Q3 2025 Cavco Industries Inc Earnings Call
Operator: Good day and thank you for standing by. Welcome to the third quarter fiscal year 2025 Cavco Industries Inc. Earnings Call Webcast.
Good day and thank you for standing by welcome to the third quarter fiscal year 2025, Capcom Industries, Inc. Earnings call webcast. At this time, all participants are in listen only mode.
Operator: At this time, all participants are in listen only mode. After the speaker's presentation, there'll be a question and answer session. Instructions will be given at that time. Please be advised that today's conference is being recorded.
After the Speakers' presentation there'll be a question and answer session and instructions will be given at that time. Please.
Please be advised that today's conference is being recorded.
Mark Fusler: I would like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations.
Like to hand the conference.
Speaker Change: Today marks bustling corporate controller and Investor Relations. Please go ahead.
Mark Fusler: Please go ahead. Good day and thank you for joining us for Cavco Industries' third quarter Fiscal Year 2025 Earnings Conference Call. During the call, you'll be hearing from Bill Boor, President and Chief Executive Officer, Allison Aden, Executive Vice President and Chief Financial Officer, and Paul Bigbee, Chief Accounting Officer.
Speaker Change: Good day, and thank you for joining us for capital Industries third quarter fiscal year 2025 earnings conference call.
Bill Boor: During the call you'll be hearing from Bill Boor, President and Chief Executive Officer, Allison Aden Executive Vice President and Chief Financial Officer, and Paul <unk>, Chief Accounting Officer.
Mark Fusler: Before we begin, we'd like to remind you that comments made during this conference call by management may contain forward-looking statements, including statements of expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets, or future market conditions. All forward-looking statements involve risks and uncertainties which could affect Cavco's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Cavco. I encourage you to review Cavco's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forelooking statement.
Bill Boor: Before we begin we'd like to remind you that comments made during this conference call by management may contain forward looking statements, including statements of expectations or assumptions about <unk> financial and operational performance revenues earnings per share cash flow or use.
Speaker Change: Cost savings and operational efficiencies.
Bill Boor: Current or future volatility in the credit markets or future market conditions.
Bill Boor: All forward looking statements involve risks and uncertainties, which could affect <unk> actual results and could cause its actual results to differ materially from those expressed in any forward looking statements made by or on behalf of Casco.
Curt do 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.
Bill Boor: Identify specific factors that may cause actual results or events to differ materially from those described in the forward looking statements.
Mark Fusler: This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, January 31, 2025. Capco 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.
Bill Boor: This conference call also contains time sensitive information.
Bill Boor: Accurate only as of the date of this live broadcast Friday January 31 2025.
Bill Boor: <unk> undertakes no obligation to revise or update any forward looking statement.
Bill Boor: Whether written or oral to reflect events or circumstances. After the date of this conference call, except as required by law.
Mark Fusler: Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer.
Speaker Change: I'd like to turn the call over to Bill Boor, President and Chief Executive Officer.
William Boor: Bill? Thanks, Mark.
William Boor: Welcome and thank you for joining us today to review our third quarter results. This quarter showed strong execution across our operations, supported by continued forward momentum in the market. Sequentially, our EPS jumped 30% to $6.90. Allison will provide a more detailed breakdown, however, the largest drivers were improved results in both financial services and factory built housing. After a few challenging quarters, our financial services segment recorded its best quarterly profit in four years, driven primarily by our insurance operation. In insurance, the third quarter is typically more profitable due to lower weather-related claims costs. The positive results were also driven by improvement efforts we discussed in previous calls.
Speaker Change: Thanks Mark.
Speaker Change: Welcome and thank you for joining us today to review our third quarter results.
Speaker Change: This quarter showed strong execution across our operations supported by continued forward momentum in the market. So.
Speaker Change: supported by continued forward momentum in the market. Sequentially, our EPS jumped 30% to $6.90.
Speaker Change: Allison will provide a more detailed breakdown, however the largest drivers were improved results in both financial services and factory built housing.
Speaker Change: After a few challenging quarters, our financial services segment recorded its best quarterly profit in four years, driven primarily by our insurance operation.
Speaker Change: In insurance, the third quarter is typically more profitable due to lower weather-related claims costs, but the positive results were also driven by improvement efforts we discussed in previous calls.
William Boor: We've made significant changes to underwriting to manage claims costs and we implemented needed premium increase. In addition to the quarter-to-quarter financial services improvement, factory-built housing showed higher volume and gross margin. Despite normal winter and holiday seasonality, we were able to increase volume sequentially by about 3.4% and gross margin improved by 70 basis points. I feel really good about the continued progress our plants are making as they ramp up production. It's always more operationally challenging to increase production than to pull it down in a market downturn. With a lot of focus on hiring, onboarding and training, we've been able to steadily raise production rates where the market has supported it.
Speaker Change: We've made significant changes to underwriting to manage claims costs, and we implemented needed premium increases.
Speaker Change: In addition to the quarter-to-quarter financial services improvement, factory-built housing showed higher volume and gross margin.
Speaker Change: Despite normal winter and holiday seasonality, we were able to increase volume sequentially by about 3.4% and gross margin improved by 70 basis points.
Speaker Change: I feel really good about the continued progress our plants are making as they ramp up production.
Speaker Change: It's always more operationally challenging to increase production than to pull it down in a market downturn.
Speaker Change: With a lot of focus on hiring, onboarding, and training, we've been able to steadily raise production rates where the market has supported it.
William Boor: This ties into an important point about our backlog movement. Despite entering the seasonally slower third quarter, we made the decision that where our backlogs allowed, our plants would continue ramping production in anticipation of continued market improvement in 2025. We made this decision to press forward to higher production rates, knowing that that would involve utilizing some of the backlog. Exiting the third quarter with a still very healthy aggregate backlog of six to eight weeks and a higher system production rate positions us very well for the coming quarters. Of course, market uncertainty remains, and if demand weakens in the coming quarters, I have full confidence in our ability to adjust accordingly.
This ties into an important point about our backlog movement.
Speaker Change: We made this decision to press forward to higher production rates knowing that that would involve utilizing some of the backlog.
Speaker Change: Exiting the third quarter with a still very healthy aggregate backlog of six to eight weeks and a higher system production rate positions us very well for the coming quarters.
Speaker Change: Of course, market uncertainty remains, and if demand weakens in the coming quarters, I have full confidence in our ability to adjust accordingly. Conversely, if demand strengthens, we're a step ahead in controlling backlog growth, and we will have maximized profitable operating days in Q3.
William Boor: Conversely, if demand strengthens, we're a step ahead in controlling backlog growth and we will have maximized profitable operating days in Q3.
William Boor: Well, industry shipments declined from Q2. They continue to improve on a seasonally adjusted basis. December numbers are not out yet, however, the seasonally adjusted annual rate of HUD shipments in October and November was 108,000 and 109,000 annual units respectively. This compares with about 93,000 a year ago for those months and as low as 89,000 in early 2024. So the industry trend has been decidedly positive as we head into 2025.
Speaker Change: While industry shipments declined from Q2, they continued to improve on a seasonally adjusted basis.
Speaker Change: December numbers are not out yet, however the seasonally adjusted annual rate of HUD shipments in October and November was 108,000 and 109,000 annual units respectively.
Speaker Change: This compares with about 93,000 a year ago for those months and as low as 89,000 in early 2024. So the industry trend has been decidedly positive as we head into 2025.
