Q1 2022 Cavco Industries Inc Earnings Call

August 6, 2021

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Good day, and thank you for standing by and welcome to the first quarter fiscal year 2022, KEPCO Industries, Inc. Earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need.

Press Star 1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero on I'd like to hand, the conference over to your Speaker today, Mark Fessler director of financial reporting and Investor Relations. Thank you. Please go ahead.

And good day and thank you for joining us for capital and industries first quarter fiscal year, 2020.2 earnings conference call.

During this call and you'll be hearing from Bill Boor, President and Chief Executive Officer, Paul <unk>, Chief Accounting Officer and myself.

Before we begin we'd like to remind you that the comments made during this conference call by management and May contain forward looking statements under the provisions of the private Securities Litigation Reform Act of 995, including statements of expectations or assumptions about cap gross financial and operational performance revenues earnings per share cash flow or use.

Cost savings and operational efficiencies current or future volatility and the credit markets or future market conditions.

All forward looking statements involve risks and uncertainties, which could affect cap cause actual results and could cause its actual results to differ materially from those expressed and any forward looking statements made by or on behalf of capital and I encourage you to review <unk> 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 and the forward looking statements.

This conference call also contains time sensitive information and there is only accurate as of the date of this live broadcast Friday August 6.2021 have gone undertakes no obligation to revise or update any forward looking statement, whether written or oral to reflect events or circumstances. After the day of this conference call, except as required by law.

And I would like to turn the call over to Bill Boor, President and Chief Executive Officer Bill.

Welcome and thank you for joining us today to review our results for the first fiscal quarter of 2022.

We're very happy to reported another record quarter for earnings and revenues revenues increased approximately 30% year over year and our diluted EPS was up about 60%.

This was also a quarter on which we executed across the spectrum of our investment priorities progress continues on the Glendale, Arizona Park model facility, which will begin production around the end of the calendar year.

We announced expansion of our Fort worth plant this investment and improved process flow and work environment will increase the plant's capacity by about 20% and is just 1 example of similar investments and our existing plants.

And last week, we were able to announce the upcoming acquisition of Commodore homes, which we will fund by putting a $140 million of our cash to work.

Commodore is an ideal fit expanding our footprint into the northeast and increasing our unit shipments by approximately 25%.

Continuing on the topic of capital allocation, we made progress on our share buyback authorization during the quarter by investing $12.8 million that and average price of 209.

When the authorization was announced last October we said that the buybacks would not limit our focus or ability to make strategic investments and this quarter demonstrates that point.

So and a very busy and productive quarter.

Going back to the base business results, our plants continued to do an outstanding job of maintaining margins despite highly volatile costs.

<unk> grew this quarter as we saw average selling price increased 19% year over year, and 12% compared to last quarter.

And this resulted in a record percent margin homebuilding of 21, 2%.

Lumber and OSB came off their recent highs during the period, however, with the lag and hitting cost of goods. So cost of goods sold those decreases were not reflected in margins to any significant degree.

Operationally, we continue to deal with persistent labor and supply challenges, we feel very good about the work to date to improve retention and build skills and we're confident that this focus along with the ongoing product rationalization and planned investment will enable us to improve efficiencies and throughput and our plants.

Demand for our products remained strong during the quarter, our backlogs continue to grow and they now stand at $792 million.

Or approximately 40 weeks of production.

80% of the unit backlog growth since the beginning of the pandemic is due to extremely high demand and about 20% is due to the reduced production we've experienced over the past 5 quarters.

On a year over year basis, our manufacturing orders and the first quarter continued at about 50% above the previous year's level.

I feel very good about our operational and strategic execution this quarter.

And demand and backlogs provide and ongoing positive outlook.

The pandemic did not cause us to hesitate with regard to our commitment to our customers as we continue to safely operating all of our plants.

And we remained committed to our capital allocation priorities of investment and growth.

All of our strategic priorities remain fully in place.

With that I'll turn it over to Paul to discuss the quarterly results in more detail.

Thanks, Bill so I'm going to go through the.

The results of operations, and then I'll turn it over to Mark for slips into the balance sheet.

Net revenue for the first quarter of 2022 had another record at $334 million.

Up almost 30% compared to $254.8 million during the prior year's first quarter and up 7.8% on the fourth quarter of 2021 previously the highest quarterly net revenue and the company's history, which included an extra week and production data and reporting calendar.

Okay.

Within the factory built housing segment net revenue increased 31, 2%.

$312.3 million from $238.1 million and the prior year quarter increase.

The increase was primarily from an 18, 7% increase and average revenue per home sold primarily from product pricing increases to pass along changes and material costs as well as our products mix shift for a slightly more and multi section homes homes increased 10, 5%.

On a sequential basis, if you adjust for the 14 week period and the fourth quarter of fiscal year 2021 factory built housing net revenue increased 16, 8% and homes sold increased 3.9%.

Financial services segment net revenue increased to 8.4% to $18.1 million from $16.7 million, mainly the result of higher loan sales volume and servicing income and more insurance policies and force compared to the prior year. These.

These increases were partially offset by lower realized and unrealized gains and the current period and a reduction in interest income as a result on loans that continue to amortize.

Consolidated gross profit and the first quarter as a percentage of net revenue was 22, 4% up from 21, 7% and the same period last year. The increase was primarily the result for the factory built housing segment, increasing from 21, 2% compared to 19, 7% and the prior year quarter primary.

Due to the same pricing increases we discussed earlier.

In addition, some incremental margin was provided by expensing raw materials purchased at relatively lower market prices. During the time of rapid increases given our first and first out inventory accounting policy.

