Financial Data and Key Metrics Changes - Cavco Industries reported a record quarter with revenues increasing approximately 39% year-over-year and diluted EPS up nearly 150% [8] - The company achieved a record housing gross margin of 24.1%, attributed to a 13% sequential increase in average selling price and favorable lumber pricing [8][10] - Consolidated gross profit as a percentage of net revenue was 25%, up from 20.8% in the same period last year, marking a 420 basis point improvement [22] Business Line Data and Key Metrics Changes - Within the factory-built housing segment, net revenue increased 42% to $342 million compared to $241 million in the prior year quarter, driven by a 35.3% uplift in average revenue per home sold [19] - The Financial Services segment net revenue increased 2.6% to $17.5 million, primarily due to higher home loan sales volume and servicing income [21] Market Data and Key Metrics Changes - Demand for Cavco's products remained strong, with backlogs growing to approximately $1.1 billion, representing about 40 to 42 weeks of production [9] - Active utilization for Q2 2022 was consistent with Q1 2022 at 75%, higher than the 70% utilization rate in Q2 2021 [21] Company Strategy and Development Direction - The company is focused on addressing affordable housing issues and has made strategic investments to improve production efficiency, such as a 20% throughput improvement in Fort Worth [14][15] - The acquisition of Commodore Homes is expected to enhance geographic expansion and increase capacity by 25% [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing supply chain challenges affecting production, but expressed optimism about stabilizing and growing the workforce [11][12] - The company anticipates continued strong demand and believes it can sell every house it can produce, despite labor and supply constraints [10][11] Other Important Information - The cash balance decreased to $224.3 million, down $98 million from six months earlier, primarily due to the acquisition of Commodore Homes and higher inventory purchases [29] - Stockholders' equity increased to approximately $733.1 million as of October 2, up $49.5 million from April 3 [33] Q&A Session Summary Question: Sustainability of gross margin levels - Management indicated that while there was a temporary drop in lumber prices, predicting future gross margins remains challenging due to fluctuating costs [34][35] Question: Expectations for production levels - Management noted that supply chain issues remain a key concern, but they are seeing progress in stabilizing the workforce [38][39] Question: Demand environment by channel - Demand is strong across all channels, with the company capturing market share from site-built homes due to challenges faced by traditional builders [46][48] Question: Backlog management - Management explained that they have been conservative in reporting backlog numbers, excluding some long-term orders to maintain a high-quality backlog [50][53] Question: Commodore acquisition impact - The acquisition had a minimal impact on gross margin in the current quarter due to purchase accounting, but margins are expected to improve as inventory is sold through [54][55] Question: SEC complaint status - Management provided an update on the SEC complaint, indicating that they filed a motion to dismiss and are prepared for litigation if necessary [70][71]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 2, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-08822 CAVCO INDUSTRIES INC. (Exact name of registrant as specified in its charter) Delaware 56-2405642 (State or other jurisdic ...

Financial Data and Key Metrics Changes - Revenues increased approximately 30% year-over-year, reaching $330.4 million compared to $254.8 million in the prior year's first quarter [7][15] - Diluted EPS was up about 60%, coming in at $2.92 versus $1.80 in the first quarter of 2021 [7][20] - Consolidated gross profit as a percentage of net revenue was 22.4%, up from 21.7% in the same period last year [18] Business Line Data and Key Metrics Changes - In the factory-built housing segment, net revenue increased 31.2% to $312.3 million from $238.1 million in the prior year quarter, driven by an 18.7% increase in average revenue for homes sold [16] - Financial services segment net revenue increased 8.4% to $18.1 million, mainly due to higher loan sales volume and servicing income [17] Market Data and Key Metrics Changes - Backlogs grew to $792 million, representing approximately 40 weeks of production, with 80% of the backlog growth attributed to high demand and 20% due to reduced production over the past five quarters [12][13] Company Strategy and Development Direction - The company announced the acquisition of Commodore Homes for $140 million, which is expected to expand its footprint into the northeast and increase unit shipments by approximately 25% [8] - Investments in existing plants, such as the Fort Worth plant expansion, are aimed at increasing capacity by about 20% [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in operational execution and noted that demand remains strong, with backlogs providing a positive outlook [13] - The company is addressing persistent labor and supply challenges while focusing on improving retention and building skills [11] Other Important Information - The company completed its first corporate responsibility report, emphasizing accountability and improvement in stakeholder impact [26] - Cash balance increased to $329.8 million from $322.3 million three months earlier, primarily due to net income and changes in working capital [22] Q&A Session Summary Question: Raw material availability and pain points - Management acknowledged ongoing challenges with raw material availability, particularly with inputs manufactured in the U.S. and logistics disruptions for imports [28][29] Question: Update on automation efforts - Management highlighted optimism regarding automation and process improvements, particularly from the Commodore acquisition [30][31] Question: Additional capacity from plants and acquisition - The Commodore acquisition is expected to provide a significant increase in unit production, estimated at a 25% increase [34] Question: Production increase despite supply chain headwinds - Management remains optimistic about increasing production and addressing labor challenges, aiming to surpass pre-pandemic levels [40][41] Question: Impact of ASP increase - The increase in average selling prices was primarily due to pricing adjustments to cover higher input costs, with minimal impact from product mix [41] Question: Timing for closing the Commodore deal - The acquisition is expected to close in the fiscal quarter of the last calendar quarter, pending regulatory filings [46] Question: Backlog pricing and potential margin expansion - Management indicated that lower input costs would lead to margin expansion, as pricing adjustments have been made to the backlog [51] Question: Labor availability and hiring conditions - Management expressed cautious optimism about improving labor availability, citing job fairs and increased wages as factors [53][55] Question: Realistic production goals post-acquisition - Management indicated that achieving production levels around 4,000 homes per quarter is realistic based on historical performance [56][58] Question: Share repurchase authorization - The company has a remaining authorization of approximately $86 million from a $100 million buyback program initiated last October [59]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents Cavco Industries, Inc.'s unaudited consolidated financial statements for the quarter ended July 3, 2021, including balance sheets, statements of comprehensive income, and cash flows, along with detailed notes explaining accounting policies, revenue breakdown, asset and liability specifics, and segment performance [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity as of July 3, 2021, and April 3, 2021 | Metric | July 3, 2021 (Unaudited) | April 3, 2021 (Unaudited) | |:-----------------------------|:-------------------------|:--------------------------| | Total Current Assets | $667,864 | $651,799 | | Total Assets | $970,872 | $951,833 | | Total Current Liabilities | $242,187 | $237,104 | | Total Stockholders' Equity | $699,067 | $683,640 | | Total Liabilities & Equity | $970,872 | $951,833 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section outlines the company's financial performance, including net revenue, gross profit, and net income for the three months ended July 3, 2021, and June 27, 2020 | Metric | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:-----------------------------|:--------------------------------|:---------------------------------| | Net Revenue | $330,422 | $254,801 | | Cost of Sales | $256,409 | $199,478 | | Gross Profit | $74,013 | $55,323 | | Income from Operations | $33,181 | $20,000 | | Income Before Income Taxes | $35,478 | $21,680 | | Net Income | $27,046 | $16,674 | | Basic Net Income Per Share | $2.94 | $1.82 | | Diluted Net Income Per Share | $2.92 | $1.80 | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended July 3, 2021, and June 27, 2020 | Cash Flow Activity | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:-----------------------------------|:--------------------------------|:---------------------------------| | Net Cash Provided by Operating | $24,275 | $35,692 | | Net Cash (Used in) Provided by Investing | $(3,616) | $105 | | Net Cash Used in Financing | $(13,150) | $(922) | | Net Increase in Cash, Equivalents & Restricted Cash | $7,509 | $34,875 | | Cash, Equivalents & Restricted Cash at End of Period | $346,816 | $290,482 | [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, segment information, and specific financial accounts [Note 1. Basis of Presentation](index=6&type=section&id=1.%20Basis%20of%20Presentation) The financial statements are unaudited and prepared in accordance with SEC regulations. The company operates in two segments: factory-built housing and financial services, with a fiscal year ending on the Saturday nearest to March 31 - The Company operates in two segments: (1) factory-built housing, including wholesale and retail operations, and (2) financial services, including manufactured housing consumer finance and insurance[14](index=14&type=chunk) - The fiscal year operates on a 52-53 week cycle, ending on the Saturday nearest to March 31[14](index=14&type=chunk) [Note 2. Revenue from Contracts with Customers](index=7&type=section&id=2.%20Revenue%20from%20Contracts%20with%20Customers) Net revenue increased significantly year-over-year, primarily driven by the factory-built housing segment, with a smaller contribution from financial services | Segment | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:------------------------|:--------------------------------|:---------------------------------| | Factory-built housing | $312,283 | $238,090 | | Financial services | $18,139 | $16,711 | | **Total Net Revenue** | **$330,422** | **$254,801** | - U.S. Housing and Urban Development code homes revenue increased from **$189,446 thousand** in 2020 to **$262,390 thousand** in 2021[17](index=17&type=chunk) [Note 3. Restricted Cash](index=7&type=section&id=3.%20Restricted%20Cash) Restricted cash, primarily related to CountryPlace customer payments, remained stable at approximately $17 million | Category | July 3, 2021 | April 3, 2021 | |:---------------------------------------------|:-------------|:--------------| | Cash related to CountryPlace customer payments | $15,928 | $16,049 | | Other restricted cash | $1,135 | $979 | | Total Restricted Cash | $17,063 | $17,028 | | Less current portion | $(16,728) | $(16,693) | | **Non-current Restricted Cash** | **$335** | **$335** | [Note 4. Investments](index=8&type=section&id=4.%20Investments) Total investments increased to $57.9 million, with growth in available-for-sale debt securities and non-marketable equity investments, while marketable equity securities remained stable | Investment Type | July 3, 2021 | April 3, 2021 | |:---------------------------------|:-------------|:--------------| | Available-for-sale debt securities | $17,962 | $14,946 | | Marketable equity securities | $17,550 | $17,600 | | Non-marketable equity investments | $22,429 | $21,960 | | **Total Investments** | **$57,941** | **$54,506** | | Less current portion | $(19,749) | $(19,496) | | **Long-term Investments** | **$38,192** | **$35,010** | - Non-marketable equity investments include **$15.0 million** in equity-method investments in community-based initiatives that buy and sell homes and provide home-only financing[22](index=22&type=chunk) | Marketable Equity Securities | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:-----------------------------|:--------------------------------|:---------------------------------| | Net gain recognized | $1,696 | $2,030 | | Unrealized gains recognized | $1,560 | $1,997 | [Note 5. Inventories](index=9&type=section&id=5.%20Inventories) Total inventories increased by approximately $19.7 million, primarily driven by a significant rise in raw materials | Inventory Type | July 3, 2021 | April 3, 2021 | |:----------------|:-------------|:--------------| | Raw materials | $69,123 | $54,336 | | Work in process | $20,426 | $19,149 | | Finished goods | $61,368 | $57,749 | | **Total** | **$150,917** | **$131,234** | [Note 6. Consumer Loans Receivable](index=10&type=section&id=6.%20Consumer%20Loans%20Receivable) Consumer loans receivable decreased, with a notable reduction in loans held for sale and construction advances. The allowance for loan losses also decreased, and the portfolio showed improved delinquency status | Category | July 3, 2021 | April 3, 2021 | |:---------------------------------------|:-------------|:--------------| | Loans held for investment, securitized | $30,384 | $31,949 | | Loans held for investment | $17,565 | $18,690 | | Loans held for sale | $13,542 | $15,587 | | Construction advances | $10,479 | $13,801 | | **Total Consumer Loans Receivable** | **$71,970** | **$80,027** | | Allowance for loan losses | $(2,918) | $(3,188) | | Delinquency Status | July 3, 2021 | April 3, 2021 | |:-------------------|:-------------|:--------------| | Current | $68,258 | $76,378 | | 31 to 60 days | $192 | $508 | | 61 to 90 days | $3,112 | $21 | | 91+ days | $408 | $3,120 | - **35%** of the consumer loans receivable portfolio was concentrated in Texas and **20%** in Florida as of July 3, 2021[31](index=31&type=chunk) [Note 7. Commercial Loans Receivable](index=11&type=section&id=7.%20Commercial%20Loans%20Receivable) Commercial loans receivable remained stable, primarily consisting of direct financing for independent distributors and community owners. The allowance for loan losses slightly decreased, and there were no nonperforming loans | Category | July 3, 2021 | April 3, 2021 | |:-------------------------------|:-------------|:--------------| | Loans receivable | $45,620 | $45,377 | | Allowance for loan losses | $(785) | $(816) | | Deferred financing fees, net | $(247) | $(247) | | **Commercial Loans Receivable, Net** | **$44,588** | **$44,314** | - As of July 3, 2021, **14%** of outstanding commercial loans were concentrated in Arizona and **13%** in California[36](index=36&type=chunk) - There were no commercial loans 90 days or more past due[37](index=37&type=chunk) [Note 8. Property, Plant and Equipment, net](index=13&type=section&id=8.%20Property%2C%20Plant%20and%20Equipment%2C%20net) Net property, plant, and equipment increased slightly, with additions to buildings and improvements, and machinery and equipment | Category | July 3, 2021 | April 3, 2021 | |:-----------------------------|:-------------|:--------------| | Land | $28,314 | $28,314 | | Buildings and improvements | $73,415 | $71,827 | | Machinery and equipment | $35,075 | $34,146 | | Accumulated depreciation | $(38,823) | $(37,493) | | **Total PP&E, Net** | **$97,981** | **$96,794** | - Depreciation expense was **$1.4 million** for both the three months ended July 3, 2021, and June 27, 2020[39](index=39&type=chunk) [Note 9. Goodwill and Other Intangibles](index=13&type=section&id=9.%20Goodwill%20and%20Other%20Intangibles) Goodwill and indefinite-lived intangibles remained constant, while finite-lived intangibles saw a slight decrease due to amortization | Category | July 3, 2021 Net Carrying Amount | April 3, 2021 Net Carrying Amount | |:-----------------------------|:---------------------------------|:----------------------------------| | Goodwill | $75,090 | $75,090 | | Trademarks and trade names | $8,900 | $8,900 | | State insurance licenses | $1,100 | $1,100 | | Customer relationships | $4,045 | $4,203 | | Other finite-lived | $145 | $160 | | **Total Goodwill & Intangibles** | **$89,280** | **$89,453** | - Amortization expense for intangible assets was **$173,000** for the three months ended July 3, 2021, a decrease from **$187,000** in the prior year[40](index=40&type=chunk) [Note 10. Accrued Expenses and Other Current Liabilities](index=14&type=section&id=10.