Q2 2021 Cavco Industries Inc Earnings Call
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Good day, and thank you for joining us for Capco industries second quarter fiscal year 2021 earnings conference call. During this call you'll be hearing from don't bore president and Chief Executive Officer, how big the Chief Accounting Officer and myself.
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, including statements of expectations or assumptions about cap those financial and operational performance revenues earnings per share cash.
Cash flow or use cost savings operational efficiencies.
Current or future volatility in the credit markets for future market conditions.
All forward looking statements involve risks and uncertainties that could affect cap was actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by on behalf of KEPCO. Thanks.
I encourage you to review Cactus filings with the Securities and Exchange Commission, including without limitation. The company's most recent form 10-K, and Frank 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 the impact of local or national emergency, including the COVID-19 pandemic.
Such impacts from state and federal regulatory action that are never sticks, our ability to operate our business in the ordinary course, an impact on customer demand and the availability of financing for our products.
Our supply chain and availability of raw materials for the manufacture of our products develop.
The availability of labor and the health and safety of our workforce.
Our liquidity and access to the capital markets.
The risk of litigation or regulatory action.
<unk> reputation will 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 Mark.
Market forces in housing demand fluctuations.
Our business and operations being concentrated in certain geographic regions.
Lots of any of our executive officers. Additionally, the federal government shutdowns and the regulations affecting manufactured housing.
This conference call also contains time sensitive information that is accurate as of the date of this live broadcast Friday October Thirtyth 2020.
<unk> undertakes no obligation to revise or update any forward looking statement, 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 Bill bore President and Chief Executive Officer, though.
Thanks, Mark welcome everyone and thank you for joining us to review our results for the second quarter.
The people with Cavco continue to adjust to constantly changing dynamics with our clear objective of operating all of our businesses to the extent, we can do so safely.
It's been ongoing to be part of and to see the commitment.
It hasn't been easy in any regard.
I really want to begin todays call by acknowledging our people we need to keep driving forward to serve our customers.
Our folks are making smart decisions in light of the circumstances I'm very proud of our performance.
In late March I don't believe anybody could have foreseen, where we are today.
I expect everyone on the call has been watching demand indicators and understands that the general homebuilding industry is seeing extraordinary buyer activity.
Well, we've been talking for a long time about the fundamental drivers such as years of under building to household formations.
Enabled by very low interest rates, the pent up demand is being proven despite the pandemic.
Looking at recent MH industry shipment data could be misinterpreted as a demand indicator with the seasonally adjusted annual rate below last year shipments over.
However, the shipments reflect what the industry has been able to supply.
We have a backlog that has grown $164 million since last quarter and stands at approximately 21 to 22 weeks based on our current production rates.
We believe every producer is experiencing backlogs that are on add on to healthy levels.
The backlog increase was from a combination of very high order rates and continuing production challenges due to labor and supply issues.
To provide some perspective, even if we were producing at the same rate as last year.
Orders have been so strong that we would still have the 19 to 20 week backlog.
We know that we need to produce more however, the growth in our backlog has been primarily the result of extraordinarily high order rates.
This quarter home order rates were nearly 65% higher than a year ago.
Turning to the cost side, it's been widely reported that lumber prices increased dramatically since hitting lows. This past April.
Moving to extreme highs by the end of September as an example, the southern yellow pine indicator price rose approximately 180% in that period.
Well lumber prices have since come off those highs the magnitude of these changes have resulted in the need to quickly adjust pricing on our homes.
Gross margins may continue to be squeezed in the near term as those price increases work through the backlog through our proactive approach and addressing pricing should allow us to maintain gross margins over time.
Production labor challenges continued through the second quarter absenteeism has affected our productivity and while there has been some improvement hiring still remains limited to.
To address these issues, our plants are making adjustments to hiring practices and wage rates as well as implementing other programs to attract retain and develop production employees.
And manufacturing our focus continues to be taking action to increase productivity.
In our retail operations, we've continued to perform very well.
And what we're seeing in our own retail stores is a level of traffic that is following a typical seasonal pattern with some slowing going into the fall the traffic remains strong and still higher than last year's levels.
