how think future and welcomed the programs seeing pilot of be of XXXX. I are we for The is see moving lending, both way hope It and programs some We're slow, think traction. long very still that be see forward launch We'll that but but addition. additive. to agencies in consumers. will a attractive homebuyer ability look, which have and chattel we and with

Greg Palm

say bit just as size the big D&O that. as needed curious additional corporate policy can't is it one Last curious the think least color to at on you there, but much the surprise something that I you hear. a a understand was to to good more mean precaution, maybe get kind Very update I really relates that? of like a of little I felt it

Daniel Urness

of and company reviewed that Sure, and this clearly additional D&O insurance that be certainly that would costly it course determined we coverage is recognize because prudent, does The impact cover there disclose we that the it's so the out fact certain get so the or think this has we to risks associated wanted financial have it, with important. that's SEC it and we financial issue. results, mentioned

think fact and they was important recent are that it describe the associated to D&O we we additions cost meaningful. are the - outline the certainly we but prepared and to have We helpful it because thought definable and further, of the coverage it's

Greg Palm

Thanks Okay, All it great. I'll time. leave there. right, for the

Daniel Urness

Thank you. appreciate I it, Greg.

Operator

question Research. Lacayo And comes next G. our from Alvaro with

proceed. may You

Alvaro Lacayo

Dan. morning, guys. morning, Good Good

Daniel Urness

Good morning, Alvaro.

Alvaro Lacayo

this inventory of rates you do quarter, dynamic versus two an you a year-on-year it been the quarter? inventory And there's just Just next even that I months? see remarks, most how understood for the the numbers inventory mean to question, prepared comment that know missed sort year's that wanted I of though be order just but might backlog I it, or think a last year sure mentioned quarters, what XX I in worked that make this then correctly, over next through evolving over the will and you build

Daniel Urness

and we in but we're they in with for product working We're not that the new assist addressing programs ability as any that is home down buyers is sure that certain certainly the an million are doing affordable that's level retailers will work specifically was and points, of what central is ranges two certain then need Sure, our about that down it housing the are way and lower to a that we $XX these the development for products these work earlier. of, to low yes, are work can. that order price been those difficult their - the entire think feel described should are But excess or homes. coming for so loan our of talked opportunities over and Obviously, excluding inventories. with anecdotally function like the reflective areas and markets retailers helping of too not we're, the really it's we confident they that be strong and inventory, southeastern home the there a with serve. increasing But sell million have similar of that excess the and that country also backlog long a it's know Florida what of year We again, first is range measure have concentrated the forward. most an inventory providing The any and a is purchase into we have to of type don't year. feel in don't in And retailer for in think similar just or manner the we understanding as will stock long, or markets or will down is that not then resulting to on broader this needs for we carry down rates it same we're and I we we it's the types ascertain. We numbers gain excessive approach $XXX you speaking only replace how it working the we to markets. can backlog how able of reasons, in prediction mentioned they cover alternatives but large but quarter you from but and quarter impact impact quarters and don't have and several home, just and in

Alvaro Lacayo

thank had some online right, some term. you've was idle discussion we've potentially And some the past at the mentioned or I believe guys some bringing capacity and near online, capacity the All about of you you. discussed bringing in have in potential point there

you just Just And cost raw percentages can wondering just by if behind through go of you're if inflation, some that's if secondly, if that terms seeing could still for then put year-on-year talk inflation and to you the buckets, and material about the future maybe inflation freight inflation capacity? labor me case could what business? in through plans you

Daniel Urness

Sure.

next cost is our that that a looking cases is first, In Florida, in And areas we is Mississippi. One and certainly at in have right opening going haven't already factor we get Florida plant the idled we're why speaking as in these are respect is that other a at to of go both facilities there. So addition Labor and so plants. inventory additional well. idle utilization factors of to it's plants of but of option is to on cost the sister move done about some is especially we'll watching the standpoint, of retention case have we complexity the we the the particular into forward we of think capacity to only issues. two it's perspective. operating serve, is We are reasons important, that couple to the from and already. The are are That talked primarily in we be increasing higher We soon. of time higher in with labor case levels production those part challenge and existing until our to and that and plant, doing the rates define opening in products. an rates a new a is there that working existing production country Training from certainly order we labor to that to of utilization being you changing talk constraints. to given want good for area before appropriate times initiatives. make continue additional Mississippi on can our by current still any in it a a concern, declining or increasing not factory positively plant don't inflation and levels our availability of to those so primary The constraint in so get about we plant. available higher opening the through work makes also an it a But in but a constraints and asked and component challenge, Labor we part about. see the mentioned me that