Lastly factory overhead and service cost benefited from better utilization of costs on higher revenues.

Gross margin as a percentage of revenue and financial services decreased to 42, 7% from.

And from 49, 9% and the prior year quarter as a result of lower unrealized gains on marketable equity securities and higher weather related events and a credit period.

Selling general and administrative expenses and the fiscal 2022 first quarter were $40.8 million or 12, 4% of net revenue compared to $35.3 million or 13, 9% of net revenue during the same quarter last year, Inc.

The increase is due to higher incentive and commission wages on higher earnings.

Partially offset by the additional D&O insurance expense of $2.1 million and the first quarter of 2021.

Other income this quarter was $2.5 million compared to $1.9 million and the same quarter last year driven by more interest income earned on larger cash and commercial loan receivables.

The effective income tax rate was $23.8 compared to $23, 1 and the same quarter last year and finally net income was up 61, 7% $27 million compared to $16.7 million and the same quarter last year.

Net income per diluted share coming in at $2.92.

Versus $1.80, and the first quarter of 2021.

Now I'll turn it to mark to discuss and balance sheet.

Thanks, Paul So comparing the July through 2020, 1 balance sheet on April 3.2021 and the.

The cash balance was $329.8 million up from $322.3 million 3 months earlier, the increase was primarily due to for items.

Net income offset by noncash unrealized gains on equity investments and other noncash items changes in working capital, including greater accrued expenses and other current liability balances and include higher customer deposits received as a result of growing backlogs.

Principal collection on consumer loans and sales of consumer loans greater than loan originations.

These were offset by higher inventory purchases repurchases of our common stock and purchases of property plant and equipment.

Inventories increased as raw material costs have increased as well as higher inventory purchases and preparation for increased production.

Prepaid and other assets was lower from the assets recorded in regards to the loan repurchase option for delinquent loans that have been sold to Ginnie Mae.

And while we're not obligated to repurchase these loans accounting guidance requires us to record and asset and a liability for the potential of the repurchase the balance decreased from a reduction of loans and forbearance.

Long term consumer loans receivables decreased from principal collections on loans held for investment and that were previously securitized.

And our crude expenses and other current liabilities increased from deferred payroll tax payments under the cares Act and hired a customer deposits, which have grown this factory backlogs, partially offset by a change and that delinquent loan repurchase option discussed previously.

Lastly, stockholders equity was approximately $699.1 million as of July through 'twenty, and 'twenty, 1 up $15.5 million from $683.6 million as of April 32021, now I'll turn it back over to Bill.

Thanks Mark.

Before turning it over to questions I wanted to let everyone know about another important milestone earlier. This week, we completed cash because first corporate responsibility report.

This report puts us on a path of accountability and improvement as we evaluate our impact on our various stakeholders.

<unk> discusses our priorities to reduce any negative impact, but equally as important to maximize the positive impact we're having a cash cow.

You can find the report on our website and we look forward to the conversations to come.

So, let's turn it over for questions.

Okay.

A reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from Dan Moore with CJS Securities.

Good afternoon, and this is Brendan Pops and on for Dan.

And just wanted to ask real quick on just on raw material availability and where the biggest pain points are and when do you expect that to improve which can enable you to expand production faster.

Yes, the challenges continue and it continues to be a situation, where it's a bit of a moving target.

And as you know lumber and OSB have come down and price, which indicates that we're not really have any problems in that regard but.

And it still continues that really whether it's.

And input.

That's manufactured and the U S.

When those manufacturer 7 months for the same problems, we are with labor and their supply chains or imports were.

Logistics disruptions continue.

But we've had everything from <unk>.

Doors and windows to electrical boxes too.

Various con's that we use and the construction profit process. So it's really hard to generalize where the challenges come from but it continues to really be more of and efficiency impact as our folks and the plants need to.

Finished houses out and the yard after they're off the production line before they can ship. So it has a real impact it hasnt really let up.

And it's very hard to tell when the.

And when the late at the end of the tunnel is at this point, we kind of expect we've kind of gotten ourselves and our my instead of expecting and continue to continue for a few quarters.

So I wish I wish I had a clearer view of the future on that.

Yes, it makes sense and.

And also kind of piggyback on and those could you provide and update on on automation efforts and.

And any incremental capacity, you can generate from that and how and how.

And how long that will take to get there.

Yes.

We've said over time that we're looking at any way to improve our process.

I've made some comments I guess, we've got some increased optimism because I've made comments and the.

Investor call. We did this a little over a week ago regarding our Commodore acquisition that I think they've made headway and some manufacturing technology implementations that were really anxious to look at and consider how we might be able to leverage across the cash coat system.

On that transaction is not going to close for a little while so there is some wait to really be able to work closely with debt team on those kinds of opportunities.

But I'd mentioned and the call and it's really just an example.

Fort worth.

Investment is a great example of really investing and the process. We added 6 stations to that operation plus.

Really allow it.

The project really allows them to make a lot more taste and texture product, which is consistent with what the market's looking for.

So those are the kind of fundamental investments that I think we're really making headway on and.

As I said, they're not immaterial when you can add approximately 20% to a plant with an investment like that so that's been going on for some time, we've kind of highlighted fort worth this quarter, but we've done similar projects and other plants and.

That's the blocking and tackling and I think is going to continue to give us more capacity.

Okay, great. Thank you that's it for me.

Thanks, Brian.

And your next question comes from the line of Greg Palm with Craig Hallum Capital.

Alright, thanks, and congrats on the.

