Q1 2021 Cavco Industries Inc Earnings Call
[music].
Have Koch industries Inc. earnings conference call at this time, all participants are in listen only mode. After the speakers presentation, there will be a question and answer session.
Ask a question during this session you will need a press star one on your telephone please be advised to today's conference is being recorded.
Hi. This you have any further assistance. Please press Star then zero I would now like Dan The conference over to one of your speakers today Mr. Merck's <unk> director of financial reporting an Investor Relations. Sir. Please go ahead.
Yeah, Dan. Thank you for joining us for KEPCO industries first quarter fiscal year 2021 earnings conference call.
During this call you'll be hearing from no bore president and Chief Executive Officer, Dan Urness Executive Vice President and Chief Financial Officer, and Paul Big D Chief Accounting Officer.
Before we begin we'd like to remind you that the comments made during this conference call. My management may contain forward looking statements I know the prisons other private Securities Litigation Reform Act of 1995, including statements of expectations or assumptions, not kepcos financial and operational performance revenues earnings per share cash flow.
Or you just cost savings operational efficiencies current or future volatility in the credit markets or future market conditions.
All forward looking statements involve risks and uncertainties, which could.
<unk> actual results and could cause actual results to differ materially from those expressed any forward looking statements made by Werent behalf Capco.
I encourage you to review Kepcos filings with the Securities and Exchange Commission, including without limitation. The company's most recent forms 10-K, and 10-Q, which identify 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 Companys results include but are not limited to impacts of local or national emergencies, including the cobot 19 endemic and such impacts from state and federal regulatory action that restricts our ability to operate our business in ordinary course, and impacts our customer demand and the availability of financing for.
For our products.
Our supply chain and the availability of raw materials for the manufacturer of our products.
The availability of labor and the health and safety of our workforce.
Liquidity and access to capital markets.
The risk of litigation or regulatory action.
Potential reputationally damage the Capco may suffer as a result of matters under inquiry.
Adverse industry conditions.
Our involvement and vertically integrated lines of business, including manufactured housing consumer finance commercial finance and insurance.
Market forces in housing demand fluctuations.
Our business in operations and concentrated in certain geographic regions.
Lots of any our of our executive officers additional federal government shutdowns and the regulatory regulations affecting manufactured housing.
This conference call also contains time sensitive information is only accurate as of the date of this live broadcast Friday July 31st 2020.
I've got undertakes no obligation to revise or update any forward looking statements, whether written or oral to reflect events or circumstances. After the date of the conference call, except as required by law.
So now I'd like to turn the call over to Billboard President and Chief Executive Officer No.
Welcome everyone. Thank you for taking time with us today.
It would be great to have a simple straightforward summation of the market in operations this quarter and and I'm sure you all understand that it just wasn't that kind of quarter any general statement about the quarter would fail to capture the fluidity of costar market environment and our operations.
Having said that considering the disruption challenges over the past months, we're proud to report always shows very strong quarter for Capco.
Of course, the quarter began as we were very quickly approaching the initial peak of disruption.
Local authorities were putting directors in place and we're working hard simply to understand whether we were considered an essential services and therefore, even have the option to operate.
For our office based operations were quickly moving to a work from home approach.
We've covered much of that early part of the quarter during our year end comments in may when we explained that.
We quickly resolved only operate if we could do so safely, meaning while adhering to the health authority guidelines.
From the beginning we have been fully committed to safely operate for employees.
For independent dealers that rely on us and for the homebuyers.
And those early April days, it wasn't clear that there would even be any orders, but if there were we wanted to be there to provide homes because we believe what we do produce so fund and ensure people's homes is very essential work.
Yeah, we're unsure whether it would be significant sufficient demand to operate and has been communicated previously orders did initially dropped by approximately 30% in April.
What's been really remarkable over the past months is how strongly that man bounce back and eventually exceeded pre covidien even year over year levels.
The general housing recovery has been widely reported and as seen in the June seasonally adjusted annual rate of new home sales, which was the highest since 2007 up almost 7% year over year.
It's also seen in our orders, which at quarter end were above last years levels.
So rather than the concerns at the beginning of April that orders would drop in stay down we're now managing the opposite dynamic where our manufacturing operations.
I've been unable to keep pace with demand and backlogs are increasing above where we would ideally like them to be.
Manufacturing continues to be a day to day dynamic all of our plants have had challenges with absenteeism, a lack of job applicants and supply disruptions.