Conversion rates the percent of traffic opportunities converted into sales remained significantly higher than a year ago.
In financial services, our lending has been relatively stable interest rates for mortgages mortgages and home only loans are at historic lows.
Making financing much more affordable for most homebuyers.
As previously discussed.
The home only lending environment has been increasingly competitive since early in the pandemic.
We're still pursuing a longer term strategy of increasing our home only originations the pace of that strategy in the near term is affected by our measured underwriting standards and an aggressive low rate competitive environment.
Our insurance operations doing a great job with what they control new policy sales and renewals.
During the quarter, we experienced an unusually high number of weather events, none of which were catastrophic but generally they represented a high claims cost.
United States experienced a record number of named storm Landfalls This year 11.
Four of those directly affected Texas normally were affected by a named storm only about once every two years.
I'll remind people that for comparison this quarter a year ago claims costs were very low due to unusually favorable weather.
Overall, weve generated a significant amount of cash from operations since the beginning of the fiscal year, Paul and Mark are going to provide specifics in a few minutes.
As we've said in the past, we're continually evaluating capital priorities in light of our growing cash balance.
When covert hit I think it was understandable that we adopted a wait and see approach regarding cash two quarters. Later KEPCO has demonstrated our ability to remain profitable and generate significant cash from operations. Despite the disruption.
There's no doubt that uncertainty uncertainty remains high regarding interest rates consumer demand the general economy, and other factors that impact MH demand.
However, our board of directors has determined that it makes sense to authorize a new $100 million stock buyback program.
In light of those uncertainties, we are not putting a specific timeline in place. However, this is an important tool. We now have along with other opportunities to deploy capital for us to manage our cash reserves at appropriate levels.
It's very important to make clear that our decision to put this buyback authorization in place does not change our view about investment in our businesses organic growth we're in acquisitions.
We're comfortable that the buyback does not impede other investment opportunities.
Again, it was a good quarter in light of the challenges of the day with all of our operations staying flexible and focused focusing on the fundamentals.
We know we have a lot of work ahead to meet the demand of buyers who are in need of quality affordable manufactured homes.
As noted in our recent 8-K, our CFO, Dan or Ness has decided to go on leads to deal with the wells notice you receive from the FCC for.
For those who have not heard from them previously I want to introduce Paul Big B, Our Chief Accounting Officer, Whos doing an outstanding job stepping up Denmark's officer will be reviewing the financial results.
With that I will turn it over to Paul Thanks.
Thanks, Bill today I'm going to cover the company's financial results and then turn it over to Mark to go through the balance sheet, let's start with consolidated net revenue and for the second fiscal quarter of 2021.
We were at $258 million, which was down 4% compared to $268.7 million during the prior year's second fiscal quarter.
When we look at the pieces the first I'll kind of go through the factory built housing segment.
Our net revenue decreased 4.6% to $241 million from $252.7 million in the prior year quarter.
This reduction was primarily due to a 9% decline in units sold.
Home production declined from.
Primarily operational challenges presented by COVID-19, we had high production employee absenteeism, we're complying with health guidelines and also had supplier disruption in production down days.
Unit sales, however were partially offset.
By 5.2% increase in average revenue per homes sold primarily from product pricing increases.
Also call out a few non comparable.
In the.
Current quarter.
We had an additional month of.
Net revenue from definitely homes acquisition compared to last year's prior quarter as the transaction occurred in August 2019, and the prior year quarter included revenue from Lexington homes, which was closed in June 2020.
In the financial services segment net revenue increased by 6.3% to $17 million from 16 point million, mainly the result of 700000 unrealized gains on equity investments in insurance subsidiary portfolio compared to 200000 in the prior year period.
In addition, there were higher home loan sales and more insurance policies in force compared to the prior year.
These increases were partially offset by declines in interest income from the formulate securitized loan portfolios that continue to amortize.
As expected.
Consolidated gross profit in the second fiscal quarter as a percentage of net revenue was 20.8% down from 21.8% in the same period last year decline.