Good results here I guess, just kind of starting off thinking about production and when we think about some of the plants you have or are opening and obviously the pending acquisition of Commodore how much additional capacity are you gaining do you have that estimate.

With the Commodore deal.

Yes, yes, I'm not sure if you've commented on on where they're sort of capacity utilization is but just kind of curious what kind of capacity you might be gained and when you think about everything going on.

Yes, I know its not capacity July 1st kind of reiterate what we're getting from a production perspective, I mean, just looking at their unit production.

Pretty significant to our assistant at 25% increase.

And we've kind of loosely estimated at this point and time.

And we're running plants and our sense is very similar to us as far as the bricks and mortar. So on while we haven't pegged a number I think its a similar opportunity to continue to look to increase production there.

Okay fair enough.

And you look at sort of the go forward periods, what's your comfort level and being able to increase production, even with all of these kind of supply chain headwinds still going on.

Yes, well the supply.

And we got to control the things that we can control directly not that we haven't done a lot to deal with the supply issues. Our plants has done a great job moving to alternative.

Materials and some cases, so we're managing the supply issues and haven't had any huge amount of downtime just a little bit of loss and efficiency, there, but as far as production.

We need to get more homes that we recognize that we havent yet gotten our capacity utilization back up to where we were before.

But I think I think we're in a time and it's kind of confusing for folks to interpret.

If you compare our shipments to last year's quarter.

Again, that's a little bit confusing because last year's quarter was and is and a time of incredible disruption. We continue to operate on our plants during that quarter.

But our our productivity went down pretty significantly.

As we were managing safety changes and I ask that he isn't but anyway I think the point being.

Our.

Last year, I think we were down 11% year over year, when we reported last year's quarter. So really the better point of comparison to get a feel for how we're doing as far as production is to look at the same quarter 2 years ago and that.

It was a period when we had relative stability and we were.

Again, and a pretty healthy demand environment and producing everything we could.

If you compare where we're at today.

And I'm looking at this and in terms of modules as opposed to units.

We produced this quarter about 2.3% less modules and we did 2 years ago.

But our production employees worked about 11, 6 fewer hours this quarter than that quarter 2 years ago. So we're close on previous production levels, but we haven't gotten our hours back to where they need to be and thats. The labor challenges that we've talked about so.

I guess, the Bottomline I hope on that making it too confusing, but I think thats, a better base period to look at and the bottom line as well.

And we're pretty optimistic as we keep kind of battle on this labor challenge that we should really be able to surpass our previous levels.

Just on net ratio of kind of the hours, we put and each module.

I'm not sure if I confused that or if I helped with your question, Greg So feel free to.

Let me now.

And I guess the question that everybody is trying to figure out is maybe let's just use this recent quarter or is it a baseline I mean 3700 units do you think that you can looking out to the future quarters. Do you think you can expand upon that or are there just too many headwinds out there whether it's <unk>.

Labor, whether it's <unk> or whether it's supply chain, where you think that it leads to and the next couple of quarters it might be a challenge.

I mean, I'm optimistic I don't think there's any reason, we shouldnt be able to expand we've got an opportunity just as I said to get back to where we were pre pandemic and.

Im relatively optimistic that over the next couple of quarters, we should see some easing and the supply issues and and.

And we've been working real hard and I think we're getting traction on the labor challenges with some of the investments and the things we're doing there so.

No lack of optimism and we need to get it up.

And then past, where we were before and we should be able to do that.

Okay, Good and then.

And Asps were really really strong in the quarter and I think mix was a little bit of a tailwind, but just kind of curious can you quantify the impact of that or was the ASP increase mostly just pricing to cover the higher input costs.

Yes. It was primarily the ASP increase the mix and in fact for US was really a slight compared to the ASP fees that would say, yes. It was primarily that.

Okay, and then I guess going forward I mean do you see further price increases I mean, I guess, if you can even just maintain.

This level I'm, assuming you'll start to see a nice bump and gross margins at some point as certain materials like lumber and OSB have come down recently right does that kind of the way to think about it.

Yes, I think that's right I mean, we're all speculating on where material costs go from here and we got actually a considerable amount of relief and the last month or so on lumber and OSB. So yes.

And to stay in the same pricing mode and in near term and net downturn and lumber and OSB flows through cost of goods sales as it will then that's good for margins.

Those are those are very significant input cost for us as you know I mean, that's a big part of the materials cost for our product.

And just about everything else is still escalating so it's a little bit muted it's not debt.

For 2 things the other inputs, including labor continue to escalate.

But lumber and OSB coming down is a big help.

Got it okay, all right I'll leave it there thanks a lot.

Right.

And your next question comes from Jay Mccanless with Wedbush Securities.

Hey, good morning, everyone.

The first question I had is around the FIFO benefit you talked about the gross margin could you.

Is there any way you can break that out numerically for us and.

Is that benefit going to continue over the next couple of quarters or is it going to turn the other way.

Higher costs flow through and maybe depress gross margins relative to what you saw on the first quarter.

Yes, I think the.

The thing that we tried to explain over the last couple of quarters and so people understand the timing of input costs is that there is typically about a 30 to 60 day lag between what you see on spot prices. So if you watch and lumber for example, and you see the spot price today.

And that change will be reflected and our cost of goods sales a month to 2 months later.

So this quarter for example.

And the prices started dropping late in the fiscal quarter.

Those drops we will start to hit our cost of goods and the quarter. We're in now.

So then after that it's up to all of us to speculate on whether the.

And the prices continue to go down or whether the volatility continues.

Hello, and does that help Jay or was there more get a question.

Fair enough.

