Q4 2020 Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter fiscal years 2020, Casco industry earnings call with Cat.

Just turned positive Vincent listen I remembered.

At the just because presentation there will be a question answer session at the questions. When assessing you need to cry started went and good telephone.

Please be advised to today's conference is being recorded.

If you require any criticism please press star zero.

I would now like they had to conference over to your her through today.

Is there more klezmer.

Director of financial reporting and Investor Relations. Sir Please go ahead.

Good morning, Thank you for joining us for KEPCO industries fourth quarter fiscal year 2020 earnings conference call during.

During the call you'll be hearing from Bill bore President and Chief Executive Officer, and Dan Urness Executive Vice President and Chief Financial 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 under the provisions of the private Securities Litigation Reform Act of 1995.

Leading statements of expectations or assumptions about calculus financial and operational performance.

Revenues earnings per share cash flow or Hughes cost savings operational efficiencies current or future volatility in the credit markets for future market conditions.

All forward looking statements.

These risks and uncertainties, which could affect cap cause actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by or on behalf of Capco.

I encourage you to review calculus filings with the Securities and Exchange Commission, including without limitation. The company's most recent forms 10-K, and Q, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

Some factors that may affect the company's results include but are not limited to the impact of local or national emergencies, including the opened 19 pandemic.

Such impacts from state and regular federal regulatory action the results from our built our ability to operate our business and ordinary course and impacts on one customer demand and availability of financing for our products.

To our supply chain and availability of raw materials for the manufacturer of our products.

Three the availability of labor and the health and safety of our workforce.

And for the liquidity and access to the capital markets.

And also the risk of litigation or regulatory action potential reputation damage that capco may suffer as a result matters under inquiry.

Adverse industry conditions.

Our involvement in vertically integrated lines of business included manufactured housing consumer finance commercial finance and insurance.

Market Force forces and housing demand fluctuations.

Our business and operations and concentrated in certain geographic regions.

Lots of any of our executive officers.

Additional federal government shutdowns.

And the regulations affecting manufactured housing.

This conference call also contains time sensitive information that is only accurate as of the data the Thislife broadcast Wednesday may 27 2020.

Capco 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 call over to Billboard President and Chief Executive Officer Phil.

Thank you Mark and welcome everyone.

For fiscal year, obviously came to a closed during a time move incredible disruption and uncertainty, but I think it's important to start the call by reviewing a few of the accomplishments of what was a very strong year.

Net revenue grew by over 10% and exceeded $1 billion for the first time in our history.

We passed the 15000 homes sold milestone.

Actually build housing gross margin as a percentage of net revenue expanded by over half a percent contributing to record segment operating income.

We acquired and integrated Destiny homes, which has a strong contributor order contributor to our results.

Financial services gross profit grew by over 5% percent, despite significant allowances and noncash charges at the end of the year due to the crisis.

And it's $75 million, our net income grew 9.4%.

Again. These are just a few of the milestones and accomplishments and a year that until March was marked by growing demand and positive trends and all of our markets.

The fourth quarter did become defined by the 219 developments, we reacted quickly by focusing on our employees and our customers' homes.

Homebuilding was designated as an essential service and all of the geographies, we operate in within which provided us the opportunity to continue operations.

We committed to finding ways to operate safely with the goal of providing continued employment and benefits for our people and to meet our commitments to our customers.

We develop leaf policies to support employees that face hardship due to the virus.

And we resolved to implement the CDC guidelines to manage the possibility of transmission within our facilities.

Our financial services operations quickly transition to working from home and they did a remarkable job continuing to support customers.

Our plants experienced episodic downtime due to a variety of code related causes the vast majority of that downtime occurred in April after the year end.

Well it fluctuated on a daily basis for a period of time, we peaked at six of our 20 plants down.

The most days down for a week occurred in early April when we did not run 25% the possible plant operating days. However for the second half of April the typical downtime was closer to 5% or.

For said a different way about one out of our 20 plants at any given point in time.

Over the last couple of weeks all of our plants have been operating for the most part.

In addition to plant downtime, we experienced elevated absenteeism late from late March through early eight may that contributed to reduce production efficiency.

For the most part absenteeism is back to pre coded levels and our plants are quickly returning to full run rates.

Let's take a minute and comment about Lexington. Among unfortunately, we had to make the very difficult decision to cease operations that are Lexington, Mississippi plant.

Capco purchase this operation in 2017.

Since the acquisition, we struggled to get the operation up to the expected level of performance in particular, we've not been able to establish the product positioning in that region, that's needed to improve the plants distribution network as planned.

These challenges were compounded by the drop off in orders due to cope with 19 and ultimately the uncertainty about the timing of recovery.

We're currently operating the plant to deliver on pre existing orders in support of our independent dealers. The plant will be closed by the end of June.

Shifting back to the total manufactured housing business reduced production roughly matched the decline in orders, resulting in relatively unchanged backlogs those backlogs remain at healthy levels.

There were few order cancellations over some orders were put on hold mostly by large community operators.

Communities, which had been driving much of the manufactured housing industry demand growth in recent periods slowed orders starting in March.

Street dealer businesses remain surprisingly route robust during that period to date.

And our retail operation traffic, which includes he leads and phone inquiries as well as walk ins.

Initially dropped by over 50%.

However, traffic has improved since near pre coded levels.

As has been reported elsewhere conversion rates in the sales process have been high resulting in retail sales recently exceeding pre covidien year over year levels. Despite the reduced traffic.

In line with these retail results plant orders have been trending up since the second half of April and these currently surpassed February levels.

Clearly there was a lot of momentum going into the pandemic. After an initial shock the reduced activity from mid March through mid April it's been really encouraging to observe that people who were actively seeking a home before the largely continued on with the process and are placing orders.

What is less clear as the extent to which the pipeline as refilling with new buyers entering the process.

Each week were more convinced that the demand is replenishing.

Time will tell whether the positive order trends, we're seeing now will be sustained that will depend largely on macroeconomic drivers such as employment and consumer confidence as well as a supportive lending environment.

Given the lack of visibility in these drivers were spending less time and attention on specific forecast and predictions and more on remaining flexible and ready to react various scenarios.

I'm extremely proud of the way the people who are cavco delivered a year of growth and record breaking results and then responded so positively to the disruption as our fiscal year came to a close.

Through the covert 19 challenges people throughout the company has stayed focused inflexible and have demonstrated a tremendous amount of commitment for important work of providing affordable homes.

The virus did not wipe away the country's deficit of affordable housing and associated pent up demand sitting where we are today, we can't reliably predict when that demand will translate into orders.

At the indications at the moment or positive.

From a business perspective, we're responding to the uncertainty by focusing on costs and cash flow and remaining ready regardless of the market scenario.

Our balance sheet and demonstrated ability to flex our cost structure to market conditions affords us the ability to continue making decisions for the long term, while managing the urgency demanded by the covert 19 crisis.

With that I'll turn it over to Danner next to review the financial results.

Thank you Bill.

Net revenue for the fourth fiscal quarter of 2020 was $255 million.

Up 5.9% compared to $241 million during the prior years fourth fiscal quarter.

Within the factory build housing segment.

The net revenue increased approximately 7% to $241 million from 226 million in the prior year quarter.

The improvement in the factory build housing segment was for a 4% increase in units sold largely from the addition of the destiny homes.

Factory earlier in the fiscal year.

And a 3% increase in average revenue per homes sold.

Primarily from changes in product mix toward more multi section homes.

Home shipments and related net revenue slowed in the latter part of the quarter from operational challenges presented by Cobot 19.

Financial services segment net revenue decreased nearly 7% mainly the result of a 2 million dollar unrealized loss on equity investments in the insurance subsidiaries portfolio versus the prior year period, which included $600000 in unrealized gains.

Excluding those unrealized gains and losses.

Revenue for the fourth quarter increased from higher Homesales home loan sales volume and more insurance policies in force compared to the prior year.

Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 20.3%.

Down from 23.1% in the same period last year.

This decline is mainly the result of challenges in both of the company's operating segments related to covert 19 and changes in financial markets.

The largest impact was in the financial services segment.

As the company increased its loan loss reserves, primarily from adverse effects. The pandemic is expected to have on borrower loan payments.

And recorded negative accounting impacts of interest rate lock and forward loan sale commitments used as part of our lending operations.