Just as a pandemic hot spots it moved and change the environment and our plants you balls and plants that struggled one week stabilize the next and vice versa.
Standing back from that detail, we ended the quarter operating at about 70% utilization.
Appeared to approximately 80% a year ago.
I want to pause and take a moment is really recognize what commitment and the fortitude of ore production coworkers, who have been showing of everyday despite being understaffed.
Thanks, just about the pandemic and frankly being on care uncomfortable due to the need to observe health guidelines, most notably phase coverings in the summer heat.
We're asking a lot and the folks that show up everyday really deserve our appreciation.
I would expect manufactured housing industry shipments to reflect similar operating challenges across the industry and made the seasonally adjusted annual rate of HUD shipments.
More than 20% lower than the very strong January and February numbers.
I expect shipments will continue to be relatively low people need to understand this will be more of a reflection of the industry's production challenges and the demand for products and labor is the overriding issue. We believe the federal unemployment insurance subsidy has hampered our ability to staff and to run at higher levels and has contributed to our supply.
Fires issues as well.
The first quarter really demonstrated to key takeaways first I'm not sure that the thesis about an acute need for affordable housing could have been put into our test.
The need for affordable housing is realized demonstrated in the quick and strong recovery of order rates.
Cavco has the opportunity to grow and we're committed to doing so in order to positively impact the affordable housing issues facing our country.
Second our company has demonstrated the ability to generate cash even during a sudden and severe disruption catco is still looking forward, we're able to do so partly because of our balance sheet and demonstrated ability to remain cash flow positive and partly because the confidence we have in our co workers across our operations we're selling.
Resolutely rising to the covert 19 challenge.
There are still very real risks looking forward the demand bounce back would not have been a strong written after a very low interest rates.
While there was a large need for housing demand can and will be suspended if rates become prohibitive for many buyers.
Similarly, while many people who were looking to buy in March continued through with their plans sustained demand requires the next group of buyers to fill and behind them.
Current level of demand can't persists through time without improvements in employment and consumer confidence.
Overall, we feel and Capco has performed quite well despite the disruption.
This is demonstrated by our strong cash generation in the quarter.
We do recognize the cash balance is growing and I know there will be questions about our allocation strategy.
Let me start that discussion here by saying that primarily we are still very positive better growth opportunities.
And we will be investing in that growth, whether its continued investment in our existing plants acquisitions or new market opportunities.
We've discussed increasing our home only lending and that is the strategy, we intend to pursue.
Very recently in the market has become increasingly competitive so the pace of our home only expansion will be driven by our measured underwriting standards relative to the competition.
To be more direct to the extent lenders get more aggressive with their underwriting it will likely slower investment pace, but we are able one intending to grow and home only lending and we have the proven origination and servicing platform in place to do it successfully.
Bottom line messages at current conditions have not decreased our interest in growth opportunities.
And with that I'll turn it over to Dan or Nash to review the financial results.
Thanks, Bill and good day everybody.
Today I'll review the Companys financial results and then turn it over to Paul Big be Kepcos, Chief Accounting Officer to review the balance sheet.
Net revenue for the first quarter fiscal year, 2021 rounds to $255 million and Thats down 3.5% compared to $264 million during the first fiscal quarter last year.
Within the factory built housing segment net revenue decreased 4.3% to.
To 238 million from 249 million in the prior year quarter.
The reduction was primarily from a 12% decline in units sold.
Home production declined from high employee Absenteeism limited, new higher availability supplier disruption and operational challenges generally presented by code 19, which included plant down days and complying with the related health guidelines.
Unit sales declines were partially mitigated, though by homes sold from the Destiny homes operation, which was acquired less than a year ago.
The revenue declined was also partially offset by higher home selling prices overall from a larger portion of the home sales like company owned retail stores in the sales mix this quarter.
Financial services segment, net revenue increased 9.2% to $16.7 million.
From 15.3 million in last year's quarter.
Mainly the result of a 1 million dollar unrealized gain on equity investments in the insurance subsidiaries portfolio.
While the prior period had negligible unrealized gains.
We also increased home loan sales volume and placed more insurance policies compared to the prior year quarter.
Consolidated gross profit in the first fiscal quarter as a percentage of net revenue was 21.7%.
Down from 22.8% in the same period last year.
The decline is mainly the result of lower home sales related to cope and 18.
As noted in our press release, well order rates are strong.