Total out on that 1 okay.

Okay.

The other question I had.

Just if you don't mind remind us on the timing for closing the Commodore deal and.

Sure.

We are going to give us an update at that point on where their backlog stand et cetera. So we can backfill.

Our model for bringing them on board.

Yes.

What we've said is that we expect to close and the third fiscal quarter last calendar quarter and I think that's where we're at at this point.

And the biggest driver for that and I don't know if you said this in the past as we've had to do for Hart, Scott Rodino filing and that just takes time.

And not think that there should be any issue with that so it's not trying to warrant any 1 of any concern, but it just takes time so depending on the timing of that that will help us kind of dial and a better estimate on when the close will occur.

Got it okay. That's all I had thank you. Thanks.

Thanks Jay.

As a reminder to ask a question you May Inc. Press Star 1 on your telephone.

Your next question comes from Deforest, Hinman with Cowen and company.

Hey, Thanks for taking my questions.

A little bit more detail on the backlog as it relates to the movement and lumber prices were in AR and credibly die.

A dynamic demand environment at the same time, we had a.

Historic high and lumber was rapid deterioration and the price.

But when you look at the backlog mathematically.

It looks to be in excess of 2 quarters.

Revenue. So I mean is there any color you can give us in terms of what is the weighted average.

Option for lumber prices inside of that backlog I mean is it 1900, and then can you give us any color there.

Yes, I think what you are getting that is.

The pricing of the backlog kind of stratify the pricing of the backlog if I interpret the question right the forest and.

Maybe we can simplify the thought process, a little bit because and this.

During last I guess 5 quarters, or so and we've had these rapid increases in and our price and our surcharges to deal with some of these cost escalations, we have not protected.

For the customers.

Customers price and the backlog so even if they ordered before.

We've had.

And I had to go back and change the pricing on those orders. So really we're not in a situation of if I interpret your question right. We're not in a situation, where we're trying to work off low price.

Product and the backlog.

Is that am I getting and what you are trying to think through what I'm trying to I'm trying to understand if there is a potential for.

Really abnormally high margins for the next 2 quarters.

As it relates to the function of the pricing because we're looking at I'm just talking out loud at this point, we're looking at the futures curve its really high and.

And we price.

And the business with the customers they signed on the dotted line.

And then as it relates to what's happening and the spot market. If it comes and we lower it doesn't sound like we're giving that back to the dealer and the customer and.

And.

Yes.

And you just said it Cogs there.

Meaningfully influenced by the price of lumber.

And we've had a historic drop and pricing.

Yes, I know youre on it I mean, when a period of time like this where we have not protected the pricing and the backlog. So we've adjusted them up to our current prices and surcharges when the input costs drop we will get margin expansion and we've seen that drop.

Think basically since late May and started to really come off its <unk>.

High levels on the wood products side, and so those lower spot prices will start to flow through.

And of around where we are now I guess from a timing perspective. So you are right on it I mean, the prices there and the inputs appear to be.

Rob and pretty rapidly as they stay on that path and we should have some margin expansion.

Okay. Thank you that's helpful and then as it relates to.

The labor availability youre not the first CEO I've heard talk about this obviously on the first.

Company.

Lamenting how hard it is to find people, but can you just give us any color in terms of real time, what youre seeing.

Anecdotally.

Unemployment levels are falling we're getting.

Some states rolling back on.

Unemployment benefits, we had the federal unemployment benefits potentially tailing off as well.

Any color in terms of you know, we're having job fairs, and theres more people showing up for getting more.

People filling out resonate resonate and the locations and we're getting more pains.

On line anything you can give us to help us understand your thoughts about the labor availability, improving and what gives you that confidence to say that.

And I appreciate your recognition and we're not alone and this problem and I wish that we didn't have to keep keep having the same message for people that it's been such a challenge, but at a high level just as you've asked anecdotally, we do have some optimism and we're we're doing at time, we are doing a lot of things as far as job fairs, and probably more importantly.

We've been pretty aggressively looking at things like wages and in.

<unk> and benefits we've made some significant benefits. So I think we've set up the conditions.

And I think if I had to generalize, even though I'm very cautious about calling something a trend too early I think we're starting to get a little bit of a sense that hiring might improve here.

It's hard to give you much more net because even though we're watching very quickly when we I'm trying not to complicate the answer by saying, it's spotty and gains of 1 plant.

Might be still struggling and every bit as much as they were before but in other locations, we're seeing a little bit of optimism.

Back to I think it was greg's question about production going forward, we expect to be able to increase production and the way to do that and this market is to not only get people into the plants to work, but then stabilize it and start building skills.

I think we're on we're on the right track with all of that.

Okay, and maybe just more specifically is.

And you have some insight into where to put the backlog as it is.

As a number like 4000.

Homes sold and.

And.

Pre dating the.

Commodore transaction is that a realistic.

Roll or a benchmark that we could be looking at.

So you're asking how many units are and the backlog.

No how many units per quarter is like a number like 4000 is that realistic.

And our remarks looking something up here real quick.

Again kind of referencing that period that bill mentioned.

2 years, 2 years ago kind of pre pandemic.

And we're about 3800 range some quarters up to 3900 so.

And with some of that production and.

And efficiencies that we're hoping for.

And we could expand beyond that.

And your comment about the length of the backlog earlier and we have said it's on.

Across our system. It's 40 weeks. So I think you had said.

A year or more.

On a couple of quarters or even beyond that and I mean, this is a huge backlog right now for us.

Okay, and then on the capital deployment front.

Share repurchase is interesting.

How is the board looking at that.