William Boor: I also want to close off on an item from last quarter's earnings call, and you might remember that that was shortly after the two devastating hurricanes hit the southeast. At that time, there were questions about whether the Southeast market activity would be slowed in Q3. Industry shipment data for October and November showed about 14% year-over-year shipment gain in the most impacted states, indicating that activity resumed quickly following the hurricane.
Speaker Change: I also want to close off on an item from last quarter's earnings call, and you might remember that that was shortly after the two devastating hurricanes hit the southeast.
Speaker Change: At that time, there were questions about whether the Southeast market activity would be slowed in Q3.
Speaker Change: Industry shipment data for October and November showed that, showed about 14% year-over-year shipment gain in the most impacted states, indicating that activity resumed quickly following the hurricanes.
William Boor: As the calendar year ends, it's a good time to touch on progress with our digital marketing strategy. Over the last two years, we've implemented a complete transformation of our digital marketing architecture, making it easier for prospective buyers to research our homes and easier to efficiently connect them with retailers. A significant part of our approach is to add value for our retailers as well. One important aspect of this rollout has been to provide dealers and communities easy-to-manage microsites branded to their business. Having their own Cavco-supported sites integrated directly into our overall platform is proving to be a significant value add for our partners, enabling them to generate leads through their microsites and receive leads from our Cavcohomes.com digital platform.
Speaker Change: As the calendar year ends, it's a good time to touch on progress with our digital marketing strategy.
Speaker Change: Over the last two years, we've implemented a complete transformation of our digital marketing architecture, making it easier for prospective buyers to research our homes and easier to efficiently connect them with retailers.
Speaker Change: A significant part of our approach is to add value for our retailers as well. One important aspect of this rollout has been to provide dealers and communities easy-to-manage microsites branded to their businesses.
Speaker Change: Having their own CAFCO-supported sites integrated directly into our overall platform is proving to be a significant value add for our partners, enabling them to generate leads through their microsites and receive leads from our CAFCOhomes.com digital platform.
William Boor: As we look back on calendar year 2024, the increased traffic, lead generation and the number of independent retail businesses connecting to our platform have validated our strategy and approach, and as customer engagement and the market evolve, we'll be able to continue building on the platform in new ways.
Speaker Change: As we look back on calendar year 2024, the increased traffic
Speaker Change: lead generation, and the number of independent retail businesses connecting to our platform have validated our strategy and approach. And as customer engagement and the market evolve, we'll be able to continue building on the platform in new ways.
William Boor: Switching gears, our cash flow generation continued to support a strong balance sheet and the ability to repurchase shares. This quarter, we repurchased $42 million of stock, and our quarter-to-quarter cash and cash equivalents remained essentially flat.
Speaker Change: Switching gears, our cash flow generation continued to support a strong balance sheet and the ability to repurchase shares. This quarter we repurchased $42 million of stock and our quarter-to-quarter cash and cash equivalents remained essentially flat.
Allison Aden: With that, I'd like to turn it over to Allison to discuss the financial results in more detail. Thank you, Bill. Net revenue for the third fiscal quarter of 2025 was $522 million, up $75.2 million or 16.8% compared to $446.8 million during the prior year. Sequentially, net revenues increased $14.6 million, driven by an increase in homes sold. Within the factory build housing segment, net revenue was $500.9 million, up $74 million, or 17.3% from $426.9 million in the prior year quarter. The increase was primarily due to a 21.6% increase in homes sold, partially offset by a 3.5% decrease in average revenue for homes sold.
Speaker Change: With that, I'd like to turn it over to Allison to discuss the financial results in more detail.
Allison: Thank you, Bill. Net revenue for the third fiscal quarter of 2025 was $522 million, up $75.2 million, or 16.8%, compared to $446.8 million during the prior year.
Allison: Sequentially, net revenues increased $14.6 million, driven by an increase in homes sold.
Allison: Within the factory build housing segment, net revenue was $500.9 million, up $74 million, or 17.3%, from $426.9 million in the prior year quarter.
Allison: The increase was primarily due to a 21.6% increase in home sold, partially offset by a 3.5% decrease in average revenue per home sold.
Allison Aden: The decrease in average revenue per home was primarily due to a lower proportion of homes sold through our company-owned stores and, to a lesser extent, product pricing decreases that were partially offset by more multiwives in the mix. Factor utilization for Q3 of 2025 was approximately 75% when considering all available production days. Utilization was approximately 60% in the prior year period. Financial services segment net revenue was $21.2 million, up $1.4 million, or 6.8% from $19.8 million in the prior year quarter, primarily due to higher insurance premium rates. Consolidated gross margins in the third fiscal quarter, as a percentage of net revenue, was 24.9%, up 180 basis points from 23.1% in the same period last year.
Allison: The decrease in average revenue per home was primarily due to a lower proportion of homes sold through our company-owned stores and, to a lesser extent, product pricing decreases that were partially offset by more multiwives in the mix.
Allison: Factor utilization for Q3 of 2025 was approximately 75% when considering all available production days. Utilization was approximately 60% in the prior year period.
Allison: Financial services segment net revenue was $21.2 million, up $1.4 million, or 6.8% from $19.8 million in the prior year quarter, primarily due to higher insurance premium rates.
Allison: Consolidated gross margins in the third fiscal quarter as a percentage of net revenue was 24.9% up 180 basis points from 23.1% in the same period last year.
Allison Aden: In the factory built housing segment, the gross profit increased 120 basis points to 23.6% in Q3 of 2025 versus 22.4% in Q3 of 2024, driven by lower input cost, leveraging fixed overhead, and other efficiencies on increased production, partially offset by lower average selling prices. Financial services gross margin as a percentage of revenue increased to 55.5% in Q3 of 2025 from 36.8% in Q3 of 2024. Insurance division improved due to a return to normal weather patterns, the growing impact of premium increases, and underwriting changes on policy. selling general and administrative expenses in the third quarter of 2025 for $66 million or 12.6 percent of net revenue compared to 63.3 million or 14.2 percent of net revenue during the same quarter last year.
Allison: driven by lower input costs, leveraging fixed overhead, and other efficiencies on increased production partially offset by lower average selling prices.
Allison: Financial services gross margin as a percentage of revenue increased to 55.5% in Q3 of 2025 from 36.8% in Q3 of 2024.
Allison: The Insurance Division improved due to a return to normal weather patterns, the growing impact of premium increases, and underwriting changes on policies.
Allison: Selling General and Administrative Expenses in the 3rd Quarter of 2025 were $66 million or 12.6% of net revenue, compared to $63.3 million or 14.2% of net revenue during the same quarter last year.
Allison Aden: The increase in these expenses was due to a higher variable compensation based on improved earnings and greater compensation related to acquired retail locations. partially offset by a $2 million reduction in legal expenses. Pre-tax profit was $69.3 million, up $25.4 million, or 57.9% compared to $43.9 million in the prior year quarter. The effective income tax rate was 18.6% for the third fiscal quarter, down 1.7% compared to 20.3% in the second quarter. The decrease in the effective tax rate is primarily due to tax credits associated with higher shipments of ENERGY STAR compliant homes. This resulted in a decrease in tax expense of approximately $1 million, or 1.4% in the third quarter of fiscal 2025.
Allison: The increase in these expenses was due to a higher variable compensation based on improved earnings and greater compensation related to acquired retail locations, partially offset by a $2 million reduction in legal expenses.
Allison: Free tax profit was $69.3 million, up $25.4 million, or 57.9% compared to $43.9 million in the prior year quarter.
Allison: The effective income tax rate was 18.6% for the third fiscal quarter, down 1.7% compared to 20.3% in the second quarter.