Decline here was primarily the result of $3.3 million in higher weather related claims compared to the same period in the prior year.
If you recall, we had to hurricane.
Ana in July and Laura in August that made landfall on or near the Texas Coast.
In the factory built housing segment margins were consistent between periods with lower sales and production inefficiencies caused by over 19 pandemic and increases in material costs were partially offset from decreases in labor cost driven by declines in overtime hours, given the high absentee ism levels.
Selling general and administrative expenses in the fiscal 2021 second quarter as a percentage of net revenue was 13.7% compared to 13.4 during the same quarter last year. This.
This increase was primarily due to additional compensation related costs and other corporate related expenses.
The lower revenue base offset by decreases in legal expenses.
I also wanted to call out in the second quarter of 2021 was favorably impacted if the company received an $800000 insurance recovery of prior legal expenses related to the FCC inquiry, Italy, resulting in a net benefit of 300000 compared to last years.
Quarter $800000 cost.
Other income net this quarter was 1.7 million compared to 5.2 million in last year's second quarter. This decline was primarily due to a $3.4 million gain that was recorded on the fill idle land in the prior year quarter.
Active.
Income tax rate remained fairly stable, 23.2% for the second fiscal quarter compared to 23.4% in the same period last year.
And Kevin came in at $15.1 million and 27.8% compared to net income of $20.9 million in the same quarter of the prior year.
Net income per diluted share this quarter was $1.62 versus $2.25 in the last.
Last years second quarter.
Now I'll turn it over to Mark to cover the balance sheet and thanks Paul.
I'll be covering the changes in the September 26, 2020 balance sheet compared to the March 28 2020.
The cash balance was 312.2 million up from 241.8 million six months earlier increase is primarily due to five areas net income offset by other non cash items.
Changes in working capital, including higher customer deposits received as a result of higher order rates.
Deferral of certain payroll taxes under the cares Act flex.
Collections on outstanding accounts receivable and consumer loans principal balances.
And lower net commercial lending activity.
The current portion of consumer loans increased from a greater number of loans classified as held for sale, which are expected to be sold in the near term due to the timing of such sale.
Prepaid and other assets is higher from the assets recorded in regards to the loan repurchase option for delinquent loans that have been sold to Ginnie Mae.
While we are not obligated to repurchase these loans accounting guidance requires us to record an asset and liability for the potential of a repurchase balance increased from the additional loans in forbearance.
Long term consumer loans receivable decrease from principal collections on loans held for investment and were previously securitized.
Accounts payable and accrued expenses and other current liabilities increased from greater payments received on consumer loans to be remitted to third parties.
Higher customer deposits, which have grown with accurate backlogs as well as the delinquent loan repurchase option discussed above.
Lastly, stockholders equity was approximately 641.2 million as of September 26, 2020 up approximately $33.6 million from March 28, 2020 balance.
And that completes the financial report.
Thank you Marc Sidney lets turn it over for questions.
Ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your tips on telephone to remove yourself from the queue. Please press the pound key our first question comes from Daniel Moore with CJS Securities.
Your line is now open.
Good afternoon, gentlemen, thank you for taking the questions.
Maybe starting with just capacity utilization you said, 65% I believe during the quarter up to 75, so up to 70% by the end.
How quickly can you ramp down to 75% and ultimately closer to 80%.
And what kind of.
Key challenges to doing so.
Yeah. The speed I mean, that's what we're all focused on I can tell you that the speed is partly it's going to be dependent on how things continue I mean.
Just to give you a feel like in a given plant we might be going along pretty well with low absenteeism and then is that area.
See the upsurge in.
For example, coated cases suddenly our absenteeism spikes and it hurts our utilization. So as you guys know were not.
Past Covidien, we're seeing kind of a bit of a moving target on where those cases serve such as one example, the other thing that we don't control and it's hard to have a Chris.
A crystal ball on his supply, which is really affecting us.
So yes.
Dan it's hard to say how quickly if all that stuff suddenly smoothed out I think we would move up pretty quickly to 80% and we've been able to run that way consistently in the past but.
But it's just kind of a.