think through commodities, case quarter work we to up primarily and it don't really products, other we looking inflationary watch closely our by would costs, and back as watching cost be some we sense lumber that that at going that's the in We're costs we the is lumber factor and we're respect component sense situation. to my and environment not to during that affected still an related commodities, unfold forward. an one Generally have letting that to the for on including and through on for going manage as that we're and freight materials, tariffs reporting going we're these by counting a reasons be So have think manage that that driven we're we'll was while situation we labor continue well. accordingly. is one also that that with to - see and Materials have components pulled to is we inflationary that

Alvaro Lacayo

very All right, thanks much.

Operator

[Operator Instructions] And our have CJS with followup Moore from a Securities. next Daniel question, we

proceed may You sir.

Daniel Moore

little lower further price you Thank trying demand of or roughly you trends. delineate we percentage low bit a you just business the again. low, talking what would I'm are us to what there? for sense described points Dan, a of give kind about

Daniel Urness

little meaningful the lower. bit be industry for it certainly a for it's might Cavco Well

range. a country. have This though. have the price We the but focus a calculation, volume to don't lot There's it's XX% points pretty meaningful in there. is numerous or XX% probably year I a a of anywhere on around it percentage specific

of in the quarter. products, range it the component. a But plays that last this ranges So all mostly at least factor but meaningful it's affordability we're in the a seeing part

Daniel Moore

amortization legal guidance, you SG&A just to I like helpful. ongoing expenses know the D&O given don't get get trying for a Understood, sense into comments of insurance. calibrating around to -

run that the about sort that SG&A? growth as versus a at is how run or rate should look for rate of think incremental we we quarter, As December

Joshua Barsetti

of SEC That's going forward going kind estimate Dan. it's component to hard to is that what be expense

investigation that. be will point we're to this it But well. expenses that looks to an give that those as you As a has to what It continued, obviously of that for wouldn't kind December going forward. use one it's difficult as down probably winds starting like would unreasonable wind of assume as incurring down and estimate related expenses

separately our with additional and we on as this component on out D&O provide teams these we where go information did long the these quarter. on we We we call like can will continue to as forward will are bring dealing

Daniel Urness

pay on for go attention number next have And I forward too seven think you component D&O there quarters. is basis that to to that obviously a one the piece

that's be million cost on just SG&A $X.X then in matter legal that. so the to Dan, top would D&O, related So or otherwise any to related additional of

Daniel Moore

Understood, initial that noncash the after forward payment. is going all

Daniel Urness

clarification tell December That afterwards. D&O could and correct how in as then Josh and piece a much him you

Joshua Barsetti

Right, Dan.

the million be $X.X those So December fourth D&O event month, January was that that quarter, was cash in cash would so of in $X.X million event. a the for policies quarter

Daniel Moore

under Very new helpful, least, shot and lastly, policy? I'll actual at how purchased take coverage that was much a

Daniel Urness

we but ensure details why additional so was additive give and disclosure that's and that to It we don't had you the at such, was the wanted appropriate made. have the coverage purchase to amount we level, an

Daniel Moore

Understood, I the appreciate color again. once

Daniel Urness

you, Dan. Thank

Operator

would President I conference. back Chief Urness Q&A you our your remarks. Mr. and Sir, call Thank of now Acting today’s gentlemen, begin. portion closing any you. may this for Executive turn Dan like Officer, the to and to over Ladies concludes

Daniel Urness

Thanks thanks bye. it next forward again and And quarter. to We everyone look today. Demetrious. Good joining call reporting for our appreciate we

Operator

thank attending a Everyone day. conclude gentlemen, you you the all and Ladies and today’s may This program does conference. for great have disconnect.

Cavco Industries (CVCO) 5 Feb 192019 Q3 Earnings call transcript