Q2 2026 Cavco Industries Inc Earnings Call

Again, I would now like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations.

Good day, and thank you for joining us for Cavco Industries' second quarter fiscal year 2026 earnings conference call.

During this call, you'll be hearing from William Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, Chief Accounting Officer.

Before I begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They involve expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow, or cost savings, as well as 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.

For a detailed discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our investor relations website and at sec.gov.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, October 31, 2025. Capco undertakes no obligation to revise or update any forward-looking statements, whether written or oral, to reflect actual events or circumstances after the date 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.

Thanks, Mark. Welcome and thank you for joining us today to review our second-quarter results for fiscal 2026.

We saw focused execution across our operations that led to.

The strong overall results for reviewing today.

Revenue was up 9.7% year-over-year and flat sequentially.

Our operating profit was up about 27% over last year's Q2 and up 3% over last quarter.

All operations contributed to these results, as I'll touch on.

I want to start by discussing the general market, as there were some notable regional differences.

Using published industry data, year-to-date national shipments are up over 3% through August.

In many regions, mainly across the northern U.S., year-to-date shipments are up double digits.

Recent months continued to show strong year-over-year shipment comparisons in those states and regions.

In contrast, last quarter we spoke about the Southeast.

Showing some volume risk. And clearly, the region did slow in the quarter.

Shipments in the area bounded by the Carolinas and Tennessee down to Louisiana and east.

We are down about 4% year-to-date and down 10% in July and August compared to last year.

The point being, industry shipments are currently showing significant regional differences.

Shifting to our operations and recent quarters, we've pushed production across our system, knowing we can adjust back if needed.

And we did need to slow our Southeast production in Q2, and the plants reacted. Well,

That reduction was accomplished through a combination of extended downtime during the Fourth of July holiday and production rate reductions where plant backlogs were low.

Across that Southeast region, we were operating our plants just above last year's pace.

While all other regions maintained elevated production rates from Q1 to Q2, Q2 saw a significantly higher pace than last year.

Pointing out these regional differences is not intended to be alarmist in any way. City here, at the end of October, we've seen backlogs in our plants that serve the Southeast stabilize and edge up over the last month.

There's nothing systemic we can point to that explains the regional shifts, and we'll keep monitoring and adjusting production to manage appropriate backlogs.

On the subject of backlogs overall, we remained at about 5 to 7 weeks.

Unit backlog was up slightly quarter-to-quarter, and as explained, that was the result of selectively pulling back on production.

Overall, wholesale orders were down just slightly.

Turning to average selling price, I want to really make it clear here that my comments are sequential, not year-over-year.

When we separate the various drivers, wholesale prices were essentially flat.

Pricing did hold up across the board, including in the Southeast.

With what I consider to be basically insignificant variation by geography.

The significant upward movement and reported ASP was primarily the result of a higher percentage of recognized units from retail and, to a lesser degree, a mix shift toward multi-section homes.

We have seen a few quarters where multi-section homes increased relative to single sections after a string of quarters. Where did it go the other way?

We aren't reading too much into that variation at this point.

I spent a lot of time noting the relative strength across the northern U.S. in comparison to the Southeast because the divergence is noteworthy during a period with continuing market uncertainty.

We're making no prediction about forward demand in the Southeast at the moment. The market seems in balance with manufacturer production.

And frankly, there are scenarios that it strengthens and others that it weakens from here.

We're comfortable operating in this environment because we've demonstrated the ability to closely monitor and adjust, as we did this quarter.

I don't want to miss the opportunity to highlight the continuing strong performance in financial services.

In the first two quarters, revenue is up about 5%. However, operating profit is up $14 million, from a loss last year to an $8 million profit this year.

This has been driven by our insurance business. Weather has played a part, with the majority of the increase. Profitability has resulted from aggressive actions taken to pare unprofitable policies.

And changes that were made to underwriting and claims management.

I want to really acknowledge the insurance operation for the great job they've done, and it's clearly showing in our results.

As previously announced after Q2 ended, we were able to close the American HomeStar acquisition.

After almost a month to gather integrations moving quickly and very well, thanks to the people from both companies.

Who took advantage of the time between the announcement and closing to plan all aspects of integration?

The combined company is off to a great start.

Your commitment to the smooth transaction transition by the American HomeStar leadership has been very apparent, and it's made all the difference.

And finally, while I have the floor, I can't help but touch on capital allocation. Um, Allison will cover it in more detail.

We continued investing in our existing plants.

We closed on the American Home Store acquisition immediately after the quarter, using cash on hand.

And we were able to repurchase 36 million of our common shares.

All of this, of course, was enabled by our strong balance sheet and cash generation. This balanced capital allocation approach will continue going forward.

So now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the second fiscal quarter of 2026 was $556.5 million, up $49 million, or 9.7%, from $577.5 million in the prior year quarter.

Sequentially, net revenues decreased by $0.3 million, driven by a decrease in homes sold, partially offset by an increase in average revenue per home sold.

Within the factory, the housing segment generated revenue of $535.1 million, an increase of $48.8 million, or 10%, from $486.3 million in the prior year quarter.