The operational challenges of Kobin 18 led to declines in home production volume and profitability.
More recent development that is worth mentioning here well, we're discussing homebuilding gross profit is the rapid increase in lumber and OSB prices.
In the short term, we expect to see some gross margin pressure from rapidly increasing lumber prices.
As we naturally try to do we are counteracting with materials surcharge pricing on our homes, but the speed at which lumber prices have increased may cause some margin compression as we work through the extended home order backlogs that are factories.
Moving to the financial services segment.
Gross profit was negatively impacted by $1.1 million in higher weather related claims volume.
Compared to the same period in the per year.
Although this was more than offset by $1 million of.
Unrealized gains in the into these equity portfolio.
The general strength of the financial operations.
Selling general and administrative expenses for the fiscal year fiscal 2021 first quarter.
As a percentage of net revenue was 13.9% compared to 13.4% during the same quarter last year.
Net expenses related to the FCC inquiry were lower in the current quarter of approximately $100000 compared to last year's 800000 dollar cost.
But that is largely because we received an insurance recovery of approximately $500000 this quarter.
Stepping aside for a moment regarding the FCC investigation, we don't have any further updates on this matter other than to remind you that we continue to cooperate with the FCC increase that is ongoing.
Other income net this quarter was approximately $1 million lower than last year's first fiscal quarter.
The decline was primarily from a 900000 dollar reduction in interest income earned on cash and commercial loan receivables.
Given the reduced interest rates.
Well it had little comparative effective it's also worth mentioning that the current quarter includes unrealized gains of $1 million on corporate equity investments.
Only slightly higher than $900000 in the prior year quarter.
The effective income tax rate was 23.1% for the first fiscal quarter compared to 22.2% in the same period last year.
As the current quarter included fewer tax benefits from stock option exercises versus last year.
Net income was $16.7 million down 21.6% compared to net income of 21.3 million in the same quarter prior year.
Net income per diluted share this quarter was $1.80 cents versus $2.31 in last year's first fiscal quarter.
And with that I'll turn it over to Paul to cover our balance sheet.
Thanks, Dan Good day, everybody today will be going through the changes and balance sheet from June 27, 2020 compared to March 28 2020.
The cash balance was 270.5 million up 28.7 million from three months earlier, the cash increase is primarily related to net income of approximately 17 million.
As well as cash from changes in working capital, including lower finished goods inventory and prepaid balances.
Collections on outstanding accounts receivable and lower net commercial lending activity.
This was partially offset by greater consumer loan originations over sales.
The current portion of consumer loans increased from a greater number of loans classified as held for sale. The result of loan sale timing.
Inventories decreased as more finished goods units on location that our retail locations were sold mainly from production challenges that our manufacturing facilities previously discussed.
Prepaid another assets were lower primarily from the amortization of additional direct or an officer insurance premiums as well as lower net prepaid income taxes.
Our operating lease right abuse assets and related liabilities increased from a lease extension at one of our manufacturing facilities, we entered into in Q1.
And accounts payable and accrued expenses and other current liabilities increased and the timing of payments received on service consumer loans to be a committed to third parties.
Lastly, stockholders' equity was approximately 624 million as of June 27, 2020 up approximately 16.4 million from March 28, 2020 balance.
With that I'll pass it back to Bill.
Thank you Paul Michelle lets turn it over for questions.
All right again, ladies and gentlemen, if you wish to ask a question at this time. Please press Star then one on your touched on telephone.
A question has been ancillary which drove most yourself from the Q. Please press the pound key to prevent any background noise. We ask that you. Please. Please your line on mute once your question has been stated.
Our first question comes from the line of Daniel Moore with CJS Securities. Your line is open. Please go ahead.
Bill Dan Good afternoon, I guess should say good morning, thanks for taking questions.
Thank you.
Let's start with I guess.
Capacity utilization, we talk a lot about it.
Just wondering given current labor constraints kind of how meaningful that number is that's kind of a philosophical question, but more specifically.
Yeah.
Over the next let's say six months.
You seem to be running close to full out what is your actual capacity and how close are we running.
To that as we exited the quarter or or enter the second quarter.
Yes, I mean the.
We ought to go back and forth little bits make sure. We're addressing your question about the philosophical aspect of it. We we typically for many quarters has been running 80% plus or minus a little bit and we've been talking about labor being really the governor on that.
So when we conveyed that we finished this past quarter.
70% is just kind of expressing it there were that much more constrained by labor. So we're running about.