Going forward and can you just give us an update on the remaining authorization that's out there.

Yes.

And $1 million per $100 million authorization from last October and soft top of my head, we've used about $14 million of it.

So quite a bit of run room, there and.

We are as you would understand we're always kind of trying to be very conservative about when we can be on the market with various things like the acquisition, which kept us.

Kept us on the sideline for a period of time and and other other things that we've got to be careful about so I think it's going to be.

Differential how much we're able to go into the market and a given quarter, but this quarter demonstrates that we really do want to execute against that authorization. So.

We're just we're only about 15% into it at this point.

Okay very helpful. And then last question on the mix just so I understand how you guys are talking about that you said mixed benefit and the quarter.

Guys defined MX and.

And like the unit as it relates to.

Single versus double unit or floor plans or is it amenities and the units can you just help us understand what's going on and there are we seeing people upscaling the units that are actually making the purchases.

Yes on a high level for the most part it's really the first thing you said there it's the multi section.

Units as opposed to single section or single module units that is.

Generally what we're talking about with MX and.

I think people have and close will notice this quarter, we are starting to provide both our units and our modules and we are hoping that that will give you a little bit better picture into that mix change over time.

Mark might have something to add to the question.

And I think that's a good point and like Bill said and then maybe 1 thing I can add too is that generally multi section homes do have higher amenities as well.

Okay. Thank you for taking all the questions.

And I appreciate it.

We have no further questions at this time I will turn the call back to Neil.

Okay. Thank you again, we're very happy to report and what we felt were very strong results this quarter as well as being able to make the announcements about our investments.

And we definitely look forward to updating you and we thank you all again for your interest and Kafka.

This.

Today's conference call. Thank you for participating you may now disconnect.

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Good day, and thank you for standing by and welcome to the first quarter of fiscal year 2022, Kafka Industries, Inc. Earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you and need to press star 1 on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero on I'd like to hand, the conference over to your Speaker today, Mark Fessler director of financial reporting and Investor Relations. Thank you. Please go ahead.

And good day and thank you for joining us for <unk> industries first quarter fiscal year, 2020.2 earnings conference call. During this call and you'll be hearing from Bill Boor, President and Chief Executive Officer, Paul <unk>, 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 on the private Securities Litigation Reform Act of 1995, including statements of expectations or assumptions about <unk> financial and operational performance revenues earnings per share cash flow or use.

Cost savings and operational efficiencies and current or future volatility and the credit markets or future market conditions and.

I encourage you to review cap gross 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 and the forward looking statements.

This conference call also contains time sensitive information and there is only accurate as of the date of this live broadcast Friday August 6.2021 task undertakes no obligation to revise or update any forward looking statement, whether written or oral and reflect events or circumstances. After the day of this conference call, except as required by law.

I would like to turn the call over to Bill Boor, President and Chief Executive Officer.

Welcome and thank you for joining us today to review our results for the first fiscal quarter of 2022.

We're very happy to reported another record quarter for earnings and revenues revenues increased approximately 30% year over year and our diluted EPS was up about 60%.

We announced expansion of our Fort worth plant this investment and improved process flow and work environment will increase the plant's capacity by about 20% and is this.

1 example of similar investments and our existing plants.

And last week, we were able to announce the upcoming acquisition of Commodore homes, which will fund by putting a $140 million of our cash to work.

On the doors and ideal fit expanding our footprint into the northeast and increasing our unit shipments by approximately 25%.

Continuing on the topic of capital allocation, we made progress on our share buyback authorization during the quarter by investing $12.8 million at an average price of 209.

When the authorization was announced last October we said that the buybacks would not limit our focus or ability to make strategic investments and this quarter demonstrates that point.

So on a very busy and productive quarter gross.

And back to the base business results, our plants continue to do an outstanding job of maintaining margins despite highly volatile cost.

Margins grew this quarter as we saw average selling price increased 19% year over year, and 12% compared to last quarter.

This resulted in a record percent margin homebuilding on 'twenty 1.2%.

Operationally, we continue to deal with persistent labor and supply challenges, we feel very good about the work to date to improve retention and build skills and we're confident that this focus along with the ongoing product rationalization and plant investment will enable us to improve efficiencies and throughput and our plants.

Demand for our products remained strong during the quarter, our backlogs continue to grow and they now stand at $792 million.

Or approximately 40 weeks of production.

80% of the unit backlog growth since the beginning of the pandemic is due to extremely high demand and about 20% is due to the reduced production we've experienced over the past 5 quarters.

On a year over year basis, our manufacturing orders and the first quarter continued at about 50% above the previous year's level.

I feel very good about our operational and strategic execution this quarter.

And demand and backlogs provide and ongoing positive outlook.

The pandemic did not cause us to hesitate with regard to our commitment to our customers as we continue to safely operating all of our plants.

And we remain committed to our capital allocation priorities of investment and growth all of our strategic priorities remain fully in place.

With that I'll turn it over to Paul to discuss the quarterly results in more detail.

Thanks, Bill for I'm going to go through.

And results of operations, and then I'll turn it over to Mark for a purchase.

Balance sheet.

Net revenue for the first quarter of 2022 had another record at $330.4 million.

Up almost 30% compared to $254.8 million during the prior year first quarter and up 7.8% on the fourth quarter of 2021.

Previously the highest quarterly net revenue and the company's history, which included an extra week of production and at the reporting calendar.

Within the factory built housing segment net revenue increased 31, 2% to $312.3 million from $238.1 million and the prior year quarter.