Battle at every plant so to try to get there right now.
Now those are the main factors some of what affected our our utilization.
Distributor that people may not be thinking about for example, as we add stays down for the Oregon fire. So we've had those kind of things happen as well that.
Have contributed to the utilization challenges that are non coated related.
Absolutely.
In terms of the supply chain issues do you see an end in sight not this quarter, obviously or this month, but is that a six month three month phenomenon six month phenomenon cope.
I hope it obviously a different word.
Difficult Crystal ball, but just wondering if you see some of those some supply chain constraints working themselves out over a couple of quarters.
Yes, It certainly would hope over a couple of quarters and talk and we've had it's been almost across the board, it's hard to even zero in on one.
Thesis of the supply that we need.
But we have had different suppliers tell us that they expect to be challenged well into the first calendar quarter.
So.
It's going to take some time.
And hopefully early in the calendar year will be feeling a little bit better than we do right now but.
But thats Ok releases.
Really speculative Dan.
Is 70% capacity utilization a decent base rate utilize for this current quarter at least for the time being.
No we've been bouncing right net 65 to 70 rate the last two quarters, including the first when it was so disruptive so.
Thats kind of been processed last six months.
Okay.
In terms of margins gross margin lower by 100, Bips, but you called out the insurance claims obviously.
With input.
Costs rising more significantly toward the back half of this past quarter, how do we think about gross margins and.
In Q3, and Q4, maybe relative to Q2 as a baseline.
Yeah well.
People that follow things like lumber is one of the biggest contributor to our cost structure and the blue volley just public indicator pricing on that know that as I said this things really shot up I don't know if I can say unprecedented but incredibly quickly from April through September.
One thing I cited was saying I think it was southern yellow pine up about a 180%.
They have come off of their highs.
As lumber prices and.
Equally important lumber has become more available we're worried about running out if we can talk about price, but running out was a concern as well. So there is an example, where right now.
A big contributor our cost has started to come off its very high peak.
Still hide the pointed in a better direction for us if thats kind of a trend continues I think we're going to see a dynamic we've seen in the past rate we're going to see.
Margins compressed 12 prices while costs are going up before we can get prices through the backlog and then potentially.
That can all reverse and we get a quarter where margins are bigger because prices have taken hold and the costs are down.
So that's a typical pattern.
I don't know for sure the timing of how that will play out but as I commented in my remarks, I think over a period of a few quarters, we feel like we'll be able to manage that kind of solid typical margins.
That's helpful.
ASP use grew but was that.
Was that mix or largely pass through of rising raw material costs or both.
And what do you expect for Asps year over year kind of over the next quarter or two.
Yes, I mean, we really are pushing price increases to a point that it's been very difficult for dealers and customers. I think we're all very we're sensitive to that but it's been a.
Really volatile cost market.
It's more about price increases than it is about mix shifts in this quarter. So.
We expect to.
To be able to for the.
The short term I think it's fair to say, we should be able to hold that price increase.
Well, we haven't it hasn't been driven as much by mix shift.
That said another way you'd you'd probably didn't get the full benefit of that in this past quarter given the timing is that fair.
That's fair I mean, we still have a backlog now this this price increase and you may have heard this from other folks you talked to this price increase.
And as I said, particularly hard for dealers and customers because it it was so rapid that were successes.
And.
Whereas we typically as an industry protect existing orders, particularly retail sales or sale orders, where theres a home buyer on the other end.
Not even got.
Kind of loosen Denise price increases so.
We have to wait for some of it to get through the backlog out of the other parts of the price increase took hold pretty quickly it's a bit of a negotiation at the grass roots, but I don't think all of it has gotten through in the numbers that you're seeing now.
Got it.
And one or two more I will jump out financial services are you seeing weather events that drove claims in fiscal Q2 continue into Q3, so far.
Yeah, I really have no idea I mean, we are through kind of the quarters that are typically the toughest from a claims cost perspective. So we're entering quarters at generally tend to be milder.
But it was as I said it was pretty unprecedented for the number of storms that hit the U.S. and we got our share of now as I said none of them.