Probably 90% as as many units as we were before the.
Coated issues kind of hit us with absenteeism and plant shutdowns. So.
Maybe the maybe using capacity utilization I don't know thats.
Way that resonates the best with you, but we're kind of trying to indicate that we're about 90% of what our pre code that level of productivity is of course, we're making everything we can an environment, where there are very strong orders.
Indeed, I guess my question is how much additional capacity do you think you'll be able to add.
How quickly can we get back to those prior growth rates.
Prior production rates and can we add additional capacity beyond that.
Given the current order rates and current demand environment.
Yeah, we're always investing and looking for investment opportunities in our in our system from a physical capacity perspective, and we're working on some projects and give a plants in that regard.
And I hate that sounds like a broken record but.
The question about how quickly we can recover we feel it's really a question about.
They are getting job applicants and building a strength of our teams, which has really taken a step backwards over last couple of months.
So it's kind of hard to predict that I don't want to belabor the issue because we're trying to do everything that we can.
Just blocking and tackling in our plants to be as productive as possible into higher.
But we have had trouble getting.
Good applicants.
Which is which were actually hopefully the function of the 600 to weak subsidy that the federal government is given to unemployment not trying to point blank too much on that but it's a reality that that's affected what we've seen with job applicants and since theres a lot of unknown about what's going to be done since that expires.
Yes today right around now Theres a lot of question about whether that's re up to fit is it's going to be a continued difficult issue for us and if it's not in that causes people to your as you get back to work I think we'll be able to make gains lot quicker. So sorry for the not precise quantified answer but youre touched on.
The biggest on than Weve got right now for our business.
That's helpful in terms color Sars retail demand, obviously bounce back really quickly as you described what are your dealer seen in terms of traffic as we move from June into July.
One and then too I think.
90 days ago that community business was.
More sitting on their hands have you seen community developers coming back more significantly in terms of demand as well.
Yeah traffic as we ended the quarter was really stronger than we're seeing more selling opportunities, which is kind of the what we're trying to use traffic to convey we're seeing more this year as the quarter ended than we saw last year at the same time.
The the composition of that it shifted pretty significantly a lot less walk ins and a lot more phone up type opportunities, which and im speaking about our owned retail for the most part.
It really speaks to how quickly the folks in that business.
So what was coming when the started and kind of shifted their focus about how to generate leads and they did a remarkable job with that.
So we had less walk ins more phone up type opportunities Ned more opportunities in a year ago, and as you've heard from us and others that conversion rate.
That traffic into deposits was actually meaningfully higher than it was in past periods. So the people that were coming in.
And to US as leads we're converting into deposits at a much higher rate.
That's pretty much continued I mean, it just kind of mirrors you want to started total homebuilding as I mentioned in my comments it mirrors, what you're seeing in the stats around the general housing market.
And that mirrors, what I think all manufactured housing companies are seeing as far as their order rates.
No just add down the on the community side, we're starting to see some more orders there.
I think that just in connection with housing strength in general.
I think community strength has been there as well and and so the owners of the communities are I think still weighing.
Collections, making sure they're comfortable but we have seen some release of some of those prior orders that were put on hold and.
We're hoping that the that trend continues and that we continue to see that but that will be even additive or incremental to the strengthen the in the retail side that that build talking about.
Its a.
I don't think it's been like turning on a switch with the communities. These kind of its incremental orders it's for incremental releases of orders. They already had in the system. So I don't think we're going to see just at a point in time, the large community operator suddenly say hey release from on let's go but we have as Dan said, we've seen that start to pick up.
Got it understood switching gears in terms of financing.
I believe you had indicated that you are seeing spreads tighten a bit.
As we went into the summer months, maybe talk about chattel, one and land home to kind of versus each other and then versus traditional stick built have you seen.
Spreads continue to tighten and any quantification.
At Chattel in particular, I think is been notable because its.
Thats a interest rate that typically doesn't really correlate to.
For example, mortgage rates, it's kind of 10, it tends to be pretty stable and those rates have come down significantly I mean weve.
You heard different numbers, because it's a moving target to try to put your finger on it but where they might historically have been 7.5% to 8% refer to chattel lending rates down in the force and so that's pretty remarkable and that's not again thats not really correlated to the other part of your question, which is land homeware.
Were you know that is more correlated to.
Brendan Ashley publicized mortgage rates and those rates have been very low as well so.
It's been a very.