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Total accrued expenses and other current liabilities increased, primarily due to higher customer deposits and unearned insurance premiums, partially offset by a decrease in company repurchase options | Category | July 3, 2021 | April 3, 2021 | |:---------------------------------------------|:-------------|:--------------| | Customer deposits | $48,989 | $41,835 | | Salaries, wages and benefits | $37,176 | $37,737 | | Unearned insurance premiums | $24,125 | $22,643 | | Company repurchase options on certain loans sold | $19,432 | $25,938 | | Estimated warranties | $19,344 | $18,032 | | Accrued volume rebates | $14,097 | $12,132 | | Other | $47,027 | $44,816 | | **Total** | **$210,190** | **$203,133** | [Note 11. Warranties](index=14&type=section&id=11.%20Warranties) The liability for estimated warranties increased due to higher charges to costs and expenses, exceeding payments and deductions | Warranty Activity | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:-------------------------------|:--------------------------------|:---------------------------------| | Balance at beginning of period | $18,032 | $18,678 | | Charged to costs and expenses | $9,125 | $6,347 | | Payments and deductions | $(7,813) | $(6,487) | | **Balance at end of period** | **$19,344** | **$18,538** | [Note 12. Debt and Finance Lease Obligations](index=14&type=section&id=12.%20Debt%20and%20Finance%20Lease%20Obligations) Total debt and finance lease obligations slightly decreased, primarily driven by payments on secured term loans | Obligation Type | July 3, 2021 | April 3, 2021 | |:----------------------------|:-------------|:--------------| | Secured term loan | $7,980 | $8,210 | | Other secured financings | $3,473 | $3,672 | | Finance lease obligations | $296 | $304 | | **Total** | **$11,749** | **$12,186** | | Less current portion | $(1,822) | $(1,851) | | **Long-term Obligations** | **$9,927** | **$10,335** | - The outstanding balance of converted secured credit facilities was **$8.0 million** as of July 3, 2021, with a weighted average interest rate of **4.9%**[44](index=44&type=chunk) [Note 13. Reinsurance and Insurance Loss Reserves](index=15&type=section&id=13.%20Reinsurance%20and%20Insurance%20Loss%20Reserves) Net earned premiums increased, while the insurance loss reserves grew due to higher net incurred losses | Reinsurance Effect | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:----------------------------|:--------------------------------|:---------------------------------| | Direct premiums earned | $5,996 | $5,185 | | Assumed premiums | $7,378 | $6,790 | | Ceded premiums | $(3,647) | $(3,202) | | **Total Net Earned Premiums** | **$9,727** | **$8,773** | | Insurance Loss Reserves Activity | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:---------------------------------|:--------------------------------|:---------------------------------| | Balance at beginning of period | $7,451 | $5,582 | | Net incurred losses | $7,975 | $5,982 | | Net claim payments | $(7,078) | $(4,834) | | **Balance at end of period** | **$8,348** | **$6,730** | [Note 14. Commitments and Contingencies](index=15&type=section&id=14.%20Commitments%20and%20Contingencies) The company has various commitments and contingencies, including repurchase agreements, construction loan commitments, and representations and warranties on mortgages sold. A previously disclosed SEC investigation is ongoing, but not expected to have a material adverse effect - Maximum liability under repurchase agreements was **$80.9 million** at July 3, 2021, with a reserve of **$2.3 million**[50](index=50&type=chunk) | Construction Loan Commitments | July 3, 2021 | April 3, 2021 | |:------------------------------|:-------------|:--------------| | Contract amount | $28,204 | $37,628 | | Cumulative advances | $(10,479) | $(13,801) | | **Off-balance sheet commitment** | **$17,725** | **$23,827** | - An SEC investigation regarding securities trading by the former CEO is ongoing, with a Wells Notice issued in November 2020, but the company does not expect a material adverse effect on its financial statements[56](index=56&type=chunk) [Note 15. Stockholders' Equity](index=17&type=section&id=15.%20Stockholders'%20Equity) Stockholders' equity increased, primarily driven by net income, partially offset by common stock repurchases | Equity Component | Balance, April 3, 2021 | Net Income | Stock Repurchases | Balance, July 3, 2021 | |:-----------------------------|:-----------------------|:-----------|:------------------|:----------------------| | Common Stock Amount | $92 | — | — | $92 | | Treasury Stock | $(1,441) | — | $(12,842) | $(14,283) | | Additional Paid-in Capital | $253,835 | — | — | $255,071 | | Retained Earnings | $431,057 | $27,046 | — | $458,103 | | Accumulated Other Comp. Income | $97 | — | — | $84 | | **Total Stockholders' Equity** | **$683,640** | **$27,046** | **$(12,842)** | **$699,067** | [Note 16. Earnings Per Share](index=18&type=section&id=16.%20Earnings%20Per%20Share) Basic and diluted earnings per share increased significantly year-over-year, reflecting higher net income | Metric | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:-----------------------------|:--------------------------------|:---------------------------------| | Net Income | $27,046 | $16,674 | | Basic Weighted Average Shares | 9,198,229 | 9,174,182 | | Diluted Weighted Average Shares | 9,276,529 | 9,264,661 | | **Basic EPS** | **$2.94** | **$1.82** | | **Diluted EPS** | **$2.92** | **$1.80** | [Note 17. Fair Value Measurements](index=18&type=section&id=17.%20Fair%20Value%20Measurements) The fair value of financial instruments, including investments and loans, is disclosed, along with details on mortgage servicing rights (MSRs) | Financial Instrument | July 3, 2021 Book Value | July 3, 2021 Estimated Fair Value | |:-----------------------------|:------------------------|:----------------------------------| | Available-for-sale debt securities | $17,962 | $17,962 | | Marketable equity securities | $17,550 | $17,550 | | Non-marketable equity investments | $22,429 | $22,429 | | Consumer loans receivable | $67,524 | $76,466 | | Commercial loans receivable | $44,588 | $42,586 | | Secured financings other | $(11,749) | $(11,810) | | Mortgage Servicing Rights (MSRs) | July 3, 2021 | April 3, 2021 | |:---------------------------------|:-------------|:--------------| | Number of loans serviced | 4,614 | 4,647 | | Serviced portfolio with MSRs | $594,373 | $593,939 | | MSRs | $1,354 | $916 | [Note 18. Related Party Transactions](index=19&type=section&id=18.%20Related%20Party%20Transactions) The company engages in sales and lending activities with related parties, including non-marketable equity investments in other distribution operations | Related Party Transactions | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | |:---------------------------|:--------------------------------|:---------------------------------| | Total sales to related parties | $14.8 million | $12.7 million | - As of July 3, 2021, receivables from related parties included **$4.3 million** in accounts receivable and **$6.8 million** in commercial loans outstanding[65](index=65&type=chunk) [Note 19. Business Segment Information](index=19&type=section&id=19.%20Business%20Segment%20Information) Both factory-built housing and financial services segments showed increased net revenue, with factory-built housing significantly contributing to the overall income before income taxes | Segment | Net Revenue (July 3, 2021) | Net Revenue (June 27, 2020) | Income Before Tax (July 3, 2021) | Income Before Tax (June 27, 2020) | |:------------------------|:---------------------------|:----------------------------|:---------------------------------|:----------------------------------| | Factory-built housing | $312,283 | $238,090 | $33,559 | $18,450 | | Financial services | $18,139 | $16,711 | $1,919 | $3,230 | | **Total** | **$330,422** | **$254,801** | **$35,478** | **$21,680** | [Note 20. Subsequent Event](index=19&type=section&id=20.%20Subsequent%20Event) Cavco Industries entered into an agreement to acquire The Commodore Corporation for $153 million, expected to close in Q3 FY2022, expanding its manufacturing and retail footprint - On July 23, 2021, Cavco agreed to acquire The Commodore Corporation, the largest private independent builder of manufactured and modular housing in the U.S[67](index=67&type=chunk) - The purchase price is **$153 million**, with an estimated cash outlay of **$140 million**, to be funded entirely with cash on hand[68](index=68&type=chunk) - Commodore generated approximately **$258 million** in net sales and sold over **3,700 homes** in the last 12 months ended March 31, 2021[67](index=67&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, operational challenges, and strategic outlook for the quarter. It highlights strong sales order activity, increased backlog, and the impact of material cost inflation and labor shortages, while maintaining a solid liquidity position [Forward-Looking Statements](index=20&type=section&id=Forward-Looking%20Statements) This section highlights the inherent uncertainties and risks associated with forward-looking statements within the report - The report contains forward-looking statements characterized by words like 'believes,' 'estimates,' 'expects,' and 'projects,' which involve risks and uncertainties that may cause actual results to differ materially[70](index=70&type=chunk)[71](index=71&type=chunk) [Introduction](index=20&type=section&id=Introduction) This section serves as an introductory guide to the management's discussion and analysis, emphasizing its connection to the consolidated financial statements - This section should be read in conjunction with the Consolidated Financial Statements and related Notes in Item 1[72](index=72&type=chunk) [Company Overview](index=20&type=section&id=Company%20Overview) This section describes Cavco Industries, Inc.'s core business operations, including its factory-built housing products and financial services subsidiaries - Cavco Industries, Inc. designs and produces factory-built housing products, including manufactured homes, modular homes, and park model RVs, distributed through independent and company-owned retailers[73](index=73&type=chunk) - The company operates **20 homebuilding production lines** across the U.S. and has financial services subsidiaries, CountryPlace Acceptance Corp. (finance) and Standard Casualty Company (insurance)[73](index=73&type=chunk)[75](index=75&type=chunk) [Company and Industry Outlook](index=21&type=section&id=Company%20and%20Industry%20Outlook) This section provides insights into industry trends, the company's sales performance, backlog growth, and operational challenges related to labor and supply chain - Industry home shipments increased **14.9%** for the first five months of calendar year 2021, despite COVID-19 impacts[76](index=76&type=chunk) - Sales order activity was nearly **50% higher** than the prior year, leading to a backlog of **$792 million** at July 3, 2021, up **404.5%** from June 27, 2020[85](index=85&type=chunk) - Operational efficiencies declined due to hiring challenges, unpredictable employee absenteeism, and building material supply shortages, resulting in approximately **75% plant capacity utilization**[84](index=84&type=chunk) - The company faces challenges in recruiting and retaining a qualified workforce to meet increased demand, despite competitive compensation and training programs[87](index=87&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing revenue, gross profit, and operating expenses across its business segments | Metric | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | Change ($) | Change (%) | |:-----------------------------------------|:--------------------------------|:---------------------------------|:-----------|:-----------| | Net Revenue - Factory-built housing | $312,283 | $238,090 | $74,193 | 31.2% | | Net Revenue - Financial services | $18,139 | $16,711 | $1,428 | 8.5% | | **Total Net Revenue** | **$330,422** | **$254,801** | **$75,621** | **29.7%** | | Factory-built homes sold | 3,700 | 3,349 | 351 | 10.5% | | Net factory-built housing revenue per home sold | $84,401 | $71,093 | $13,308 | 18.7% | | Metric | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | Change ($) | Change (%) | |:-----------------------------------------|:--------------------------------|:---------------------------------|:-----------|:-----------| | Gross Profit - Factory-built housing | $66,273 | $46,992 | $19,281 | 41.0% | | Gross Profit - Financial services | $7,740 | $8,331 | $(591) | (7.1)% | | **Total Gross Profit** | **$74,013** | **$55,323** | **$18,690** | **33.8%** | | Consolidated Gross Profit % of Net Revenue | 22.4% | 21.7% | N/A | 0.7% | | Factory-built housing Gross Profit % of Net Revenue | 21.2% | 19.7% | N/A | 1.5% | | Financial services Gross Profit % of Net Revenue | 42.7% | 49.9% | N/A | (7.2)% | | Metric | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | Change ($) | Change (%) | |:-----------------------------------------|:--------------------------------|:---------------------------------|:-----------|:-----------| | SG&A - Factory-built housing | $35,497 | $30,737 | $4,760 | 15.5% | | SG&A - Financial services | $5,335 | $4,586 | $749 | 16.3% | | **Total SG&A** | **$40,832** | **$35,323** | **$5,509** | **15.6%** | | SG&A % of Net Revenue | 12.4% | 13.9% | N/A | (1.5)% | - Other income, net increased by **31.2%** to **$2,461 thousand**, driven by higher interest income from larger cash and commercial loan receivables[98](index=98&type=chunk)[101](index=101&type=chunk) - Income tax expense increased by **68.4%** to **$8,432 thousand**, with the effective tax rate rising to **23.8%**[98](index=98&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations and fund future growth, focusing on cash flow and capital management - The company believes its cash and cash equivalents, along with cash flow from operations, will be sufficient to fund operations and growth for the foreseeable future[102](index=102&type=chunk) | Cash Flow Summary | Three Months Ended July 3, 2021 | Three Months Ended June 27, 2020 | Change ($) | |:-------------------------------------------------|:--------------------------------|:---------------------------------|:-----------| | Cash, cash equivalents and restricted cash at beginning of fiscal year | $339,307 | $255,607 | $83,700 | | Net cash provided by operating activities | $24,275 | $35,692 | $(11,417) | | Net cash (used in) provided by investing activities | $(3,616) | $105 | $(3,721) | | Net cash used in financing activities | $(13,150) | $(922) | $(12,228) | | Cash, cash equivalents and restricted cash at end of period | $346,816 | $290,482 | $56,334 | - Net cash provided by operating activities decreased due to rising material costs and higher purchases, partially offset by increased consumer loan sales proceeds[106](index=106&type=chunk) - Net cash used in financing activities was primarily for common stock repurchases[109](index=109&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) This section confirms that there have been no significant changes to the company's critical accounting policies during the reported quarter - There have been no significant changes to critical accounting policies during the three months ended July 3, 2021[112](index=112&type=chunk) [Other Matters](index=26&type=section&id=Other%20Matters) This section refers to disclosures regarding related party transactions and off-balance sheet arrangements found in other notes to the financial statements - Related party transactions and off-balance sheet arrangements are discussed in Notes 18 and 14, respectively[113](index=113&type=chunk)[114](index=114&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes to the company's quantitative and qualitative disclosures about market risk since the last Annual Report on Form 10-K - No material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K[114](index=114&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of July 3, 2021, with no material changes in internal control over financial reporting during the quarter - The Company's President and CEO and Principal Financial Officer concluded that disclosure controls and procedures were effective as of July 3, 2021[116](index=116&type=chunk) - There have been no material changes in internal control over financial reporting during the fiscal quarter ended July 3, 2021[117](index=117&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 14 to the Consolidated Financial Statements - Legal proceedings information is detailed under the 'Legal Matters' caption in Note 14 to the Consolidated Financial Statements[120](index=120&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) Readers should consider the risk factors discussed in the company's 2021 Annual Report on Form 10-K, as additional unknown risks may also materially affect the business - Readers should carefully consider the risk factors discussed in Part I, Item 1A of the 2021 Annual Report on Form 10-K[121](index=121&type=chunk) - Additional risks and uncertainties not currently known or deemed immaterial may also adversely affect the business[121](index=121&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 61,301 shares of common stock during the first fiscal quarter of 2022 under its $100 million stock repurchase program, with $85.7 million remaining authorized - The Board of Directors approved a **$100 million** stock repurchase program on October 27, 2020[122](index=122&type=chunk) | Period | Total Shares Purchased | Average Price Paid Per Share | |:---------------------------|:-----------------------|:-----------------------------| | April 4, 2021 to May 8, 2021 | 32,984 | $212.87 | | May 9, 2021 to June 5, 2021 | 28,317 | $205.56 | | June 6, 2021 to July 3, 2021 | — | — | | **Total** | **61,301** | | - As of July 3, 2021, **$85,717 thousand** may yet be purchased under the program[122](index=122&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) No other information required to be disclosed under this item was not previously disclosed - There is no other information required to be disclosed under this item which was not previously disclosed[123](index=123&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL taxonomy documents, and the cover page interactive data file | Exhibit No. | Exhibit | |:------------|:---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | 31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Rule 13a-14(a)/15d-14(a) | | 31.2 | Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Rule 13a-14(a)/15d-14(a) | | 32 | Certification Pursuant to 18 U.S.C. 