The increase was primarily due to a 5.4% increase in homes sold.

And the 4.4% increase in average revenue per home sold.

The increase in average revenue per home sold is primarily due to a higher proportion of homes sold through our company-owned stores, with more multi-section units in the mix and product pricing increases.

Factory utilization in the second fiscal quarter was approximately 75%, compared to 70% in the prior year period.

Financial Services segment: Net revenue was $21.4 million, up $3 million, or 1.4% from $21.1 million in the prior year quarter and sequentially up $0.2 million.

These increases were due to higher premium insurance rates, partially offset by fewer loan sales and fewer insurance policies.

In the second fiscal quarter, consolidated gross profit as a percentage of revenue was 24.2%, up 130 basis points from 22.9% in the same period last year.

In the factory build housing segment, gross profit was 22.9% in the second fiscal quarter of 2026, flat with the prior year quarter.

This is gross. Profit is a percentage of revenue, increasing to 55.6% in the second quarter.

Up from 21.8% in the prior quarter, this increase is primarily due to fewer claims from storms in the insurance business.

Selling, general, and administrative expenses in the second quarter were $72.2 million, or 13% of net revenue, compared to $67 million, or 13.2% of net revenue during this same quarter last year.

The increase in these expenses was primarily due to higher incentives.

Compensation and deal costs from the recently announced American HomeStar acquisition.

Interest income for the second quarter was $5 million, down from $5.7 million in the prior year quarter, primarily driven by lower interest rates on our invested cash balance.

Pre-tax profit for the second quarter was $67.3 million, up $12.3 million or 222.4% from $55 million in the prior year period.

The effective income tax rate was 22.1% in the second fiscal quarter, compared to 20.3% in the same period in the prior year.

It's increased was driven primarily by a reduction in expected tax credits, partially offset by benefits from stock-based compensation.

Net income was $52.4 million compared to income of $43.8 million in the same quarter of the prior year.

And diluted earnings per share this quarter were 655 cents per share, compared to 5.28 cents per share in last year's second quarter.

Before we discussed the balance sheet, I'd like to take a minute to talk further about capital allocations.

Shortly after the close of the second quarter we completed the American HomeStar acquisition.

During the second quarter, we also repurchased just over $36 million of common shares under our board-authorized share repurchase program.

And we have approximately $142 million under authorization for future repurchases remaining.

Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, pursuing additional acquisitions, assessing opportunities within our lending operation, and continuing to buy back shares.

Now, turning over to Paul to discuss the balance sheet.

Thank you, Alison.

In the quarter, we had an increase in cash and restricted cash of $31.6 million, bringing our balance to $400 million.

Cash provided by operating activities was $78.5 million.

Cash used in investing activities was $12.4 million. Cash used in financing activities was $34.5 million, primarily due to share repurchases.

When we compare the September 27, 2025 balance sheet to March 29, 2025, the increase in accounts receivable is related to organic growth. In the factory built housing segment, unit shipments are up 2% in the period over the prior year end.

Inventories increased from higher finished goods at company-owned retail stores.

The decrease in prepaid expenses and other current assets is a result of lower prepaid insurance and prepaid taxes.

Property, plant, and equipment increased from continued investments in our existing manufacturing facilities.

Deferred income tax changed from an asset to a liability primarily due to the acceleration of certain expenses that were previously capitalized and bonus depreciation, both resulting from changes in new tax law.

Crude expenses and other current liabilities increased from higher volume, rebates, and warranties across, not increased sales. Finally, treasury stock increased due to stock buybacks year to date.

As a reminder, we closed on the American HomeStar acquisition after quarter end.

Therefore, the cash balance does not reflect a reduction for the purchase price, which is $190 million before certain customary adjustments and is funded with cash on hand.

With that, I'll turn it back to Bill.

Okay, Josh, can we open it up for questions?

Yes, as a reminder, to ask a question, please press *1, then 1 on your telephone and wait for your name to be announced. To draw your question, please press *1, then 1 again. One moment for questions.

Our first question comes from Daniel Moore with CJs Securities. You may proceed.

Afternoon, Bill Allison, or actually you should say good morning out there. Thanks for the color, and take some questions.

Thanks.

You know, backlog held up nicely despite a 5% growth in shipments. Maybe you could talk a little bit further about how orders are trending thus far into fiscal Q3, and where you expect to be able to maintain current levels of production as we enter, you know, seasonally slower periods perhaps in some of the northern states ahead of next spring selling season.

Yeah. Yeah, I know I threw a lot at you with the regional stuff, and um, it's interesting because a lot of times people will ask about the regions, and I kind of just wave it off because I don't see any significant differences. But it's kind of, you know, I might have beat it to death in the comments. It's, um, pretty. It's a pretty market difference between that isolated Southeastern area. And part of that message, though, it really should be also how strong it is elsewhere. I mean, we really do have double-digit growth, a big part of the U.S. geography right now.

And the question about orders: our wholesale orders were down just a little bit in the quarter.

Um, that's probably not unusual. The summer can be that way. As far as our view going forward, I won't speculate too much, but I'd say, you know, this is a quarter that's interesting. October can be pretty strong.