Depending on your perspective, it's been very helpful environment for the orders that we've seen and.
It's also been.
Interestingly competitive from a chattel lending perspective.
Some of that.
Got it and maybe one more and I'll jump out, but staying with financial services have you seen claims volumes continue to.
Tick higher slipping into the first part of this quarter from what we saw last.
Yes.
Yes, happy to down and we've seen.
You know some activity in whether we've had that hurricane that came through the Gulf and yes, the southern part of Texas.
It really didnt.
We don't think caused a large impact to us.
Based on where we have our concentrations, which we watch closely.
Just as a reminder, we in Texas and on the goal.
We don't right in the.
ZIP codes right on the goal.
Inland when storms come in London, we can get some impact from that but this one when into an area and through an area that we don't expect to see a lot of impact.
It's getting to be hurricane season, So, we'll keep close eye on those.
As a reminder, we don't right in the insurance policies in Florida that seeing some activity right now.
Our policies are primarily in Texas, and then secondarily in Arizona, and Nevada, New Mexico.
Okay. That's helpful I will jump back in queue with any follow ups. Thank you.
Thanks, Dan.
Thank you and our next question comes on line of Craig Tom with Craig Hallum Capital. Your line is open. Please go ahead.
Thanks. This is actually the any of your John for Greg Today. Appreciate you guys taking the questions.
Dan I.
I know you said cannot 30% or drop in order rates in April is there anyway, you could quantify kind of the monthly cadence in May and June and maybe any additional color on July would be helpful as well.
Okay. The yes, we didnt necessarily quantify it because it's a fairly fluid.
Scenario, but needless to say it we did want to make quite that order rates did jump substantially from that low and kind of.
Progressed progressively got better throughout the quarter and.
And continue to be strong so while we don't have specific numbers for each of those months.
It's needless to say we're at this point getting more orders than we can build and back to our kind of larger point.
Production is the is that the topic.
Right now because we think that we've got opportunities there to build more homes to convert more of those orders into into revenue instead of building backlog, although right now we're building backlog.
Got it and then I guess just in terms of bounced back in demand is there any way you could try to kind of wait what are that demand strength coming from whether its urban and rural migration or financing or just plain desire for homeownership.
What are you seeing there.
Yes, I mean, I don't know that.
Although we have tremendous data on it but I guess I can speak from my perspective, I think the biggest.
Driver in my opinion is the interest rates and the.
Really incredible pent up demand that that overall housing has created over a number of years with starts lagging.
Lagging household formation and need for new homes. So.
I think it's as I said in my comments I think it's Ben.
Just a remarkable tests of that thesis that.
A lot of people are out there that need homes and when interest rates are like this they kind of powered rate through the coded thing it seems.
So we were were conscious and thinking about things like like trends that have been initiated by the Cove at 19 situation and whether we're going to see flight.
From urban environments to more rural environments.
I think we'd really be speculating and don't have a lot of data that we can point to that says we can see that right. Now. So we're really not disclaiming that but don't have a good feel for the magnitude of it at this point, it's just a situation where interest rates are really attractive and people need islands and their.
There are buying them.
Just one note on that I'd add is that.
Even though we've.
Been in the period here, where we've had the unemployment.
Benefits coming through those benefits are directly impacting home sales because to get alone somebody has to have a job.
And so they need to qualify.
Those those unemployment benefits, obviously health as a general economy, but but it's not a direct benefit.
No that makes sense and then I guess, just jumping back to labor real quick.
In terms of I guess, you guys compared to the industry, where you really saw a lack of shutdowns within your own facilities, where where I guess a lot of industry members.
Were shutting down plants at a higher rate earlier in the quarter.
Give any sense of where you may be able to retain labor better comparable to the rest of the industry or how do you see that.
I think it was a good thing for on.
Directionally for us to be able to keep running and when we when this started none of US new this kind of interesting for me thinking about this call and preparation trying to put my mind back to that point in time, I mean, we didnt know.
Where this was heading right, but our our commitment was to keep running because we wanted to keep paychex law into our employees and we wanted to keep homes that are the lifeblood of our independent dealers flowing to the extent they were needed and.
To your question.
I think that was productive in trying to retain or people for sure.
We've had pretty consistent employment for people. We've also done a lot with our policies. During this period of time too.
Work with our folks when they had to be asset.
Whether it was because they were having symptoms or they were high risk for some other reason or needed to be a caretaker weve.