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | SIGNATURES This section formally attests to the accuracy and completeness of the report, signed by key executive officers - The report was signed by William C. Boor, Director, President and Chief Executive Officer, and Paul Bigbee, Chief Accounting Officer, on August 6, 2021[129](index=129&type=chunk)

Financial Data and Key Metrics Changes - The company reported the highest quarterly net revenue in its history at $306.5 million, up 20.1% from $255.3 million in the prior year's fourth quarter [20] - Net income increased by 110% to $25.2 million compared to $12 million in the same quarter of the prior year, with net income per diluted share rising to $2.71 from $1.29 [32] - Consolidated gross profit as a percentage of net revenue was 23.1%, up from 20.3% in the same period last year [24] Business Line Data and Key Metrics Changes - In the factory-built housing segment, net revenue increased 19.6% to $288 million from $240.8 million in the prior year quarter, driven by a 13.8% increase in average revenue per home sold [21] - Units sold increased by 5.2%, contributing approximately $19.1 million to revenue [22] - In the financial services segment, net revenue rose 26.7% to $18.5 million from $14.6 million, primarily due to market gains on equity securities [23] Market Data and Key Metrics Changes - Backlogs grew by $131 million to $603 million, equating to approximately 32 to 34 weeks of production [11] - Order rates were up 50% over last year's fourth quarter and 40% for the year, accounting for about 85% of the backlog growth [11] - The homebuilding industry is still not meeting the level of new unit starts needed to balance household formations, indicating a significant demand for affordable housing [17] Company Strategy and Development Direction - The company is focused on investing in plants, seeking acquisitions, and new growth opportunities, including the development of a new park model facility in Glendale, Arizona [18] - The strategy includes improving productivity and workplace conditions, as well as training and career programs to enhance retention and skills [19] - The company is confident in future demand and is actively looking for opportunities to expand geographically, particularly in the Northeast [52] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing challenges with supply chain disruptions and labor availability but expressed optimism about maintaining throughput and efficiency [44][50] - The company is committed to addressing the backlog and providing more affordable housing, loans, and insurance coverage [78] - Management noted that while there are cycles driven by interest rates, the need for affordable housing remains significant [17] Other Important Information - The company faced increased costs due to supply chain issues, with certain materials like oriented strand board rising by 275% over the past year [12] - Selling, general, and administrative expenses increased to $44 million, or 14.3% of net revenue, compared to $37.4 million, or 14.7% of net revenue, in the same quarter last year [27] - The company accrued $1.4 million in expenses related to an SEC inquiry, which is considered financially immaterial to overall results [28][39] Q&A Session Summary Question: Revenue and gross margin benefit from the additional week year-over-year - Management indicated they would provide estimates later [41][42] Question: Expectations for shipments in fiscal Q1 relative to Q4 - Management noted ongoing supply chain disruptions but aimed to increase capacity utilization to pre-pandemic levels [44][45] Question: Incremental demand from trading down versus site-built homes - Management observed anecdotal evidence of increased demand for manufactured homes due to rising housing costs [48] Question: Labor availability and absenteeism improvements - Management expressed cautious optimism about improvements in labor availability as the economy recovers [50] Question: Updates on the CFO search - The search is ongoing, and management is actively working to fill the position [75]

Part I [Business](index=4&type=section&id=Item%201.%20Business) The company is a leading U.S. producer of factory-built homes with integrated financial services operations - Cavco is one of the largest producers of manufactured homes in the United States, operating **20 homebuilding production lines** and distributing through **40 company-owned retail stores** and a network of independent dealers[12](index=12&type=chunk)[13](index=13&type=chunk) - The company operates two primary business segments: **Factory-built Housing** and **Financial Services**, which includes mortgage financing (CountryPlace) and property/casualty insurance (Standard Casualty)[12](index=12&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) - The COVID-19 pandemic led to strong home sales order rates, increasing the home order backlog from **$124 million to approximately $603 million** at the end of fiscal year 2021[19](index=19&type=chunk) Factory-Built Homes Sold | Fiscal Year | Homes Sold | | :--- | :--- | | 2021 | 14,214 | | 2020 | 15,100 | | 2019 | 14,389 | [Products](index=6&type=section&id=Products) The company produces a diverse range of factory-built structures including HUD code, modular, and park model homes - Products include HUD code manufactured homes, park model RVs, modular homes (single and multi-section), and commercial structures like apartment buildings and hotels[28](index=28&type=chunk) - Residential homes range from approximately **500 to 3,300 square feet**, with extensive customization options available, including eco-friendly features like bamboo flooring and solar power[29](index=29&type=chunk)[30](index=30&type=chunk)[32](index=32&type=chunk) [Factory-built Housing Segment](index=7&type=section&id=Factory-built%20Housing%20Segment) This segment operates 20 manufacturing facilities and saw its sales order backlog surge to $603 million - The company operates **20 homebuilding production lines** across the United States, with a typical manufacturing facility serving a 350-mile radius[36](index=36&type=chunk)[37](index=37&type=chunk) - Distribution channels include **40 Company-owned retail stores**, with a heavy concentration of 32 stores in Texas, and a network of independent distributors across 43 states and Canada[13](index=13&type=chunk)[40](index=40&type=chunk) Sales Order Backlog | Date | Backlog (in millions) | | :--- | :--- | | April 3, 2021 | $603 | | March 28, 2020 | $124 | [Financial Services Segment](index=8&type=section&id=Financial%20Services%20Segment) This segment provides mortgage financing and property and casualty insurance for manufactured home buyers - CountryPlace originates and services various home loans and is an approved seller/servicer for **Fannie Mae, Freddie Mac, and a Ginnie Mae issuer**[46](index=46&type=chunk) - The loan portfolio is geographically concentrated, with the largest concentrations in **Texas, Florida, Arizona, Oklahoma, and New Mexico**[47](index=47&type=chunk) - Standard Casualty provides property and casualty insurance for manufactured homes, primarily in **Texas, Arizona, New Mexico, and Nevada**[52](index=52&type=chunk) [Competition](index=11&type=section&id=Competition) The company faces significant competition in manufacturing, financing, and insurance from larger entities - The manufactured housing industry is highly competitive, with key competitors including **Clayton Homes, Inc** and **Skyline Champion Corporation**[64](index=64&type=chunk)[65](index=65&type=chunk) - Financial services competitors include **21st Mortgage Corporation**, Triad Financial Services, Inc, and Cascade Financial Services[66](index=66&type=chunk) - Insurance competitors include **National Lloyds** and **American Modern Insurance**, which may be larger and offer broader insurance types[67](index=67&type=chunk) [Government Regulation](index=12&type=section&id=Government%20Regulation) Operations are subject to extensive regulation from HUD, CFPB, and state agencies, including pandemic-related acts - Manufactured home construction is governed by the National Manufactured Housing Construction and Safety Standards Act of 1974, with regulations established by **HUD**[69](index=69&type=chunk) - Financing operations are subject to numerous regulations, including the **Dodd-Frank Act, TILA, RESPA**, and rules from the Consumer Financial Protection Bureau (CFPB)[74](index=74&type=chunk)[75](index=75&type=chunk) - The **CARES Act** granted forbearance rights and foreclosure protection to borrowers with federally backed mortgage loans experiencing hardship due to the COVID-19 pandemic, impacting servicing operations[88](index=88&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from the COVID-19 pandemic, supply chain disruptions, economic cyclicality, and an SEC investigation [Business and Operational Risks](index=18&type=section&id=Business%20and%20Operational%20Risks) Key operational risks include pandemic impacts, labor shortages, material costs, and contingent repurchase obligations - The **COVID-19 pandemic** poses significant risks by constraining operations, reducing factory capacity utilization, increasing employee absenteeism, and disrupting the supply chain[105](index=105&type=chunk)[106](index=106&type=chunk) - The company faces risks from **labor shortages** and the pricing and availability of key raw materials like wood, steel, and gypsum wallboard, which can increase costs and cause production delays[109](index=109&type=chunk)[110](index=110&type=chunk) - Contingent repurchase obligations related to wholesale financing for distributors amounted to a maximum of approximately **$74.2 million** as of April 3, 2021[126](index=126&type=chunk) [Industry and Economic Risks](index=23&type=section&id=Industry%20and%20Economic%20Risks) The business is subject to risks from tightened credit, limited financing, and the cyclical nature of the housing market - **Tightened credit standards**, a limited number of home-only lenders, and increased government regulation constrain the consumer financing market, which can restrict home sales[134](index=134&type=chunk)[135](index=135&type=chunk) - The manufactured housing industry is **highly cyclical and seasonal**, influenced by economic factors such as employment levels, interest rates, and consumer confidence[141](index=141&type=chunk) - The industry is **highly competitive**, with numerous companies producing manufactured homes and competition from other forms of low-cost housing like site-built homes and apartments[142](index=142&type=chunk) [Legal and Regulatory Risks](index=25&type=section&id=Legal%20and%20Regulatory%20Risks) The company faces risks from restrictive zoning ordinances and an ongoing SEC investigation into its former CEO - The business is subject to **local zoning ordinances**, which can restrict the placement of manufactured homes and adversely affect revenue[145](index=145&type=chunk) - The company has been cooperating with an **SEC investigation** since 2018 regarding trading directed by its former CEO, which could lead to penalties and other adverse consequences[147](index=147&type=chunk)[148](index=148&type=chunk) [Properties](index=27&type=section&id=Item%202.%20Properties) The company owns or leases numerous manufacturing, supply, and administrative facilities across the United States - The company owns the land for most of its manufacturing facilities, with a notable exception being the Goodyear, Arizona plant, which is leased[160](index=160&type=chunk) Core Property Overview | Property Type | Count | Primary Ownership Status | | :--- | :--- | :--- | | Active Manufacturing Facilities | 19 | Owned | | Component and Supply Facilities | 2 | 1 Owned, 1 Leased | | Inactive Manufacturing Facilities | 3 | 2 Owned, 1 Leased | | Administrative Locations | 3 | 1 Owned, 2 Leased | [Legal Proceedings](index=28&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in an ongoing SEC investigation and recently settled two class-action lawsuits - The company is cooperating with an **SEC investigation** initiated in 2018 regarding securities trading directed by the former CEO; in November 2020, the SEC staff issued a Wells Notice to Cavco, indicating a potential enforcement action[467](index=467&type=chunk)[468](index=468&type=chunk) - Two class-action lawsuits alleging **wage-and-hour violations** were settled during the fourth quarter of fiscal year 2021[470](index=470&type=chunk) [Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[162](index=162&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq, and a $100 million share repurchase program was approved in October 2020 - The company's common stock is traded on the **Nasdaq Global Select Market** under the symbol **CVCO**[165](index=165&type=chunk) - A **$100 million stock repurchase program** was approved on October 27, 2020, replacing a previous $10 million authorization[167](index=167&type=chunk) Share Repurchase Activity (Q4 FY 2021) | Period | Shares Purchased | Average Price Paid Per Share | Dollar Value Remaining Under Program (in thousands) | | :--- | :--- | :--- | :--- | | Feb 28, 2021 to Apr 3, 2021 | 6,600 | $218.37 | $98,559 | [Selected Financial Data](index=31&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of key financial metrics, showing consistent revenue and asset growth Selected Financial Data (Fiscal Years 2017-2021) | ($ in thousands, except per share) | April 3, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018 | April 1, 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Net revenue** | $1,108,051 | $1,061,774 | $962,746 | $871,235 | $773,797 | | **Net income** | $76,646 | $75,066 | $68,622 | $61,502 | $37,955 | | **Diluted EPS** | $8.25 | $8.10 | $7.40 | $6.68 | $4.17 | | **Total assets** | $951,833 | $810,431 | $725,216 | $674,780 | $607,316 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, highlighting revenue growth driven by higher prices and a significant order backlog [Company Outlook](index=33&type=section&id=Company%20Outlook) The outlook is positive due to a strong order backlog, though challenged by labor and supply chain disruptions - The backlog of home sales orders increased dramatically to **$603 million** as of April 3, 2021, up from $124 million a year prior[190](index=190&type=chunk) - Factory