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Cavco Industries Reports Fiscal 2020 Fourth Quarter and Year End Results

PHOENIX, May 26, 2020 (GLOBE NEWSWIRE) -- Cavco Industries, Inc. (Nasdaq: CVCO) today announced financial results for the fourth quarter and fiscal year ended March 28, 2020. As previously reported, 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.

Three months ended March 28, 2020 compared to the three months ended March 30, 2019

  • Net revenue was $255.3 million, up 5.9% from $241.1 million in the prior year period. The increase was from improved home sales volume, including homes sold from the new Destiny acquisition, changes in product mix and higher home selling prices compared to the prior year.

  • Income before income taxes was $13.6 million, a 47.9% decrease from $26.1 million in the prior year period. In the factory-built housing segment, during the latter part of the quarter, home production volume and operational efficiencies declined from challenges related to the novel coronavirus COVID-19 ("COVID-19") pandemic, as described further below. The financial services segment recorded lower gross profits largely from $2.1 million of charges for increased loan allowances and losses on forward sales and interest rate lock commitments from economic conditions stemming from the pandemic. This segment also recorded $2.0 million of unrealized losses on equity investments compared to $0.6 million of unrealized gains in the prior year quarter. Income before income taxes was also decreased by $2.1 million for unrealized losses on corporate equity investments compared to $0.7 million of unrealized gains in the same quarter last year.

  • Income tax expense was $1.6 million, resulting in an effective tax rate of 12.0% compared to $6.1 million and an effective tax rate of 23.4% in the prior year period. The lower effective tax rate in the current period primarily relates to greater tax benefits from stock option exercises.

  • Net income was $12.0 million compared to $20.0 million in the prior year period, a 40.0% decrease. Diluted net income per share was $1.29 versus $2.17 for the comparable period last year.

During each quarterly period, items ancillary to our core operations had the following impact on the results (in millions).

   Three Months Ended
  March 28,
 2020
 March 30,
 2019
Net revenue
 Unrealized (losses)/gains on equity investments in financial services segment $(2.0) $0.6 
Cost of sales
 Non-cash valuation adjustments from economic conditions stemming from the pandemic (2.1)  
Selling, general and administrative expenses
 Director and Officer ("D&O") insurance premium amortization (2.1) (2.1)
 Legal and other expenses related to the Company's internal investigation and response to the Securities and Exchange Commission ("SEC") inquiry (0.4) (0.8)
Other income
 Unrealized (losses)/gains on corporate equity investments (2.1) 0.7 
Income tax expense
 Tax benefits from stock option exercises 1.7  0.2 

Twelve months ended March 28, 2020 compared to the twelve months ended March 30, 2019

  • Net revenue was $1.062 billion, up 10.3% from $962.7 million in the prior fiscal year. The increase was from improved home sales volume, including homes sold from the new Destiny acquisition, changes in product mix and higher home selling prices versus the prior year.

  • Income before income taxes increased 7.3% to $93.0 million as compared to $86.7 million in the prior fiscal year. The improvement was primarily from higher gross profit margins from increased home sales, lower home production materials input costs and improved earnings in the financial services segment, partially offset by factors related to the COVID-19 pandemic, as discussed above.

  • Income tax expense was $17.9 million, an effective tax rate of 19.3%, compared to income tax expense of $18.1 million and an effective tax rate of 20.8% in the prior year. The lower effective tax rate in the current period primarily relates to the recognition of certain tax credits under the Consolidated Appropriations Act, 2020.

  • Net income was $75.1 million, up 9.5% from net income of $68.6 million in the prior year. Diluted net income per share was $8.10 versus $7.40 in the prior year.

During each annual period, items ancillary to our core operations had the following impact on the results (in millions).

   Year Ended
  March 28,
 2020
 March 30,
 2019
Net revenue
 Unrealized (losses)/gains on equity investments in financial services segment $(1.4) $0.1 
Cost of sales
 Non-cash valuation adjustments from economic conditions stemming from the pandemic (2.1)  
Selling, general and administrative expenses
 D&O insurance premium amortization (8.4) (2.8)
 Legal and other expenses related to the Company's internal investigation and response to the SEC inquiry (2.9) (2.1)
Other income
 Unrealized losses on corporate equity investments (0.7) (0.3)
 Gain on sale of idle land 3.4   
Income tax expense
 Tax benefits from stock option exercises 3.0  2.5 
 Recognition of certain tax credits under the Consolidated Appropriations Act, 2020 1.8   

Business Update on the COVID-19 Pandemic

As initially described in Cavco's press release on March 30, 2020, the Company continues to operate substantially all of its homebuilding and retail sales facilities while working to follow COVID-19 health guidelines. The Company adjusted its operations 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 and managing higher factory employee absenteeism and building material supply shortages. The Company's average plant capacity utilization rate fell accordingly, fluctuating between approximately 45% and 75% since the onset of the pandemic, compared to pre-pandemic levels of more than 80%.

While Company-owned retail stores and most independently owned retail sales locations remained open for business since the onset of the pandemic, customer traffic has declined. The Company received fewer home orders from its distribution channels than would be typical during the spring selling season. Home sales order volumes dropped approximately 40% in mid-April 2020, but improved somewhat to approximately 20% lower than pre-pandemic levels by mid-May 2020.

While circumstances surrounding the COVID-19 pandemic have caused home sales orders to decline, production rates have also declined, as explained above, resulting in backlogs with a value of $123 million in mid-May 2020 compared to $124 million at March 28, 2020 and $129 million at March 30, 2019. This backlog of home orders excludes home orders that have been paused or canceled at the request of the customer.