In addition, there is a higher there was higher insurance claim volume.

And the same quarter last year.

And as discussed above unrealized losses were incurred in the financial services equity portfolio.

In the factory build housing segment adverse impacts included idle days at some factories, while payroll and certain other costs continued.

And substantial home Assembly inefficiency in the final part of the quarter related to implementing koeppen 18, working guidelines and our factory setting.

And general disruption of the construction material supply chain.

Selling general and administrative expenses in the fiscal 2024th quarter as a percentage of net revenue was 14.7% compared to 13.1% during the same quarter last year.

The increase was primarily from additional employee related costs, including stock compensation.

As well as higher general and administrative expenses.

Income before income taxes. This quarter also included an unrealized loss of $2.1 million on corporate equity investments versus $700000 in unrealized gains in the prior year quarter.

The current year period also has lower interest income earned on cash resulting from reduced interest rates.

The effective income tax rate was 12% for the fourth fiscal quarter compared to 23.4% in same period last year.

The current quarter included a $1.7 million benefit related to tax benefits from stock option exercises versus a $200000 benefit in the prior year quarter.

Net income was $12 million down 40% compared to net net income of 20 million in the same quarter the prior year.

Net income per diluted share this quarter was $1.29 versus $272.17.

In last year's fourth quarter.

Comparing the Bell the March 28, 20 balance sheet to March Thirtyth 2019 last year and cash balance was nearly $242 million up from 187 million a year earlier.

The increases from net income and changes in working capital, partially offset by the repurchase of securitization bonds and cash paid for the destiny homes acquisition.

Inventories were lower from a reduction in the number of homes at our company owned retail locations compared to last year.

Property plant and equipment goodwill and other intangible balances increased from the Destiny home purchase.

Property plant and equipment also increased from the completion of a like kind exchange whereby the company obtained commercial real estate in Phoenix for potential future plant site.

Certain balance sheet line items were affected by the new lease accounting standard which is implemented at the beginning of this fiscal year.

As a reminder, this accounting standard requires that all leases be recorded on the balance sheet.

The current portion of the securitized financings and other.

Declined from the repurchase of securitization debt in August of 2019.

And lastly, stockholders' equity was approximately $601 billion as of March 28, 2020 up approximately 78 million from the March Thirtyth between 19 valves.

Bill that completes the financial report.

Thank you Dan Dimitris lets turn it over for questions.

Ladies and gentlemen.

Hi, Jim I get asked a question you need to Chris timeline on good telephone. So lets all your question. Please press down Keith.

Please standby Lincoln Tata culinary Mastec.

And our first question.

Comes from Daniel Moore with CJS.

Securities You May proceed.

Bill Dan Good morning, Thanks for taking questions.

Wanted to start with sales orders down about 40% for April now trending I guess down 20 Percentish.

Are those seasonally adjusted in other words, those what would have us orders look like on a year over year basis.

Thus far quarter to date and I think you gave us some detail bill in terms of shipments, but similar question for shipments where are we sort of quarter data at this point.

So let me just I guess start with one part of that where you're talking about the.

Fiscal quarter or since the fiscal quarter debt.

The description of sales orders was.

Essentially.

Since pre cobot levels Im just trying to get a sense on a year over year basis for fiscal Q1.

Kind of where how we are trending year over year for sales orders as well as shipments.

Okay got order to date.

Yes, it year over year for the quarter of both up.

And I'm not sure if theres any specific.

Component, you're looking for in there, but certainly both higher and I might be unlike the loss you quoted some numbers there at the beginning your question could you repeat that because.

Yes sales orders you told us what they were quarter to date, so far on a sequential essentially since pre covance levels, but I'm just trying to make sure that understand what they look like year over year Thats, all sales orders as well as shipments.

Trying to look back at what we commented on in seeing what you're picking up.

So you're saying that we were we dropped in the middle of kind of the petrochemical fuel down.

40% and then we are up to back 20% around mid mid may.

And Thats.

Compared to pre pandemic levels, it's not compared to say a year ago.

It's not compared to.

The end of December sequentially, when we say those numbers were comparing to kind of a shortened period of time that were called pre pandemic levels and thats roughly.

A few weeks, leading up to the first week or so in March.

Understood. So do you have more detail on a year over year basis, how we are trending thus far in the quarter versus say the first half of first quarter last year, if not all move item.

I see you're saying, yes, okay. So we're looking at the seasonal.

Impact there as well we don't.

Have those numbers node to to compare.

We've really been able to.

Compared against.

The and see kind of where we're at.

To give you some sense of of how the quarter shaping up on a sequential basis.

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No year over year.

I would I would say, we're you know.

Flat to probably down still because you got to take the seasonal impact into account and we're not we should be obviously higher now than where we were pre pin pre pandemic just because of the seasonality that.

Is normally.

In place this time year, we get a bump in.

March April may timeframe.

And we're not at those levels, yet like we were last year, one of the challenges and this but its.

Difficult because we want to help with the question one of the challenges. We're facing is literally the weeks are highly variable so to be just a few weeks into the period and trying to be able to give a really clear answer even in our own lines a little bit of a challenging because things are bouncing. So much for we've definitely seen an upward trend we've been focused as Dan.

But more on the late February to mid March timeframe as a baseline.

And we're kind of encouraged by the upward trend, but I think to your point if you looked at on a seasonally adjusted basis, we'd still be down.

Right I'm, assuming April was down somewhere in the.

40, 50% range, just trying to get a sense, there, but I will almost move on.

In terms of where are you today as far as operating capacity. If you took lexington out of the mix are we it sounded like you're almost back if not fully back to pre cope with levels is that correct and what kind of impact to social distancing have on operating capacity at this stage it's definitely.

It's definitely had an impact I would say my sense is that it's the social distancing in the guidelines we have implemented in our plants has been a challenge, but probably less of an impact on productivity. During the month of April than just absenteeism, we had elevated levels of absenteeism and we had relax policies in that area.

Static consideration of the situation. So I would I would personally say the CDC guidelines or factor, but I don't think three huge factor and efficiency and yes my comments.

Well, it's generalization, where every plant kind as its own story, but I feel like most of our plants are really.

Getting right back to full run rate. We've got a couple that are lagging a little bit that happened to be struggling getting back to for web since he is our lower absenteeism kind of more typical but the general statement would be we're kind of go right back at.

Able to run as hard as we could before.

And I don't think the social distancing is a big enough factor to kind of enter into that discussion too much.

Perfect guys helmet buildup.

Our folks unrelated good job of.

Some meaningful changes to how they operate but doing it in a way that when they have older folks in the plant they can run pretty well.

Got it okay.

And then maybe just some detail on geographies.

Starting with Texas, how our traffic order in traffic trends.

Currently in into mid May in light of the recent sharp declines in oil prices are you seeing an impact there and then other regions, Florida southeast southwest et cetera, just kind of walk us to region by region, what you're seeing if theres much differentials.

Yes, I can come and maybe Dan can add to it.

Texas has been pretty strong.

Everyone saw kind of an impact from an initial I call. It kind of the shock factor of what went on late March early early April so that was this disruptive everywhere, but.

Texas.

There.

Dave from a production perspective, we've been pretty steady there and from a demand perspective, what we've seen is.

Pretty strong orders in fact in recent weeks they've been a little bit of both.

That pre Covis ace period that we've talked about.

So we've been really encouraged by we wondered about and talked a lot internally about the oil field impact and the truth is that we're probably a little less exposed to that then.

Kind of the overall industry in Texas, we probably are skewed a little bit too.

Upper range of products in manufactured housing.

And so we havent felt like it's been a huge impact on our results in Texas.

I think from an industry perspective, you'd have to expected. It it will have an impact or has.

Other regions.

There are all going to be in between the bend, the bookmarks of Texas, and Florida, Florida. It you might remember even when we were doing when coated was ahead of us all and we didn't really have any idea what we're getting ourselves into as a society.

We are already talking in these calls and otherwise that if you had the looked at an area and say.

I've got to keep our eye on that it was Florida and and that's been true during the.

During this experience as well, Florida has definitely been.

The.

The geography of most concern.

For us here I'm going to say the ops for the Texas, where we probably skew a little bit extra exposure to communities.

And communities have.

Dropped off more significantly than street dealerships.

And I think Thats, a general statement, but it's very true in Florida. So so we definitely have felt the.

The impact there in orders.