From a claims perspective being sensitive, but none of them were what we call catastrophic.
We're just said there were just so that ended up.
Perfect Lastly, the DNL insurance amortization of 2.1 million I.
I think its scheduled burn off after this past quarter do you expect that full amount to come off the PML are there any offsets that would prevent that from kind of flowing to the bottom line.
No after a lot of quarters of telling you which quarter. It was going to end the amortization should be over.
Perfect ill jump back with any follow ups. Thank you for the color.
Thanks, Dan.
Thank you and the next question comes from Greg Palm with Craig Hallum. Your line is open.
Yes, hi, everyone. Thanks for taking the questions here I mean, maybe to start off can you just comment a little bit on the cadence of orders throughout the quarter, what you've seen thus far in October and anything that was sort of outsized performance from a geography standpoint, or even a specific channel.
Yes, probably hesitate a little bit on this quarters because were this month, because we're not commenting on it but the orders were high consistently I mean, they really have been it hasn't been.
When we looked at year over year core order rates.
It hasn't been jumping around it's been consistently higher than last year.
Geographically we've commented in the past and might be a question people are thinking about their we've commented in the past about community business and where the communities.
Really very quickly when the pandemic kit.
Put their orders on hold.
Weve seen that come back generally.
Geographically I guess to give you more color in the southwest.
We've seen it come back a little stronger they both have taken orders that were on hold off of Holden one delivery of them and they have resumed.
Picking up orders.
So.
That's been pretty encouraging but.
But can't went backlogs like this it's just adding to the challenge I guess ahead of us.
And then in Florida, I guess I'd comment that the community side really probably hasn't been quite as strong as I just commented about the southwest in Florida, It seems to be particularly with the larger community operators. It seems to be a little bit more of a wait and see as far as.
With that.
Probably what the snowbird season looks like in and whether they need to really be stocking homes. At this point. So those are some geographic differences I guess, but generally when we talk about the strength of the MH orders.
It's across our geographies, we don't have an area that really has lagged there.
And what gives you confidence that this is not some sort of short term pent up demand versus something that got you know.
Legs to it I don't know if you can comment on maybe what are the.
Biggest reasons, you think you're seeing the strength, whether its financing related whether it's this migration trend from urban to rural what's what are your general thoughts there.
Yeah, you're asking for speculation I'll give you a little bit of personal speculation, but I'll leave it that way.
I believe we've been talking a long time about if you just look at supply and demand of homes over really the last decade. It's.
Been lacking the supply has been lacking household formations and and I believe in that and I think that in particular is lacked at the lower ends in the more affordable segments.
Because as even the traditional homebuilders have been stretched to supply the market they've moved to higher priced homes.
So we've been talking about a pent up demand that we really believe in and it's much more than just a near term cyclical event and I believe that that's what we're seeing and I believe it's obviously very much I mean, we can never forget how much that's facilitated by the low interest rates that we're seeing.
If interest rates had been incredibly low through this period I think we would have a very different scenario that depend the demand is there it's got to be mad at some point and it seems to be coming out right now with low interest rates. Despite the pandemic.
I've been a little bit more I.
I guess hesitant on.
I'm kind of predicting or are pointing at trends driven by the pandemic doesn't mean I'm right, but I think what we're seeing is way too big to really think that those are significant drivers of what we're seeing I think it's more of a complete.
It's a.
It's a demand has been built up for years.
So that gives me I mean, given my view about that that gives me. Some confidence this is something that is.
He is going to persist it probably will have some micro cycles as we go forward because of economy and interest rates, but you know.
We've got a great opportunity here I think as an industry to catch up with building.
Yeah, let me make centimeters.
The general thought process and in light of all of these labor challenges that we've been talking about I mean does that change how you might be thinking about investments in your own manufacturing facilities in anything you're looking at non labor base to maybe try to increase production rates.
Yes, I mean, we're looking we're always looking at just general market opportunities people have asked about greenfielding in the past when we're having labor challenges like we are I think there is a little bit of putting first things first as far as trying to get our capacity utilization.