The Company has decided to shut down production and close its Lexington, Mississippi plant. Ongoing market and operating challenges were exacerbated by decreased business and the ongoing uncertainty resulting from the COVID-19 pandemic, all of which contributed to this decision. This location has stopped accepting new orders for homes, is working to support customers by completing production of home orders already in process (which are expected to be completed in June 2020) and has notified its workforce. The Company will remain available to serve wholesale customers previously served by the Lexington facility, that choose to continue to purchase the Company's products, from its other production lines in the southeast. The Company does not expect that closing the Lexington facility will have a significant adverse financial effect on the Company.

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.

Commenting on the results, Bill Boor, President and Chief Executive Officer said, "It is important to recognize the Company's very strong performance in fiscal year 2020, despite COVID-19, which impacted fourth quarter results. We achieved new milestones in net revenue, net income and total number of homes sold. The fourth quarter presented a new challenge in responding to the pandemic and accompanying uncertainty. I'm exceedingly proud of how our people have responded by staying committed to serving customers while working safely. Homeowners and small businesses depend on us and Cavco's employees have stepped up to the challenge with a great deal of creativity, commitment and resilience. We continue to be in a very strong position with a healthy balance sheet and continued cash generation, given our ability to adjust costs to current market conditions. While the timing and pace of future business is impossible to predict, the deficit of affordable housing has not gone away and we remain very positive about the future of the Company and the industry."

Cavco's management will hold a conference call to review these results tomorrow, May 27, 2020, at 8:00 AM (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 built primarily under the Nationwide Homes brand. 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, 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 Securities and Exchange Commission. Readers are specifically referred to the Risk Factors described in Item 1A of the 2019 Form 10-K, as may be amended from time to time, including by means of the Risk Factor Update included in our Current Report on Form 8-K filed on March 31, 2020, 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)

 March 28,
 2020
 March 30,
 2019
ASSETS(Unaudited)  
Current assets:   
Cash and cash equivalents$241,826  $187,370 
Restricted cash, current13,446  12,148 
Accounts receivable, net42,800  40,701 
Short-term investments14,582  12,620 
Current portion of consumer loans receivable, net32,376  30,058 
Current portion of commercial loans receivable, net14,657  14,574 
Current portion of commercial loans receivable from affiliates, net766  660 
Inventories113,535  116,203 
Assets held for sale  3,061 
Prepaid expenses and other current assets42,197  44,654 
Total current assets516,185  462,049 
Restricted cash335  351 
Investments31,557  32,137 
Consumer loans receivable, net49,928  56,727 
Commercial loans receivable, net23,685  22,208 
Commercial loans receivable from affiliate, net7,457  5,564 
Property, plant and equipment, net77,190  63,484 
Goodwill75,090  72,920 
Other intangibles, net15,110  9,776 
Operating lease right-of-use assets13,894   
Total assets$810,431  $725,216 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$29,924  $29,305 
Accrued expenses and other current liabilities139,930  125,181 
Current portion of securitized financings and other2,248  19,522 
Total current liabilities172,102  174,008 
Operating lease liabilities10,743   
Securitized financings and other12,705  14,618 
Deferred income taxes7,295  7,002 
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 9,173,242 and 9,098,320 shares, respectively92  91 
Additional paid-in capital252,260  249,447 
Retained earnings355,144  280,078 
Accumulated other comprehensive income (loss)90  (28)
Total stockholders' equity607,586  529,588 
Total liabilities and stockholders' equity$810,431  $725,216 


CAVCO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)

 Three Months Ended Year Ended
 March 28,
 2020
 March 30,
 2019
 March 28,
 2020
 March 30,
 2019
Net revenue$255,335  $241,113  $1,061,774  $962,746 
Cost of sales203,437  185,320  831,256  757,040 
Gross profit51,898  55,793  230,518  205,706 
Selling, general and administrative expenses37,420  31,487  145,611  121,568 
Income from operations14,478  24,306  84,907  84,138 
Interest expense(217) (608) (1,495) (3,444)
Other (expense) income, net(631) 2,378  9,567  5,982 
Income before income taxes13,630  26,076  92,979  86,676 
Income tax expense(1,629) (6,105) (17,913) (18,054)
Net income$12,001  $19,971  $75,066  $68,622 
        
Net income per share:       
Basic$1.31  $2.20  $8.22  $7.56 
Diluted$1.29  $2.17  $8.10  $7.40 
Weighted average shares outstanding:       
Basic9,158,287  9,098,320  9,129,639  9,080,878 
Diluted9,297,964  9,219,015  9,268,784  9,268,737 



CAVCO INDUSTRIES, INC.
OTHER OPERATING DATA
(Dollars in thousands)
(Unaudited)

 Three Months Ended Year Ended
 March 28,
 2020
 March 30,
 2019
 March 28,
 2020
 March 30,
 2019
Net revenue:       
Factory-built housing$240,776  $225,528  $999,340  $905,726 
Financial services14,559  15,585  62,434  57,020 
Total net revenue$255,335  $241,113  $1,061,774  $962,746 
        
Gross profit:       
Factory-built housing$45,677  $44,722  $195,244  $172,136 
Financial services6,221  11,071  35,274  33,570 
Total gross profit$51,898  $55,793  $230,518  $205,706 
        
Income from operations:       
Factory-built housing$12,851  $17,379  $68,070  $67,041 
Financial services1,627  6,927  16,837  17,097 
Total income from operations$14,478  $24,306  $84,907  $84,138 
        
Capital expenditures$7,853  $1,318  $14,340  $7,636 
Depreciation$1,388  $1,150  $5,177  $4,374 
Amortization of other intangibles$187  $80  $606  $324 
        
Total factory-built homes sold3,647  3,519  15,100  14,389 


For additional information, contact: 
Mark Fusler
Director of Financial Reporting and Investor Relations
investor_relations@cavco.com
 
Phone: 602-256-6263
On the Internet: www.cavco.com
 

 

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