Have been significantly down.

But when I've looked at the trends, we're just looking at it in preparation for the call and some of the trends in Florida on orders are that they are coming back up so I don't know where thats going to settle that thats been the most challenging geography for us and.

Im not to kinda plants over it but I would say all the other regions like somewhere in between.

The the.

The community.

Impact that I mentioned relative to Florida is an important general comment about the market the community operators.

Similarly, the big jump the operators reacted very quickly and put a lot of orders on hold.

And so we've definitely seen a difference between the.

The reaction or impact on community orders currencies compared to street dealerships were street dealers I think has probably been surprisingly.

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I Wouldnt say steady surprisingly relatively strong.

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If I if you had told me what the industry is going to face as far as just a pandemic.

I guess I would've expected street dealers to fall off much more than they did I guess, that's a way to say so there's really a difference between the impact on community orders and street orders and I'll just close off that thought I mentioned a lot of communities put orders on hold we saw.

We saw pretty few cancellations of orders.

But a significant amount that were put on hold and.

Time will tell whether.

Those folks see clear as things unfold here in the coming weeks and months to release those orders or not.

We we take on that emerged from this we take those hold orders out of our backlog when we make comments about backlog constraint. So.

Thats encouraging if those orders to come through here in the next little bit.

That's great color Bill just any any sense order of magnitude how much of.

Relative to the size of backlog, how big those orders on hold could be.

Joe fuel for the yes, I mean, it's a it's not of.

Very real large amount, we don't have the number Dan.

It's a little bit fluid that.

It would be would be addition goals for the backlog in a in a.

Meaningful way, if we got those orders back in and counted but they havent.

It's not large enough that we that we called it out separately, but not a two excellent okay I'll jump back in queue. Thank you. That's that's very helpful.

Thanks, Dan.

So once again, ladies and gentlemen, as a reminder.

The question, Chris Star line.

And our next question comes from Chris Henson Sansone advisors.

You May proceed.

Hi, guys good morning.

Good morning.

A couple of general questions from me I guess the first one is.

What what should do you think.

A long term growth rate, if we are just to exclude.

Good 19.

What do you think the long term growth rate should be for your so your business and for KEPCO.

And then separately.

To try to understand the yes DNA.

Was it was up this year over last year.

What do you think the right pest DNA levels should be I know theres.

Variable costs in the business.

So.

As DNA, our percentage of revenue look more like it did.

In the last fiscal year than than this fiscal year. Thanks.

Both maybe I'll take the first one of them or sorry, the last one and building [laughter], particularly.

Last question.

But yes, we had higher M&A this quarter due to.

Number of factors.

The which included higher stock compensation expense and that was a meaningful comparison different so.

We want to make sure we called that out and then of course other employee related costs, including the commission expense from the higher home sales volumes. So our numbers go up in ESG today.

With higher volume.

Given the commission based and variable nature of the.

Sales component there, but we also had higher DNA costs and various categories and there will be higher going forward as the business continues to grow.

But I would say that administrative costs can vary quarter to quarter. So we certainly saw some of that this quarter compared to last comparison.

The thing.

I hate to be the one to through this into the discussion, but I think it's relevant to the SGN a my comment on the FCC type expenses that are driver there, yes, we've got that included.

This quarter as well and so thats a very good point because.

Well we have.

Mainly.

Administrative costs going on with respect to the FCC.

Investigation at some point those will drop off we certainly don't know when that is but then we have large dino expenses that you may have seen that are running through that line item as well 2.1 million per quarter.

And that was begin this quarter and that will continue through the first half of this FIS this coming fiscal year. So thats another drop off that we would expect to see as the year progresses, they're bringing that up because Chris it's clear your dealer on trying to think about a long term run rate and those would be kind as I think extraordinary costs that.

Should be out of there at some point.

And your first question I think Dan I, we're looking at each other they give us a hot potato because it's hard to fool ourselves out of the current situation and think about long term growth rates, if covert didnt exist.

I guess.

I feel like I'm going to give you a less the satisfactory answers but.

If you did put yourself before the same remember what it felt like in this industry before coded 19. The demographics are so compelling and we were seeing that in our growth rates for the year I mean, when we see our revenue grow at the levels It was growing.

This last fiscal year, we didnt see that.

We saw a lot more runway with those kind of growth rates because of the demographics. So while I don't have a number for you.

Commented.

Very solidly in my opening comments that.

Totaled 19 didn't wait for way the deficit of affordable housing were just hearing a lot less about it right now so I think this industry and certainly Casco has the opportunity for.

Continuing strong growth and it's just a matter how quickly will get back to that so apologize for not having a specific number for you, but I think there's reason to be pretty optimistic by driven by those long term demand drivers.

Okay, Great and then last question I know Capco has historically had.

A lot of castle balance sheet.

What are your thoughts on.

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Dividends.

We're returning.

From a capital to shareholders. Thanks.

Yes, it's definitely something that we're doing a lot of thinking about I guess, when we know and it's been an active discussion over time and I think we recognize the perspective that people have.

About less needing to do a good job in general and capital allocation managing the balance sheet. So the point is I want to assure you the points not lost on us.

I think we as we hit the coated 19 situation, even though we.

We have a pretty good cash balance and we remain cash positive, which is an important statement as well.

We guided did mentally put those somewhat on hold and say now is not the time to be now's the time to be focused on cash flow and focused on having a cushion so.

I guess this did slow the thinking down a little bit there, but we get the point and have been doing a lot of thinking about capital allocation here.

Great. Thank you.

And our next question.

And some team I'm, sorry in lackey with Gabelli claims.

You mean.

Hey, Bill again.

Congrats on a record year.

Two questions first is on the the equity.

Unrealized losses, maybe you could.

Differentiate.

So the 2 million in the insurance portfolio I assume that would mostly come back with the market's recovering.

But then on the corporate equity investments.

Well, those also recover or worth where those more.

Permanent just because I believe that relates to community investments and communities.

And then the second question broader question.

What's happening with pricing and as as you obviously are incurring costs.

For absenteeism, social distancing networks in production are you able to recapture some of that with pricing or do you think you will be sold it.

If you looked out the next couple of years margins will be at similar rates to what they have been the last couple of years. Thanks.

Okay, Hey, and good morning, this Dan and yes, let me just help clarify little bit on the unrealized losses, we experienced this quarter.

We had them in two categories as you mentioned and both are related to stock market conditions entirely. So there's no impairments that are part of those numbers.

And as.

Equity markets recover we would expect those would recover as well the.

First piece is.

The unrealized gain on the equity investments in the financial services segment and that runs through the revenue line that was a 2 million dollar.

Unrealized loss this quarter and then the 2.1 million similar dollar amount was in other income related to corporate equity investments, but none of those are impairment type situations as you mentioned.

Okay. Good.

I am.

Hey, Bill and the pricing question is an interesting when I think I can say that.

So far through this experience, we havent seen a lot of movement on price so it hasnt been.

Heavy pressure to the downside or anything like that.

A question about whether we can recover some of the costs that we've had I think it's really more a question of whether the current positive trend in orders sustains itself.

Because it but.

If we really do see orders get back to.

The level, where you kind of say will they havent been that if we got through the bump and now it's as if.

Orders are where they would have been were it not for coated 19 that I don't think there'll be any pressure on prices whatsoever. If we see those orders turned down it stands to reason that we run a risk of just pricing pressure pricing competition. The industry. So I certainly think about it more on that side, then than us being able to push through.

Price increases to recover costs.

Our focus has been on that at this moment.

But the positive is that positive is that orders or.

For the moment and I'm going to tell you everything is painted by the week to week right now.

For the moment, we feel like orders are trending up it gives us some.

On some level of room for optimism communities come back and release some of those holds and dealer orders continue up I don't think there I wouldn't expect there to be a lot of price pressure in the industry.

Thank you.

Our next question comes from Great Lakes.

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Craig primary capital.

You May proceed.

Craig Hallum Capital group. Thanks for taking the questions Hope you are doing well and fixed for all the sort of color on.

Intra quarter type order trends Bill I, just wanted to sort of go back in start off just.

Clarify something that you had said I think you had mentioned that.

Staples orders and I don't know if you had mentioned it was retail or company wide.

We've already surpassed.

You, where you levels or this sort of pre kogut timeframe can you just repeat or clarify what what you said there I just wanted to make shred it right.