capacity utilization was approximately **75% in Q4 2021**, below pre-pandemic levels of over 80%, due to employee absenteeism and supply shortages[191](index=191&type=chunk) - The company is working with industry associations and GSEs to expand the secondary market for home-only loans through the **"Duty to Serve" initiatives**, which could increase housing demand[199](index=199&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Fiscal 2021 net revenue grew 4.4% to $1.11 billion, driven by higher home selling prices despite fewer homes sold Net Revenue by Segment (FY 2021 vs. FY 2020) | ($ in thousands) | April 3, 2021 | March 28, 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Factory-built housing | $1,037,889 | $999,340 | $38,549 | 3.9% | | Financial services | $70,162 | $62,434 | $7,728 | 12.4% | | **Total** | **$1,108,051** | **$1,061,774** | **$46,277** | **4.4%** | Gross Profit by Segment (FY 2021 vs. FY 2020) | ($ in thousands) | April 3, 2021 | March 28, 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Factory-built housing | $199,604 | $195,244 | $4,360 | 2.2% | | Financial services | $39,373 | $35,274 | $4,099 | 11.6% | | **Total** | **$238,977** | **$230,518** | **$8,459** | **3.7%** | Income Before Income Taxes by Segment (FY 2021 vs. FY 2020) | ($ in thousands) | April 3, 2021 | March 28, 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Factory-built housing | $78,937 | $78,531 | $406 | 0.5% | | Financial services | $17,975 | $14,448 | $3,527 | 24.4% | | **Total** | **$96,912** | **$92,979** | **$3,933** | **4.2%** | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with cash increasing by $83.7 million, supported by $114.0 million in operating cash flow Summary of Cash Flows (FY 2021 vs. FY 2020) | ($ in thousands) | April 3, 2021 | March 28, 2020 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $114,031 | $101,737 | $12,294 | | Net cash used in investing activities | ($23,349) | ($25,243) | $1,894 | | Net cash used in financing activities | ($6,982) | ($20,756) | $13,774 | | **Net increase in cash** | **$83,700** | **$55,738** | **$27,962** | Contractual Obligations as of April 3, 2021 | ($ in thousands) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | After 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt obligations | $14,580 | $2,313 | $3,655 | $3,112 | $5,500 | | Operating lease obligations | $19,776 | $4,292 | $7,564 | $5,654 | $2,266 | | Finance lease obligations | $341 | $73 | $146 | $122 | — | | **Total** | **$34,697** | **$6,678** | **$11,365** | **$8,888** | **$7,766** | [Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk exposure is to interest rate changes affecting housing demand and loan values - The company's primary market risk is **interest rate sensitivity**, as higher rates can adversely affect housing demand and the ability of customers to obtain financing[253](index=253&type=chunk)[254](index=254&type=chunk) - As of April 3, 2021, the company had outstanding interest rate lock commitments (IRLCs) with a notional amount of **$37.7 million**, which are subject to interest rate and fallout risk[258](index=258&type=chunk) Interest Rate Sensitivity Analysis (Impact of 1% Unfavorable Change) | ($ in thousands) | Reduction in Fair Value | | :--- | :--- | | Consumer loans receivable | $3,317 | | Commercial loans receivable | $344 | | Securitized financings | $462 | [Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section references the company's audited consolidated financial statements and related notes beginning on page F-1 - This item references the full Consolidated Financial Statements and related notes, which are included at the end of the 10-K report, starting on page F-1[259](index=259&type=chunk) [Controls and Procedures](index=43&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management, including the CEO and Chief Accounting Officer, concluded that the company's **disclosure controls and procedures were effective** as of the fiscal year-end, April 3, 2021[260](index=260&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective** as of April 3, 2021, based on the COSO 2013 framework[264](index=264&type=chunk) - The independent auditor, RSM US LLP, issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting[265](index=265&type=chunk)[269](index=269&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=47&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, officers, and governance is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[277](index=277&type=chunk) [Executive Compensation](index=47&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[279](index=279&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=47&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity plans is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[279](index=279&type=chunk) Equity Compensation Plan Information (as of April 3, 2021) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 251,749 | $146.86 | 295,571 | [Certain Relationships and Related Transactions, and Director Independence](index=48&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[283](index=283&type=chunk) [Principal Accounting Fees and Services](index=48&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding accounting fees and services is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[284](index=284&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=49&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the report, with schedules omitted as inapplicable - The Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of the report[287](index=287&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the required information is included in the Consolidated Financial Statements or Notes thereto[287](index=287&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=53&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued unqualified opinions on the financial statements and internal controls, citing insurance reserves as a Critical Audit Matter - The auditor issued an **unqualified opinion**, stating the financial statements present fairly, in all material respects, the financial position of the Company[302](index=302&type=chunk) - The auditor also issued an **unqualified opinion** on the effectiveness of the Company's internal control over financial reporting as of April 3, 2021[303](index=303&type=chunk) - The estimation of the **Reserve for Property Casualty Insurance Claims** was identified as a Critical Audit Matter, requiring a high degree of auditor judgment[306](index=306&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) [Consolidated Financial Statements](index=55&type=section&id=Consolidated%20Financial%20Statements) The financial statements show total assets of $951.8 million and net income of $76.6 million for fiscal 2021 Consolidated Balance Sheet Summary (as of April 3, 2021) | ($ in thousands) | April 3, 2021 | March 28, 2020 | | :--- | :--- | :--- | | Total current assets | $651,799 | $516,185 | | **Total assets** | **$951,833** | **$810,431** | | Total current liabilities | $237,104 | $172,102 | | **Total liabilities** | **$268,193** | **$202,845** | | **Total stockholders' equity** | **$683,640** | **$607,586** | Consolidated Income Statement Summary (Year Ended April 3, 2021) | ($ in thousands) | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net revenue | $1,108,051 | $1,061,774 | | Gross profit | $238,977 | $230,518 | | Income from operations | $88,825 | $84,907 | | **Net income** | **$76,646** | **$75,066** | [Notes to Consolidated Financial Statements](index=59&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on accounting policies, segment performance, and legal contingencies - Note 6 details the consumer loan portfolio, which totaled **$74.8 million (net)** as of April 3, 2021, with geographic concentrations in Texas (35%) and Florida (20%)[405](index=405&type=chunk)[409](index=409&type=chunk) - Note 10 indicates that all of the company's **$75.1 million in goodwill** is attributable to the factory-built housing segment[361](index=361&type=chunk)[434](index=434&type=chunk) - Note 16 discloses contingent repurchase obligations with a maximum liability of approximately **$74.2 million** and details the ongoing SEC investigation[457](index=457&type=chunk)[458](index=458&type=chunk)[467](index=467&type=chunk) Segment Information Summary (FY 2021) | ($ in thousands) | Factory-built Housing | Financial Services | Total | | :--- | :--- | :--- | :--- | | **Net Revenue** | $1,037,889 | $70,162 | $1,108,051 | | **Income before taxes** | $78,937 | $17,975 | $96,912 | | **Total Assets (as of 4/3/21)** | $711,579 | $240,254 | $951,833 |

Financial Data and Key Metrics Changes - Net revenue for Q3 2021 was $288.8 million, up 5.5% from $273.7 million in the same quarter last year [17] - Consolidated gross profit margin decreased to 20.5% from 21.9% year-over-year, primarily due to higher material costs impacting the factory-built housing segment [19] - Net income decreased by 5.7% to $19.7 million compared to $20.9 million in the same quarter of the prior year [24] Business Line Data and Key Metrics Changes - Factory-built housing segment net revenue increased by 5.3% to $270.8 million, driven by a 13% increase in average revenue per home sold, despite a 6.8% decrease in units sold [17][18] - Financial services segment net revenue rose by 8.4% to $18 million, attributed to higher home loan sales volume and an increase in insurance policies [18] Market Data and Key Metrics Changes - Backlogs increased to $472 million, up 47% from the previous quarter, equating to approximately 26 to 28 weeks of production [8][9] - Order rates remained strong, up 65% year-over-year, indicating sustained high demand despite production challenges [10] Company Strategy and Development Direction - The company aims to increase production capacity beyond pre-COVID levels to address high backlogs and demand [7][8] - Management is focused on maintaining dollar profitability amidst volatile input costs and is exploring growth opportunities through both organic investments and acquisitions [14][15] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustained demand for housing, attributing it to a long period of underbuilding and low interest rates [31][46] - The company is actively monitoring labor availability and supply chain challenges, which remain significant concerns [48][49] Other Important Information - The company has not executed any share repurchases since the Board's authorization mid-quarter, indicating a focus on strategic investments [14] - The effective income tax rate increased to 23.9% from 15.5% in the prior year, influenced by tax credits from the previous year [23] Q&A Session Summary Question: Are there signs of dealers trying to jump in line due to rising backlogs? - Management noted that while there could be some evidence of this, they do not see a meaningful amount occurring currently [29][30] Question: How long until gross margins return to normal levels? - Management indicated that price increases are ongoing, but predicting a timeline for margin recovery is challenging due to rapid cost escalations [32][34] Question: Any significant differences in demand by geography or channel? - Demand has been strong across most regions, with some recovery noted in community business, which had previously lagged [43][45] Question: What is the outlook for backlog conversion to revenue? - Management remains optimistic about demand and is focused on maximizing production capacity to meet orders [46][47] Question: Any updates on SEC investigations? - Management acknowledged the Wells Notice from the SEC and views it as a step in the process, emphasizing the need to support the ongoing investigation [59][60]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the company's unaudited consolidated financial statements and management's discussion and analysis for the periods ended December 26, 2020 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, statements of comprehensive income, and cash flows, along with detailed notes explaining accounting policies, credit losses, investments, loans, debt, leases, and various commitments and contingencies for the periods ended December 26, 2020 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of December 26, 2020, and March 28, 2020 Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 26, 2020 (Unaudited) | Mar 28, 2020 | | :----- | :----------------------- | :----------- | | Total Assets | $906,566 | $810,431 | | Cash and Cash Equivalents | $327,487 | $241,826 | | Total Current Liabilities | $213,342 | $172,102 | | Total Stockholders' Equity | $661,741 | $607,586 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section outlines the company's financial performance, presenting net revenue, net income, and earnings per share for the three and nine months ended December 26, 2020 Consolidated Statements of Comprehensive Income Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Dec 26, 2020 | 3 Months Ended Dec 28, 2019 | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Revenue | $288,772 | $273,722 | $801,549 | $806,439 | | Net Income | $19,701 | $20,898 | $51,424 | $63,065 | | Basic EPS | $2.14 | $2.29 | $5.60 | $6.91 | | Diluted EPS | $2.12 | $2.25 | $5.54 | $6.81 | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended December 26, 2020 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | | :----- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $91,566 | $68,320 | | Net Cash Used in Investing Activities | $(5,098) | $(18,873) | | Net Cash Used in Financing Activities | $(1,451) | $(19,058) | | Cash, Cash Equivalents and Restricted Cash at End of Period | $340,624 | $230,258 | [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, segment information, and various financial instruments [Note 1. Basis of Presentation](index=6&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes the company's operating segments and the adoption of new accounting standards for credit losses - The company operates in two principal segments: factory-built housing (wholesale and retail systems-built housing) and financial services (manufactured housing consumer finance and insurance)[19](index=19&type=chunk) - Adopted ASU 2016-13 (Credit Losses) on March 29, 2020, resulting in a **$733k net-of-tax adjustment** to retained earnings and increasing the allowance for loan losses by **$963k**[21](index=21&type=chunk) [Note 2. Revenue from Contracts with Customers](index=7&type=section&id=Note%202.%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates net revenue by the company's primary operating segments for the reported periods Net Revenue by Segment (in thousands) | Segment | 3 Months Ended Dec 26, 2020 | 3 Months Ended Dec 28, 2019 | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Factory-built housing | $270,822 | $257,106 | $749,879 | $758,564 | | Financial services | $17,950 | $16,616 | $51,670 | $47,875 | | **Total Net Revenue** | **$288,772** | **$273,722** | **$801,549** | **$806,439** | [Note 3. Restricted Cash](index=8&type=section&id=Note%203.%20Restricted%20Cash) This note details the total amount and primary sources of restricted cash as of December 26, 2020 - Total restricted cash was **$13,137k** as of December 26, 2020, primarily related to CountryPlace customer payments[26](index=26&type=chunk) [Note 4. Investments](index=8&type=section&id=Note%204.%20Investments) This note outlines the company's total investments, including equity-method investments and net gains on marketable equity securities - Total investments were **$52,451k** as of December 26, 2020, including **$15.0 million** in equity-method investments in community-based initiatives[28](index=28&type=chunk)[29](index=29&type=chunk) Net Gains on Marketable Equity Securities (in thousands) | Period | Net Gains on Securities Held | Net Gains on Securities Sold | Total Net Gains | | :----- | :--------------------------- | :--------------------------- | :-------------- | | 3 Months Ended Dec 26, 2020 | $1,857 | $151 | $2,008 | | 3 Months Ended Dec 28, 2019 | $764 | $13 | $777 | | 9 Months Ended Dec 26, 2020 | $5,132 | $157 | $5,289 | | 9 Months Ended Dec 28, 2019 | $2,066 | $11 | $2,077 | [Note 5. Inventories](index=10&type=section&id=Note%205.%20Inventories) This note provides the total inventory value and changes in raw materials as of December 26, 2020 - Inventories totaled **$110,624k** as of December 26, 2020, with raw materials increasing to **$45,821k** from **$35,691k** at March 28, 2020[35](index=35&type=chunk) [Note 6. Consumer Loans Receivable](index=11&type=section&id=Note%206.