And then you kind of get into the holidays, so it comes in strong and tends to slow down through the holidays.

Overall seasonality, while we can measure it over long periods of time, um, a lot of years, it's

It's really more about the general strength in the market that drives the direction of orders quarter to quarter. I'm not sure I said that well, but the seasonality can be overshadowed just by market strength, and market weakness shifts. Right now, it still does feel like a balanced market in many ways. I said earlier, even in that Southeast that I'm pointing to a lot, I feel like we're in balance.

We had to pull back a little bit in the summer on the shipments that we had in our plant serving that area. But, as I indicated,

You know, given a little bit of an update through the early part of this quarter, we've seen our backlog stabilizing and grow a little bit there, so we're kind of in a nice balance.

And like I said, I don't know how to...

Speculate and call whether it's going to strengthen from here, which is very possible, or whether we continue to see some cracks there. So, it'll be an interesting quarter, I guess. But right now, we're feeling pretty comfortable with a nice balanced market.

Does that address right now?

It does. If I heard correctly, your production rates are staying relatively steady?

Um, you take them down a little bit in the Southeast, but you know, it's kind of holding from here for the interim and waiting to see, is that the best way to describe it? Yeah, I was, I was probably focused in that comment about the Southeast that we're feeling in balance with where we've adjusted to the other parts of the country. We have plants that are looking to try to bring on a little production right now. So it's really a very differential situation in operations, and I feel like we've been, you know, at a high level.

The last several quarters have felt like this; you know it hasn't been flowing and going, but it's been pretty healthy. You've got to keep your eye on the ball, because at a given plant.

Um, it can move on you one way or the other. So,

Um, not intending to be evasive, it's more that we're just seeing all conditions across the country. And yep, you know, outside of the Southeast, we have plants that are still edging it up. We did have a number of our plants outside of the Southeast that, from Q1 to Q2, increased production.

Very helpful and Texas is is, you know, obviously a big market for MH and bigger now with American HomeStar for you. Yeah. How would you describe that market? We've seen numbers all over the board in terms of um, you know, the the HUD code of shipments. So, you know, what are you seeing in that market?

Yeah well you guys can see the HUD code stuff. I'm looking here year to date. It's almost flat right year to date cumulatively and you know in the early summer it was down just a little bit in Texas but I'll tell you what we're feeling.

Our retail is primarily based in or centered in Texas. It's starting to not be the case as we've expanded, but it's still the core of our retail business, and we had a really, really good quarter in retail. So, um, the market's there, our retail guys are doing a great job of going and getting it, which pulls through our production. So we're feeling pretty good about Texas in general, I'd say right now.

see, a little more input, cost pressure or tariffs other, you know, running through cogs um or or these the levels that we just saw this quarter reasonably, sustainable Allison,

Yeah, I'll give the tough questions to Allison.

You know, let's touch on a couple of elements that that we typically do look to, um, you know, the strength of our business model, um, particularly with the backed up at the tariffs. I think really shine through of how we focus. Very much on keeping this much, uh, favorable cost up and fixed costs low as far as margins and total. Uh, you know, we think about the, the ASP. And I think we've done a good job. We've done a good job of kind of addressing where we are and perhaps, um, you know, different Alternatives of where we can go but let's talk about the, the cost components in tariffs. Uh, because I think that's probably the focus of of uh, of what's ahead and and what um, investors want to know.

We estimate that the impact of tariffs in Q2 was approximately $2 million in additional expenses that hit our cost of goods.

If you remember during our Q1 press release, we shared an estimate that the projected overall impact could reach, and this is over the course of, quarters 2 to 5.5 million elk quarter. If the total tariffs that were being discussed at that time were fully implemented.

So, post our Q1 last quarter's earnings release, the Canadian lumber duties have been increased from their long-term 14.5% to 35%. And that actually happened at the very end of July of this year.

And then, subsequent to that, the duty. It's also been announced as an increase of 10% tariffs, placed additionally on top of that.

You know, these terrorists obviously have fully implemented and and we've seen the back and forth. Um, you know, that's been going on for the last several months. So we stayed close to it. Obviously they would, these would have a meaningful, you know, a meaningful impact on the cost of our homes by uh increasing the price of lumber for framing for floors for roofs. Not unlike other home builders. So, we, you know, continue to stay focused on it continue to, really lean into our affect the efficiencies and Effectiveness that being, uh, a manufactured, um, builder of affordable housing providers. Um, and we, you know, the, the, the office focuses, our ability to pass these costs through and pricing will be very

Dependent upon local market conditions, as we've consistently said.

Um, you know, a positive is, uh, the decision that came about in recent weeks to really kind of kick out the China tariff, increase out a year, uh, you know, that will help us reduce, um, our estimate, probably to the lower end of the range that we provided. Um, it will clearly avoid, uh, some increases that we were anticipating to the electrical and plumbing that we purchased from China through intermediaries. So, I went a little long on that.