Create you asking for the clarification, because it's important to make sure that people understood what I was referring to.

He is referring to our retail organization sales and people need to keep in mind that were largely.

Texas oriented for our retail business, so it kind of.

It.

It dovetails into the discussion with Dan earlier that Texas has been.

A relative strong area.

Our retail our company owned retail operation again week to week information, but they exceeded pre covidien orders written here in the last couple of weeks and so that was the comment it shouldn't be taken out of late but are out of context.

But that was what I was referring to.

Yes, Okay thats.

That's an interesting data point and sort of thinking about this.

Call. It mid May timeframe as a reference point can you talk about how the last sort of 10 days or two weeks have have been I mean, I think a lot of the color you gave was up until bit made but how.

Whether its traffic or order rates companywide, how have they trended just in the last couple of weeks alone.

Yes, I think Thats, that's really the.

But I know, it's nine crystal clear, we've been trying to make that.

No. These last several weeks from call it.

Early to mid May maybe early to mid May maybe the trend has been upward so looking at that from both the company owned retail orders written as well as.

Our plant orders the trend has been definitely upward approaching those pre coded levels overall.

Okay. So continued to trend upward companywide.

And then I may have missed it but did you give an actual capacity utilization number where we stand today.

Was that the 75% that was referencing the release or was that referencing something else.

Yes, it's no. It's it's referencing that 75% those in the release Thats the best estimate.

Hard to.

Good to specific on that but we want to kind of give you the range, where it where it had been kind of as low as points up towards it's been running more recently here.

Okay got it kind of sales Greg it kind of dovetails with we're giving you the kind of the same information in different ways I guess, some signs I I'd through and the.

The point that in the second half of April early May we were down about 5% of the possible plant operating days.

And that's roughly one out of our 20 plants and I think thats pretty much in line with Dan 75% number.

Yep.

I mean, it's fair so production rates today, you know relative to and I'm talking company wide that production rate today relative to pre co bid or maybe only down like mid single digits is that sort of the right way to think about it.

Yeah, I don't know if I forgot the number because like I said Axa moving thing, but I think you're in the right range because.

We have definitely shifted our focus back to.

Evaluating productivity and trying to get back to those rates and and for the most part our systems really approaching those run rates.

Yep Okay.

And then noticed that Capex was unusually high in the quarter was that associated with a new plant or something else.

Yes that was associated with that commercial real estate.

[music].

Comment I had in my in my remarks that we did like kind exchange and obtain some commercial real estate property for a $6 million.

Of that number so that is a bit of a standout in the quarter yet.

Okay, and then what our expectations for the next fiscal year Capex.

This I think it'd be.

Something that will continue to keep it at these levels, you know around $8 million to $10 million potentially higher as we continue to reinvest.

We're not slowing down in our initiatives to reinvest in Dino.

Could be higher depending on what kind of.

Initiatives that we that we finally engage in that.

No slowdown in the in the maintenance capex or or the efficiency improvement Capex and.

Probably an increase.

Understood. Okay, all I'll leave it there thanks for all the call it.

Hey, Greg I might be.

We wise to leave it alone I'm, just trying to help everyone type things together and I may complicate instead, so Dan can help that that purchase of land as Dan said was kind of half of.

Like kind exchange in the sale of the land that we had earlier in the year kind of offsets that so if you look at it on a total year basis.

It's kind of neutral from a cash perspective, I would say or maybe it would you say neutral, yes relatively neutral from a cash perspective, but it is but it inflated the capital number, particularly for the quarter, because you're just seeing that purchase side of that exchange.

Yeah totally makes sense. Okay. Thanks, Thanks again for the color.

Thank you.

Yes.

Ladies and gentlemen, does conclude that you any question of todays conference.

Yes, let me just make a comment here as we close out.

No the experienced last few months, the certainly demonstrated the flexibility the commitment.

They can do attitude of our people.

Our financial services operations transition to work from home without missing a beat well you know at a time when customer needs. Pete they were dealing with a lot of inbound calls from customers looking for relief on payments for example on top of a pretty active market.

Around.

Due to the low interest rates so while there demands were going up they made at complete.

Operating transition, which I felt was very impressive as walk in traffic dropped off our retail organization shifted gears very quickly to a focus on phone and electronic communications.

And by doing that they were able to remain available to perspective homeowners, who continued to need assistance figuring out the rate home to buy.

And as we've talked to our operations certainly rose the challenge of adjusting practices. So they could continue safely building desperately needed affordable homes.

On.

Aside from getting homes to deserving families. I think the efforts of our manufacturing people have made a big contribution to keeping small independent dealers in business and that was something we're concerned about going into this experience and.

We felt it was important to keep the supply of homes, that's really their life blood flowing so feel great about that our dealers, our partners and and they've been front of mind for throughout this.

So while the uncertainty certainly persists we have every reason to expect continuing challenges.

Through our employees certainly have given us great confidence KEPCO will be up for it and we'll continue our important work.

So with that we certainly want to thank everyone for your interesting Capco and we hope that you and your family's stay healthy and safe.

Thanks, everyone.

Okay.

Hi me, we have the follow up questions from me take this last question.

Sure, Yes happy to Yep.

We have a final question from Daniel Moore.

Yes, we to ask your question Sam.

Sorry to make it includes climactic gentleman, but I appreciate the extra moment here.

Yes.

Exactly exactly.

I guess just looking forward.

Any comments Dan.

Gross margin.

Chris presumably likely to trend a little lower.

Sequentially from fiscal Q4 into Q1, just given lower absorption to start the quarter.

Yes at the right kind of thought process.

No volatile start with that.

Yes.

And.

The thinking about our gross margins, there largely going to be impacted by.

What we see with material prices as much as.

What we see with respect to the inefficiencies related to coordinate team.

The ladder, we continue to get more.

More and more under control.

Minimizing those impacts on efficiencies as Bill mentioned earlier in the in the commentary.

And the ongoing planning and logistical efforts was with our suppliers certainly helps as well so thats been a very good development.

Absenteeism as we mentioned has been improving so all those things are going the right direction.

Yeah.

The variability with the material prices has certainly been relevant and obviously, we can't predict that they've been.

Increasing more so lately.

Relatively low for the bulk of obviously fiscal year 2020, which we just reported on but.

During this time period, whether for for various reasons.

It would be dropped early but then they've been spiking Gan lately so.

I think theres, some margin pressure there to be certain but.

Part of it I think we'll be able to control and improve on than than part it will still be pretty subjective.

Got it and then the other one I wanted the string on to pull on was just mix.

In a pretty impressively favorable given the environment.

I guess, where geographically, it's a texas, where you're seeing higher asps and more multi floor homes.

Or is that spread across the board and is that the trend that's likely to continue.

Yes, little hard to pick out a trend right now given that theres so much.

Movement in the marketplace, we we did have.

Our continuation of a trend that we had been seeing this quarter, which was higher.

Multi section homes as a percentage of a portion of our overall mix.

But where that goes going forward, we've got initiatives underway really in both areas, whether it be single section and multi section.

I think that you know we will.

Flex accordingly.

And then overall be watching to see if theres, an overall push towards lower price points.

Thats been for what it's worth been the experience in past downturns, if we do happen to see a downturn.

We'd see a push towards lower lower average sales prices that would mean more single section homes smaller and smaller square footage and lower price multi section homes.

But a little hard to tell at this point.

Yes, I think I'm just.

Close out on that I think from an industry perspective, it would be a really.

May be counterintuitive it would be my opinion of positive sign if we saw single sections.

Kind of increase dramatically and if we all set back at and looked at a pass period and said she is the mix has shifted to single sections. If that happens because the volume of single sections is up and not that the volume of multi sections as down that indicates that those entry level buyers are doing well that's a good sign about the economy.

And I think it would be a positive about the industry. Even if we saw a shift to single sections on a proportion of basis in the accommodating ASP drop so.

It's all how that.

So how that shift.

Comes about I guess, if we see a move towards single cells for single units.

And it's because multi drop that's one thing benefits because single volume came up that would be a great sign in my opinion.

Got it thank you again.

Okay.

If your last question down.

Yeah, So I'll say again, I really appreciate everyone's interest and and for your time today and hope everyone has a great day.

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Ladies ladies and gentlemen.

This concludes today's conference call.

Thank you for connecting you may now disconnect everyone have a great day.