Allison: The decrease in the effective tax rate is primarily due to tax credits associated with higher shipments
Allison: of ENERGY STAR compliant homes. This resulted in a decrease in tax expense of approximately $1 million, or 1.4% in the third quarter of fiscal 2025.
Allison Aden: That income was $56.5 million, up $20.5 million, compared to $36 million in the same quarter of the prior year. And diluted earnings per share this quarter was $6.96 per share versus $4.27 per share in last year's third quarter. During the quarter, we also repurchased $42.4 million of common shares under our Share Repurchase Program. Cumulative repurchases stand at $389 million since we began the program in the fourth quarter of fiscal year 2021. This leaves approximately $111 million under authorization for future repurchase.
Allison: That income was $56.5 million, up $20.5 million, compared to $36 million in the same quarter of the prior year.
Allison: And diluted earnings per share this quarter was $6.96 per share versus $4.27 per share in last year's third quarter.
Allison: During the quarter, we also repurchased $42.4 million of common shares under our Share Repurchase Program.
Allison: Cumulative repurchases stand at $389 million since we began the program in the fourth quarter of fiscal year 2021.
This leaves approximately $111 million under authorization for future repurchases.
Allison Aden: Before we discuss the balance sheet, I want to address the sequential change in our earnings per share, which showed significant improvements from the second quarter. The largest increase is due to the performance of the financial services segment. In Q2 of 2025, the segment was at a pre-tax loss of nearly $1 million, compared to pre-tax income in Q3 of 2025 of $6.2 million, a swing of over $7 million. The Q3 2025 performance improved significantly due to higher premiums earned, lower claim volume from fewer weather events, and changes in underwriting. The second largest impact is from improved factory build housing sales volume and improved margins on those homes sold due to efficiencies on higher production levels.
Allison: Before we discuss the balance sheet, I want to address the sequential change in our earnings per share, which showed significant improvements from the second quarter.
Allison: The largest increase is due to the performance of the financial services segment.
Allison: In Q2 of 2025, the segment was at a pre-tax loss of nearly $1 million compared to pre-tax income in Q3 of 2025 of $6.2 million, a swing of over $7 million.
Allison: The Q3 2025 performance improved significantly due to higher premiums earned, lower claim volume from fewer weather events, and changes in underwriting.
Allison: The second largest impact is from improved factory build housing sales volume and improved margins on those homes sold due to efficiencies on higher production levels.
Allison Aden: The third largest impact relates to our 170 basis points lower tax rate compared to 20.3% in the sequential quarter. The decrease in the affected tax rate is due primarily to higher shipments of ENERGY STAR compliant homes. The remaining is the benefit of our share repurchase program. In Q3 of 2025, we repurchased 98,000 shares, further reducing our shares outstanding.
Allison: The third largest impact relates to our 170 basis points lower tax rate compared to 20.3% in the sequential quarter. The decrease in the effective tax rate is due primarily to higher shipments of ENERGY STAR compliant homes.
Allison: The remaining is the benefit of our share repurchase program. In Q3 of 2025, we repurchased 98,000 shares, further reducing our shares outstanding. Now I'll turn it over to Paul to discuss the balance sheet.
Paul Bigbee: Now I'll turn it over to Paul to discuss the balance sheet. Thanks, Allison. In the third quarter, we saw a decline in cash and restricted cash of $7.6 million, bringing our balance to $378.6 million. Cash flow from operating activities was $37.8 million despite being impacted by an increase in our working capital. Cash used in investing activities was $3 million net, and cash used in financing activities was $42.4 million, primarily due to share repurchase.
Paul: In the third quarter, we saw a decline in cash and restricted cash of $7.6 million bringing our balance to $378.6 million.
Paul: Cash flow from operating activities was $37.8 million, despite being impacted by an increase in our working capital.
Paul: Cash used in investing activities was $3 million net, and cash used in financing activities was $42.4 million, primarily due to share repurchases.
Paul Bigbee: Now moving on from the quarter and comparing the December 28, 2024 balance sheet to March 30, 2024, the increase in accounts receivable is primarily related to organic growth we have experienced in the factory built housing segment. The increase in short-term consumer loans receivable is due to higher originations of loans held for sale in excess of actual sales. The balance of commercial loans in total remains relatively stable. The decrease in short-term commercial loans receivable is primarily due to pay-downs of floor plan lending and a shift to longer-term loans. Current liabilities are up from increased compensation and bonus accruals on higher earnings, increased insurance loss reserves for previous storms, and higher customer deposits.
Paul: Now moving on from the quarter and comparing the December 28, 2024 balance sheet to March 30, 2024, increase in accounts receivable is primarily related to organic growth we have experienced in the factory built housing segment.
Paul: The increase in short-term consumer loans receivable is due to higher originations of loans held for sale in excess of actual sales.
Paul: The balance of commercial loans in total remains relatively stable. The decrease in short-term commercial loans receivable is primarily due to pay-downs of floor plan lending and a shift to longer-term loans.
Paul: Current liabilities are up from increased compensation and bonus accruals on higher earnings, increased insurance loss reserves for previous storms, and higher customer deposits.
Paul Bigbee: Finally, treasury stock increased due to buybacks executed in the first three quarters of fiscal 2025.
Paul: Finally, treasury stock increased due to buybacks executed in the first three quarters of fiscal 2025.
William Boor: And with that, I'll turn it back to Bill. Thank you, Paul. It's been very satisfying to see the strong execution of our operating plans across the business segment this quarter. In addition to posting strong results, we feel we effectively used the third quarter to set ourselves up for continued momentum in the coming quarters.
And with that, I'll turn it back to Bill.
Thank you, Paul.
Bill Boor: It's been very satisfying to see the strong execution of our operating plans across the business segment this quarter. In addition to posting strong results, we feel we effectively used the third quarter to set ourselves up for continued momentum in the coming quarters.
Operator: So with that, Michelle, would you please open the line for questions? If you would like to ask a question, please press star 1 1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1 1 again.
Speaker Change: So, with that, Michelle, would you please open the line for questions?
Speaker Change: If you would like to ask a question please press star 1 1. If your question has been answered and you'd like to remove yourself from the queue please press star 1 1 again.
Daniel Moore: Our first question comes from Daniel Moore with CJS Securities. Your line is open. Thank you.
[inaudible]
Speaker Change: Our first question comes from Daniel Moore with CJS Securities. Your line is open.
Daniel Moore: Good morning or good afternoon, I should say. Bill, Allison, Paul, thanks for taking the questions. Obviously, you know, feeling pretty good about the trajectory of business and order rates and demand, given the decision to continue to increase production this past quarter in a seasonally late period. What can you tell us about your discussions with customers across various end markets and, you know, the cadence of order rates through the quarter and what you're seeing thus far in fiscal Q4? Just trying to get a sense, you know, are you hearing from customers their expectations that things are going to pick up?
Daniel Moore: Thank you, good morning or good afternoon, I should say. Bill, Allison, Paul, thanks for taking the questions.
Good luck. Bye.
Daniel Moore: What can you tell us about your discussions with customers across various end markets and, you know, the cadence of order rates through the quarter and what you're seeing thus far in fiscal Q4?
Daniel Moore: Just trying to get a sense, you know, are you hearing from customers their expectations that things are going to pick up? Is it more of an anticipation of a stronger spring selling season? You know anything you can you can tell us kind of across markets would be really helpful.
Daniel Moore: Is it more of an anticipation of a stronger spring selling season? You know, anything you can tell us kind of across markets would be really helpful.