You smell it? Y'all just...

are what we're factoring in. Obviously, you know, as we talked about the largest, uh, component that we use on the Commodities of Lumber in OSB as all Builders. Um, we all have, you know, access to that. Um, as you can see, the in the spot market and basically the rates and levels that you see, when, when you look at the commodity markets in general, we can think about those factoring through our cost of goods, at about 60, uh, to 90 days.

That helped a bit.

It does. Now that that is, that is a great color. Um, one more and thank you. I just touched out a couple comments in. Um, yeah. When you're looking at 2022, specifically, you might remember that in Q1, we saw, um, you know, product-like price increases. So we had a good

Good, um, beginning to the quarter, coming out of Q1 with prices up.

And then on the cuff side,

You know, a lot of these tariff risks are concerning, and we're really keeping our eye on it. But in the quarter, on the cost side, we've actually continued to see lumber really at a pretty low cost. It almost defies logic when these Canadian softwood lumber tariffs have been.

Terrorist and duty increases have been put in place. We're still seeing lumber at a pretty low level right now. So,

Um, that really, you know, contributed to the nice.

Gross margin this quarter, and a lot of what we're going to be focused on going forward, is some of these risks.

I guess, first off, the numbers that you gave back when you announced the deal in July, um, how are they trending relative to those? I think it was $194 million in revenue, $18 million. But, uh, um, any change there, you know, good or bad? And second, um, how do we think about the potential impact of maybe acquisition accounting? You know, that's been something we've discussed in the past with some of the others, you know, for the first sort of quarter or two out of the box.

Yeah, good question. I mean we've had them for a month, so I'm not sure I have a huge.

Update on kind of trends, but I do just mean they're going to fold in two more plants in a system that now has 33 plants. So that's pretty much pro rata. You know they'll fall right in line there. They are, you know, heavier than our concentration before the deal on the retail side, so we'll get considerable.

Um, impact from the retail side. But from a business perspective, they're folding right in as part of the business, not better or worse than the rest of the operation. Um, I do think, and I know we didn't put it out there with synergies, but I do think my comments about integration. Um, so over time we'll kind of.

Pretty likely we'll kind of tell you guys how integration is going. And I think we're going to be able to add some meaningful value to the deal on top of.

Them. So it's not just a complete bolt-on. It's a bolt-on that I think will be lifted over the next several quarters. Um, I appreciate the question on the first accounting. I am going to let someone else answer it because they'll do it better, but it's important, and we've looked at it.

But if, from the acquisition accounting perspective, we think about the potential impact on the consolidated gross.

Margin level—it's probably going to be pretty small.

And the reason for that, um,

The reason for that is, if we look at this particular acquisition, um, there is really a high marketability to, um, to their type of product. So we'll be able to get to market faster, these more successful out of the gate. Also, in addition to that, their inventory levels are extremely rational. So if we compare and contrast this to say the previous acquisitions, is what we've done but we have had an impact, um, to the consolidated margin. Um, we believe that in this particular acquisition, um, that will really be very low and pretty, pretty non-eventful.

Really helpful. Okay, I'll jump back with a couple of follow-ups. Thank you.

Thanks, Dan.

Thank you.

Our next question comes from Greg Palm with Greg Hallam. You may proceed.

Hi, uh, thanks. I, I wanted to maybe go back to the market or the industry growth, or I guess, lack thereof. Um,

I, I, I'm pretty sure that the industry reported, or will report, declines on a year-over-year basis in units for the recent quarter. But, you know, you've continued to outgrow the industry by a pretty meaningful amount, sort of quarter in, quarter out, for the last, you know, year plus. So maybe you can just, you know, better sort of highlight what you are doing right, what you are doing better, and what's allowing you to outgrow the industry to that sort of magnitude.

Yeah, well, I appreciate the recognition. I know that there is.

Volatility in market shares from quarter to quarter. So I'm always a little bit hesitant to, um, declare Victory, but we've talked about things over time that we've done that, I do think are really settling in, um, you know, a tremendous amount of work over frankly a couple years where we initially,

Um, really move forward in digital marketing and...

That really didn't completely take hold until we followed that with the rebranding that we did earlier this calendar year.

And the rebranding, you know, again coupled with digital marketing, I think, you know, our ability to.

um, generate

Good leads, customers, and consumers who are educated on our products have just stepped forward in a dramatic way from those changes. We're probably at the beginning of really realizing that. I think that was a strategy that unfolded; it literally took a few years to get to where we are, but I think now it's time to make hay with that. We've also talked about...

Bring better training and accountability to sales teams across our organization. I think is starting to gain traction and it also is improved our um selling approach to communities and developers because a lot of those communities and developers when they're larger organizations they need to have contact at various levels in the organization and frankly we had a gap

And so, I think we've closed that gap.

I, you know, I could go on and on. I think our product team has done a really good job of, um, innovating product design. So, all these things are focused at trying to not just stay with the market, but to try to gain a little share, and you know, I certainly believe that that's impacting the results.