%20Consumer%20Loans%20Receivable) This note details consumer loans receivable, the allowance for loan losses, and geographic concentration of the portfolio - Consumer loans receivable totaled **$81,592k** as of December 26, 2020[37](index=37&type=chunk) - The allowance for loan losses increased to **$3,419k**, with **37%** of the portfolio concentrated in Texas and **20%** in Florida[38](index=38&type=chunk)[40](index=40&type=chunk) [Note 7. Commercial Loans Receivable](index=12&type=section&id=Note%207.%20Commercial%20Loans%20Receivable) This note outlines commercial loans receivable, the allowance for loan losses, and key portfolio concentrations - Commercial loans receivable totaled **$39,746k** as of December 26, 2020[46](index=46&type=chunk) - The allowance for loan losses increased to **$765k**, with **10%** of the portfolio concentrated in Arizona[47](index=47&type=chunk)[50](index=50&type=chunk) [Note 8. Property, Plant and Equipment, net](index=14&type=section&id=Note%208.%20Property%2C%20Plant%20and%20Equipment%2C%20net) This note reports the net value of property, plant, and equipment and its change as of December 26, 2020 - Property, plant and equipment, net, increased to **$78,493k** as of December 26, 2020, from **$77,190k** at March 28, 2020[52](index=52&type=chunk) [Note 9. Leases](index=14&type=section&id=Note%209.%20Leases) This note discusses the impact of lease renewals on right-of-use assets and lease liabilities - Lease renewals, including a five-year extension at a manufacturing facility, led to an increase in right-of-use assets and lease liabilities[54](index=54&type=chunk) [Note 10. Goodwill and Other Intangibles](index=15&type=section&id=Note%2010.%20Goodwill%20and%20Other%20Intangibles) This note presents the carrying amounts of goodwill and other intangible assets as of December 26, 2020 - Goodwill remained at **$75,090k**, and total goodwill and other intangibles, net, were **$89,640k** as of December 26, 2020[57](index=57&type=chunk) [Note 11. Accrued Expenses and Other Current Liabilities](index=16&type=section&id=Note%2011.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) This note explains the increase in accrued expenses and other current liabilities, driven by customer deposits and loan repurchase options - Accrued expenses and other current liabilities increased to **$186,026k** as of December 26, 2020, primarily due to higher customer deposits and company repurchase options on loans sold[59](index=59&type=chunk) [Note 12. Warranties](index=16&type=section&id=Note%2012.%20Warranties) This note details the estimated warranty liability and the amounts charged to costs and expenses for the period - The liability for estimated warranties was **$17,996k** as of December 26, 2020, with **$20,303k** charged to costs and expenses for the nine months[60](index=60&type=chunk) [Note 13. Debt and Finance Lease Obligations](index=16&type=section&id=Note%2013.%20Debt%20and%20Finance%20Lease%20Obligations) This note outlines the decrease in total debt and finance lease obligations, including outstanding balances on secured credit facilities - Total debt and finance lease obligations decreased to **$12,987k** as of December 26, 2020[61](index=61&type=chunk) - Secured credit facilities for home-only loans had an outstanding balance of **$8.8 million**[63](index=63&type=chunk) [Note 14. Reinsurance](index=17&type=section&id=Note%2014.%20Reinsurance) This note provides information on direct premiums written by Standard Casualty and the company's risk retention limits after reinsurance - Standard Casualty's direct premiums written were **$16,100k** for the nine months ended December 26, 2020, with risk of loss limited to **$150k** per claim after reinsurance[66](index=66&type=chunk) [Note 15. Commitments and Contingencies](index=17&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) This note details various off-balance sheet arrangements, including repurchase agreements, construction mortgages, and an ongoing SEC investigation - The company is contingently liable for **$70.8 million** under repurchase agreements for distributor inventory financing, with a reserve of **$2.3 million**[69](index=69&type=chunk) - Off-balance sheet contingent commitment for construction-period mortgages totaled **$27,840k**[72](index=72&type=chunk) - A reserve of **$1.3 million** is maintained for contingent repurchase and indemnification obligations on sold mortgages[72](index=72&type=chunk) - Outstanding interest rate lock commitments (IRLCs) had a notional amount of **$24.5 million**[74](index=74&type=chunk) - Forward sales of MBS and whole loan sale commitments totaled **$68.9 million** as of December 26, 2020[76](index=76&type=chunk) - The company is cooperating with an SEC investigation regarding securities trading by the former CEO, and the SEC staff issued a Wells Notice to the company in November 2020[78](index=78&type=chunk) [Note 16. Stockholders' Equity](index=20&type=section&id=Note%2016.%20Stockholders%27%20Equity) This note reports the increase in total stockholders' equity as of December 26, 2020 - Total stockholders' equity increased to **$661,741k** as of December 26, 2020, from **$607,586k** at March 28, 2020[81](index=81&type=chunk) [Note 17. Earnings Per Share](index=22&type=section&id=Note%2017.%20Earnings%20Per%20Share) This note presents the diluted earnings per share for the three and nine months ended December 26, 2020 - Diluted EPS was **$2.12** for the three months and **$5.54** for the nine months ended December 26, 2020[84](index=84&type=chunk) [Note 18. Fair Value Measurements](index=22&type=section&id=Note%2018.%20Fair%20Value%20Measurements) This note compares the fair value and book value of consumer loans receivable and details mortgage servicing rights - Consumer loans receivable had an estimated fair value of **$96,313k** compared to a book value of **$81,592k** as of December 26, 2020[85](index=85&type=chunk) - Mortgage Servicing Rights (MSRs) were **$831k** as of December 26, 2020, servicing **4,663 loans** with a portfolio of **$590,433k**[93](index=93&type=chunk) [Note 19. Related Party Transactions](index=24&type=section&id=Note%2019.%20Related%20Party%20Transactions) This note discloses sales to and commercial loans outstanding from related parties for the reported period - Sales to related parties totaled **$34.2 million** for the nine months ended December 26, 2020, with **$7.5 million** in commercial loans outstanding from related parties[94](index=94&type=chunk) [Note 20. Acquisition of Destiny Homes](index=24&type=section&id=Note%2020.%20Acquisition%20of%20Destiny%20Homes) This note confirms the finalization of the Destiny Homes acquisition, expanding manufacturing and distribution capabilities - The acquisition of Destiny Homes in August 2019 was finalized, expanding the company's manufacturing and distribution reach[95](index=95&type=chunk) [Note 21. Business Segment Information](index=25&type=section&id=Note%2021.%20Business%20Segment%20Information) This note provides a breakdown of income before income taxes by the company's operating segments Income Before Income Taxes by Segment (in thousands) | Segment | 3 Months Ended Dec 26, 2020 | 3 Months Ended Dec 28, 2019 | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Factory-built housing | $18,752 | $19,247 | $54,654 | $66,023 | | Financial services | $7,138 | $5,485 | $12,512 | $13,326 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting the impact of the COVID-19 pandemic on production and sales, segment performance, and liquidity. It details revenue, gross profit, and expense trends, along with the company's outlook and strategies [Company Overview](index=26&type=section&id=Company%20Overview) This section introduces Cavco Industries as a leading producer of factory-built housing and financial services, detailing its operational footprint - Cavco Industries is a leading producer of factory-built housing (manufactured homes, modular homes, park model RVs) and operates financial services (CountryPlace Acceptance Corp.) and insurance (Standard Casualty Co.) subsidiaries[103](index=103&type=chunk) - The company operates **20 homebuilding production lines** across the U.S. and sells homes through independent distributors and **40 company-owned retail locations**[103](index=103&type=chunk)[105](index=105&type=chunk) - The Lexington, Mississippi manufacturing facility ceased production in June 2020 and is on the market for sale[106](index=106&type=chunk) [Company and Industry Outlook](index=27&type=section&id=Company%20and%20Industry%20Outlook) This section discusses industry trends, strong demand drivers, and the company's strategic focus on niche markets and cost structure - Industry home shipments decreased **1.3%** for the first 11 months of calendar year 2020, but demand remains strong, driven by affordable housing needs and growing demographics (young adults and 55+)[107](index=107&type=chunk)[108](index=108&type=chunk) - The company focuses on niche market opportunities, green building initiatives, and maintaining a conservative cost structure to build value and financial strength[109](index=109&type=chunk)[110](index=110&type=chunk) - Commercial loan programs are available to wholesale distribution chains to increase financing availability and product exposure, with COVID-19 considerations included in loan loss risk assessment[111](index=111&type=chunk) [COVID-19 Impact and Strategy](index=28&type=section&id=COVID-19%20Impact%20and%20Strategy) This section details the operational and financial impacts of COVID-19, including production inefficiencies, strong sales orders, and adjustments to financial services operations - Operational efficiencies declined due to higher employee absenteeism, hiring challenges, and material shortages, resulting in a plant capacity utilization rate of approximately **75%** in Q3 FY2021, below pre-pandemic levels of over **80%**[114](index=114&type=chunk) - Sales order activity was exceptionally strong, with home sales order rates nearly **65% higher** than the comparable prior year quarter, leading to a **310% increase** in order backlogs to **$472 million** at December 26, 2020[115](index=115&type=chunk) - Financial services maintained operations through work-from-home solutions and adjusted loan loss reserves due to economic conditions, while managing cash flow risks from loan forbearance[116](index=116&type=chunk)[117](index=117&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net revenue, gross profit, and various expense categories for the reported periods [Net Revenue](index=29&type=section&id=Net%20Revenue) This section analyzes net revenue by segment, highlighting changes in factory-built housing sales volume and financial services gains Net Revenue by Segment (in thousands, except revenue per home sold) | Metric | 3 Months Ended Dec 26, 2020 | 3 Months Ended Dec 28, 2019 | Change (%) | | :----- | :-------------------------- | :-------------------------- | :--------- | | Factory-built housing | $270,822 | $257,106 | 5.3% | | Financial services | $17,950 | $16,616 | 8.0% | | Total homes sold | 3,603 | 3,865 | (6.8)% | | Net factory-built housing revenue per home sold | $75,166 | $66,522 | 13.0% | | Metric | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | Change (%) | | :----- | :-------------------------- | :-------------------------- | :--------- | | Factory-built housing | $749,879 | $758,564 | (1.1)% | | Financial services | $51,670 | $47,875 | 7.9% | | Total homes sold | 10,379 | 11,453 | (9.4)% | | Net factory-built housing revenue per home sold | $72,250 | $66,233 | 9.1% | - Factory-built housing revenue increased for the three months due to higher home selling prices from rising input costs, partially offset by lower sales volume due to COVID-19 related production inefficiencies[121](index=121&type=chunk) - Financial services revenue increased primarily due to unrealized gains on marketable equity securities (**$1.0M** for 3 months, **$2.7M** for 9 months) and higher volume in home loan sales and insurance policies[127](index=127&type=chunk) [Gross Profit](index=30&type=section&id=Gross%20Profit) This section examines gross profit and margins by segment, attributing changes to material costs, sales volume, and insurance claims Gross Profit by Segment (in thousands, and as % of Net Revenue) | Metric | 3 Months Ended Dec 26, 2020 | 3 Months Ended Dec 28, 2019 | Change (%) | % of Net Revenue (2020) | % of Net Revenue (2019) | Change (pp) | | :----- | :-------------------------- | :-------------------------- | :--------- | :---------------------- | :---------------------- | :---------- | | Factory-built housing | $47,031 | $48,793 | (3.6)% | 17.4% | 19.0% | (1.6)% | | Financial services | $12,207 | $11,062 | 10.4% | 68.0% | 66.6% | 1.4% | | **Consolidated** | **$59,238** | **$59,855** | **(1.0)%** | **20.5%** | **21.9%** | **(1.4)%** | | Metric | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | Change (%) | % of Net Revenue (2020) | % of Net Revenue (2019) | Change (pp) | | :----- | :-------------------------- | :-------------------------- | :--------- | :---------------------- | :---------------------- | :---------- | | Factory-built housing | $140,178 | $149,567 | (6.3)% | 18.7% | 19.7% | (1.0)% | | Financial services | $27,924 | $29,053 | (3.9)% | 54.0% | 60.7% | (6.7)% | | **Consolidated** | **$168,102** | **$178,620** | **(5.9)%** | **21.0%** | **22.1%** | **(1.1)%** | - Factory-built housing gross profit margin decreased due to higher material costs and lower sales volume resulting from COVID-19 production inefficiencies[128](index=128&type=chunk) - Financial services gross profit margin increased for the three months due to lower weather-related claims and higher unrealized gains on marketable equity securities, but decreased for the nine months due to higher weather-related claims and lower interest income[131](index=131&type=chunk) [Selling, General and Administrative Expenses](index=31&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) This section details changes in SG&A expenses for both segments, noting reductions in legal costs and increases in compensation Selling, General and Administrative Expenses (in thousands, and as % of Net Revenue) | Metric | 3 Months Ended Dec 26, 2020 | 3 Months Ended Dec 28, 2019 | Change (%) | % of Net Revenue (2020) | % of Net Revenue (2019) | Change (pp) | | :----- | :-------------------------- | :-------------------------- | :--------- | :---------------------- | :---------------------- | :---------- | | Factory-built housing | $30,575 | $32,017 | (4.5)% | | | | | Financial services | $4,839 | $4,827 | 0.2% | | | | | **Consolidated** | **$35,414** | **$36,844** | **(3.9)%** | **12.3%** | **13.5%** | **(1.2)%** | | Metric | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | Change (%) | % of Net Revenue (2020) | % of Net Revenue (2019) | Change (pp) | | :----- | :-------------------------- | :-------------------------- | :--------- | :---------------------- | :---------------------- | :---------- | | Factory-built housing | $92,037 | $94,348 | (2.4)% | | | | | Financial services | $14,153 | $13,843 | 2.2% | | | | | **Consolidated** | **$106,190** | **$108,191** | **(1.8)%** | **13.2%** | **13.4%** | **(0.2)%** | - Factory-built housing SG&A decreased due to reduced legal expenses and the completion of D&O insurance premium amortization[132](index=132&type=chunk) - Net SEC inquiry related expense was **$0.3M** for the three months and **$0.1M** for the nine months ended Dec 26, 2020, significantly lower than prior year[133](index=133&type=chunk) - Financial services SG&A increased primarily from higher salary and incentive-based compensation expense[134](index=134&type=chunk) [Interest Expense](index=32&type=section&id=Interest%20Expense) This section explains the decrease in interest expense, primarily due to the repurchase of a securitized loan portfolio Interest Expense (in thousands) | Period | Dec 26, 2020 | Dec 28, 2019 | Change | | :----- | :----------- | :----------- | :----- | | 3 Months Ended | $177 | $490 | $(313) | | 9 Months Ended | $567 | $1,278 | $(711) | - The decrease in interest expense was primarily due to the repurchase of the 2007-1 securitized loan portfolio in August 2019, partially offset by increases from secured credit facilities[136](index=136&type=chunk) [Other Income, net](index=32&type=section&id=Other%20Income%2C%20net) This section analyzes the decline in other income, net, attributing it to prior year land sales and reduced interest income Other Income, net (in thousands) | Period | Dec 26, 2020 | Dec 28, 2019 | Change | | :----- | :----------- | :----------- | :----- | | 3 Months Ended | $2,243 | $2,211 | $32 | | 9 Months Ended | $5,821 | $10,198 | $(4,377) | - The decline for the nine months was primarily due to a **$3.4 million net