William Boor: Yeah, Dan, let me hit a couple points and shoot it back to me if you had some questions or some areas or aspects I didn't touch on. You know, we always, this call always comes at an interesting time in the year, right, because we've finished the seasonally slower holiday quarter and winter quarter, and then we're still a little too early to really have strong conclusions around how the spring sowing season's going to materialize. But obviously, we watched some things. I commented. at some length in my opening remarks about just watching industry shipments on a seasonally adjusted rate and how they have continued to trend upward.
Speaker Change: Yeah, Dan, let me hit a couple points and shoot it back to me if you had some questions or some areas or aspects I didn't touch on. You know, we always, this this call always comes at an interesting time in the year, right, because we've
Speaker Change: finished the seasonally slower holiday quarter and winter quarter and then we're still a little too early to really have strong conclusions around how the spring sowing season's going to materialize. But obviously we watched some things. I commented
Speaker Change: at some length in my opening remarks about just watching industry shipments on a seasonally adjusted rate and how they have continued to trend upward so at a high level that's been encouraging. Traffic
William Boor: So at a high level, that's been encouraging. really, I've said this for a few quarters now, traffic in retail and dealers has been pretty healthy and has remained healthy even when the interest rates shot up. So we know people are out there trying to figure out if they can buy homes. And I think some of what we really saw this past year was the adjustment that prospective buyers made to higher interest rates. You know, if you need a home and the rates go up on you, you can't afford maybe as much home as you were looking at previously.
Speaker Change: really said this for a few quarters now traffic in retail and dealers has been pretty healthy and has remained healthy even when the interest rates shot up so we know people are out there trying to figure out if they can buy homes and I think some of what we really saw this past year
was the adjustment that prospective buyers made.
Speaker Change: to higher interest rates. You know, if you need a home and the rates go up on you, you can't afford maybe as much home as you were looking at previously. At some point, you make that adjustment and you buy what you can afford.
William Boor: At some point, you make that adjustment and you buy what you can afford. And I think that you know, that psychological shift on the consumer side has been something we've watched. We see it in things like that, you know, if you assume traffic is pretty healthy, as I described, you see it in conversion rates picking up. And that's something we've seen in our stores and we've talked to independents about. The other factor that got a lot of airtime last year, and I think we tried to say, hey, well, it's not a big story now, but when you look at it over several quarters, the community is getting their inventories under control.
I think that...
Speaker Change: You know that psychological shift on the consumer side has been something we've watched we see it in things like
Speaker Change: If you assume traffic is pretty healthy as I described, you see it in conversion rates.
Speaker Change: picking up and that's something we've seen in our stores and we've talked to
independence about
Speaker Change: The other factor that got a lot of airtime last year and...
Speaker Change: I think we tried to say it's not a big story now, but when you look at it over several quarters, the community is getting their inventories under control.
William Boor: That's something that kind of happened late in the year. And so, that's a bit of a tailwind for overall demand as communities kind of take their proportion of orders again in 2025, and that's what we expect to see. So, yeah, I'm rattling off quite a few things, but some of these are leading indicators. Some of them are just watching the trend in the seasonally adjusted rate. But I think they all, you know, you never give you certainty. You know, as I was careful to say, there is always economic uncertainty. We'll know more as this quarter starts to unfold because we really haven't hit that improved weather in the time when we see activity seasonally pick up.
Speaker Change: That's something that kind of happened late in the year, and so...
Speaker Change: That's a bit of a tailwind for overall demand as communities kind of take their proportion of orders again in 2025, and that's what we expect to see.
Speaker Change: So yeah, I'm rattling off quite a few things, but some of these are leading indicators. Some of them are just watching the trend in the seasonally adjusted rate.
Speaker Change: But I think they all, you know, you never give you certainty, you know, as I was careful to say, there is always economic uncertainty. We'll know more.
Speaker Change: As this quarter starts to unfold because we really haven't hit that.
Speaker Change: improve weather in the time when we see activity seasonally pick up, but we obviously are feeling fairly confident about it. And also, as I said, part of our
William Boor: But we obviously are feeling fairly confident about it. And also, as I said, part of our operating decision to prepare ourselves for stronger quarters ahead is made because we know our plants are really good at adjusting if we need to adjust. So, we feel it was the right move to continue to build production.
Speaker Change: Our operating decision to prepare ourselves for stronger quarters ahead is made because we know our plants are really good at adjusting if we if we need to adjust. So we feel it was the right move to continue to build production.
William Boor: Yeah, that's good color, really helpful. Are you, you know, as we think about sort of sequentially from Q3 to Q4, maintaining, you know, similar rate of production? You know, is there holidays or other things we should sort of think about that would, you know, create a favorable or maybe slightly less favorable shipping comparison, you know, on a sequential basis? And nothing really that I would say would be less favorable. I mean, the biggest thing is you got more operating days in the fourth quarter than we had in the third quarter. And even though we talk at a high level in these calls by necessity, You know, the plant decisions of how rapidly they ramp up or if they're even able to ramp up are really unique to their backlogs.
Speaker Change: That's a good color, really helpful. Are you, you know, as we think about sort of sequentially from Q3 to Q4, maintaining, you know, similar rate of production, you know, is there holidays or other things we should sort of think about that would, you know,
Speaker Change: created a favorable or maybe slightly less favorable shipping comparison, you know, on a sequential basis.
Speaker Change: and nothing really that I would say would be less favorable I mean the biggest thing is you got more operating days in the fourth quarter than we had in the third quarter and even though we talked at a high level in these calls by necessity
Speaker Change: You know, the plant decisions of how rapidly they ramp up, or if they're even able to ramp up, are really unique to their backlogs.
William Boor: So I guess what I'm saying is, if the market continues to support us as we've been going, then there is more upside to production and downside at this point. I realized as Allison was talking, and I don't think I missed it in the script there, but that I usually talk about past utilization. We were around 75% in the third quarter. So we still have some room to keep expanding up.
Speaker Change: So I guess what I'm saying is if the market continues to support us as we've been going then There is more upside to production and downside at this point
Speaker Change: I realized as Allison was talking, and I don't think I missed it in the script there, but that I usually talk about past utilization. We were around 75% in the third quarter, so we still have some some room to keep expanding up.
Daniel Moore: That's really helpful. Maybe one more and I'll hand it back off.
Speaker Change: That's really helpful. Maybe one more and I'll hand it back off. In terms of
William Boor: In terms of financial services, you know, a great caller obviously had an exceptional quarter. Maybe talk about what some of the changes that you've made. I think you've described kind of three things, the rates being, you know, one, lower claims instances, which is sort of out of your control, but seasonally lighter. And then the changes to underwriting, maybe talk about the changes to underwriting, number one. And number two, how do we think about like an appropriate sort of long-term average range for whether it be gross margins or operating margins for that business? Because it's obviously all over the board based on seasonality and other factors.
Speaker Change: Financial Services, you know, a great caller, obviously had an exceptional quarter. Maybe talk about what some of the changes that you've made. I think you described kind of kind of three things, the rates being, you know, one, lower claims instances, which is sort of out of your control but seasonally lighter.
Speaker Change: and then the changes to underwriting, maybe talk about the changes to underwriting number one and number two. How do we think about like an appropriate sort of long term average range for whether it be gross margins or operating margins for that business? Because it's obviously all over the board based on seasonality and other factors.
William Boor: Yeah, we've made it tough on you guys because we really swung from two quarters that were pretty rough to one that was, you know, very strong historically. So, the first thing, and I'll just go back through them again, because I think it's important to be as clear as we can. First thing is, we would always expect the third quarter to be stronger than the first and second. That's just based on, you know, weather. We kind of use historical data to predict the number of major storms we'll have, and as you'd expect, the third quarter is really the time when you want to make sure you're making good money, because sometimes the first and second can be rough.