Okay. Yeah. Let's uh

That's helpful caller and then shifting to the the mix in in the quarter you you mentioned more homes uh from company-owned retail. Do you have that percent for the quarter and how that compares to both your ago periods, as well as sequentially? And just curious what you're seeing thus far in October, as it relates to the most recently, completed quarter,

Yeah. Yeah, I can take that, um, Greg so this quarter, uh, we're about 22.9% that were sold through our retail Channel, um, and that's up sequentially. Uh, 4% from 18.9%, this last quarter.

And then, year-over-year, the percentage was 21. So we're up about 1.9% year-over-year.

And any color on, you know, at least from a high level. What you're seeing in October.

I think continuation, in general. I mean, I wouldn't say any discontinuity. Um, I think retail's been, as I mentioned earlier in my answer to one of Dan's questions, retail in Texas has really been.

Um, help doing themselves. They've been doing a great job, so I think they're.

Uh, continue on that path. And the market in Texas is at least supportive enough for them to dramatically improve the results. I don't think some of the...

Um, percentages March just went through or really.

They're essentially same-store comparisons in the system. Well, we have grown the system over time. I think if we went back and looked, we've been kind of at that 80 retail store level going back through that comparison period of last year. So it really is.

Same store, same footprint, um, improvement on the retail side. And yeah, October—I'm not trying to get too much into it, but October really hasn't been...

You know, a discontinuity with that.

Okay? And just to remind us, as it relates to HomeStar, I mean, presumably that number maybe even goes up a little bit more, all else being equal, because of the proportion of homes that HomeStar was going through, uh, company-owned stores, right?

That's right. I mean, they'll bring with the HomeStar deal. We go from 301 to 33 plants, and we go from approximately 80 to 100 on the store side, in round numbers. And, um, I think I'm right on this. I think their degree of integration through their retail is around 60%.

So, 60% of their manufactured homes were going through their company and stores. So, it will shift that, um, it will have an upward effect on that percent integration.

Okay. All right, thanks. Uh, lastly, you know, I'm going to throw a broad question at you because there's a whole bunch of different things going on on the regulatory front. You know, whether it's chassis removal or some of the financing stuff, zoning, but just curious to get your high-level thoughts on the potential of some of that and obviously the longer-term impact of some of that stuff as it goes through.

Yeah, one thing that happened is the HUD code got updated, and we feel really positive about that. I mean, they...

HUD code updates were few and far between for a long time. I've talked in the past about the relationship between the industry and... but it's not like, uh,

You know, they regulate us, but it's a positive working relationship. So, getting the HUD code update, I think, is a positive. Some of the good things that come out of that are, um, duplexes up to, we call them four-plexes, being able to build more than one family unit. That's now part of it, eliminating a lot of the bureaucracy that goes with some of the more typical, um,

We used to have to get.

Specific letters to allow some deviations from what was in the code, and they fixed a lot of those.

Um, problems in the code so that the bureaucracy is down on letters. It also added some.

Updates to the electrical code that require us to put in more GFI.

Um, and more tamper resistant.

uh,

You know, outlets, uh, also they, um, kind of lowered the strength value rating on Southern yellow pine. I'm going into a lot of detail here. I guess it's not necessary, but those will add some marginal cost to the homes that I think were legitimate and valid cost increases. More broadly in regulatory, we've talked before. Um,

Cassie is gaining a lot of notoriety and support from both sides of the aisle. It's a matter of how do you attach those kinds of things to a much larger bill that can actually get through the gauntlet. Um, but I think we're pretty optimistic at an industry level that we will get the chassis removal, which will open up a lot of innovation.

Um, we're trying to get HUD identified as a sole regulator so that we can avoid some of the this function that happened with the Department of energy, over the last couple of years. Um, and also work in some things to make sure that all forms of ownership for communities are given a equal opportunity to provide more homes. So there's a lot going on in DC those bigger items. Um I'm always kind of interested because I get involved in it to figure out. Okay, how do you actually like you can have confidence 1 of these things is going to get done but the actual route it takes is a lot of times uncertain. So um, we'll just have to stay tuned on the timing for some of that, but those

Those changes, like the HUD that was passed in the Senate, are part of the road.

Bill, um, so now it's in the House for consideration.

Okay, appreciate all the color, thanks.

Yeah, thanks Greg.

Thank you.

Our next question comes from Jay McCanless with Wedbush. You may proceed.

Hey, Jay.

Hey, yep, everyone. Um, so I guess to take the price question a little bit further.

Um, you said American Home Store accounts for 60% of their sales. Go to retail. So

At least something more than that 23% going forward. I mean, have you guys even tried to plan out or get an idea internally of what that split could look like?

Yeah, I haven't done the algebra, to be honest. I'm ashamed to say that because it's a pretty straightforward question, but I haven't tried to figure out apples to apples. If nothing changed, how much that would lift the percentage. But again, you could pretty much ratio it, Jay. You know, our plant ownership's going up. And, and I would just at this level, to get an estimate, I would assume that their plants operate out typical to our average plant. So that's, um, 2 divided by 30 increase on that side. And then, you know, you've got the 20 stores added to what was previously an 80-store.

Retail system. Um,

So, and then with the 60%, I apologize. I haven't done it, but I think we could probably get there pretty quick.