The increase was primarily from an 18, 7% increase and average revenue per home sold primarily from product pricing increases to pass along and changes in material costs as well as a product mix shift to slightly more multi section homes on has increased 10, 5%.

On a sequential basis, if you adjust for the 14 week period and the fourth quarter of fiscal year 2021 factory built housing net revenue increased 16, 8% and homes sold increased 3.9%.

Financial services segment net revenue increased to 8.4% for $18.1 million from $16.7 million, mainly the result of higher loan sales volume and servicing income and more insurance policies in force compared to the prior year.

These increases were partially offset by lower realized and unrealized gains and the current period and a reduction in interest income as a result on the loans that continue to amortize.

Italy due to the same pricing increases we discussed earlier.

In addition from incremental margin was provided by accessing raw materials purchased at relatively lower market prices. During the time of rapid increases given our first and first out inventory accounting policy.

Lastly factory overhead and service costs benefited from better utilization of cash on higher revenues.

Gross margin as a percentage of revenue and financial services decreased to 42, 7% from.

From 49, 9% and the prior year quarter as a result of lower unrealized gain on marketable equity securities and higher weather related events and the current period.

Selling general and administrative expenses and the fiscal 2022 first quarter were $40.8 million or 12, 4% of net revenue compared to $35.3 million or 13, 9% on net revenue during the same quarter last year <unk>.

Increase is due to higher incentive and commission wages on higher earnings.

Partially offset by the additional D&O insurance expense of $2.1 million and the first quarter of 2021.

Other income this quarter was $2.5 million compared to $1.9 million and the same quarter last year, driven by more interest income on larger cash and commercial loan receivables.

The effective income tax rate was $23.8 compared to $23, 1 and the same quarter last year and.

And finally net income was up 61, 7% $27 million compared to $16.7 million and the same quarter last year.

Net income per diluted share coming in at $2.92.

And $1.80, and the first quarter of 2021.

Now I'll turn it to margin discussion balance sheet.

Thanks, Paul So comparing the July through 2020, 1 balance sheet at April 3.2021 the.

The cash balance was $329.8 million up from $322.3 million 3 months earlier, the increase was primarily due to for items.

Principal collection on consumer loans and.

And sales of consumer loans greater than loan originations.

These were offset by higher inventory purchases.

And of our common stock and <unk>.

<unk> on property plant and equipment.

Inventories increased as raw material costs have increased as well as higher inventory purchases and preparation for increased production pre.

Prepaid and other assets was lower 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 on asset and a liability for the potential of the repurchase the balance decreased from a reduction of loans and forbearance.

Long term consumer loans receivable decrease from principal collections on loans held for investment and that were previously securitized.

And accrued expenses and other current liabilities increased from deferred payroll tax payments under the cares Act and hired a customer deposits, which have grown on factory backlogs, partially offset by a change and that delinquent loan repurchase option discussed previously.

Lastly, stockholders equity was approximately $699.1 million as of July through 'twenty, and 'twenty, 1 up $15.5 million from $683.6 million as of April 32021, now I'll turn it back over to Bill.

Thanks Mark.

Before turning it over to questions I wanted to let everyone know about another important milestone earlier. This week, we completed cash because first corporate responsibility report.

This report puts us on a path of accountability and improvement as we evaluate our impact on our various stakeholders report discusses our priorities to reduce any negative impact, but equally as important to maximize the positive impact we're having a cash cow.

You can find the report on our website and we look forward to the conversations to come.

Free so let's turn it over for questions.

As a reminder to ask a question and you would need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from Dan Moore with CJS Securities.

Good afternoon, and this is Brendan Pops and on for Dan.

Just wanted to ask real quick on just on a raw material availability and where are the biggest pain points are and when do you expect that to improve which can enable you to expand production faster.

Yes, the challenges continue and it continues to be a situation, where it's a bit of a moving target.

As you know lumber and OSB have come down and price, which indicates that we're not really have any problems in that regard but.

It still continues that really whether it's.

And inputs.

It's manufactured and the U S.

And when those manufacturers having much of the same problems, we are with labor and their supply chains or imports were.

Logistics disruptions continue.

But we've had everything from <unk>.

Doors and windows to electrical boxes too.

Various <unk> that we use and the construction project process. So it's really hard to generalize where the challenges come from but it continues to really be more of and efficiency impact as our folks and the plants need to.

Finished houses out and the yard after they're off the production line before they can ship. So it has a real impact it hasnt really let up.

And it's very hard to tell when the.

And when the late at the end of the tunnel is at this point and we kind of expect we've kind of gotten ourselves and a mindset of expecting and continue to continue for a few quarters.

So wish I wish I had a clearer view of the future on that.

Yes, it makes sense and.

And also kind of piggyback on and this could you provide and update on on automation efforts and.

And any incremental capacity, you can generate from that and how and how.

And how long and I will take to get there.

Yes.

We've said over time that we're looking at any way to improve our process.

I've made some comments I guess, we've got some increased optimism because I've made comments and the.

Investor call, we did just a little over a week ago regarding our Commodore acquisition that I think they've made headway and some manufacturing technology implementations that were really anxious to look at and consider how we might be able to leverage across the cash cost system.

On that transaction is not going to close for a little while so theres some weight to really be able to work closely with that team on those kinds of opportunities, but I've mentioned and the call and it's really just an example.

Fort worth.

Investment is a great example of really investing and the process. We added 6 stations to that operation plus.

Really allow it.

The project really allows them to make a lot more taste and texture product, which is consistent with what the market's looking for.

So those are the kind of fundamental investments that I think we're really making headway on and.