But.
We're looking at all of those kinds of things and.
And I also have spoken in the past I think there are entirely new market opportunities available factory, though housing outside of our traditional markets that we're looking at and we would love to be able to rig through some investment on so.
We're trying to trying to get the opportunity to invest behind these these.
These on demand drivers that I spoke about.
Okay last one on the buyback, obviously phenomenal free cash flow generation, so cash continues to build but.
Anything specific that drove the decision to up the authorization to me pretty meaningfully here from 10 million all the way up to 100, I mean did you buyback any stock under the previous program.
Curious program, which is in place for a long time I wanted I am looking at where it was a 2008.
All right, yes, it was not not utilized and.
They are really comment too much about that.
But.
As far as.
The decision we made here to put 100 million into the buyback program.
As I said it is it gives us another tool to try to manage our cash balance I know that investors have been.
Pointing out it for quite a while appropriately and we have one more tool to.
To start managing that through appropriate local so that's about it we talked quite a lot about it weve.
I've been asked in past calls and have kind of had the uncomfortable situation of saying believe me. We're we're thinking about it now we finally have something tangible that we hopefully will be able to go out and execute against.
Okay, Great I'll leave it there are best of luck going forward.
Thanks.
Thank you and our next question comes from the line of Joe.
Mccanless with Wedbush.
Your line is now open.
Hey, everyone. Thanks for taking my questions.
I guess the first one could you talk about what Youre seeing for charter rates right now and are you seeing anything from a lending perspective, whether it's taking a lower down payment a little bit of widening on credit terms anything that concerns you there.
Yes, I don't know that I I mean, it man, whether things get too aggressive I guess is in the I think you are holding and I'm not sure I have a strong enough for you to say that I have concerns about what we're seeing out there as far as rates were seeing historic low rates for.
Not only traditional mortgages manufactured housing mortgages, but also home only loans.
Home only is not typically correlated to mortgage rates.
I think in the rate design to say, it's typically run in the 7.5% to 8%.
And.
What we're seeing right now is more in the mid fives.
So it came down pretty aggressively since the pandemic and it's been interesting to see how lenders have have moved in.
Trying to lower those rates and be a more aggressive.
Whether that's.
Whether thats overheated or not.
I don't know that I have a strong view about that obviously theres, a big demand and that kind of interest rate is helping bring that demand forward and creating some of the backlog challenges we have.
From the dealer perspective have.
Have you all started to have any type of cancellations or or I know you said there were some push back to the most recent price increase but.
Starting to lose some orders because it's just such a long back or long delivery times at this point.
I think the dynamic about losing orders every essentially every manufacturer has a huge backlog right now so.
There probably is some shuffling anecdotally, we've talked to folks and understood that.
Customer gets frustrated with the linked to the backlog and maybe either doesn't buy or.
Or actually out and says I'm going somewhere else and they probably are going to get a similar backlog.
So I think.
And my in my mind, it's kind of probably just shuffling of the chairs.
Don't think net we're losing anything because we're not standing out as the ones with the highest backlog.
So I don't I don't think we're really lose anything as far as pushed back I guess.
I wouldn't necessarily characterize it is pushed back it's just very hard on a deal or one work when manufacturers are increasing so.
One after another increase the manufacturers would make an increase thinking will that audit get us where we need to be in.
Cost kept going up and the turnaround so cheese, we need to do another one that's real hard on a distributor dealer and.
So what what takes place after that is a lot of working together sitting down and looking actually at specific deals and deciding which ones. The wholesaler in Greece, we should price protect so there's a lot of work going on really hit the ground floor to try to.
Try to work through it with the dealers.
But it's been a difficult dynamic for sure.
I don't think Weve net lost anything because I think that dynamic I think I'm sad to say that dynamics going on with all manufacturers and.
No one's really sitting there with an empty backlog ready to jump and say I can get your house what quicker.
Got it.
And then the last one I had.
And apologize from putting words in mouth, Bill, but I think you said.
When it comes to.
The homes that you all are taking orders for now people are maybe going a little more upscale little bit bigger footprint more options inside the home.