Speaker Change: Yeah, we made it tough on you guys because we really swung from two quarters that were pretty rough to one that was very strong historically.
Speaker Change: So, the first thing, and I'll just go back through them again, because I think it's important to be as clear as we can. First thing is, we would always expect the third quarter to be stronger than the first and second.
Speaker Change: That's just based on, you know, weather. We kind of use historical data to predict the number of major storms we'll have and as you'd expect, the third quarter is really the time when you want to make sure you're making good money because sometimes the first and second can be rough.
William Boor: So, absolutely, part of the change quarter to quarter is just due to lower claims cost had we done nothing else. But having said that, I do think we're having a significant impact on the premium side. probably taking you through too much detail or more than you want. But on the premium side, the process is really working with actuarials to figure out what we need to charge for a policy in order to get the proper risk adjusted return. And we've just been really diligent making sure that we're. You know, you got to go to the state regulators making sure that we're getting those premiums in place, those increases.
Speaker Change: So absolutely part of the change quarter to quarter is just due to lower claims cost had we done nothing else But having said that I do think we're having a significant impact on the Premium side, you know
Speaker Change: probably taking you through too much detail or more than you want but on the premium side the process is really working with actuarials to figure out what we need to charge for a policy in order to get the proper risk adjusted return and we've just been really diligent making sure that we're
Speaker Change: You know, you've got to go to the state regulators making sure that we're getting those premiums in place, those increases.
William Boor: And I think that's important on the revenue side. And then you were asking about underwriting. We've had to make some tough decisions. We've had to. non-renew policy holders where we needed to thin out our exposure in certain areas. We've had to actually make like... lower coverage decisions on the policies that we do renew, but we needed to make sure that every policy was profitable on a risk-adjusted basis. So I will give you one example, and there's many of them, just to give you a flavor for it. You can write an underwriting, you can write a policy for roof damage that's full replacement costs, or you can write a policy for roof damage that pays for the depreciated value of the roof based on its age and condition.
Speaker Change: And I think that's important on the revenue side. And then you were asking about underwriting. We've had to make some tough decisions. We've had to...
Speaker Change: non-renew policy holders where we needed to thin out our exposure in certain areas. We've had to actually make like
Speaker Change: lower coverage decisions on the policies that we do renew, but we needed to make sure that every policy was profitable on a risk-adjusted basis. So I will give you one example, and there's many of them, just to give you a flavor for it.
Speaker Change: You can write an underwriting, you can write a policy for roof damage that's full replacement cost.
Speaker Change: Or you can write a policy for roof damage that pays for the depreciated value of the roof based on its age and condition. We've made those kind of changes over the past year fairly aggressively because we knew we needed to make sure that risk-reward was in place.
William Boor: We've made those kind of changes over the past year fairly aggressively because we knew we needed to make sure that risk-reward was in place.
William Boor: You asked, I think the follow-up was how do you, what guidance or help can we give you on further quarters, excuse me. It's tough. I'll tell you the... My only, the only thing I think I could say is, you know, the seasonality is a big factor. So looking back at past years, and rolling that forward quarter to quarter, year over year is probably the best chance you have of being pretty close. And it is a, it's a volatile business, as I said, a quarter or two, and we were talking about the poor returns. But it's a business that over time, we've gotten, you know, pretty strong return on investment.
Speaker Change: You asked, I think the follow-up was how do you, what guidance or help can we give you on further quarters? Excuse me. It's tough. I'll tell you the
My only
Speaker Change: The only thing I think I could say is, you know, the seasonality is a big factor. So looking back at past years
Speaker Change: the best chance you have of getting pretty close. And it's a volatile business, as I said, a quarter or two, and we were talking about the poor returns.
William Boor: So we think it's a good business. Yeah, not quarterly, but you know, going back, you know, several years, it was a business that earned, you know, 50% gross margins on average annual plus. Is that is that where you think it should be? You know, not necessarily on a quarterly basis, but overall. The financial service segment typically will be significantly above the factory built housing segment on a gross margin basis. So I'd agree with that.
Speaker Change: But it's a business that over time we've gotten, you know, pretty strong return on investment. So we think it's a good business.
Speaker Change: Yeah, not quarterly, but, you know, going back, you know, several years, it was a business that earned, you know, 50% gross margins on average annual. Yeah. Is that where you think it should be? You know, not necessarily on a quarterly basis, but overall.
Speaker Change: The financial service segment typically will be significantly above the factory-built housing segment on a gross margin basis, so I'd agree with that. I don't think I could end point a particular number for you though.
William Boor: I don't think I could end point a particular number for you though.
Allison Aden: Lastly, and I'll jump out, tax rate, Allison, you pointed out, dipped lower. Year-to-date, it's about 20%, and that's below what we had modeled previously. What are your expectations? Is that sort of a good range blended with some of the ENERGY STAR production credits? How do we think about it going forward? Yeah, thanks for the question. I think the way that we look at it is, this was an unusually good quarter for the tax credits, as we talked about. If you look back to, say, our Q4 of 2024, our Q1 of this year 2025, and Q2 2025, kind of take an average of those.
Speaker Change: Lastly, and I'll jump out, tax rate, Allison, you pointed out, tipped lower.
Allison: Near to date, it's about 20%, and that's below where we had modeled previously. What are your expectations? Is that a sort of a good range blended with some of the ENERGY STAR?
Allison: production credits. How do we think about going forward? Yeah, thanks for the question. I think the way that, you know, we look at it is
Allison: This was an unusually good quarter for the tax credits, as we talked about.
Allison: If you look back to, say, our Q4 of 2024, our Q1 of this year 2025, and Q2 2025, kind of take an average of those, to me, that would be more representative of what we would expect to be kind of a normalized rate.
Daniel Moore: To me, that would be more representative of what we would expect to be kind of a normalized rate. Got it. That's helpful. I'll jump back to the follow-ups. Thank you again. Thanks, Jeff.
Allison: Got it. That's helpful. I'll jump back to the follow-ups. Thank you again. Thanks Jeff.
Danny Eggerichs: Thank you. Our next question comes from Danny Eggerichs with Craig Hallam Capital Group. Your line is open. Yeah, thanks. On for on for Greg Palm today. I guess just more broadly speaking, you know, demand from a geography perspective.
Speaker Change: Thank you. Our next question comes from Danny Eggers with Craig Hallam Capital Group. Your line is open.
Yeah, thanks on for on for Greg Palm today
Danny Eggers: I guess just more broadly speaking, you know, demand from a geography perspective, I guess any pockets of strength or geographies that are still kind of lagging or maybe were lagging and are starting to boost up a little bit that you'd want to call out specifically?
Danny Eggerichs: I guess any pockets of strength or geographies that are still kind of lagging or maybe were lagging and are starting to boost up a little bit that you'd want to call it specifically. Yeah, I might have commented on this last quarter. And so you're repeating myself, which is useful to kind of update the view. I can't remember exactly what I said last quarter. But it's been interesting. I mean, this has been a market improvement over a number of quarters, right? It hasn't been a rocket ship. It's been nice and steady over some quarters. And you might remember that when that trend started, we kind of pointed to the southeast and Texas as being the first ones to show some renewed strength.