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Ladies and gentlemen.

Standing by and what was the fourth quarter fiscal years, 2020, telco industry, earning call with cat.

At this time all the fit.

Okay.

After the speakers presentation, there will be a question that used to session. At the question session you need to cry start telephone.

Please be advised to today's conference is being recorded.

If you require any criticism, please sorry zero.

I'd now like they had to converts over your host for today.

Mr. Mark that's right.

Director of financial reporting and Investor Relations. Sir Please go ahead.

Good morning, Thank you for joining us for Capco industries fourth quarter fiscal year 2020 earnings conference call during.

During the call you'll be hearing from Bill for President and Chief Executive Officer, and Dan or less executive Vice President and Chief Financial 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 under the provisions of the private Security Litigation Reform Act 1995.

Looking statements of expectations or assumptions about how close financial and operational performance.

Revenues earnings per share cash flow argues cost saving operational efficiencies current or future volatility in the credit markets or future market condition.

All forward looking statements.

Risks and uncertainties, which could affect can cause actual results could cause actual results could differ materially from those expressed any forward looking statements made by or on behalf of Capco.

I encourage you to review capitals filings with the Securities Exchange Commission, including without limitation. The company's most recent forms 10-K and view what they've done a five specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.

I'm factors that may affect the company's results include they're not limited to the impact of local or national emergencies, including the koeppen 19 pandemic.

Such impacts from state and regular federal regulatory action the results from our built our ability to operate our business and ordinary course and impacts on one customer demand and the availability of financing for our products.

To our supply chain and availability of raw material.

Manufacture our products.

Three the availability of labor and the health and safety of our workforce.

And for the liquidity and access to the capital markets.

And also the risk of litigation and regulatory action.

Actual reputationally damage that Capco may suffer as a result matters under inquiry.

Adverse industry conditions.

Our involvement and vertically integrated lines of business included manufactured housing consumer finance commercial finance and insurance.

Market, forcing forces and housing demand fluctuations.

Our business an operation in concentrated in certain geographic regions.

Lots of any of our executive officers.

Additional federal government shutdowns.

And the regulations affecting manufactured housing.

This conference call also contains time sensitive information that is only accurate as of the data that Thislife broadcast Wednesday may 27 2020.

GAAP go 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 dump or President and Chief Executive Officer No.

Thank you Mark and welcome everyone.

For fiscal year, obviously came to a close during a time of incredible disruption uncertainty, but I think it's important to start the call by reviewing a few of the accomplishments of what was a very strong year.

Net revenue grew by over 10% and exceeded $1 billion for the first time in our history.

We passed the 15000 homes sold milestone.

Actually build housing gross margin as a percentage of net revenue expanded by over half a percent contributing to a record segment operating income.

We acquired and integrated Destiny homes, which is a strong contributor order contributor to our results.

Financial services gross profit grew by over 5% percent, despite significant allowances and noncash charges at the end of the year due to the crisis.

And it's $75 million, our net income grew 9.4%.

Again. These are just a few of the milestones and accomplishments and a year that until March was marked by growing demand and positive trends and all of our markets.

The fourth quarter did become defined by the October 19 developments, we reacted quickly by focusing on our employees and our customers' homes.

Homebuilding was designated is an essential service and all of the geography as we operate at within which provided us the opportunity to continue operations.

We committed to finding ways to operate safely with the goal of providing continued employment and benefits for our people and to meet our commitments to our customers.

We develop leaves policies to support employees that face hardships due to the virus.

And we resolve to implement the CDC guidelines to manage the possibility of transmission within our facilities.

Our financial services operations quickly transition to working from home.

Did a remarkable job continuing to support customers.

Our plants experienced episodic downtime due to a variety of code related causes the vast majority of that downtime occurred in April after the year end.

Well it fluctuated on a daily basis for a period of time, we peaked at six of our 20 plants down.

Most days down for a week occurred in early April when we did not run 25% the possible plant operating days.

However for the second half of April the typical downtime was closer to 5%.

Our set a different way about one out of our 20 plants at any given point time.

Over the last couple of weeks all of our plants have been operating for the most part.

In addition to plant downtime, we experienced elevated absenteeism late from late March through early eight may.

It contributed to reduce production efficiency.

The most part absenteeism this back to pre koby levels in our plants are quickly returning to full run rates.

Let's take a minute and comment about Lexington. Unfortunately, we had to make the very difficult decision to cease operations that are Lexington, Mississippi plant.

Capco purchase this operation in 2017.

Since the acquisition, we struggled to get the operation up to the expected level of performance in particular, we've not been able to establish the product positioning in that region, that's needed to improve the plants distribution network as planned.

These challenges were compounded by the drop off in orders due to covert 19, and ultimately the uncertainty about the timing of recovery.

We're currently operating the plant to deliver on pre existing orders in support of our independent dealers plant will be close by the end of June.

Shifting back to the total manufactured housing business reduced production roughly matched the decline in orders, resulting in relatively unchanged backlogs.

Backlogs remain at healthy levels.

There were few order cancellation of over some orders were put on hold mostly by large community operators.

Communities, which had been driving much of the manufactured housing industry demand growth in recent periods slowed orders starting in March.

Street dealer business has remained surprisingly route robust during that period to date.

And our retail operation traffic, which includes the leads and foreign inquiries as well as walk ins.

Initially dropped by over 50%.

However, traffic has improved said near pre coded levels.

It has been reported elsewhere conversion rates in the sales process has been high resulting in retail sales recently exceeding pre covidien year over year levels. Despite the reduced traffic.

In line with these retail results plant orders have been trending up since the second half of April and these currently surpassed February levels.

Clearly there was a lot of momentum going into the pandemic. After an initial shock the reduced activity from mid March through mid April it's been really encouraging to observe that people who were actively seeking a home before but largely continued on with the process and are placing orders.

It is less clear as the extent to which the pipeline as reselling with new buyers entering the process.

Each week were more convinced that the demand is replenishing.

Time will tell whether the positive order trends, we're seeing now will be sustained that will depend largely on macroeconomic drivers such as employment and consumer confidence as well as a supportive lending environment.

Given the lack of visibility in these drivers were spending less time and attention on specific forecast and predictions and more on remaining flexible and ready to react various scenarios.

Im extremely proud of the way the people who are cavco delivered a year of growth and record breaking results and then responded so positively to the disruption as our fiscal year came to a close.

Through the Coven 19 challenges people throughout the company have stayed focused inflexible and have demonstrated a tremendous amount of commitment for important work of providing affordable loans.

The virus did not wipe away the country's deficit of affordable housing and associated pent up demand sitting where we are today, we can't reliably predict when that demand will translate into orders.

The indications at the moment or positive.

From a business perspective, we're responding to the uncertainty by focusing on cost and cash flow and remaining ready regardless of the market scenario.

Our balance sheet and demonstrated ability to flex our cost structure to market conditions affords us the ability to continue making decisions for the long term, while managing the urgency demanded by the Cove at 19 crisis.

With that I'll turn it over to Danner next to review the financial results.

Thank you Bill.

Net revenue for the fourth fiscal quarter of 2020 was $255 million.

Up 5.9% compared to $241 million during the prior years fourth fiscal quarter.

Within the factory build housing segment.

Net revenue increased approximately 7% to $241 million from 226 million in the prior year quarter.

The improvement in the factory built housing segment was for a 4% increase in units sold largely from the addition of the destiny homes.

Factory earlier in the fiscal year.

And a 3% increase in average revenue per homes sold.

Primarily from changes in product mix toward more multi section homes.

Home shipments and related net revenue slowed in the latter part of the quarter from operational challenges presented by covert 19.

Financial services segment net revenue decreased nearly 7% mainly the result of a 2 million dollar unrealized loss on equity investments in the insurance subsidiaries portfolio versus the prior year period, which included $600000 in unrealized gains.

Excluding those unrealized gains and losses.

Revenue for the fourth quarter increased from higher home sales home loan sales volume and more insurance policies in force compared to the prior year.

Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 20.3%.

Down from 23.1% in the same period last year.

This decline is mainly the result of challenges in both of the company's operating segments related to covert 19 and changes in financial markets.

The largest impact was in the financial services segment.

As the company increased its loan loss reserves, primarily from adverse affects the pandemic is expected to have on borrower loan payments.