As I said, they're not immaterial when you can add approximately 20% to a plant with an investment like that so that's been going on for some time.

Highlighted for this quarter, but we've done similar projects and other plants and.

And.

That's the blocking and tackling and I think is going to continue to give us more capacity.

Okay, great. Thank you that's it for me.

Thanks, Brian.

And your next question comes from the line of Greg Palm with Craig Hallum Capital.

Alright, thanks, and congrats on the.

Really good results here I guess, just kind of starting off thinking about production and when we think about some of the plants you have or are opening and obviously the pending acquisition of Commodore how much additional capacity or are you gaining do you have that estimate.

And with the Commodore deal.

Yes, yes, I'm not sure if you've commented on on where they are sort of capacity utilization is but just kind of curious what kind of capacity you might be gaining and when you think about everything going on.

Yes, I know.

No. It is not capacity July 1st kind of reiterate what we're getting from a production perspective, I mean, just looking at their unit production.

Pretty significant to our assistant at 25% increase and.

And we've kind of loosely estimated at this point and time that theyre running plants and.

And a sense very similar to us as far as the bricks and mortar so and while we haven't pegged a number I think its a similar opportunity to continue to look to increase production there.

Okay Fair enough as you look at sort of the go forward periods, what's your comfort level and being able to increase production, even with all of these kind of supply chain headwinds still going on.

Yes, well the supply.

We got to control the things that we can control directly not that we haven't done a lot to deal with the supply issues. Our plants has done a great job moving to alternative.

Materials and some cases, so we're managing the supply issues and haven't had any huge amount of downtime this little bit of loss and efficiency, there, but as far as production.

We need to get more homes that we recognize that we havent yet gotten our capacity utilization back up to where we were before.

But I think I think we're in a time and it's kind of confusing for folks to interpret.

And you compare our shipments to last year's quarter.

Again, that's a little bit confusing because last year's quarter was and a and a time of incredible disruption. We continue to operate on our plants during that quarter.

But our our productivity.

Productivity went down pretty significantly.

As we are managing safety changes and I have since he is on but anyway, I think that point being.

Our.

And that was a period when we had relative stability and we were.

Again, and a pretty healthy demand environment and producing everything we could.

So if you compare where we're at today.

And I'm looking at this and in terms of modules as opposed to units.

We produced this quarter about 2.3% less modules and we did 2 years ago.

I guess and bottom line and I hope on that making it too confusing, but I think thats, a better base period to look at and the bottom line is.

And we're pretty optimistic as we keep kind of battle on this labor challenge that we should really be able to surpass our previous levels based on that ratio of kind of the hours, we put into each module.

I'm not sure if I confused that or if I helped with your question, Greg So feel free to let.

Let me now.

Yes, I mean I guess.

And that everybody is trying to figure out is maybe let's just use this recent quarter or is it a baseline I mean 3700 units do you think that UK and looking out to the future quarters. Do you think you can expand upon that or are there just too many headwinds out there whether it's labor whether its head.

Its supply chain, where you think that it leads to and the next couple of quarters it might be a challenge.

No.

Im optimistic I don't think there's any reason, we shouldnt be able to expand we've got an opportunity just as I said to get back to where we were pre pandemic and.

On relatively optimistic that over the next couple of quarters, we should see some easing and the supply issues and.

And we've been working real hard and I think we're getting traction on the labor challenges with some of the investments and the things we're doing there so.

No lack of optimism and we need to get it up to.

And then past, where we were before and we should be able to do that.

Okay. Good.

Yes, it was primarily the ASP increase the MX and.

<unk> was really a slight compared to the ASP EPS.

So I would say ours, primarily that.

Okay, and then I guess going forward I mean do you see further price increases I mean, I guess, if you can even just maintain this level I'm, assuming you'll start to see a nice bump and gross margins at some point as certain materials like lumber and OSB have come down recently right does that kind of the way to think of.

Got it.

Yes, I think that's right I mean, we're all speculating on where material costs go from here and we got actually a considerable amount of relief and the last month or so on lumber and OSB.

Yes.

Kind of staying the same pricing mode and.

And in the near term and net downturn and lumber and OSB flows through cost of goods sales as it will.

And then that's good for margins.

Those are those are very significant input cost for us as you know I mean, that's a big part of the materials cost for our product.

Just about everything else is still escalating so it's a little bit muted it's not debt.

For 2 things the other inputs, including labor continue to escalate.

But lumber and OSB coming down is a big help.

Got it okay, all right I'll leave it there thanks a lot.

Alright.

And your next question comes from Jay Mccanless with Wedbush Securities.

Hi, good morning, everyone.

The first question I had is.

Around the FIFO benefit you talked about the gross margin could you.

Is there any way you can break that out numerically for us and.

Is that benefit going to continue over the next couple of quarters or is it going to turn the other way is the higher costs flow through and maybe depress gross margins relative to what you saw on the first quarter.

Yes, I think that the.

Thing that we've tried to explain over the last couple of quarters, and so people understand the timing of them.

Input cost is.

And that there is typically about a 30 to 60 day lag between what you see on spot prices. So if you watch and lumber for example, and you see the spot price today.

That change will be reflected and our cost of goods sales a month to 2 months later.

So this quarter for example.

The prices started dropping late in the fiscal quarter.

Those drops will start to hit our cost of goods and the quarter. We're in now.

So then after that it's up to all of us to speculate on whether the.

And the prices continue to go down or whether the volatility continues.

Hello, and does that help Jay or was there more data question.

That's all on out on that 1.

Okay.

The the other question I had.

Just if you don't mind remind us on the timing for closing the comment on deal and.