Danny Eggers: Yeah, I might have commented on this last quarter and so I'll be repeating myself which is useful to kind of update the view. I can't remember exactly what I said last quarter but it's been interesting. I mean this has been
Danny Eggers: market improvement over a number of quarters, right? It hasn't been a rocket ship. It's been nice and steady over some quarters. And you might remember that when that trend started, we kind of pointed to the southeast and Texas as being the first ones to
William Boor: and they continue to be pretty strong.
Danny Eggers: show some renewed strength and they continue to be pretty strong. The Laggards have been, Florida absolutely, Florida has been very tough.
William Boor: The laggards have been Florida. Absolutely. Florida has been very tough. And it continues to be tough. And then the Southwest, I think, has been slower and less dramatic in its increases. But it is improving there. So there have been some lingering differences regionally. I don't think there's a lot to read into that. It's just an observation.
And it continues to be tough. And then the Southwest.
Danny Eggers: I think has been slower and less dramatic in its in its increases, but it is improving there. So there have been some...
Danny Eggers: lingering differences regionally. I don't think there's a lot to read into that it's just an observation but if I had to say one area that is kind of concerning and we're hoping we'll see some strengthening here in the future it would be Florida.
Danny Eggerichs: But if I had to say one area that is kind of concerning, and we're hoping we'll see some strengthening here in the future, it would be Florida. And it's interesting because the southeast, that's not true. It's just, it's the southeast minus Florida. Got it. That's helpful.
Danny Eggers: And it's interesting because the southeast that's not true. It's just it's the southeast minus Florida
William Boor: Maybe just circling back to, I know you gave some color on, you know, both retail and community channels, but maybe more specifically on REITs, it sounds like, you know, activity is still going good. And, you know, the past couple of years, we had the inventory problem and, you know, kind of the rate problem, but just now in kind of the current, you know, rate environment, is there any worry, you know, that, some of these communities might start tempering it back a little bit, or I guess, what are you hearing out there? I think I think you kind of have to separate their demand into the categories of, you know, filling out existing Communities and replacements and things like that, which we expect to be pretty strong versus doing new projects, which might be more influenced by their cost of capital.
Got it. That's helpful.
Danny Eggers: Maybe just circling back to I know you gave some color on you know both retail and and community channels, but
Danny Eggers: Maybe more specifically on REITs, it sounds like, you know, activity is still going good and
Danny Eggers: In the past couple of years, we had the inventory problem and the rate problem, but now in the current rate environment, is there any worry that some of these communities might start tempering it back a little bit, or what are you hearing out there?
Danny Eggers: I think I think you kind of have to separate their demand into the categories of you know filling out existing
Danny Eggers: communities and replacements and things like that which we expect to be pretty strong versus doing new projects which might be more influenced by their cost of capital. If they've already got a community and they've got the opportunity to get incremental revenue by
William Boor: If they've already got a community and they've got the opportunity to get incremental revenue by leasing an additional lot, then they're going to be all about that. And we expect overall. I mean, my view is, and talking to our partners on the community side, is that this should be a pretty solid year for them. You know, the inventory is finally behind them and their growth plans for just filling out existing communities are pretty strong. So that translates into wholesale orders. So I take your point, and I think if they were looking at a new development, which is very hard to get done anyway in today's environment, very few of those have gotten titled and permitted, then the cost of capital is obviously more of a barrier than it has been in the past.
Danny Eggers: Leasing an additional lot then they're going to be all about that and we expect
Danny Eggers: our partners on the community side is that this should be a pretty solid year for them. You know the inventory is finally behind them.
Danny Eggers: and their growth plans for just filling out existing communities are pretty strong. So that translates into wholesale orders.
Danny Eggers: So I take your point, and I think if they were looking at a new development, which is very hard to get done anyway in today's environment, very few of those have gotten titled and permitted.
Danny Eggers: then the cost of capital is obviously more of a barrier than it has been in the past. But the majority of their volume really comes from the other side where they're replacing and building out communities.
William Boor: But the majority of their volume really comes from the other side where they're replacing and building out.
Danny Eggerichs: Okay, makes sense.
William Boor: Maybe just one more quick one. Any update on on builder developer channel? I know last couple quarters, it's, it's been a it's been a bright spot. I don't know if you mentioned it in your prepared, but anything, any color there? Yeah, I don't think I separated it out. I'd say we've been watching kind of the trending of, say, those three groups, right, dealers communities and builder-developers over the last year. The builder-developer is the smallest of the three. In fact, Danny, you know that in the past, we tended to just lump them together with communities because they're very similar from a customer perspective.
Danny Eggers: Okay, makes sense. Maybe just one more quick one. Any update on Builder Developer Channel? I know last couple of quarters, it's been a bright spot. I don't know if you mentioned it in your prepareds, but anything, any color there?
Danny Eggers: Yeah, I don't think I separated it out. Um, the, uh...
Danny Eggers: I'd say we've been watching kind of the trending of say those three groups right, dealers
Danny Eggers: communities and builder developers over the last year. The builder developer is the smallest of the three, in fact
Danny Eggers: and you know that in the past we tended to just lump them together with communities because they're very similar from a customer perspective But we do watch all three separately
William Boor: But we do watch all three separately. And absolutely both communities and builder-developers continue to trend up for us on a percentage of total business bases. So they're tracking pretty much along like the community operators themselves.
Danny Eggers: and absolutely both communities and builder developers continue to trend up for us on a percentage of total business basis. So they're tracking pretty much along like the community operators themselves.
Danny Eggerichs: Okay, I'll leave it there. Thanks, everyone. Thanks, Danny.
I'll leave it there. Thanks, everyone. Thanks, Dan.
Jay Mccanless: Thank you. Our next question comes from Jay McCanless with Wedbush. Your line is open. Hey, everyone. I hope you guys are doing well. Hey, hey. Thanks. So first question, you know, with sadly a lot of disasters happening around the country. I haven't really heard much in terms of FEMA orders or if anything's going on there. So could you guys give us an update on what, if anything, you're hearing from FEMA in terms of temporary housing relief? Yeah, it's been interesting because I kind of echo your feelings. We obviously keep our ear as close to the ground as we can on not only FEMA, but also state and local efforts to provide relief.
Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from Jay McAnlis with Wedbush. Your line is open.
Hey, everyone. Hope you guys are doing well. Hey, hey.
Speaker Change: So first question, you know, with sadly a lot of disasters happening around the country.
Speaker Change: I haven't really heard much in terms of FEMA orders or if anything's going on there so could you guys give us an update on what if anything you're hearing from FEMA in terms of temporary housing relief?
William Boor: And I'll just comment on that real quickly that I don't know the value of the comment for the group. But from my perspective, we see and hear a lot of state and local government and all others talk about providing disaster relief without. because of how challenging it can be to work through them and the time delays that they run into. Let me touch on FEMA real quick.
Speaker Change: not only FEMA, but also state and local efforts to provide relief.
Speaker Change: and I'll just comment on that real quickly that I don't know the value of the comment for the group but from my perspective we see and hear a lot of state and local
Speaker Change: government and all others talk about providing disaster relief without FEMA.
Speaker Change: because of how challenging it can be to work through them and the time delays that they run into. Let me touch on FEMA real quick. We, it, so I got struggled in how to convey this effectively but
William Boor: We, it, so I've struggled in how to convey this effectively, but Everything seems to point to there should be some FEMA orders, right? I mean, there's been... reference even on past calls there was a call the second half of last calendar year that was pretty open between FEMA and manufactured housing kind of just seemingly to set the stage that they were going to have some orders coming so far they haven't materialized and I don't think that's necessarily an indication they won't it feels like they should we think that they lost some inventory and some of the hurricanes in fact and so I don't have a lot to give you except kind of an agreement that it's been strangely quiet and we're keeping our eyes open because I guess we won't know there's an off or bid being put out until it happens And I'd say the state and local, like on the LA fires, I'm trying to get closer to this.