gain** on the sale of idle land in the prior year and reduced interest income, partially offset by increased unrealized gains on corporate marketable equity securities[138](index=138&type=chunk) [Income tax expense](index=32&type=section&id=Income%20tax%20expense) This section details income tax expense and effective tax rates, noting prior year benefits from stock option exercises Income Tax Expense and Effective Rate | Period | Income Tax Expense (in thousands) | Effective Income Tax Rate | | :----- | :-------------------------------- | :------------------------ | | 3 Months Ended Dec 26, 2020 | $6,189 | 23.9% | | 3 Months Ended Dec 28, 2019 | $3,834 | 15.5% | | 9 Months Ended Dec 26, 2020 | $15,742 | 23.4% | | 9 Months Ended Dec 28, 2019 | $16,284 | 20.5% | - Prior year's lower effective tax rates were primarily due to tax benefits from stock option exercises and a catch-up of tax credits[139](index=139&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to fund operations and growth, detailing cash flow changes from operating, investing, and financing activities - The company believes its cash and cash equivalents, along with cash flow from operations, will be sufficient to fund operations and growth for the next 12 months and into the foreseeable future[140](index=140&type=chunk) Cash Flow Summary (in thousands) | Metric | 9 Months Ended Dec 26, 2020 | 9 Months Ended Dec 28, 2019 | Change | | :----- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $91,566 | $68,320 | $23,246 | | Net cash used in investing activities | $(5,098) | $(18,873) | $13,775 | | Net cash used in financing activities | $(1,451) | $(19,058) | $17,607 | | Cash, cash equivalents and restricted cash at end of period | $340,624 | $230,258 | $110,366 | - Net cash from operating activities increased due to more customer deposits, higher commercial loan collections, and timing of payments on liabilities[144](index=144&type=chunk) - Net cash used in investing and financing activities decreased, largely due to the repurchase of the 2007-1 securitized loan portfolio[147](index=147&type=chunk) [Critical Accounting Policies](index=34&type=section&id=Critical%20Accounting%20Policies) This section discusses the adoption of ASU 2016-13 for credit losses and confirms no other significant changes to critical accounting policies - Adopted ASU 2016-13 (Credit Losses) on March 29, 2020, which changes the impairment model for most financial assets[151](index=151&type=chunk) - No other significant changes to critical accounting policies during the nine months ended December 26, 2020[151](index=151&type=chunk) [Recent Accounting Pronouncements](index=34&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 1 for details on recently issued and adopted accounting pronouncements - Refer to Note 1 to the Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements[152](index=152&type=chunk) [Other Matters](index=34&type=section&id=Other%20Matters) This section refers to Note 19 for a discussion of related party transactions - Refer to Note 19 to the Consolidated Financial Statements for a discussion of related party transactions[153](index=153&type=chunk) [Off Balance Sheet Arrangements](index=34&type=section&id=Off%20Balance%20Sheet%20Arrangements) This section refers to Note 15 for a discussion of the company's off-balance sheet commitments - Refer to Note 15 to the Consolidated Financial Statements for a discussion of off-balance sheet commitments[154](index=154&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the quantitative and qualitative disclosures about market risk previously reported in the company's Form 10-K - No material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of December 26, 2020, and reports no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were evaluated and concluded to be effective as of December 26, 2020[155](index=155&type=chunk) - No material changes in the company's internal controls over financial reporting occurred during the fiscal quarter ended December 26, 2020[156](index=156&type=chunk) [PART II. OTHER INFORMATION](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, and other required disclosures not included in the financial information [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) This section provides updates on significant legal matters, including an ongoing SEC investigation into securities trading by the former CEO, which has resulted in a Wells Notice to the company, and a consolidated class-action lawsuit concerning alleged wage-and-hour violations - The company is cooperating with an SEC investigation regarding securities trading by its former CEO, Joseph Stegmayer[160](index=160&type=chunk) - The SEC staff issued a Wells Notice to the company in November 2020, indicating an intent to recommend an enforcement action[161](index=161&type=chunk) - A consolidated class-action lawsuit (Griffin, adding Robles as plaintiff) alleging wage-and-hour violations is ongoing, with a joint mediation on January 27, 2021, failing to reach a settlement[162](index=162&type=chunk) - Management does not believe that loss contingencies from pending matters are likely to have a material adverse effect on the company's consolidated financial position, liquidity, or results of operations, considering existing reserves[163](index=163&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to the comprehensive discussion of risk factors in the company's Form 10-K and acknowledges that additional, currently unknown or immaterial risks could also materially affect the business - Readers should carefully consider the risk factors discussed in Part I, Item 1A of the Form 10-K[164](index=164&type=chunk) - Additional risks and uncertainties not currently known or deemed immaterial may also materially adversely affect the business[164](index=164&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This section confirms that there is no other information required to be disclosed under this item that was not previously disclosed - No other information required to be disclosed under this item was not previously disclosed[166](index=166&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including various certifications and XBRL taxonomy documents - Exhibits include certifications of the Principal Executive Officer (31.1), Principal Financial and Accounting Officer (31.2), and Certification Pursuant to 18 U.S.C. 1350 (32)[167](index=167&type=chunk) - The report also includes Inline XBRL Taxonomy Extension Schema, Calculation, Definition, and Label Linkbase Documents, and the Cover Page Interactive Data File[167](index=167&type=chunk) [SIGNATURES](index=37&type=section&id=SIGNATURES) This section formally concludes the report with the required signatures from the company's President and Chief Executive Officer, and Chief Accounting Officer, affirming its submission [Signatures](index=37&type=section&id=Signatures) This section formally concludes the report with the required signatures from the company's President and Chief Executive Officer, and Chief Accounting Officer, affirming its submission - The report was signed by William C. Boor, President and Chief Executive Officer, and Paul Bigbee, Chief Accounting Officer[171](index=171&type=chunk)[172](index=172&type=chunk) - The signing date for the report was January 29, 2021[172](index=172&type=chunk)

Cavco Industries, Inc. (NASDAQ:CVCO) Q2 2021 Earnings Conference Call October 30, 2020 1:00 PM ET Company Participants Mark Fusler - Director, Financial Reporting & IR Paul Bigbee - Chief Accounting Officer Bill Boor - President, CEO & Director Conference Call Participants Daniel Moore - CJS Securities Greg Palm - Craig-Hallum Jay McCanless - Wedbush Securities DeForest Hinman - Walthausen & Company Operator Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter Fiscal Year 2021 ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Cavco Industries, Inc. for the period ended September 26, 2020, including the balance sheets, statements of comprehensive income, and cash flows, along with detailed notes explaining accounting policies, financial instrument details, and segment information [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet highlights **total assets of $882.5 million** and **total stockholders' equity of $640.7 million** as of September 26, 2020 Consolidated Balance Sheet Highlights (in thousands) | Metric | September 26, 2020 | March 28, 2020 | | :------------------------------------ | :------------------- | :--------------- | | Total Assets | $882,510 | $810,431 | | Cash and cash equivalents | $312,243 | $241,826 | | Total current assets | $597,424 | $516,185 | | Total current liabilities | $208,221 | $172,102 | | Total stockholders' equity | $640,688 | $607,586 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The statement details **net revenue of $258.0 million** and **net income of $15.0 million** for the three months ended September 26, 2020 Consolidated Statements of Comprehensive Income Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net revenue | $257,976 | $268,675 | $512,777 | $532,717 | | Gross profit | $53,541 | $58,467 | $108,864 | $118,765 | | Income from operations | $18,088 | $22,384 | $38,088 | $47,418 | | Net income | $15,049 | $20,885 | $31,723 | $42,167 | | Basic EPS | $1.64 | $2.29 | $3.46 | $4.63 | | Diluted EPS | $1.62 | $2.25 | $3.42 | $4.56 | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The cash flow statement shows **net cash provided by operating activities of $74.6 million** and a **net increase in cash of $73.7 million** for the six months ended September 26, 2020 Consolidated Statements of Cash Flows Highlights (6 Months Ended, in thousands) | Metric | September 26, 2020 | September 28, 2019 | | :------------------------------------ | :------------------- | :------------------- | | Net cash provided by operating activities | $74,609 | $43,593 | | Net cash used in investing activities | $(82) | $(18,308) | | Net cash used in financing activities | $(865) | $(19,345) | | Net increase in cash, cash equivalents and restricted cash | $73,662 | $5,940 | | Cash, cash equivalents and restricted cash at end of period | $329,269 | $205,809 | [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering accounting policies, financial instrument details, and segment information [1. Basis of Presentation](index=6&type=section&id=1.%20Basis%20of%20Presentation) The unaudited financial statements, prepared under SEC rules, reflect management's COVID-19 estimates, segment operations in factory-built housing and financial services, and the impact of ASU 2016-13 adoption on credit loss measurement - The Company operates principally in two segments: (1) factory-built housing, which includes wholesale and retail systems-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance[19](index=19&type=chunk) - The Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), on March 29, 2020, changing the impairment model for most financial assets to a forward-looking expected loss model[20](index=20&type=chunk) Impact of ASU 2016-13 Adoption (March 29, 2020, in thousands) | Metric | Amount | | :------------------------------------------------ | :------- | | Cumulative effect on Retained earnings (net of taxes) | $733 | | Increase in allowance for commercial loan losses | $435 | | Increase in allowance for non-acquired consumer loan losses | $528 | [2. Revenue from Contracts with Customers](index=7&type=section&id=2.%20Revenue%20from%20Contracts%20with%20Customers) Net revenue decreased for both three and six months ended September 26, 2020, primarily due to lower factory-built housing sales, partially offset by increased financial services revenue Net Revenue by Segment (in thousands) | Segment | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | | :---------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Factory-built housing | $240,967 | $252,690 | $479,057 | $501,458 | | Financial services | $17,009 | $15,985 | $33,720 | $31,259 | | **Total Net Revenue** | **$257,976** | **$268,675** | **$512,777** | **$532,717** | [3. Restricted Cash](index=8&type=section&id=3.%20Restricted%20Cash) Restricted cash, primarily from CountryPlace customer payments, increased to **$17.0 million** as of September 26, 2020, from **$13.8 million** as of March 28, 2020 Restricted Cash (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :-------------------------------------------------- | :----------------- | :--------------- | | Cash related to CountryPlace customer payments | $15,818 | $12,740 | | Other restricted cash | $1,208 | $1,041 | | **Total Restricted Cash** | **$17,026** | **$13,781** | [4. Investments](index=8&type=section&id=4.%20Investments) Total investments remained stable at **$46.9 million** as of September 26, 2020, with significant net gains on marketable equity securities Investments (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :--------------------------------- | :----------------- | :--------------- | | Available-for-sale debt securities | $12,676 | $14,774 | | Marketable equity securities | $12,791 | $9,829 | | Non-marketable equity investments | $21,400 | $21,536 | | **Total Investments** | **$46,867** | **$46,139** | Marketable Equity Securities Net Gains (in thousands) | Period | Net gains on securities held | Net (losses) gains on securities sold | Total | | :-------------------------- | :--------------------------- | :------------------------------------ | :------ | | 3 Months Ended Sep 26, 2020 | $1,278 | $(27) | $1,251 | | 6 Months Ended Sep 26, 2020 | $3,275 | $6 | $3,281 | - Non-marketable equity investments included contributions of **$15.0 million** to equity-method investments in community-based initiatives and other distribution operations[28](index=28&type=chunk) [5. Inventories](index=10&type=section&id=5.%20Inventories) Total inventories slightly decreased to **$111.9 million** as of September 26, 2020, with an increase in raw materials and work in process, offset by a decrease in finished goods Inventories (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :---------------- | :----------------- | :--------------- | | Raw materials | $41,907 | $35,691 | | Work in process | $15,723 | $13,953 | | Finished goods | $54,242 | $63,891 | | **Total Inventories** | **$111,872** | **$113,535** | [6. Consumer Loans Receivable](index=11&type=section&id=6.%20Consumer%20Loans%20Receivable) Consumer loans receivable, net, slightly decreased to **$81.8 million** as of September 26, 2020, with a significant increase in the allowance for loan losses due to ASU 2016-13 adoption Consumer Loans Receivable (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :---------------------------------------------------- | :----------------- | :--------------- | | Loans held for investment (at Acquisition Date) | $35,692 | $37,779 | | Loans held for investment (originated after Acquisition Date) | $19,299 | $20,140 | | Loans held for sale | $18,986 | $14,671 | | Construction advances | $14,063 | $13,400 | | Deferred financing fees and other, net | $(2,290) | $(1,919) | | Allowance for loan losses | $(3,910) | $(1,767) | | **Total Consumer Loans Receivable, net** | **$81,840** | **$82,304** | Allowance for Loan Losses Activity (6 Months Ended, in thousands) | Metric | September 26, 2020 | September 28, 2019 | | :----------------------------------- | :----------------- | :----------------- | | Balance at beginning of period | $1,767 | $415 | | Impact of adoption of ASU 2016-13 | $2,276 | — | | Change in estimated loan losses, net | $67 | — | | Charge-offs | $(200) | — | | **Allowance for loan losses at end of period** | **$3,910** | **$415** | - As of September 26, 2020, **35%** of the outstanding principal balance of consumer loans receivable portfolio was concentrated in Texas and **19%** was concentrated in Florida[40](index=40&type=chunk) [7. Commercial Loans Receivable](index=12&type=section&id=7.%20Commercial%20Loans%20Receivable) Commercial loans receivable, net, decreased to **$41.5 million** as of September 26, 2020, with the allowance for loan losses increasing due to ASU 2016-13 and COVID-19 considerations Commercial Loans Receivable, net (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :--------------------------------------------------------------------------------- | :----------------- | :--------------- | | Direct loans receivable | $42,336 | $47,058 | | Participation loans receivable | $175 | $144 | | Allowance for loan losses | $(789) | $(393) | | Deferred financing fees, net | $(244) | $(244) | | **Total Commercial Loans Receivable, net** | **$41,478** | **$46,565** | Allowance for Loan Losses Activity (6 Months Ended, in thousands) | Metric | September 26, 2020 | September 28, 2019 | | :----------------------------------- | :----------------- | :----------------- | | Balance at beginning of period | $393 | $180 | | Impact of adoption of ASU 2016-13 | $435 | — | | Change in estimated loan losses, net | $(39) | $(17) | | **Balance at end of period** | **$789** | **$163** | - As of September 26, 2020, **10.5%** of the Company's outstanding commercial loans receivable principal balance was concentrated in Arizona and **10.0%** was concentrated in California[49](index=49&type=chunk) [8. Property, Plant and Equipment, net](index=14&type=section&id=8.