Cavco(CVCO) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Cavco Industries, Inc.'s unaudited consolidated financial statements and detailed notes for the periods ended October 1, 2022, and October 2, 2021 Consolidated Balance Sheets Consolidated Balance Sheet Summary (in thousands) | ASSETS / LIABILITIES & EQUITY | October 1, 2022 | April 2, 2022 | | :---------------------------- | :-------------- | :------------ | | Total Assets | $1,264,666 | $1,154,972 | | Total Current Assets | $819,791 | $744,117 | | Cash and cash equivalents | $333,249 | $244,150 | | Inventories | $233,965 | $243,971 | | Property, plant and equipment, net | $189,968 | $164,016 | | Goodwill | $100,577 | $100,993 | | Total Liabilities | $334,799 | $323,692 | | Total Current Liabilities | $306,051 | $294,170 | | Total Stockholders' Equity| $928,932 | $830,455 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net revenue | $577,392 | $359,543 | $1,165,730 | $689,965 | | Gross profit | $157,599 | $89,928 | $302,323 | $163,941 | | Income from operations | $90,705 | $44,556 | $169,293 | $77,737 | | Net income attributable to Cavco common stockholders | $74,116 | $37,610 | $133,718 | $64,656 | | Basic EPS | $8.32 | $4.09 | $15.01 | $7.03 | | Diluted EPS | $8.25 | $4.06 | $14.88 | $6.97 | - Net revenue for the three months ended October 1, 2022, increased by 60.6% to $577.4 million compared to $359.5 million in the prior year period. For the six months ended October 1, 2022, net revenue increased by 69.0% to $1,165.7 million compared to $689.9 million in the prior year period[10] - Net income attributable to Cavco common stockholders for the three months ended October 1, 2022, increased by 97.1% to $74.1 million compared to $37.6 million in the prior year period. For the six months ended October 1, 2022, net income increased by 106.8% to $133.7 million compared to $64.7 million in the prior year period[10] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :------------------------------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $162,942 | $80,087 | | Net cash used in investing activities | $(34,933) | $(156,045) | | Net cash used in financing activities | $(39,224) | $(18,873) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $88,785 | $(94,831) | | Cash, cash equivalents and restricted cash at end of the period | $348,119 | $244,476 | - Net cash provided by operating activities significantly increased by $82.8 million, from $80.1 million in the prior year to $162.9 million for the six months ended October 1, 2022, primarily due to higher net income[12][126] - Net cash used in investing activities decreased by $121.1 million, from $156.0 million in the prior year to $34.9 million for the six months ended October 1, 2022, mainly due to lower acquisition spending in the current period[12][127] - Net cash used in financing activities increased by $20.4 million, from $18.9 million in the prior year to $39.2 million for the six months ended October 1, 2022, primarily due to increased common stock repurchases[12][128] Notes to Consolidated Financial Statements 1. Basis of Presentation Cavco operates in factory-built housing and financial services segments, designing and building homes, offering consumer finance and insurance, and recently made key acquisitions - Cavco operates in two segments: (1) factory-built housing, including wholesale and retail operations, and (2) financial services, including manufactured housing consumer finance and insurance[16] - The company acquired an additional 20% ownership in Craftsman Homes, LLC and Craftsman Homes Development, LLC during fiscal 2022, gaining a controlling interest. It also purchased certain manufactured housing assets and assumed liabilities of The Commodore Corporation[17] 2. Revenue from Contracts with Customers Factory-built housing revenue grew significantly, especially for U.S. HUD code homes, while financial services revenue remained stable or slightly decreased Net Revenue by Segment (in thousands) | Segment | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :---------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Factory-built housing | $559,602 | $342,094 | $1,132,199 | $654,377 | | Financial services | $17,790 | $17,449 | $33,531 | $35,588 | | Total Net Revenue | $577,392 | $359,543 | $1,165,730 | $689,965 | - Factory-built housing revenue increased by 63.6% for the three months and 73.0% for the six months ended October 1, 