No, no, that's fine. I just, I didn't know if that was a stat all it had ready for the call. Um, I guess the second question is nice to hear that a little more multi-section. Businesses quarter. If that's something you think continues, is it what you're seeing in the backlog right now for the plants?

Yeah, a comment is that, you know, we're always watching that, and we're always interested to see if we're seeing trends. We saw quite a few quarters where it was, you know, a small movement in the other direction. So this is kind of swinging back a little bit. Um, I'm not sure that we've really got a theory that it's a trend. You know, we've got, I think, two quarters now.

That multi increases a percentage, um, but I don't think we're ready to declare that a trend. That kind of seems a little bit more like normal variation right now.

Got it.

Um,

And then 1 last question on pricing. Um could you talk about you know you identified the Southeast region versus other regions especially up north um how I guess how big of a pricing Delta is there and and are there some modular units running through those northern northern markets that may up the ASP a little bit as well.

I have to come back to make sure I understand the second part, the pricing difference. I mean what's been interesting is that.

When you look at the change in pricing, because obviously our plants across the country make different products, it’s not apples to apples on like a dollar amount of pricing. But the change has held up very strong. What I was trying to point to is, for all the discussion about a drop-off in volume in the Southeast, the Southeast did not give up any pricing.

Um, so pricing is holding across the country right now. You asked a question about the Northeast and modular that I'm not sure I captured.

Standard light for light single-section homes that you sell in your Northern markets versus your Southern markets. I would assume that there's a price differential just from higher cost markets, etc. Is this something you guys have identified or talked about before?

I think that's directionally correct. I mean, some of them are modular, and, um, yeah, even the coding can be different up there that can drive some costs up to direction. I think you're right.

Okay. Are you kind of trying to figure out if that's a driver? You know, if the mix of non-Southeastern plants and Southeastern plants is a driver of the ASP increase?

Yes. That's that's exactly where I'm going for. Yeah, I think I think you're actually it probably is, I don't know that. I feel it's at significant, I guess. Is where I'd say, I think, I think you couldn't be argued that. It's not an upward driver but I'm not sure. It really shows up in the calculations as a significant driver.

Okay. All right. Well, thank you, Bill. Um, and then the last question I had just kind of talking about where, where cattle rates now, um, what type of of is there anything? That's that. I know the the Senate passed their version of the bill, I guess we have to wait for the government to get back open for the house of reps to to pass their side of it. But yeah, if you could talk about where child rates are right now and and what type of um, anything newer or interesting on the mortgage side, we need to be watching

On the, uh, just trying to touch the regulatory side of it. Um, a lot of discussion.

Um, you know, I've been one that's really pushed hard in DC for Congress, um, directing the GSCs and to um, actually follow through on their duty to serve plans that involve doing some chattel lending programs. I wouldn't say that.

I feel like the discussion is right, but I'm not sure there's anything imminent on it. I guess that's my sense of it. So, I'm not saying you should hold your breath as we’re going to see something coming out of DC, but we keep working on it.

But then on your actual race discussion, I think Mark has the information. Yeah. Yeah, so on rates, they've been trickling down just a little bit these last 3 months or so—about down 70 basis points—and about 8.5%. So, mid 8% range now.

Okay.

That's great. Thanks, thanks, everyone. I appreciate it. I'll take more questions.

Yeah. Thanks Jay.

Thank you. Our next question comes from Jesse Letterman with Zelman and Associates. He may proceed.

Hey thanks for taking my question and nice job on the quarter of Bill. I remember a couple quarters ago uh when you talked about on the financial services cross margin specifically uh we had a long discussion about what you were trying to do there in terms of um making sure the underwriting and what's actually being covered is more appropriate so have a nice job.

That's come to fruition.

Thanks, Jesse. Thanks for the good memory. Uh, high-level question for you: Bill, on kind of the political discourse, of course, has been a lot of public chatter between FHA, FHFA Director, PI and Trump, with the larger public site, built homebuilders regarding affordability and increasing production, and things of that nature. I was wondering if you've been involved in any conversations where, um,

you may be or they may be coming to you, in terms of manufactured housing or factory build, housing generally, being a solution for affordable, uh, housing in this country. Have you been able to kind of input yourself your yourself or, or manufactured, housing, into those conversations at all over the last couple of months.

I think absolutely. And I'm not speaking just on behalf of myself; I would say that the industry and the industry association have done a really good job. You can literally compare and contrast from just a few years ago when...

Manufactured housing was kind of on the outskirts of people's consciousness, sometimes in D.C. And now, uh, we're part of every conversation. So I think tremendous ground has been taken as far as just highlighting what the industry can do, and um, both sides of the aisle.

House and Senate. You know, I've testified a couple of times up there.

Um, manufactured housing is front and center in people's minds. Now, the challenge, I think, is that there are certain things the federal government can do that would really have a big impact. And we've talked about some things like the HUD code, um, the definition of, you know, removable chassis, uh, things like encouraging.