We are going to give us an update at that point on where their backlog stand et cetera. So we can backfill the.

Model for bringing them on board.

Yes.

We have said is that we expect to close and the third fiscal quarter last calendar quarter and I think that's where we're at at this point and.

And the biggest driver for that and I don't know if you said this in the past as we've had to do the Hart Scott Rodino filing and that just takes time, we don't think that there should be any issue with that so it's not trying to warrant any 1 of any concern, but it just takes time, so depending on the timing of that that will help us kind of dial and a better <unk>.

Estimate on when the close will occur.

Got it okay. That's all I had thank you.

Thanks Jay.

As a reminder to ask a question and you need to press star 1 on your telephone.

Your next question comes from Deforest, Hinman with Cowen and company.

Hey, thanks for taking the questions.

A little bit more detail on the backlog as it relates to the movement and lumber prices were in a incredibly.

Dynamic demand environment at the same time, we had inc.

Historic high and lumber.

Rapid deterioration and the price.

But when you look at the backlog mathematically.

And it looks to be in excess of 2 quarters.

Revenue. So I mean is there any color you can give us in terms of what is the weighted average.

Function for lumber prices inside of that backlog I mean is it a thousand is at 900 and me can you give us any color there.

Yes, I think what you are getting that is.

The pricing of the backlog kind of stratify the pricing of the backlog of same question rates for us and.

Maybe we can simplify the thought process, a little bit because and this.

During the last I guess 5 quarters, and so and we've had these rapid increases in and our price and our surcharges to deal with some of these cost escalations, we have not protected.

Customers price and the backlog so even if they ordered before.

We've had.

And I had to go back and change the pricing on those orders. So really we're not in a situation. If I interpret your question right. We're not in a situation, where we're trying to work off low price.

Product and the backlog.

Is that am I getting and what you're trying to think through what I'm trying to I'm trying to understand if there is a potential for.

Really abnormally high margins for the next 2 quarters.

As it relates to the function of the pricing because we're looking at I'm just talking out loud at this point, we're looking at the futures curve its really high.

And we price.

The business with the customers they signed on the dotted line.

And then as it relates to what's happening and the spot market and if it comes and way lower it doesn't sound like we're giving that back to the dealer and the customer and.

And.

Yes.

And you just said it cogs meaningfully influenced by the price of lumber.

And we've had a historic drop and <unk>.

Thanks.

I think basically since late May and started to really come off it.

Very high levels on the wood products side, and so those lower spot prices will start to flow through.

And of around where we are now I guess from a timing perspective. So you are right on it I mean, the prices there and and.

Inputs appear to be drop and pretty rapidly.

Stay on that path and we should have some margin expansion.

Okay. Thank you that's helpful and then as it relates to.

The labor availability youre not the first CEO I've heard talk about this obviously on the.

Yes.

Company to be.

Lamenting how hard it is to find people, but can you just give us any color in terms of real time, what youre seeing.

Anecdotally.

The unemployment levels are falling.

Getting.

Some states rolling back on.

Unemployment benefits, we had this federal unemployment benefits potentially tailing off as well.

Any color in terms of you know, we're having job fairs, and theres more people showing up for getting more.

People filling out resume resumes and the locations and we're getting more pains.

On line anything you can give us to help us understand your thoughts about the labor availability, improving and what gives you that confidence to say that yeah. Yeah..1 I appreciate your recognition and we're not alone and this problem and I wish that we didn't have to keep keep having the same message for people that it's been such a challenge, but at a high level.

Just as you've asked anecdotally, we do have some optimism.

We're doing a ton we are doing a lot of things as far as job fairs, and probably more importantly, we've been pretty aggressively looking at things like wages and incentives and benefits. We've made some significant benefits. So I think we've set up the conditions.

And I think if I had to generalize, even though I'm very cautious about calling something a trend too early I think we're starting to get a little bit of a sense that hiring might improve here.

It's hard to give you much more net because even though we're watching it very quickly.

And I'm trying not to complicate the answer by saying, it's spotty and gains of 1 plant and it might be still struggle and every bit as much as they were before but in other locations, we're seeing a little bit of optimism.

So.

Back to I think it was greg's question about production going forward.

We expect to be able to increase production and the way to do that and this market is to not only get people into the plants to work, but then stabilize it and start building skills.

I think we're on we're on the right track with all of that.

Okay, and maybe just more specifically is.

And you have some insight into where the backlog is it.

As a number like 4000.

Homes sold and <unk>.

Pre dating.

Commodore transaction is that a realistic.

Goal or a benchmark that we could be looking at.

So you're asking how many units are and the backlog.

No how many units per quarter is like a number like 4000 is that realistic.

And our remarks looking something up here real quick.

And again kind of referencing that period that bill mentioned.

2 years, 2 years ago kind of pre pandemic.

We're about 3800 range some quarters up to 3900.

So with some of that production.

And efficiencies that we're hoping for.

And we could expand beyond that.

Okay and can you comment about the length of the backlog earlier and we have said it's.

Across our system. It's 40 weeks. So I think you had said.

A year or more.

On a couple of quarters or even beyond that and I mean, this is a huge backlog right now for us.

Okay, and then on the capital deployment front.

Share repurchase is interesting.

How is the board looking at that.

Going forward and can you just give us an update on the remaining authorization and that's out there.

Yes.

And $1 million on a $100 million authorization from last October and soft top of my head, we've used about $14 million of it.

So quite a bit of run room, there and.

Yes.

As you would understand we're always kind of trying to be very conservative about when we can be on the market with various things like.

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