And recorded negative accounting impacts of interest rate lock and forward loan sales commitments used as part of our lending operations.

In addition, there is a high there was higher insurance claim volume.

And the same quarter last year.

And as discussed above unrealized losses were incurred in the financial services equity portfolio.

In the factory built housing segment adverse impacts included idle days at some factories, well payroll and certain other costs continued.

And substantial home Assembly inefficiency in the final part of the quarter related to implementing koeppen 18, working guidelines in our factory setting.

And general disruption of the construction material supply chain.

Selling general and administrative expenses in the fiscal 2024th quarter as a percentage of net revenue was 14.7% compared to 13.1% during the same quarter last year.

The increase was primarily from additional employee related costs, including stock compensation.

As well as higher general and administrative expenses.

Income before income taxes. This quarter also included an unrealized loss of $2.1 million on corporate equity investments versus $700000 in unrealized gains in the prior year quarter.

The current year period also has lower interest income earned on cash resulting from reduced interest rates.

The effective income tax rate was 12% for the fourth fiscal quarter compared to 23.4% in same period last year.

The current quarter included a $1.7 million benefit related to tax benefits from stock option exercises versus a $200000 benefit in the prior year quarter.

Net income was $12 million down 40% compared to then net income of 20 million in the same quarter the prior year.

Net income per diluted share this quarter was $1.29 versus $272.17.

In last year's fourth quarter.

Comparing the Bell the March 28, 20 balance sheet to March Thirtyth plenty 19 last year cash balance was nearly $242 million up from 187 million a year earlier.

The increase is from net income and changes in working capital, partially offset by the repurchase of securitization bonds and cash paid for the destiny homes acquisition.

Inventories were lower from a reduction of the number of homes at our company owned retail locations compared to last year.

Property plant and equipment goodwill and other intangible balances increased from the Destiny home purchase.

Property plant equipment also increased from the completion of a like kind exchange whereby the company obtained commercial real estate in Phoenix for potential future plant site.

Certain balance sheet line items were affected by the new lease accounting standard, which is implemented beginning of this fiscal year.

As a reminder, this accounting standard required that all leases be recorded on the balance sheet.

The current portion of the securitized financings and other.

Declined from the repurchase of securitization debt in August of 2019.

And lastly, stockholders' equity was approximately $608 billion as of March 28, 2020 up approximately 78 million for the March Thirtyth 2019 develops.

Bill that completes the financial report.

Thank you Dan the mistress lets turn it over for questions.

Ladies and gentlemen.

I would remind US asked a question you need to press star one on good telephone to enjoy your question. Please press the dental King.

Please standby leak into Q linear plastic.

And our first question.

Comes from Daniel Moore with CJS.

Securities You May proceed.

Bill Dan Good morning, Thanks for taking questions.

Wanted to start with sales orders down about 40% for April now trending I guess down 20 Percentish.

Are those seasonally adjusted in other words, those what are the orders look like on a year over year basis.

Thus far quarter to date and I think you gave us some detail bill in terms of shipments, but similar question for shipments where are we sort of quarter date at this point.

So let me just I guess start with one part of that where you're talking about the.

Fiscal quarter or since the fiscal quarter Deb.

Description of sales orders was.

Essentially.

Since pre co bit levels Im just trying to get a sense on a year over year basis for fiscal Q1.

Kind of where how we are trending year over year for sales orders as well as shipments.

Okay got order to date.

Yes year over year for the quarter of both up.

And I'm not sure if theres any specific.

Component, you're looking for in there, but certainly both higher than I might be unlike the loss you quoted some numbers there at the beginning your question could you repeat that because.

Yes sales orders you told us what they were quarter to date, so far on a sequential essentially since pre cope at levels, but I'm just trying to make sure that I understand what they look like year over year, that's all sales orders as well as shipments.

Trying to look back at what we commented on in seeing what you're picking up.

So you're saying that we were we dropped in the middle of kind of having to make if you will down.

40% and then we are up to back 20% around mid mid may.

And Thats.

Compared to pre pandemic levels, if not compared to say a year ago.

It's not compared to.

The end of December sequentially, when we say those numbers were comparing to kind of a shortened period of time that were called pre pandemic levels and thats roughly.

A few weeks, leading up to the first week or so at March.

Understood. So do you have more detail on a year over year basis, how we are trending thus far in the quarter versus say the first half of first quarter last year, if not all move.

Hi, so you're saying, yes, okay. So we're looking at the seasonal.

Impact there as well we don't.

Have those numbers node to to compare.

We've really been able to.

Compared against.

The and see kind of where we're at.

To give you some sense of of how the quarter shaping up on a sequential basis.

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No year over year.

I would I would say were.

Flat to probably down still because you got to pick the seasonal impact into account and we're not we should be obviously higher now than where we were preparing pre pandemic just because of the seasonality that.

Is normally.

In place this time year, we get a bump in.

March April may timeframe.

And we're not at those levels yet like we were last year, one of the mountains as Dan.

It's difficult because we want to help with the question one of the challenges. We're facing is literally the weeks are highly variable.

So to be just a few weeks into the period and trying to be able to give a really clear answer even our own lines a little bit of a challenging because things are bouncing so much where we've definitely seen an upward trend we've been focused as Dan said more on the.

Late February to mid March timeframe as a baseline.

And or kind of encouraged by the upward trend, but I think to your point if you looked at it seasonally adjusted basis, we'd still be down.

Right I'm, assuming April was down somewhere on the.

40, 50% rents just trying to get a sense, there, but I will I'll move move on.

In terms of where are you today as far as operating capacity. If you took lexington out at the mix are we it sounds like you're almost back if not fully back to pre cope at levels is that correct and what kind of impact as social distancing have on operating capacity at this stage it's definitely.

It's definitely had an impact I would say my sense is that it's the social distancing in the guidelines we have implemented in our plants has been a challenge, but probably less of an impact on productivity. During the month of April then just absenteeism, we at elevated levels of absenteeism, and we had relax policies in that area.

Data consideration of the situation. So I would I would personally say the CDC guidelines are at factor, but I don't think they're a huge factor and efficiency and yes my comments.

Yes.

Generalization, where every plant kind as a sign story, but I feel like most of our plans are really.

Getting right back to full run rate. We've got a couple that are lagging a little bit it happened to be struggling getting back to philosophy is our lower absenteeism kind of more typical but the general statement would be we're kind of right back at.

Able to run as hard as we could before.

And I don't think the social distancing is a big enough factor to kind of enter into that discussion too much.

Perfect guys helpful Bill.

Unrelated good job of.

Meaningful changes to how they operate but doing it in a way that when they have all other folks in the plant they can run pretty well.

Got it okay.

Maybe just some detail on geographies.

Starting with Texas, Howard traffic order in traffic trends.

Currently in into mid May in light of the recent sharp declines in oil prices are you seeing an impact there and then in other regions, Florida southeast southwest et cetera, just kind of walk us through region by region, what Youre seeing if theres much differentials.

Yes, I can comment maybe Dan can add to it.

Texas has been pretty strong.

Everyone saw kind of an impact from an initial I call. It kind of the shock factor of what went on late March early early April so that was this disruptive everywhere, but.

Texas.

There.

Dave from a production perspective, we've been pretty steady there and from a demand perspective, what we've seen.

Yes.

Pretty strong orders in fact in recent weeks they've been a little bit above.

That pre cobot base period that we've talked about.

So we've been really encouraged by we wondered about and talked a lot internally about the oil build impact and the truth is that we're probably a little less exposed to that then.

Kind of the overall industry in Texas, we probably are skewed a little bit too.

Upper range of products in manufactured housing.

And so we havent felt like it's been a huge impact on our results in Texas.

I think from an industry perspective, you'd have to expected it.

We will have an impact or has.

Other regions.

They are all going to be in between the bend, the bookmarks of Texas, and Florida, Florida. It you might remember even when we are even when covert was ahead of us on we didnt really have any idea what we're getting ourselves into as a society.

We are already talking in these calls and otherwise that if you had the looked at an area and say.

You got to keep our eye on that it was Florida.

And and that's been true during the.

During this experience as well, Florida has definitely been.

The.

The geography of most concern.

For us here I'm going to say the opposite the Texas, where we probably skew a little bit extra exposure to communities.

And communities have.

Dropped off more significantly than street dealerships.

And I think Thats, a general statement, but it's very true in Florida. So so we definitely have felt.