To impact directly or indirectly the things that are more relevant, the function at the state and local level is crucial. That's where you really see the zoning challenges that limit the supply of what we do. Um, so I'm not saying the federal government can't do anything, but their ability to directly impact that may be a little bit less than we'd like it to be. We really have to do the work at the state and local level. Um, at the industry association, we've really been focused on that strategically, trying to make sure that the industry association is working really closely with the states because I think that's where those battles need to be won.

So I feel great about it. I don't feel like we're missing any share of mind or being left out of any good discussion in D.C. about affordable housing at this point.

Great, it's good to hear. Thanks for the call on that. Um, next one, I think for Allison on the gross margin. I just maybe want to clarify some things. So, it sounded like, encouragingly, the tariff impact was at the low end of the, you know, $2 million to $5.5 million range in the fiscal second quarter. But given since you gave those numbers last quarter and you've had some incremental tariff increases on Canadian lumber.

So it sounds like going forward.

You'll be maybe toward the middle to higher end of that $2 million to $5.5 million per quarter range, that's kind of how it sounded. But then I think you made a comment about being encouraged by some other.

Effects of what you're seeing that. It might be toward the lower end. So just kind of hoping for some clarification on the personal. Yeah, let me clear. Thank you for that opportunity to clarify. So, the range that we gave last quarter, um, was 2 to 5.5 million, and that to us, is the range that if take if you remove any new, um, Canadian, Lumber tariffs and anti-dumping increases that range still holds. And if you think about that range, a a good data point for us is that the China uh tariff increase kind of got pushed out so that keeps us a little bit less to that range. Now take that range.

And add to it.

But we're just now what we're recently learning about the increase to Canadian, lumber from a terrorist perspective and an anti-dumping. That's not within that 2 to 5.5 million. A quarter range. We're not quantifying that increased or the impact from Canadian Lumber because there's still quite a few elements that are uh churning. Um, and so, as we as as those unfold those elements around, you know, there has been an increase.

2, 35% that was done in, you know, the very end of July right to the Canadian lumber, and then just recently, literally in October, discussions around another 10% increase. Um, and if you take a step back and think about, you know, those recent articulations of what could be coming, it's at this point I feel like it's too early for us to put a box around that range, and so we'll continue to watch that. But those would be incremental costs to that $5.5 million a quarter range that help.

Yeah, that's very helpful, Alison. Thank you. I appreciate that.

Um, a couple more I think on, uh, last quarter's call. Bill, you talked about kind of the secondary market. You were maybe holding a few more loans on balance sheets, some fewer loan sales. Have you seen any shifts since then in the secondary market's appetite for chattel loans?

Yeah, a lot of good discussion, and we're working pretty hard to generate some partnerships there to, you know, free up.

additional lending capacity because, as we've said a lot of times, we are willing to

Um, hold these loans to a point, but we really prefer to have buyers of the loans we originated. So, uh, there's been a lot of discussions. Not really an update that I could provide as far as anything that's broken at this point. Broken through. Um, and I think, you know, I guess your question partly too is appetite. I think there is an appetite out there.

For these loans, um, it's a hard process. A lot of the people that are talking to originators like us are, um, folks managing insurance money, which is a really good fit, frankly, from a tenure perspective. Um, and it's a complex process to get to an actual agreement with those folks. So, uh, they're showing a lot of interest, but the deals are a lot of work to get done.

Okay.

He didn't really give up any pricing in the Southeast, which obviously is encouraging. But on the other hand, how do you think through maintaining price, albeit at kind of lower order rates and shipment rates versus perhaps giving up a little bit of price and trying to stimulate some more demand or some more orders to increase capacity a bit?

Yeah, it's a good question. It gives me a chance to probably put a different point in here in the discussion about the Southeast. Because I knew when I was talking about it that much, I might heighten people's sensitivity to it, just trying to draw the contrast for the most part, the capacity utilization.

At least in our system, and I think it was probably a more general statement, the industry is not at a terrible level. I mean, plants are operating; they're making money in the Southeast.

And so you know every plan has kind of this ongoing decision every day about pricing strategy and right now I think um it's not it's far from a doomsday situation. So people feel like they're getting appropriate orders and there hasn't been a motivation at this point to really aggressively compete on price. A lot of what our plants do. And this is a general statement, is they go out and look at our product compared to other product that's in their local markets and make sure that they're priced accordingly. And, um, that's what I'm sure how the other competitors do it. And at this point, no 1's at a state of concern about the direction of the southeast where they

Kind of sad, we're just going to drop prices and try to win market share that way. So, I like that; I think it means that there's stability even with the, um,

Even though it's lagging, the rest of the country, from a market demand perspective, um, allows us to kind of stay the course and adjust as we need to going forward.

That's helpful. Yeah, I guess it sounds like giving the great commentary on the Northeast. That's particularly strong, I guess, as it made it sound.

A little worse than it is in the Southeast on a relative basis.

Yeah, and just to clarify that real quick, Jesse, I mean it's the strength is across the entire North. You just go right across the entire northern part of the U.S. and pretty much where.

You're outside of that localized Southeast area that I talked about; things are pretty strong.