Tried very hard and had policies in place to continue paying them. So.
I feel really good looking back on the last several months about our approach and and have to believe that it's helped us incrementally with retention, but it's still battle.
All right. Thanks for the color that just from your hop back into queue.
Thank you.
Thank you and again, ladies and gentlemen, if you have a question at this time. Please press Star then one.
Our next question comes from the line Jay Mccanless with Wedbush. Your line is open. Please go ahead.
Great. Thanks for taking my questions.
The first one I wanted to ask when I think about the active backlog.
Presumably thats weighted more towards the independents does that give you any little better gross margin benefit.
That may be having more more single section homes in there just trying to figure out if there's going to be some positive offsets to that higher lumber cost you discussed in the prepared commentary.
Well I guess I'm not sure I'd answer that this is Dan I'll take a stab at it seems that can help you with a little bit nuts that are.
Backlog includes obviously independent in company owned store in community and developer.
Orders and you know for any given floor plan, we don't.
A very to males.
But we charge so as far as the benefit there goes there's no preface between say independence and other avenues or.
Distribution channels.
With respect to the mix of singles and doubles, we'll always look at.
What the what.
The best margin opportunities are for us and mix that with the demand in the marketplace and try to find the sweet spot there.
So yes, it will be we'll be taking all those things into account and live.
Because you know for every every every home we build we want to really and as a couple of we've always focused on.
Our margin.
It should be option.
And.
With respect to specifics.
Hard to get into more detailed method.
Let me don't that's helpful.
Yes, absolutely.
I guess the second question I had is knowing that lumber is moving higher what are you seeing from the other commodities right now any any other thing that we need to be worried about there.
I think that lumber is that where the focus is right now certainly inland and lumber related products, we mentioned to us fee on the call.
In other areas, it's been relatively stable.
I think that.
We'll continue to keep an eye on its doors are up.
Maybe the next largest topic is.
Just availability and that continues to be.
So we're paying close attention to making sure that we can have access to the all the materials, we need whether its component parts being made and in.
Other countries most of our supply is domestic of course that.
Even within domestic regions. These issues, we're talking about with.
Production and production.
Strengthen the ability to produce to the demand or issues that were our suppliers are having as well.
And as far as the industry are having so we.
Our our have done I think a very good job in our company in our people have been fantastically.
With managing through supply constraints, but we still have to have to continue deeper on those those issues.
Is it more the stick builders of talk about.
Trouble getting appliances early on in the Conservative was trouble getting electrical boxes and electrical equipment. I mean is a smaller things like that or is it larger segments are more pieces of the homes.
Yes, I think for US it's started out with Windows was the first thing we struggled with and that was my memory is right kind of back in April and May timeframe.
And then then it's kind of transition to a variety of appliances that are our folks had to kind of scurry around and now.
To minimize the ongoing appliance concerns its transition to this lumber and no SB, where the cost are shooting up at all so.
It's gotten to the point where at times, where.
Right and to try to get some of it. So it's it's not only a cost issue, it's a supply issue.
And just as Dan said I think it's a consistent message and those folks are trying to operate difficult manufacturing conditions as well.
So.
You weren't asking as my speculation about markets like lumber and LSV is that.
The prices should not because of their struggles.
Manufacturing and having some facilities that have been shut down.
So the price is going to go up and try to bring some of that capacity back end, but they need workers too and we're probably going to be in for a bumpy ride I don't know that I don't know that I believe it's going to be just sustained at a high level, but I think it's going to be bumpy for us for a while and our plants are doing a good job kind of keeping their eye on that.
Manage the supply issues, but also.
Keeping an eye on pricing to try to make sure we're protecting our margins I.
I think Dan comment about that early there can be a lag in that sometimes getting the prices through.
Understood.
And then the last questions for you Bill.
Just just elaborate a little bit more for people like myself for newer to the story.
What would have been your thoughts in the past in terms of of doing more home only lending from Capco win what are the conditions that you would want to see in the market to get more aggressive in that space.
Yes, I mean, and one cents I guess my comments earlier, we're indicating that.
We are intending to expand our our lending and home only.
It's always.
That that attention right now is kind of an interesting right because we have seen pretty aggressive moves by other lenders and that's what's driving the rates down and it's affected their underwriting as well so we're not going to chase it.
But over time, we intend to.
Grow our origination.
And our servicing of chattel loans.
That's all embroiled with a backdrop of lack of a securitization market.