The impact there and orders.

We have been significantly down.

But when I've looked at the trends, we're just looking at it and preparation for the call and some of the trends in Florida on orders are that they are coming back up so I don't know where thats going to settle that thats been the most challenging geography for us and.

Not to kind to plants over it but I would say all the other regions like somewhere in between.

The the.

The community.

Impact that I mentioned relative to Florida is an important general comment about the market the community operators.

Particularly the big Genie operators reacted very quickly and put a lot of orders on hold.

And so we've definitely seen a difference between the.

The reaction or impact on community orders compared to Street dealerships were street dealers I think.

Probably then surprisingly.

I Wouldnt say steady surprisingly relatively strong.

If I if you told me what the industry is going to face as far as just a pandemic.

I guess I would've expected street dealers to fall off much more than they did I guess, that's a way to say so there's really a difference between the impact on community orders and street orders and.

This close off that side I mentioned, a lot of communities put orders on hold we saw.

We saw pretty few cancellations orders.

But a significant amount that were put on hold and.

Time will tell whether.

Those folks see clear as things unfold here in the coming weeks and months to release those orders or not.

We we take on venue from this we take those hold orders out of our backlog when we make comments about backlog that's right. So.

Thats encouraging if those orders do come through here in the next little bit.

That's great color Bill just any any sense order of magnitude how much.

Relative to the size of backlog, how big those orders on hold could be.

Joe fuel for that.

Yes, I mean, it's.

Not of.

Very real large amount we don't have the number then.

It's a little bit fluid that.

Would be it would be addition goals for the backlog going to.

Meaningful way, if we got those orders back in and counted.

But they haven't.

It's not large enough that we that we called it out separately.

Two X or anything okay ill jump back in queue. Thank you. That's that's very helpful.

Thanks, Dan.

Once again, ladies and gentlemen, as a reminder.

The question, Chris Star line.

And our next question comes from Chris Samson Sansone advisors.

You May proceed.

Hi, guys good morning.

Good morning.

Couple of general questions from me I guess the first one is.

What what should do you think.

Long term growth rate, if we're just to exclude.

Well good 19.

What do you think the long term growth rate should be for your so your business and for Capco.

And then separately.

To try to understand.

Yes DNA.

It was up this year over last year.

What do you think the right pest DNA levels should be I know there's.

Variable costs in the business.

Sure.

DNA or percentage of revenue look more like it did.

Last fiscal year that then this fiscal year. Thanks.

Well, maybe I'll take the first one of them or the last one in building.

Yes.

Last question.

Okay.

But yes, we had higher M&A this quarter due to a number of factors.

Which included higher stock compensation expense and that was a meaningful comparison difference so.

We want to make sure we called that out and then of course other employee related costs, including commission expense from the higher home sales volume. So our numbers go up in ESG today with higher volume.

Given the commission based and variable nature of the.

Sales component there, but we also had higher DNA costs in various categories and there will be higher going forward as the business continues to grow.

But I would say that administrative costs can vary quarter to quarter. So we certainly saw some of that this quarter compared to last comparison.

The thing Con.

I hate to be the one to sort of this into the discussion, but I think it's relevant to the SGN my comment on the FCC type expenses that are or driver. There. Yes, we've got that included.

This quarter as well and so thats a very good point because.

Well we have.

Mainly.

Administrative costs going on with respect to the FCC.

Investigation at some point those will drop off we certainly to align that is but then we have large dino expenses that you may have seen that are running through that line item as well 2.1 million per quarter.

And that was again this quarter and that'll continue through the first half of this fiscal this coming fiscal year. So thats. Another drop off that we would expect to see as the year progresses, bringing that up as Chris it's clear to the on trying to think about a long term run rate and those would be kind of I think extraordinary costs that.

Should be out of there at some point.

Right and your first question I think Dan I, we're looking at each other they give us a hot potato because it's hard to fool ourselves out of the current situation and think about long term growth rates, if some of it didnt exist.

I guess.

I feel like I'm going to give you a less a satisfactory answer but.

If you did put yourself before the center remember what it felt like in this industry before October 19. The demographics are so compelling and we were seeing that in our growth rates for the year I mean, when we see our revenue grow at the levels It was growing.

This last fiscal year, we didnt see that.

We saw a lot more runway with those kind of growth rates because of the demographics. So well I don't have a number for you commented.

Very to subtlety in my opening comments that.

Go ahead, 19, Didnt wipe away the deficit of affordable housing were just carrying a lot less about it right now so I think this industry and certainly Casco has the opportunity for.

Continuing strong growth and it's just a matter how quickly will get back to that so apologize for not have specific number for you, but I think there's reason to be pretty optimistic by driven by those long term demand drivers.

Okay, Great and then last question I know Capco has historically had.

A lot of cash and the balance sheet.

What are your thoughts on.

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Dividends.

Returning.

From a capital to shareholders. Thanks.

Yes, it's definitely something that we're doing a lot of thinking about I guess, when we know and it's been an active discussion over time and I think we recognize the perspective that people have.

About us needing to do a good job in general on capital allocation managing the balance sheet. So the point I want to assure you the points not lost on us.

I think we as we hit the October 19 situation, even though.

We have a pretty good cash balance and we remain cash positive, which is an important statement as well.

We guided did mentally put those somewhat on a whole than say now is not the time to be now's the time to be focused on cash flow and focused on having a cushion so.

I guess this did slow the thinking down a little bit there, but we get the point and have been doing a lot of thinking about capital allocation here.

Great. Thank you.

Your next question.

I'm, sorry in lackey with Gabelli funds.

You mean.

Hey, Bill or Dan.

Congrats on a record year.

Two questions first is on the the equity.

Unrealized losses, maybe you could.

Differentiate sort of a 2 million in the insurance portfolio I assume that would mostly come back with the market's recovering.

But then on the corporate equity investments.

Well those also recover or word where those more.

Fair meant just because I believe that relates to community investments and communities.

And then the second question broader question.

What's happening with pricing and as as you obviously are incurring costs.

Absenteeism, social distancing networks and production are you able to recapture some of that with pricing or do you think you will be sold it.

If you looked out the next couple of years margins will be at similar rates to what they have been the last couple of years. Thanks.

Okay, Hey, and good morning, this data and yes, let me just help clarify little bit on the unrealized losses, we experienced this quarter.

We had them in two categories as you mentioned and both are related to stock market conditions entirely. So there is no impairments.

It or part of those numbers.

And as.

Equity markets recover we would expect those would recover as well.

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First piece is.

The unrealized gain an equity investments in the financial services segment and that runs through the revenue line that was a 2 million dollar.

Unrealized loss this quarter and then the 2.1 million similar dollar amount was in other income related to corporate equity investments, but none of those are impairment type situations as you mentioned.

Okay. Good.

And.

Hey, Bill.

Pricing question is an interesting when I think I can say that.

So far through this experience, we havent seen a lot of movement on price so it hasn't been.

Heavy pressure to the downside or anything like that.

A question about whether we can recover some of the costs that we've had I think it's really more a question of this on whether the current positive trend in orders sustains itself.

'cause it but.

If we really do see orders get back to.

The level, where you kind of say will they havent been that if we got through the bump and now it's as if.

Orders are where they would have been where it in Africa with 19 that I don't think there'll be any pressure on prices whatsoever. If we see those orders turned down it stands to reason that we run a risk just pricing pressure pricing competition. The industry. So I, certainly think about it more on that side than than us being able to push through.

Price increases to recover costs, our focus has been on that at this moment.

But the problem is that positive is that orders or.

For the moment.

Everything is painted by the week to week right now for the moment, we feel like orders are trending up it gives us some.

On some level of room for optimism if communities come back and release some of those holds and dealer orders continue up I don't think there I wouldn't expect there to be a lot of price pressure in the industry.

Thank you.

Our next question comes from Great Lakes.

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Greg Konrad capital.

You May proceed.

Craig Hallum Capital group. Thanks for taking the questions Hope you are doing well thanks for all the sort of color on.

Intra quarter type order trends Bill I, just wanted to sort of go back and start off just.

Clarify something that you said I think you had mentioned that.

Still holds orders and I don't know if you had mentioned it was retail or company wide.

I've already surpassed.

You, where you levels or this sort of pre kogut timeframe can you just repeat or clarify what what you said there I just wanted to make sure I got it right.