Great. And then last one on the CapEx, roughly $10 million this quarter, about $9 million last quarter. You noted there was investing in the plants. Can you maybe give a little color on the progress of those investments? What you're actually doing in the plants? Are those AI, you know, are those automation initiatives? Maybe just a little color on how that will come to fruition. Thanks again. Yeah, yeah, absolutely. Um, yeah, we're really happy with some of the project opportunities we've had in our system and even through the period. A couple of years ago when we were dealing with really a slowdown, we were still...

Consistently investing in these projects, I would characterize them. You know, we can look at a plan and we've got some outstanding resources on the engineering side.

Frankly, people that came to us through the Commodore transaction. This has been one of the...

Value adds of that transaction. I mean, several years ago, we've got folks that I think, when we now start the transaction, we talked about some manufacturing technologies where they were really able to do some things other companies hadn't figured out, like lasers.

Uh, floor gantry systems for fastening that are very safe and efficient, uh, CDC machines. Um, and so we've been seeing opportunities throughout our system to modernize using some of those technologies. I would characterize the investment at any one plant to probably be between $2 million to $5 million.

And every one of those projects is just feeling like a home run because they not only get us a little bit of additional throughput.

And when you add several of those together, you've added a meaningful amount of capacity, but they also all seem to have very good safety and quality improvement aspects to them. So we're going to keep doing those. And that elevated, I think the question was asked last quarter about whether that was a new level of sustaining capital. No, you're seeing investment capital in that number for sure.

Thanks again, Bill and Allison. I really appreciate the time and the answers.

Thank you. As a reminder, to ask a question, please press star 1, 1 on your telephone.

Our next question comes from Daniel Moore with C.J.'s Securities. You may proceed.

They get a lot of questions recently about chassis specifically. So, you know what's the average cost of a chassis? Um, and roughly what percentage of your homes shipped come with the chassis today?

Yeah, we estimate roughly about 1,500 per floor. So, yeah, obviously, if you have multiple sections, you can multiply that out.

Perfect. Yeah, I think your point is, yeah, we would basically recycle as much, like they do in modular construction, right? You use a cart essentially to get the floor to the site, and then you can bring that back.

Yep. Yep. Um, and whether is what are HUD codes or chassis homes, you know, today, that as a percentage of your overall production.

Roughly, oh, HUD versus modular in our system.

Uh, yeah, I definitely just percentage with chassis that are left on site, if you know what I mean.

Yeah, well, I can give you the break of HUD versus modular, and that's probably a pretty good rate for what you're asking. We're probably about 80% HUD.

HUD co-homes and 20% module.

Okay? And if it did pass, how would you think about, you know, that savings kind of dropping to margins versus maybe passing it on to the consumer? I know that's one or two steps down the road, but you know,

Yeah, passing on the question that I'm getting from investors.

Yeah, we'd probably find a middle ground. I think some of it would go to our bottom line, and probably some would be passed through as a savings to the customer. Um, I’m

kind of,

I guess my head is not hesitation. The reason why I hesitate at all is because I haven't really thought about chassis as much as a cost-driven.

Thing, as I think about it as an innovation-driven thing. But to your question on the hard numbers, I think there would be some middle ground where a good portion that would drop to our bottom line.

Yep, makes sense. And then lastly, um, obviously, yeah, great work as the detailed and financial services contributing $5 million operating profit. I guess $4 million on average the last two quarters were there.

Would you consider those to be, um, above the mean in terms of profitability when you sort of average out, you know, the business and what expected claims are? This is a little bit of a softer quarter. But how do we think about sort of average profitability, you know, at this stage going forward?

Yeah, I'm going to take a shot, and then you can tell me if I'm answering your question. Um,

We have benefited from lower than expected costs.

Typical weather events and claims for sure.

But as I said, and I know I'm not giving you specifics, the improvement—we've dissected the improvement between how much we attribute to.

whether versus how much we attribute to the changes that we've made.

And well over 50% of the improvement is due to the changes we've made. So I think we're at a new level of profitability in a typical weather environment. Um, we've got a little bit of a boost over the last six months from the weather being very friendly for us.

Does that help? It is? Yep. Thank you again.

Thank you.

Thank you. I would now like to turn the call back over to Billboard for any closing remarks.

Yeah, just real quickly, I know we're coming up on the top of the hour. Executing and shifting markets is really what it's all about in this industry. And we continue to tell you all that, you know, from a market perspective, there's uncertainty out there. But I think this quarter kind of showed the nimble approach that we've embedded in our operations, and we're making real-time adjustments as conditions shift. That's what I think, you know, we're focused on here, because we know the conditions will change, and we just want to react to them very well.

As we've discussed over time, in addition to managing the day-to-day challenges, we've undertaken an upgrade to our ERP system. We rebranded it, as I talked about.

That improves the customer experience. We've actually executed a string of modernization projects we just touched on.

We completed the large American HomeStar transaction, and it's really exciting to see the entire organization rise to all of these kind of extra challenges.

Which, by the way, are the things that position us for better performance in the long term while at the same time, you know, the organization is really delivering the kind of results we discussed today. So, I really want to thank everyone for your interest and for joining us, and we look forward to keeping you updated.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.