But part of our strategy there is that we've got the balance sheet.
To do a bit of it and we'd like to be able to develop more.
Investor Relations from the perspective buyers of those loans and where we need to have a base in order to do that we need to be able to feed those customer relationships up from the buyers.
And we're hopeful that this industry is going to get to the point, we're back to Securitizations and we want to be able to participate in that so for all those reasons, including the available balance sheet.
In our intention is to grow our chattel lending.
Great. Thank you for their color Bill for sure Youre, taking my questions.
Thank you Jay.
[music].
Thank you and our next question is a follow up question from the line of Daniel Moore with CJS Securities. Your line is open. Please go ahead.
Thank you again, maybe one or two quick follow ups.
Mentioned backlogs higher than where you'd want them to be.
Are we in terms of number weeks or overall backlog are we back.
Near or above kind of where we were last year when when.
Backlog or peak to your plus ago.
Any meaningful concerns or risks of you or your dealer customers, losing orders if they continue to grow.
I'll just jump in Japan mentioned that we're right now at about eight to eight to nine weeks backlog and.
And that is up over last year last year. This time, we were running around seven.
So yes, we've got more backlog again with production being a little bit lower that's part of the part of the calculus, there too but.
But yes, it's a it's a higher backlog than than we would like to have.
Yes, yes so.
Yes on your question about losing I think you're asking also about does that higher backlog I mean, we're worried about losing sales.
It's all relative right and I think most manufactured housing companies are probably seeing growing backlog right now so as long as were.
All struggling with the same issue. There then I don't think were necessarily losing sales, but we consider our backlog that long term deal a lot sale opportunity everyday if we can make the home we can sell it.
So it's not not where we wanted to be I mean, we've talked in the past week preferred backlogs if you could dial it in and just locket, we probably want to have about four week backlog say, so were well above that level and and that's a general statement across our whole system.
Got it and then last on the lending side following up I believe is jays question, but.
What kind of rates of return historically would you generate and target going forward.
If you as you expand to your loan portfolio.
Alan let stream and assume we do get back to.
Chattel lending opening back up what kind of fill rates of return return on capital.
Does that typically generate or has it in the past.
I can tell you the dynamic a little bit I'm, not showing pinpoint a number one when we can buy when we can originate and sell the rates return are very high because it's just that turn the speed of that turn.
So thats kind to for US plan, a we're not we're not interested in long term warehousing. These kind of loans thats not our plan a and the comments talked with J. There are many go to the comments about our intention to expand origination is really to expand the rate at which we originate with the plan a being.
To develop more.
Hi, or opportunities and keep that that.
That churn I guess at quick sale when you do that the rates are really good.
Very high and then the alternative is when you hold loans, which we had called plan B, then you're getting more like the interest rate type return that.
We had mentioned so the chattel historically has been seven day holding those lines, you've got loss reserves and you've got some other dynamics that are pushing that around but you're probably in that range rate you're the other side of that that rate.
Okay. That's helpful. Thank you for the color again appreciate it bill indefinitely.
Just to continue on so I'd, probably be probably dropped off is having those high this to continue on I guess, our view is we're going after that plan today.
And we're willing to if that means we have to have someone the balance sheet for a period of time, while we're developing this customer relationships. We're confident enough in developing on that we're willing to have some of our balance sheet invested in going after this kind of sales. So sorry added that actually probably jumped off Dan.
Thank you and Im showing no further questions at this time and I would like to turn the conference back over to Mr. Bill bar for any further remarks.
Thank you Michelle.
Yeah, just to summarize I guess it goes without saying, it's been a pretty demanding quarter.
We're very proud of the company our company, which is filled with a lot of folks who continue to solve problems and remain very committed and flexible and that's with situation demands and we're not seeing that thats.
We don't know or the end of that is but we believe kind of proven to ourselves we're really capable of doing it. So very proud of how our company has responded to this our main challenges Weve said quite a bit here is to increase the manufacturing productivity.
And so forth label and market will pick up and people will get back to work, which is key to what will allow us to do that.
We're certainly encouraged by the demonstration of strong demand for products.
And we really believe and the need for affordable housing. So we try to look at the long term even in the middle of these situations and we're going to continue investing in our plants and the new growth opportunities as part of our commitments providing solutions.
With that really want to thank everyone for all your interesting Capco, we hope that each of you and your families are staying healthy and safe and thanks for taking the time today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the programming you may all disconnect everyone have a great.
[music].