Speaker Change: Everything seems to point to there should be some FEMA orders, right? I mean
Speaker Change: I've referenced even on past calls, there was a call the second half of last calendar year that was pretty open between FEMA and Manufactured Housing kind of just seemingly to set the stage that they were going to have some orders coming.
Speaker Change: So far they haven't materialized and I don't think that's necessarily an indication they won't. It feels like they should.
Speaker Change: We think that they lost some inventory in some of the hurricanes, in fact, and so
Speaker Change: I don't have a lot to give you except kind of an agreement that it's been strangely quiet and we're keeping our eyes open because I guess we won't know there's an offer or bid being put out until it happens.
Speaker Change: And I'd say the state and local, like on the L.A. fires, I'm trying to get closer to this. I don't feel like I'm an expert on what's going on so soon after those fires happened, but we are hearing there are a lot of state and local folks talking about
William Boor: I don't feel like I'm an expert on what's going on so soon after this fire's happened, but we are hearing there are a lot of state and local folks talking about. not relying on the federal assistance so much. But I'd also say that there's still a bit of lack of clarity about how they're going to organize to provide the relief themselves. So, you know, it's frustrating because I think, and I'm not just saying this from a Cavco perspective, I think our industry stands ready to try to do everything we can to provide homes for these situations.
Speaker Change: not relying on the federal assistance so much, but I'd also say that there's still...
Speaker Change: a bit of lack of clarity about how they're going to organize to provide the relief themselves.
Speaker Change: So, you know, it's frustrating because I think, and I'm not just saying this from a CAFCO perspective, I think our industry stands ready to try to do everything we can to provide homes for these situations and we just haven't seen anything break loose at this point.
William Boor: And we just haven't seen anything break loose at this point.
Jay Mccanless: If you think about the plant-based bill, Cavco's plant-based, I guess how much, and just even rough terms would be great, how much of your existing plant-based do you think it would be in a position to ship to it? Y'all's headquarters is in Phoenix, of course, but I would think you've got some other plants in the California market, et cetera, so just have you guys thought about what percent of your plant-based might ship into that area if they do get it together and start ordering home? Yeah, to provide relief for Southern California specifically, Jay? Yeah. Yeah, I mean, we've got, including Glendale, which is a park model facility that can make ADUs pretty readily.
Thanks.
Speaker Change: If you think about the plant-based bill, CAFCO's plant-based, I guess how much, and just even rough terms would be great, how much of your existing plant-based do you think would be in a position to ship to it?
Speaker Change: Y'all's headquarters is in Phoenix, of course, but I would think you've got some other plants in the California market, etc. So just, you know, have you guys thought about what percent of your plant base might ship into that area if they do get it together and start ordering homes?
Speaker Change: Do you have some pride and relief for Southern California specifically, Jay? Yeah.
Yeah, I mean, we've got
including Glendale which is
William Boor: We've got three plants in the Phoenix area that could all reach there pretty readily. And then we've got the Riverside, California plant that's really close by. So pretty straightforward to have those four plants provide or be part of providing homes for the area.
Speaker Change: The park model facility that can make ADUs pretty readily. We've got three plants in the Phoenix area that could all reach there pretty readily, and then we've got the Riverside, California plant that's really close by. So, pretty straightforward to have those four plants provide or be part of providing homes for the area.
Jay Mccanless: peremptory fatigue.
Jay Mccanless: And if we could talk about what you're seeing on chattel rates. Yeah, they've yet so they've picked up a little bit. So right now, there's a range of 8.6 to about 9.6 in the market right now. How much up is that? That's just a small increase, right? Yeah, a small increase from last quarter.
That's true.
I am proud of them.
Speaker Change: And if we could talk about what you're seeing on chattel rates.
Speaker Change: Yeah, so they've picked up a little bit. So right now there's a range of 8.6 to about 9.6 in the market right now.
Speaker Change: How much up is that? That's just a small increase, right? Yeah, a small increase from last quarter.
Jay Mccanless: And then I guess, and probably way too early to tell, but anything with this new administration that either you guys are looking forward to, or you think might be a headwind, anything worth calling out that you've already seen from the Trump administration? Not a lot of, not a lot that we've already seen impact anything. I mean there's a lot of discussion about tariffs and we're just gonna have to kind of watch and be ready that that could be inflationary on some of our input costs for sure, but it's hard to tell the magnitude of that because we don't know exactly where the administration will land on some of those tariffs.
Um,
Speaker Change: And then I guess, probably way too early to tell, but anything with this new administration that either you guys are looking forward to, or you think might be a headwind, anything worth calling out that you've already seen from the Trump administration?
Speaker Change: Not a lot of, not a lot that we've already seen impact anything. I mean, there's.
A lot of discussion about Paris and
Speaker Change: We're just going to have to kind of watch and be ready that that could be inflationary on some of our input costs for sure, but it's hard to tell the magnitude of that because we don't know exactly where the administration will land on some of those tariffs.
William Boor: You know, and then the labor force for quite a while now has been we've been able to hire people pretty, pretty readily. So, you know, attracting people into our operations has not been difficult. And there again, I'm not trying to overstate it as a risk, but, you know, I guess it's conceivable immigration or, or. that the immigration policies could impact just general labor availability, but it seems like a relatively low risk that that would be a significant impact on us. So we're still in the mode of just trying to watch and pay attention and make sure we're ready to deal with whatever comes our way.
Speaker Change: You know and then the the labor force for quite a while now has been we've been able to hire people pretty
Speaker Change: pretty readily. So you know attracting people into our operations has not been difficult and there again I'm not trying to overstate it as a risk but you know I guess it's conceivable immigration or
Speaker Change: that the immigration policies could impact just general labor availability, but it seems like a relatively low risk that that would be a significant impact on us. So we're still in the mode of just trying to watch and pay attention and make sure we're ready to deal with whatever comes our way. I think the
William Boor: I think that this is me being a little bit optimistic.
William Boor: I think the regulatory environment in general. think we've talked about things like the DOE energy rules that really were not well designed for our industry. We've been fighting that as an industry level for quite a while now with some success. I think, you know, optimistically it would be great if we could see a regulatory regime that kind of listens and works with us a little bit better there and and identifies HUD as our sole regulators in industry. So there's some upside, in my opinion, over time on the regulatory side. That's great.
Speaker Change: This is me being a little bit optimistic. I think the regulatory environment in general
and I think we've talked about things like the DOE.
Speaker Change: energy rules that really were not well designed for our industry. We've been fighting that at an industry level for quite a while now with some success.
Speaker Change: I think, you know, optimistically, it would be great if we could see a regulatory regime that kind of listens and works with us a little bit better there and identifies HUD as our sole regulators in industry. So there's some upside, in my opinion, over time on the regulatory side.
Allison Aden: And then the last question I had, just thinking about input prices and maybe some hints towards gross margin in the fourth quarter. And we've seen OSB prices come down pretty dramatically the last three weeks. Looks like drywall's up a little, framing lumber's up a little, but it seems like not only are you guys getting a good volume tailwind into the spring season, but maybe from a cost perspective, things are looking a little better. So, Allison or Bill, if y'all could talk about what you're seeing there and maybe directly where you think gross margin trends might go in 4Q.
Thank you.
Speaker Change: That's great. And then the last question I had, just thinking about input prices and maybe some hints towards gross margin in the fourth quarter. And we've seen OSB prices come down pretty dramatically the last three weeks.