Appreciate you asking for the clarification, because it's important to make sure that people understood what I was referring to.

He is referring to our retail organization sales and people need to keep in mind that were largely.

Texas oriented for our retail business, so it kind of.

It.

It dovetails into the discussion with Dan earlier that Texas has been.

Relative strong area.

Our retail our company owned retail operation again week to week information, but they exceeded pre coded orders written here in the last couple of weeks and so that was the comment it shouldn't be taken out of late but are out of context, but that was what I was referring to.

Yes, Okay. That's.

That's an interesting data point and sort of thinking about this.

Call. It mid May timeframe as a reference point can you talk about how the last sort of 10 days or two weeks have have been I mean, I think a lot of the color you gave was up until bit made but how.

Whether its traffic or order rates company wide, how a big trend at just over the last couple of weeks alone.

Yes, I think Thats thats related.

I know, it's not crystal clear, we've been trying to make that.

These last several weeks from call it.

Early to mid May maybe early to mid May maybe the trend has been upward so looking at that from both the company owned retail orders written as well as.

Our plant orders the trend has been definitely upward approaching those pre cove at levels overall.

Okay. So continued to trend upward companywide.

And then I may have missed it but did you give an actual capacity utilization number where we stand today.

Was it the 75% that was referencing the release or would that referencing something else.

Yes, it's no its referencing that 75% there was in the release Thats the best estimate.

Hard to.

Good to specific on that but we want to kind of give you the range, where it where it had been kind of a lowest points up towards it's been running more recently here.

Okay got it kind of sales, Greg that kind of dovetails with we're giving you the kind of the same information in different ways I guess, some signs I I'd through and the.

The point that in the second half of April early May we were down about 5% of the possible plant operating days.

And that's roughly one out of our 20 plants and I think thats pretty much in line with Dan 75% number.

Yes.

So I mean, it's fair so production rates today.

Relative to and I'm talking company wide that production rate today relative to pre co bid our maybe only down like mid single digits is that sort of the right way to think about it.

Yeah, I don't know if I forgot the number because like I said, a sudden moving thing, but I think you're in the right range because.

No we have definitely shifted our focus back to.

Evaluating productivity and trying to get back to those rates and for the most part our systems really approaching those run rates.

Yes, okay.

And then noticed that Capex was unusually high in the quarter was that associated with new plant or something else.

Yes that was associated with that commercial real estate.

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Comment I had in my in my remarks that we did like kind exchange in obtained some commercial real estate property for.

$6 million.

That number so that is a bit of a standout in the quarter yet.

Okay, and then what our expectations for the next fiscal year Capex.

Just I think it'd be.

Something that will continue to keep it at these levels, you know around $8 million to $10 million potentially higher as we continue to reinvest.

We're not slowing down and our initiatives to reinvest and.

Could be higher depending on what kind of.

Initiatives that we that we finally engage in but.

No slowdown in the in the maintenance capex or or the efficiency improvement Capex and.

Probably an increase.

Understood. Okay, all I'll leave it there thanks for all the call it a.

Hey, Greg I might be.

The wise just leave it alone and I'm, just trying to help everyone type things together and I may complicate instead, so Dan can help that purchase of land as Dan said was kind of half of.

Like kind exchange and the sale.

The land that we had earlier in the year kind of offsets that so if you look at it on a total year basis.

It's kind of neutral from a cash perspective, I would say or maybe it would you say neutral, yes relatively neutral from a cash perspective, but it is but it inflated the capital number, particularly for the quarter, because you're just seeing the purchase side of that exchange.

Yeah totally makes sense. Okay. Thanks, Thanks again for the call it.

Thank you.

Ladies and gentlemen, this concludes that you're in a question of todays conference.

Yes, let me just make a comment here as we close out.

On.

The experience last few months has certainly demonstrated the flexibility the commitment.

They can do attitude of our people.

Our financial services operations transitioned to work from home without missing a beat well you know at a time when customer needs Tiet. They were dealing with a lot of inbound calls from customers looking for relief on payments for example on top of a pretty active market.

Around.

Due to the low interest rates so while there demands were going up they made at complete.

Operating transition, which I felt was very impressive as walk in traffic dropped off our research organization shifting gears very quickly to a focus on phone and electronic communications.

And by doing that they were able to remain available to perspective homeowners, who continued to need assistance figuring out the rate home to buy.

And as we've talked to our operations certainly rose the challenge of adjusting practices. So they could continue safely building desperately needed affordable homes.

Aside from getting homes to deserving families. I think the efforts of our manufacturing people have made a big contribution to keeping small independent dealers in business and that was something we are concerned about going into this experience and.

We felt it was important to keep the supply of homes, that's really their life blood flowing so feel great about that are dealers, our partners and and they've been front of mind for throughout this.

So while the uncertainty certainly persists, we added february's and expect continuing challenges.

Through our employees certainly has given us great confidence capco be up for it and we'll continue our important work.

So with that we certainly want to thank everyone for your interesting Casco and we hope that you and your family stay healthy and safe.

Thanks, everyone.

Hi me, we have the follow up questions from me take this last question.

Sure, Yes happy to Yep.

We have a final question from Daniel Moore.

Yes, we to ask your question Sam.

Sorry to make a bank like climactic gentlemen, but I appreciate the extra moment here.

Yes.

Exactly exactly.

I guess just looking forward.

Any comments Dan.

Gross margin.

Chris presumably likely to trend a little lower.

Sequentially from fiscal Q4 into Q1, just given lower absorption to start the quarter.

It's at the right kind of thought process.

Now ill start with that.

Yes.

And.

The thinking about our gross margins, there largely going to be impacted by.

What we see with material prices as much as.

What we see with respect to the inefficiencies related to coven 18.

The latter we continue to get more.

More and more under control.

Minimizing those impacts on efficiencies as Bill mentioned earlier in the in the commentary.

And the ongoing planning and logistical efforts will sit with our suppliers certainly helps as well so thats been a very good development.

Absenteeism as you mentioned has been improving so all those things are going the right direction.

Yeah.

The variability with the material prices has certainly been relevant and obviously, we can't predict that they've been.

Increasing more so lately.

Relatively low for the bulk of obviously fiscal year 2020, which we just reported on but.

During this time period, whether for for various reasons.

It would be dropped early but then they and spiking lately so.

I think there's some margin pressure there to be certain but.

Part of it I think we'll be able to control and improve on than than part will still be pretty subjective.

Got it and then the other one I wanted the string I wanted to pull on was just mix.

In a pretty impressively favorable given the environment.

I guess, where geographically as a Texas, where youre seeing higher asps and more multi floor homes.

Or is that spread across the board and is that the trend that's likely to continue.

Yes, a little hard to pick out a trend right now given that theres so much.

Movement in the marketplace, we we did have.

Our continuation of a trend that we had been seeing this quarter, which was higher.

Multi section homes it as a percentage of a portion of our overall mix.

But where that goes going forward, we've got initiatives underway really in both areas, whether it be single section and multi section.

I think that you know we will.

Flex accordingly.

And then overall be watching to see if theres, an overall push towards lower price points.

Thats been for what it's worth been the experience in past downturns, if we do happen to see a downturn.

We'd see a push towards lower lower average sales prices that would mean more single section homes smaller and smaller square footage and lower price multi section homes.

But a little hard to tell at this point.

Yes, I think I'm just.

Quoted out on that I think from an industry perspective, it would be are really.

Maybe counterintuitive it would be my opinion of positive sign if we saw single sections.

Kind of increase dramatically and if we all set back and looked at a past period and said she is the mix has shifted to single sections. If that happens because the volume of single sections is up and not that the volume of multi sections as down that indicates that those entry level buyers are doing well that's a good sign about the economy.

And I think it would be a positive about the industry. Even if we saw a shift to single sections on a proportion of basis and the accommodating ASP drop so.

It's all how that.

So how that shift.

Sounds about I guess, if we see a move towards single cells for single units.

And it's because multi drop that's one thing benefits because single volume came up that would be a great signed in my opinion.

Got it thank you again.

Okay.

Your last question him.

Yes, so I'll say again I really appreciate everyone's interest then.

And for your time today and hope everyone has a great day.

Ladies ladies and gentlemen.

Concludes today's conference call. Thank.

Thank you for connecting you may now disconnect everyone have a great day.