%20Property,%20Plant%20and%20Equipment,%20net) Property, plant and equipment, net, increased slightly to **$77.8 million** as of September 26, 2020, with depreciation expense for the six months ended September 26, 2020, at **$2.8 million** Property, Plant and Equipment, net (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :---------------------------------- | :----------------- | :--------------- | | Property, plant and equipment, at cost | $112,833 | $109,822 | | Accumulated depreciation | $(34,997) | $(32,632) | | **Total Property, Plant and Equipment, net** | **$77,836** | **$77,190** | - Depreciation expense for the six months ended September 26, 2020, was **$2.8 million**, up from **$2.4 million** in the prior year period[51](index=51&type=chunk) [9. Leases](index=14&type=section&id=9.%20Leases) The Company leases various properties and equipment, with operating lease liabilities totaling **$14.6 million** and finance leases **$261 thousand** as of September 26, 2020 - The Company executed various lease renewals, including a five-year extension at one of its active manufacturing facilities, which increased the right-of-use asset and lease liability[53](index=53&type=chunk) Lease Liabilities (in thousands) | Category | September 26, 2020 | | :---------------------- | :----------------- | | Operating lease liabilities | $14,602 | | Finance lease liabilities | $261 | | **Total Lease Liabilities** | **$14,863** | [10. Goodwill and Other Intangibles](index=15&type=section&id=10.%20Goodwill%20and%20Other%20Intangibles) Goodwill remained stable at **$75.1 million**, while the net carrying amount of other intangibles slightly decreased to **$14.7 million** Goodwill and Other Intangibles, net (in thousands) | Category | September 26, 2020 Net Carrying Amount | March 28, 2020 Net Carrying Amount | | :--------------------------- | :------------------------------------- | :----------------------------------- | | Goodwill | $75,090 | $75,090 | | Trademarks and trade names | $8,900 | $8,900 | | State insurance licenses | $1,100 | $1,100 | | Customer relationships | $4,520 | $4,837 | | Other | $216 | $273 | | **Total** | **$89,826** | **$90,200** | - Amortization expense recognized on intangible assets was **$374k** for the six months ended September 26, 2020, compared to **$231k** in the prior year period[56](index=56&type=chunk) [11. Accrued Expenses and Other Current Liabilities](index=16&type=section&id=11.%20Accrued%20Expenses%20and%20Other%20Current%20Liabilities) Accrued expenses and other current liabilities increased to **$173.2 million** as of September 26, 2020, driven by increases in customer deposits, salaries, and company repurchase options Accrued Expenses and Other Current Liabilities (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :------------------------------------------- | :----------------- | :--------------- | | Customer deposits | $30,153 | $22,055 | | Salaries, wages and benefits | $29,375 | $25,885 | | Company repurchase options on certain loans sold | $23,854 | $7,444 | | Unearned insurance premiums | $21,907 | $20,614 | | Estimated warranties | $17,805 | $18,678 | | Accrued volume rebates | $11,040 | $9,801 | | Insurance loss reserves | $6,887 | $5,582 | | Accrued self-insurance | $5,827 | $5,112 | | Operating lease liabilities | $4,081 | $4,170 | | Accrued taxes | $3,247 | $1,908 | | Reserve for repurchase commitments | $2,463 | $2,679 | | Other | $16,545 | $16,002 | | **Total** | **$173,184** | **$139,930** | [12. Warranties](index=16&type=section&id=12.%20Warranties) The liability for estimated warranties slightly decreased to **$17.8 million** as of September 26, 2020, with charges to costs and expenses for warranties at **$12.6 million** for the six-month period Warranty Liability Activity (6 Months Ended, in thousands) | Metric | September 26, 2020 | September 28, 2019 | | :----------------------------------- | :----------------- | :----------------- | | Balance at beginning of period | $18,678 | $17,069 | | Charged to costs and expenses | $12,579 | $14,586 | | Payments and deductions | $(13,452) | $(14,284) | | **Balance at end of period** | **$17,805** | **$18,563** | [13. Debt and Finance Lease Obligations](index=16&type=section&id=13.%20Debt%20and%20Finance%20Lease%20Obligations) Total debt and finance lease obligations decreased to **$14.1 million** as of September 26, 2020, including **$9.8 million** in secured credit facilities at a **4.91%** weighted average interest rate Debt and Finance Lease Obligations (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :---------------------------- | :----------------- | :--------------- | | Secured credit facilities | $9,793 | $10,474 | | Other secured financings | $3,925 | $4,113 | | Finance lease liabilities | $333 | $366 | | **Total** | **$14,051** | **$14,953** | - As of September 26, 2020, the outstanding balance of converted secured credit facilities was **$9.8 million** at a weighted average interest rate of **4.91%**[62](index=62&type=chunk) [14. Reinsurance](index=17&type=section&id=14.%20Reinsurance) Standard Casualty, the Company's insurance subsidiary, engaged in reinsurance activities, with total premiums written of **$19.9 million** and earned of **$18.1 million** for the six months ended September 26, 2020 Reinsurance Premiums (6 Months Ended, in thousands) | Category | September 26, 2020 Written | September 26, 2020 Earned | September 28, 2019 Written | September 28, 2019 Earned | | :----------------------------- | :------------------------- | :------------------------ | :------------------------- | :------------------------ | | Direct premiums | $10,680 | $10,330 | $9,212 | $9,223 | | Assumed premiums—nonaffiliated | $15,246 | $13,833 | $14,273 | $13,027 | | Ceded premiums—nonaffiliated | $(6,055) | $(6,055) | $(6,016) | $(6,016) | | **Total** | **$19,871** | **$18,108** | **$17,469** | **$16,234** | - Standard Casualty's risk of loss is limited to **$125,000** per claim on typical policies, with reinsurance covering amounts above this limit and catastrophic losses[66](index=66&type=chunk) [15. Commitments and Contingencies](index=17&type=section&id=15.%20Commitments%20and%20Contingencies) The Company has repurchase contingencies for distributor inventory financing with a maximum liability of **$77.6 million**, off-balance sheet construction loan commitments of **$25.0 million**, and is involved in an ongoing SEC investigation and wage-and-hour class action lawsuits - The maximum amount for which the Company was liable under repurchase agreements for distributor inventory financing approximated **$77.6 million** at September 26, 2020, with a reserve for repurchase commitments of **$2.5 million**[69](index=69&type=chunk) Off-Balance Sheet Construction Loan Commitments (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :------------------------------ | :----------------- | :--------------- | | Construction loan contract amount | $39,094 | $31,136 | | Cumulative advances | $(14,063) | $(13,400) | | **Off-balance sheet commitment** | **$25,031** | **$17,736** | - As of September 26, 2020, CountryPlace had outstanding interest rate lock commitments (IRLCs) with a notional amount of **$23.2 million** and **$58.8 million** in outstanding notional forward sales of mortgage-backed securities (MBS) and forward sales commitments[74](index=74&type=chunk)[75](index=75&type=chunk) - The Company is cooperating with an investigation by the SEC regarding securities trading in personal and Company accounts directed by its former CEO, Joseph Stegmayer, and is exploring a settlement[78](index=78&type=chunk) [16. Stockholders' Equity](index=20&type=section&id=16.%20Stockholders'%20Equity) Total stockholders' equity increased to **$640.7 million** as of September 26, 2020, driven by net income and stock-based compensation, partially offset by ASU 2016-13 adoption Stockholders' Equity Changes (March 28, 2020 to September 26, 2020, in thousands) | Metric | March 28, 2020 Balance | Cumulative effect of ASU 2016-13 | Net Income | Stock-based compensation | Other comprehensive income, net | September 26, 2020 Balance | | :------------------------------------ | :--------------------- | :------------------------------- | :--------- | :----------------------- | :------------------------------ | :------------------------- | | Common Stock | $92 | — | — | — | — | $92 | | Additional paid-in capital | $252,260 | — | — | $2,048 | — | $254,297 | | Retained earnings | $355,144 | $(733) | $31,723 | — | — | $386,134 | | Accumulated other comprehensive income | $90 | — | — | — | $75 | $165 | | **Total Stockholders' Equity** | **$607,586** | **$(733)** | **$31,723** | **$2,048** | **$75** | **$640,688** | [17. Earnings Per Share](index=21&type=section&id=17.%20Earnings%20Per%20Share) Basic EPS for the three and six months ended September 26, 2020, was **$1.64** and **$3.46**, respectively, with diluted EPS at **$1.62** and **$3.42** Earnings Per Share | Metric | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (in thousands) | $15,049 | $20,885 | $31,723 | $42,167 | | Basic EPS | $1.64 | $2.29 | $3.46 | $4.63 | | Diluted EPS | $1.62 | $2.25 | $3.42 | $4.56 | [18. Fair Value Measurements](index=22&type=section&id=18.%20Fair%20Value%20Measurements) The Company's financial instruments are measured at fair value, with Mortgage Servicing Rights (MSRs) recorded at fair value, and the serviced portfolio with MSRs increasing to **$589.0 million** Assets Measured at Fair Value on a Recurring Basis (September 26, 2020, in thousands) | Category | Total | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :------ | :-------- | :-------- | :-------- | | Residential mortgage-backed securities | $3,641 | — | $3,641 | — | | State and political subdivision debt securities | $4,278 | — | $4,278 | — | | Corporate debt securities | $4,757 | — | $4,757 | — | | Marketable equity securities | $12,791 | $12,791 | — | — | | Interest rate lock commitment derivatives | $21 | — | — | $21 | | Forward loan sale commitment derivatives | $123 | — | — | $123 | | Mortgage servicing rights | $1,058 | — | — | $1,058 | Mortgage Servicing Rights (MSRs) | Metric | September 26, 2020 | March 28, 2020 | | :------------------------------------ | :----------------- | :--------------- | | Number of loans serviced with MSRs | 4,671 | 4,688 | | Serviced portfolio with MSRs (in thousands) | $588,955 | $585,777 | | Mortgage servicing rights (in thousands) | $1,058 | $1,225 | [19. Related Party Transactions](index=24&type=section&id=19.%20Related%20Party%20Transactions) The Company engages in sales and lending activities with related parties, with sales totaling **$23.0 million** and commercial loans outstanding of **$7.3 million** for the six months ended September 26, 2020 Sales to Related Parties (in thousands) | Period | Sales to Related Parties | | :-------------------------- | :----------------------- | | 3 Months Ended Sep 26, 2020 | $10,300 | | 6 Months Ended Sep 26, 2020 | $23,000 | Receivables from Related Parties (in thousands) | Category | September 26, 2020 | March 28, 2020 | | :----------------------- | :----------------- | :--------------- | | Accounts receivable | $2,900 | $1,700 | | Commercial loans outstanding | $7,300 | $8,200 | [20. Acquisition of Destiny Homes](index=24&type=section&id=20.%20Acquisition%20of%20Destiny%20Homes) The Company acquired Destiny Homes on August 2, 2019, expanding its manufacturing and distribution reach in the Southeastern United States, with purchase price allocation finalized in fiscal year 2021 - The Company purchased certain manufactured housing assets and assumed certain liabilities of Destiny Homes on August 2, 2019, expanding its reach in the Southeastern United States[95](index=95&type=chunk) [21. Business Segment Information](index=24&type=section&id=21.%20Business%20Segment%20Information) Factory-built housing remains the dominant segment in terms of net revenue and income before income taxes, though both segments saw declines in income before income taxes for the six months ended September 26, 2020 Net Revenue by Segment (in thousands) | Segment | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Factory-built housing | $240,967 | $252,690 | $479,057 | $501,458 | | Financial services | $17,009 | $15,985 | $33,720 | $31,259 | | **Total Net Revenue** | **$257,976** | **$268,675** | **$512,777** | **$532,717** | Income Before Income Taxes by Segment (in thousands) | Segment | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Factory-built housing | $17,452 | $22,463 | $35,902 | $46,776 | | Financial services | $2,144 | $4,792 | $5,374 | $7,841 | | **Total Income Before Income Taxes** | **$19,596** | **$27,255** | **$41,276** | **$54,617** | [22. Subsequent Events](index=25&type=section&id=22.%20Subsequent%20Events) On October 27, 2020, the Board approved a new **$100 million** stock repurchase program, replacing the previous **$10 million** authorization - On October 27, 2020, the Company's Board of Directors approved a **$100 million** stock repurchase program, replacing a previously standing **$10 million** authorization[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Cavco Industries, Inc., its business segments (factory-built housing and financial services), and an analysis of its financial performance for the three and six months ended September 26, 2020. It discusses the impact of COVID-19 on operations, industry outlook, and key financial metrics including revenue, gross profit, expenses, and liquidity. The Company highlights its efforts to address operational challenges and capitalize on market opportunities [Forward-Looking Statements](index=26&type=section&id=Forward-Looking%20Statements) This report contains forward-looking statements that involve risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied - This report contains forward-looking statements that involve risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied[103](index=103&type=chunk) [Company Overview](index=26&type=section&id=Company%20Overview) Cavco Industries designs and produces factory-built homes and operates a financial services segment, including consumer finance and property and casualty insurance - Cavco Industries designs and produces factory-built homes (manufactured, modular, park model RVs, vacation cabins, and systems-built commercial structures) under various brand names, distributed through independent and Company-owned retailers[105](index=105&type=chunk) - The Company operates **20 homebuilding production lines** and **40 Company-owned U.S. retail locations**[107](index=107&type=chunk) - Cavco's financial services segment includes CountryPlace Acceptance Corp. (consumer finance) and Standard Casualty Co. (property and casualty insurance for manufactured homes)[105](index=105&type=chunk) [Company and Industry Outlook](index=27&type=section&id=Company%20and%20Industry%20Outlook) Despite a slight industry decline, manufactured homes offer affordable housing solutions, with Cavco observing growing demand and maintaining a strong financial position to capitalize on market opportunities - Industry home shipments decreased **1.4%** for the first 8 months of calendar year 2020, but manufactured homes offer solutions to the affordable housing crisis due to lower average price per square foot[109](index=109&type=chunk) - The Company observes growing demand from young adults and those aged 55 and older, as well as increased interest from developers and community owners for new manufactured homes for rental, alternative dwelling units, and seasonal living[110](index=110&type=chunk) - Cavco maintains a conservative cost structure, a strong balance sheet, and invests in commercial loan programs and community-based lending initiatives to expand product distribution and sales growth opportunities[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) [COVID-19 Impact and Strategy](index=28&type=section&id=COVID-19%20Impact%20and%20Strategy) The Company's essential businesses faced operational inefficiencies due to absenteeism and supply shortages, leading to lower plant capacity utilization despite a significant increase in home sales order backlog - The Company's homebuilding and retail sales facilities continued to operate as essential businesses, but faced operational inefficiencies due to higher factory employee absenteeism, limited new-hire availability, and certain building material supply shortages[116](index=116&type=chunk) - Plant capacity utilization was approximately **65%** during the second fiscal quarter of 2021, ending the quarter at approximately **70%**, which is lower than pre-pandemic levels of more than **80%**[116](index=116&type=chunk) - Home sales order rates increased nearly **65%** compared to the prior year quarter, leading to a **134%** increase in order backlog to **$321 million** at September 26, 2020[117](index=117&type=chunk) - The financial services segment maintained operations through work-from-home solutions, assisting customers with loan forbearance and policy cancellations, and increasing loan loss reserves[118](index=118&type=chunk) - The Company is focused on improving production capabilities, adjusting product offerings, and enhancing recruitment and retention of production employees to meet increased demand, facing labor-related difficulties in the COVID-19 environment[122](index=122&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing changes in net revenue, gross profit, expenses, and other income for the periods presented [Net Revenue](index=29&type=section&id=Net%20Revenue) Net revenue decreased by **4.0%** for the three months and **3.7%** for the six months ended September 26, 2020, primarily due to lower home sales volume in factory-built housing Net Revenue by Segment (in thousands, except homes sold) | Metric | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Factory-built housing | $240,967 | $252,690 | $(11,723) | (4.6)% | | Financial services | $17,009 | $15,985 | $1,024 | 6.4% | | **Total Net Revenue** | **$257,976** | **$268,675** | **$(10,699)** | **(4.0)%** | | Total homes sold | 3,427 | 3,781 | (354) | (9.4)% | | Net factory-built housing revenue per home sold | $70,314 | $66,832 | $3,482 | 5.2% | Net Revenue by Segment (in thousands, except homes sold) | Metric | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Factory-built housing | $479,057 | $501,458 | $(22,401) | (4.5)% | | Financial services | $33,720 | $31,259 | $2,461 | 7.9% | | **Total Net Revenue** | **$512,777** | **$532,717** | **$(19,940)** | **(3.7)%** | | Total homes sold | 6,776 | 7,588 | (812) | (10.7)% | | Net factory-built housing revenue per home sold | $70,699 | $66,086 | $4,613 | 7.0% | - The decrease in factory-built housing revenue was primarily due to **9%** and **11%** lower home sales volume during the three and six months ended September 26, 2020, respectively, partially offset by higher home selling prices[123](index=123&type=chunk) [Gross Profit](index=30&type=section&id=Gross%20Profit) Consolidated gross profit decreased by **8.4%** for the three months and **8.3%** for the six months ended September 26, 2020, impacted by lower sales volume and production inefficiencies in factory-built housing and higher claims in financial services Gross Profit by Segment (in thousands) | Metric | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Factory-built housing | $46,155 | $48,639 | $(2,484) | (5.1)% | | Financial services | $7,386 | $9,828 | $(2,442) | (24.8)% | | **Total Gross Profit** | **$53,541** | **$58,467** | **$(4,926)** | **(8.4)%** | | Consolidated Gross profit as % of Net revenue | 20.8% | 21.8% | N/A | (1.0)% | | Factory-built housing Gross profit as % of Net revenue | 19.2% | 19.2% | N/A | 0.0% | Gross Profit by Segment (in thousands) | Metric | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Factory-built housing | $93,147 | $100,774 | $(7,627) | (7.6)% | | Financial services | $15,717 | $17,991 | $(2,274) | (12.6)% | | **Total Gross Profit** | **$108,864** | **$118,765** | **$(9,901)** | **(8.3)%** | | Consolidated Gross profit as % of Net revenue | 21.2% | 22.3% | N/A | (1.1)% | | Factory-built housing Gross profit as % of Net revenue | 19.4% | 20.1% | N/A | (0.7)% | | Financial services Gross profit as % of Net revenue | 46.6% | 57.6% | N/A | (11.0)% | - Financial services segment's Gross profit as a percentage of Net revenue decreased due to higher weather-related claims volume at the insurance subsidiary and lower interest income earned on acquired consumer loan portfolios[130](index=130&type=chunk) [Selling, General and Administrative Expenses](index=31&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling, general and administrative (SG&A) expenses decreased by **1.7%** for the three months and **0.8%** for the six months ended September 26, 2020, with varied segment-specific drivers Selling, General and Administrative Expenses (in thousands) | Segment | 3 Months Ended Sep 26, 2020 | 3 Months Ended Sep 28, 2019 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Factory-built housing | $30,725 | $31,580 | $(855) | (2.7)% | | Financial services | $4,728 | $4,503 | $225 | 5.0% | | **Total SG&A** | **$35,453** | **$36,083** | **$(630)** | **(1.7)%** | | SG&A as % of Net revenue | 13.7% | 13.4% | N/A | 0.3% | | Factory-built housing SG&A as % of Net revenue | 12.7% | 12.5% | N/A | 0.2% | | Financial services SG&A as % of Net revenue | 27.8% | 28.2% | N/A | (0.4)% | Selling, General and Administrative Expenses (in thousands) | Segment | 6 Months Ended Sep 26, 2020 | 6 Months Ended Sep 28, 2019 | Change | % Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :------- | :--------- | | Factory-built housing | $61,462 | $62,331 | $(869) | (1.4)% | | Financial services | $9,314 | $9,016 | $298 | 3.3% | | **Total SG&A** | **$70,776** | **$71,347** | **$(571)** | **(0.8)%** | | SG&A as % of Net revenue | 13.8% | 13.4% | N/A | 0.4% | | Factory-built housing SG&A as % of Net revenue | 12.8% | 12.4% | N/A | 0.4% | | Financial services SG&A as % of Net revenue | 27.6% | 28.9% | N/A | (1.3)% | - Factory-built housing SG&A decreased primarily from a reduction in legal expenses, partially offset by increased corporate-related expenses[134](index=134&type=chunk) - Financial services SG&A increased due to increases in salaries and employee-related expenses[135](index=135&type=chunk) [Interest Expense](index=31&type=section&id=Interest%20Expense) Interest expense decreased to **$0.2 million** for the three months and **$0.4 million** for the six months ended September 26, 2020, primarily due to a reduction in securitized bond interest expense Interest Expense (in thousands) | Period | Interest Expense | | :-------------------------- | :--------------- | | 3 Months Ended Sep 26, 2020 | $194 | | 6 Months Ended Sep 26, 2020 | $390 | - The decrease in interest expense is primarily the result of a reduction in securitized bond interest expense, as the Company exercised its right to repurchase the 2007-1 securitized loan portfolio in August 2019[136](index=136&type=chunk) [Other Income, net](index=31&type=section&id=Other%20Income,%20net) Other income, net, declined to **$1.7 million** for the three months and **$3.6 million** for the six months ended September 26, 2020, mainly due to a prior-year land sale gain and reduced interest income, partially offset by increased unrealized gains on marketable equity securities Other Income, net (in thousands) | Period | Other Income, net | | :-------------------------- | :---------------- | | 3 Months Ended Sep 26, 2020 | $1,702 | | 6 Months Ended Sep 26, 2020 | $3,578 | - Other income, net, declined primarily due to a **$3.4 million** net gain on the sale of idle land recorded in the prior year period, as well as a reduction in interest earned on cash and commercial loan receivables due to the lower interest rate environment[140](index=140&type=chunk) - These declines were partially offset by increases in unrealized gains on corporate marketable equity securities[140](index=140&type=chunk) [Income tax expense](index=32&type=section&id=Income%20tax%20expense) Income tax expense was **$4.5 million** for the three months and **$9.6 million** for the six months ended September 26, 2020, with effective tax rates of **23.2%** and **23.1%**, respectively Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Income Tax Rate | | :-------------------------- | :-------------------------------- | :------------------------ | | 3 Months Ended Sep 26, 2020 | $4,547 | 23.2% | | 6 Months Ended Sep 26, 2020 | $9,553 | 23.1% | - The higher effective tax rate for the six-month period was primarily due to lower tax benefits from the exercise of stock options, which provided a benefit of **$0.7 million** compared to **$0.9 million** in the same period last year[141](index=141&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The Company maintains a strong liquidity position with sufficient cash and cash equivalents, experiencing a significant increase in net cash provided by operating activities and decreased cash used in investing and financing activities - The Company believes that cash and cash equivalents at September 26, 2020, together with cash flow from operations, will be sufficient to fund its operations and provide for growth for the next 12 months and into the foreseeable future[142](index=142&type=chunk) Cash Flows Summary (6 Months Ended, in thousands) | Metric | September 26, 2020 | September 28, 2019 | $ Change | | :-------------------------------------------------------------------------------- | :------------------- | :------------------- | :------- | | Cash, cash equivalents and restricted cash at beginning of fiscal year | $255,607 | $199,869 | $55,738 | | Net cash provided by operating activities | $74,609 | $43,593 | $31,016 | | Net cash used in investing activities | $(82) | $(18,308) | $18,226 | | Net cash used in financing activities | $(865) | $(19,345) | $18,480 | | **Cash, cash equivalents and restricted cash at end of period** | **$329,269** | **$205,809** | **$123,460** | - Net cash provided by operating activities increased primarily due to more customer deposits, higher collections on accounts receivables and commercial loans receivables, and favorable timing of payments on liabilities[146](index=146&type=chunk) - Net cash used in investing activities decreased significantly due to lower acquisition funding compared to the prior year (Destiny Homes acquisition)[149](index=149&type=chunk) - Net cash used in financing activities decreased due to the repurchase of the 2007-1 securitized loan portfolio in August 2019[150](index=150&type=chunk) [Contractual Commitments and Contingencies](index=33&type=section&id=Contractual%20Commitments%20and%20Contingencies) There were no material changes to the contractual obligations as set forth in the Company's Annual Report on Form 10-K - There were no material changes to the contractual obligations as set forth in the Company's Annual Report on Form 10-K[152](index=152&type=chunk) [Critical Accounting Policies](index=33&type=section&id=Critical%20Accounting%20Policies) The Company adopted ASU 2016-13 on March 29, 2020, changing the impairment model for most financial assets to an expected loss model, with no other significant changes to critical accounting policies - On March 29, 2020, the Company adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326), which changed the impairment model for most financial assets to an expected loss model[153](index=153&type=chunk) - There have been no other significant changes to the Company's critical accounting policies during the six months ended September 26, 2020, as compared to those disclosed in the Form 10-K[153](index=153&type=chunk) [Recent Accounting Pronouncements](index=33&type=section&id=Recent%20Accounting%20Pronouncements) Refer to Note 1 to the Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements - Refer to Note 1 to the Consolidated Financial Statements for a discussion of recently issued and adopted accounting pronouncements[154](index=154&type=chunk) [Other Matters](index=34&type=section&id=Other%20Matters) Refer to Note 19 to the Consolidated Financial Statements for a discussion of the Company's related party transactions - Refer to Note 19 to the Consolidated Financial Statements for a discussion of the Company's related party transactions[156](index=156&type=chunk) [Off Balance Sheet Arrangements](index=34&type=section&id=Off%20Balance%20Sheet%20Arrangements) Refer to Note 15 to the Consolidated Financial Statements for a discussion of the Company's off-balance sheet commitments - Refer to Note 15 to the Consolidated Financial Statements for a discussion of the Company's off-balance sheet commitments[157](index=157&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes from the quantitative and qualitative disclosures about market risk previously reported in the Company's Annual Report on Form 10-K - There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K[158](index=158&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of September 26, 2020, with no material changes in internal control over financial reporting during the fiscal quarter [(a) Disclosure Controls and Procedures](index=34&type=section&id=(a)%20Disclosure%20Controls%20and%20Procedures) The Company's disclosure controls and procedures were evaluated and concluded to be effective as of September 26, 2020 - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of September 26, 2020[159](index=159&type=chunk) [(b) Changes in Internal Control over Financial Reporting](index=34&type=section&id=(b)%20Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) There have been no changes in the Company's internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended September 26, 2020 - There have been no changes in the Company's internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended September 26, 2020[160](index=160&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The Company is cooperating with an ongoing SEC investigation related to its former CEO's securities trading, with the CFO recently receiving a Wells Notice, and is also facing two wage-and-hour class action lawsuits - The Company is cooperating with an ongoing SEC investigation since 2018 regarding securities trading by its former CEO, Joseph Stegmayer, and its CFO, Dan Urness, recently received a Wells Notice[163](index=163&type=chunk) - For the six months ended September 26, 2020, the Company incurred **$1.1 million** in SEC inquiry expenses but received a **$1.3 million** insurance reimbursement, resulting in a net benefit of **$0.2 million**[164](index=164&type=chunk) - Two class action lawsuits (Joseph D. Robles v. Cavco Industries, Inc. and Malik Grif in v. Fleetwood Homes, Inc.) are pending in California for alleged wage-and-hour violations, with mediation scheduled for January 27, 2021[165](index=165&type=chunk) - Management does not believe that loss contingencies arising from other pending matters are likely to have a material adverse effect on the Company's consolidated financial position, liquidity, or results of operations[166](index=166&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) Readers should carefully consider the risk factors discussed in Part I, Item 1A of the Company's 2020 Annual Report on Form 10-K, as these could materially affect the Company's business, financial condition, or future results - Readers should carefully consider the factors discussed in Part I, Item 1A, Risk Factors, in the Form 10-K, which could materially affect the Company's business, financial condition, or future results[168](index=168&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) Paul Bigbee was appointed as the Company's Principal Financial Officer and Principal Accounting Officer on October 26, 2020, following Dan Urness's leave of absence - Paul Bigbee was appointed the Company's Principal Financial Officer and Principal Accounting Officer on October 26, 2020[169](index=169&type=chunk) - Dan Urness, the Company's Chief Financial Officer and Principal Accounting Officer, has taken a leave of absence and is no longer designated for those roles as of October 26, 2020[171](index=171&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL taxonomy documents, and the cover page interactive data file - The exhibits include certifications (31.1, 31.2, 32) and various Inline XBRL Taxonomy Extension documents (101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[174](index=174&type=chunk) SIGNATURES The report was duly signed on behalf of Cavco Industries, Inc. by William C. Boor and Paul Bigbee (Principal Financial and Accounting Officer) on October 30, 2020 - The report was duly signed on behalf of Cavco Industries, Inc. by William C. Boor and Paul Bigbee (Principal Financial and Accounting Officer) on October 30, 2020[177](index=177&type=chunk)[178](index=178&type=chunk)