If I heard that correctly.
Could that along with the price increases youre talking about risk.
Results in a meaningful step function higher and where your average prices or at this point.
Yes. Thanks, Thanks for giving me the chance to correct something if I came across that way because I didn't intend to say that I'm trying to think what I've said I I know at one point in the Q and eight here I talked about traditional site builders when they are.
Kind of stretch for capacity they tend to go up and build more expensive homes, leaving the lower.
Price levels.
Kind of even more.
In deficit for supply and wondering if that's what you're picking up on but I didn't mean to imply that we were seeing a big move of customers go into higher end, right now or or even from an options perspective going up that's been fairly stable from my perspective.
Yes, thank you for clarifying that.
But yes, because I didn't mean to LIBOR on impression there.
It may have been may have been.
My bad hearing so so thank you guys for all that Oh, the one other question I had.
Does it make sense to restart Lexington or think about keeping it open just to.
To give you another shot at working through the backlog.
But we'll keep looking at that but.
Right now thats not something that we're looking at we made a decision I still think it was probably the right decision just from where that plant was positioned in the market and the specific struggles we were having to try and identify the right product niche where it so.
That's not something that we're actively looking at but I get definitely get the point.
You've got these kind of backlogs, so well keep our eyes open on all this kind of choices.
Thank you and our next question comes from Deforest.
And men, which will house and then company.
Your line is open all right. Thanks.
Hi, Thanks for taking the questions can you just give us a little bit more color as it relates to the response to companies taking on the labor side, you alluded to some things in the prepared remarks, but it.
Any additional color there would be helpful. In terms of how can we address.
The labor issues has been facing.
Yeah, I mean, it's it's certainly not a one.
One thing approach.
One of the challenges we're having is is hiring.
And we've done a lot to try to improve.
They see the recruiting effort.
We have over the last year Weve.
Weve filled up but.
That more of a human resources infrastructure in the company I think thats paying dividends for US now because those folks are working very closely with our individual plans to improve their recruiting efforts.
And.
Sometimes its trial and error, we definitely have had some spots of success, where we've seen.
Let's take a different approach to recruiting and it's paid off so that's.
Thats underway.
Theres been a considerable amount of work on wage rates and that's not generally just as simple as saying, we're going to increase the base wage usually its plants thinking through.
How that how much will be in base wage and how much will be an incentive compensation and what the drivers the incentive comp are but the net effect is.
Several of our plants are making significant news on their wage rates and I think thats necessary and I think its smart moves.
And our system.
And this is a philosophical thing and we're standing by it because I really think it's the way to operate in our system.
The plants, probably get plenty of input people like me will comment we're talking.
At a minimum.
In conversation operating reviews with the Gms every month, but our rvps are really the ones that are managing that system and that ultimately we believe that the local general managers have the best perspective on what they need to do in these kinds of areas.
I can report that generally our plants or are increasing wage rates and structuring. It good ways. So I think that will have an impact on retention.
You know in overtime Weve.
We've tried to do things to also improve the workplace all that stuff I.
I think all of that is smart it's it's generally.
Mid term type things as far as the payoff.
Right now right now the need is urgent as we all understand.
So it's just been heightened attention to those sorts of efforts that.
I'm confident will pay off for us, but it's been frustrating.
Does it make sense to run overtime at the facilities or try to get the the teammates.
Crews to work an extra day.
The weaker data or the plants running five or six or seven days a week can you just give us color in terms of any of those initiatives are potential opportunities that's.
That's a really good question and again.
It typically our plants do run overtime even.
Much lower backlog environments like this since they'll often they'll run on Saturdays here and there and not night as a scheduled approach, but it's not atypical at all for a plant to run.
Couple of Saturday's a month.
And we continue to do that.
Think about the dynamic when your absenteeism is high.
The people that are showing up to work.
You kind of have to be a little bit careful about how are you work that group trying to make up for the production. So that the folks in our plants really have a balancing act to do their drive and hard to get that extra house out, but if they.
Dr. Sue hard with year over time in the Saturday work, we're just going to compound our our labor problems by basically burn people out so we actually saw.