Looks like
Speaker Change: Drywall's up a little, framing lumber's up a little, but it seems like not only are you guys getting a good volume tailwind into the spring season, but maybe from a cost perspective, things are looking a little better. So Allison or Bill, if y'all could talk about what you're seeing there and maybe directly where you think gross margin trends might go in 4Q.
Allison Aden: Sure, thank you. So on growth margins, you know, a couple of items that we look at very closely, right? First, of course, is the average selling price, which, you know, we did see a little bit of pressure in Q3, downward pressure. For the last several quarters, it has been fairly consistent. And to your point, the second component is cost, right? And more specifically, material costs. And we, like all the builders, right, depend on lumber and foyeted strand boards. So you're right, what you see in the commodities market, and we stay very close to it, will play through in our cost of goods sold during the next 60 to 90 days.
Speaker Change: Sure, thank you. So on gross margins, you know, a couple of items that we look at very closely, right, if
First, of course, is the average selling price, which
Speaker Change: You know, we did see a little bit of pressure in Q3, downward pressure, but for the last several quarters it has been fairly consistent.
Speaker Change: And to your point, the second component is cost, right? And more specifically, material cost. And we, like all the builders, right, depend on lumber and...
Speaker Change: for you in a strand board. So you're right, what you see in the commodities market, and we stay very close to it, will play through in our cost of goods sold.
Allison Aden: So as you can see, you know, it has drifted lower a little bit on the OSB, and we just stay very close to it. And that's, it's a way that you can see, you know, publicly also how the commodity markets are moving and just consider they'll make their way through our cost of goods and therefore our gross margin in about, you know, 60 to 90 days. Okay, great.
Speaker Change: during the next 60 to 90 days. So as you can see, it has drifted lower a little bit on the OSB, and we just stay very close to it. And that's...
Speaker Change: It's a way that you can see publicly also how the commodity markets are moving and just consider they'll make their way through our cost of goods and therefore our gross margin in about 60 to 90 days.
Operator: That's all I had. Thanks guys. Appreciate it. Thanks Jay. Thank you. As a reminder, to ask a question, please press star 1 once.
Okay, great, that's all I had. Thanks guys, appreciate it.
Thanks, Jay.
Speaker Change: Thank you. As a reminder, to ask a question, please press star 11.
Daniel Moore: Our next question comes from Daniel Moore. With CJS Securities, your line is open. Yeah, thanks again. Just maybe one more on kind of the capital allocation and cash flow, bought back over $40 million each in the past two quarters. You know, cash balance is sort of leveled off, buying back and sort of in lockstep with cash flow. And the share counts down by my math over 8% over the last two years. So, you know, is that likely the plan going forward?
Our next question comes from Daniel Moore.
With CJS Securities, your line is open.
Daniel Moore: Yeah, thanks again. Just maybe one more on kind of the capital allocation and cash flow. Bought back over 40 million dollars each in the past two quarters.
Daniel Moore: You know cash balance is sort of leveled off buying back and sort of in lockstep with cash flow
Daniel Moore: and the share counts down, by my math, over 8% over the last two years. So, you know, is that likely the plan going forward? How are you thinking about managing cash balances and putting sort of that incremental cash flow to work? Yeah, thanks for that.
William Boor: How are you thinking about managing cash balances and putting sort of that incremental cash flow to work? Yeah, thanks for that. Yeah, appreciate that.
William Boor: It gives us a chance just to high-level talk about our capital allocation. And really our focus is on expanding our capacity, right, for our plant network. So the way we think about it is if we had a dollar to spend, we probably would spend that dollar in growing our existing plant capacity. And we've had a number of projects that we've been able to invest in over the last couple of years, and we continue to vet those on a regular basis. And in fact, you know, we were able to do that as our network grows. And then second, we're always active, actively vetting our pipeline of M&A opportunities that also help us fill strategic areas of our market and also to continue to grow our capacity.
Daniel Moore: Yeah, I appreciate that. It gives us a chance just to high-level talk about our capital allocation and really our focus is on expanding our capacity, right, for our plant network.
Daniel Moore: So, the way we think about it is if we had a dollar to spend, we probably would spend that dollar in growing our existing plant capacity.
Daniel Moore: and we've had a number of projects that we've been able to invest in over the last couple of years and and we continue to vet those on a regular basis and in fact, you know, we were able to do that as our network grows.
Daniel Moore: And second, we're always active, actively vetting our pipeline of M&A opportunities.
Daniel Moore: that also help us fill strategic areas of our market and also to continue to grow our capacity. And you can see that over time, we've been active and imagine that we will continue to be active in that space.
William Boor: And you can see that over time we've been active and imagine that we will continue to be active in that space. We also look and continue to look at shadow lending opportunities for our lending operations, and that is an important part of, you know, our strategic plan. And lastly, as you mentioned, we use the shared buybacks as a way to responsibly manage our balance sheet as we work through our capital, our capital allocation priorities. So you can look at history and the level of our cash flows, which are pretty strong because of the business model is strong and the way we manage it for a variable cost factor.
Daniel Moore: We also look and continue to look at shadow lending opportunities for our lending operations and that is an important part of you know our strategic plan.
Daniel Moore: Lastly, as you mentioned, we use the shared buybacks as a way to responsibly manage our balance sheet as we work through our capital allocation priorities.
Daniel Moore: So you can look at history and the level of our cash flows, which are pretty strong because of the business model is strong and the way we manage it for a variable cost factor. And while sometimes we haven't flowed as far as our
Daniel Moore: And while sometimes we haven't flow as far as our Our share repurchase is in the quarter depending on, you know, activity around the M&A. But it is a good indicator of what to look forward, our history, what you can look forward to in the future. Very helpful. Thank you again.
Daniel Moore: Our share repurchase is in the quarter depending on you know activity around the M&A But it is a good indicator of what to look forward our history to what what you can look forward to in the future
Very helpful. Thank you again.
Operator: Thank you. There are no further questions at this time.
William Boor: I'd like to turn the call back over to Bill Boor for closing remarks. Yeah, I think just very consistent with the discussion we've had today. We've seen steady improvement in the market for a number of quarters now. And, you know, with the channel inventory issues behind us, we've got a backlog that at a macro level, you know, on an aggregate basis, we're very happy with. So that's well positioned. And we're continuing to ramp up our throughput. So we feel really well positioned for the coming quarters. And we're not taking anything for granted. We understand the ever-present economic uncertainties, but we're optimistic about continued steady improvement.
Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the call back over to Bill Boor for closing remarks.
Bill Boor: Yeah, I think just very consistent with the discussion we've had today, we've seen steady improvement in the market for a number of quarters now and with the channel inventory issues behind us.
Bill Boor: We've got a backlog that at a macro level, you know on an aggregate basis, we're very happy with so that's well positioned
Bill Boor: and we're continuing to ramp up our throughput. So we feel really well positioned for the coming quarters and we're not taking anything for granted. We understand the ever present economic uncertainties but we're optimistic about continued steady improvement.
Operator: So I really want to thank everyone for joining us today and for your interest in Cavco, and we look forward to keeping you updated. Thank you. Thank you for your participation.
Bill Boor: So I really want to thank everyone for joining us today and for your interest in CAVCO, and we look forward to keeping you updated. Thank you.
Operator: This does conclude the program and you may now disconnect. Good day.
Bill Boor: Thank you for your participation. This does conclude the program and you may now disconnect. Good day.
Thank you for watching!
Bill Boor: [music].