Our labor costs go down a little bit our production production worker costs go down a little bit partly because we had days that were not producing and the plant partly because of.
Absenteeism that partly because we just can't work the folks who are showing up so hard that we exacerbate or problem. So it's a real fine line, but we definitely do it you're talking about as far as looking at opportunities to work overtime to get the incremental how so.
Okay Thats very helpful. I appreciate the color separate topic.
The share repurchase authorization.
We have had the FTC inquiry.
Are we restricted from.
Making share repurchases, while that inquiry is.
His outstanding these wells notices are outstanding or are we allowed to.
Purchase stock at this point.
It's something that is that material inside information question, obviously in.
So they're very well may be times, when we have to be.
The under a black a blackout and keep ourselves out of the market, having said that.
So frankly, it could be a challenge at times, just as you're alluding to.
Having said that.
We have taken an approach of trying to be as transparent to the market with what we disclose as possible around the FCC matter. So.
They are going to be times, when the market knows as much as we know in those points in times taken a conservative approach to insight information will.
Hopefully be able to be in the market.
So it will be interesting to see how that plays out but we didnt. We wouldn't have done the authorization. If we thought we are going to be precluded from doing it.
Well I was just I know I would just one bit insight because you the board meets at certain times.
And it's.
In some instances it could be an indication that the FTC inquiry may be nearing a close units there is a blackout and we've already taken.
Steps and put that in our tool kit and we're prepared to.
Use it.
Appropriately.
Yes, I'm on the board gave Fourg management authorization, so the boards not going to be directly.
Managing one we're able to purchase so we'll be able to do that.
Lastly, as we go forward.
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Yes, like I said, we'll be we'll have DCP very cautious about it.
But we wouldn't have authorized our EPS the board authorize if if we didnt think there would be opportunities.
Okay, and then final question on the repurchase authorization.
Can you just help us understand the philosophy around that is the goal to.
Offset dilution is the goal to reduce the outstanding share count is the goal to be opportunistic from a pricing or valuation perspective, where should we think about it as a.
Gradual.
Run off of this authorization over some period of time.
Oh, the pace of execution that have yet to be seen the goal in my mind is pretty clearly balance sheet management.
No. That's that's the priority we've got a cash balance that.
We needed another way to manage that cash balance and this is that added tool as I said.
Okay. Thank you.
Yes, Thanks a lot.
Thank you and once again star one to ask a question. Our next question comes from Daniel Moore with CJS Securities. Your line is open.
Sorry about that stuff is muted.
You know I was going to ask but I think you covered it builds to the extent that you could but.
Is there any level high level of color you can provide on.
Beyond the press release recently on whether or not we're closer to putting FCC investigation as it relates to the capco at least to rest.
Yeah nuts I appreciate the question I mean, we add the 8-K that just went out in September it was late September.
Remember that actually but.
And really there is not an update since then and that's the way. This is going to go it's been that way for a while these things will come in fits and spurts.
We'll do our best to be transparent to the extent, we can extend as appropriate but not much to update from that 8-K.
Okay. Thank you again.
Yeah.
Thank you and I'm not showing any further questions at this time I would like to turn the call back to your speakers.
Okay, well just to wrap up I mean, it goes without saying that these are strange times, we're operating in but our teams continued to.
Plow forward to meet the needs of our customers and I'm very proud of the commitment being demonstrated every day by the folks that make up PAPCO without a doubt.
A quarter ago, we were relieved that we were seeing demand for our products and services and when the pandemic first hit it was a big question Mark whether things, we kind of go to zero and last quarter. When we talked to you were kind of.
Our balance our backlog was.
I think it was around seven weeks. It was kinda just healthy maybe a little long the we're relieved to be seeing the demand and now in manufacturing and retail were challenged to keep up with it challenged provide enough homes with orders that would exceed production under any circumstances.
So continues to change we know we have to do and with that I really want to thank you for all your interest in Capco I hope each of you and your families are stand healthy and safe.
And we'll wrap up the call. Thanks.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a good day.
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