2022, driven by U.S. HUD code homes[20] - Financial services revenue saw a modest 2.0% increase for the three months but a 5.8% decrease for the six months ended October 1, 2022[20] 3. Restricted Cash Restricted cash, mainly from CountryPlace customer payments, slightly increased from April 2 to October 1, 2022 Restricted Cash (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :--------------------------------------------------- | :-------------- | :------------ | | Cash related to CountryPlace customer payments to be remitted to third parties | $13,933 | $13,857 | | Other restricted cash | $937 | $1,327 | | Total Restricted Cash | $14,870 | $15,184 | | Less current portion | $(14,535) | $(14,849) | | Non-current Restricted Cash | $335 | $335 | 4. Investments Investments include debt and equity securities; total investments were stable, but marketable equity securities saw a net unrealized loss Investments (in thousands) | Investment Type | October 1, 2022 | April 2, 2022 | | :---------------------------- | :-------------- | :------------ | | Available-for-sale debt securities | $19,488 | $17,760 | | Marketable equity securities | $14,441 | $16,780 | | Non-marketable equity investments | $20,761 | $20,479 | | Total Investments | $54,690 | $55,019 | | Less short-term investments | $(16,367) | $(20,086) | | Long-term Investments | $38,323 | $34,933 | Net Investment Gains and Losses on Marketable Equity Securities (in thousands) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net (loss) gain recognized during the period | $(233) | $243 | $(2,575) | $1,939 | | Unrealized (loss) gain recognized during the period on securities still held | $(17) | $100 | $(2,285) | $1,660 | 5. Inventories Inventories slightly decreased from April to October 2022, with reductions in raw materials, work in process, and finished goods Inventories (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :-------------- | :-------------- | :------------ | | Raw materials | $93,358 | $95,929 | | Work in process | $29,600 | $30,638 | | Finished goods | $111,007 | $117,404 | | Total | $233,965 | $243,971 | 6. Consumer Loans Receivable Consumer loans receivable and allowance for loan losses decreased, with the portfolio concentrated in Texas and Florida Consumer Loans Receivable (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :------------------------------------------ | :-------------- | :------------ | | Loans held for investment, previously securitized | $23,241 | $26,014 | | Loans held for investment | $14,213 | $14,771 | | Loans held for sale | $11,035 | $8,500 | | Construction advances | $993 | $3,547 | | Total Gross Loans | $49,482 | $52,832 | | Allowance for loan losses | $(1,739) | $(2,115) | | Net Consumer Loans Receivable | $46,970 | $49,884 | Allowance for Consumer Loan Losses (in thousands) | Metric | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Allowance at beginning of period | $2,115 | $3,188 | | Change in estimated loan losses, net | $(376) | $(57) | | Charge-offs | $(19) | $(332) | | Recoveries | $19 | $0 | | Allowance at end of period | $1,739 | $2,799 | - As of October 1, 2022, 43% of the consumer loans receivable portfolio was concentrated in Texas and 16% in Florida[33] 7. Commercial Loans Receivable Commercial loans receivable increased, supporting distributors and developers, with a higher allowance for loan losses but no nonperforming loans Commercial Loans Receivable (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :--------------------------------------------------- | :-------------- | :------------ | | Loans receivable | $77,345 | $69,693 | | Allowance for loan losses | $(1,123) | $(1,011) | | Deferred financing fees, net | $(117) | $(116) | | Total Net Commercial Loans Receivable | $76,105 | $68,566 | | Less current portion | $(32,663) | $(32,644) | | Non-current Commercial Loans Receivable | $43,442 | $35,922 | Allowance for Commercial Loan Losses (in thousands) | Metric | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Balance at beginning of period | $1,011 | $816 | | Change in estimated loan losses, net | $112 | $10 | | Balance at end of period | $1,123 | $826 | - As of October 1, 2022, 19% of the commercial loans receivable balance was concentrated in New York, down from 25% in April 2022[40] 8. Property, Plant and Equipment, net Net property, plant, and equipment significantly increased due to additions in buildings, improvements, and machinery, reflecting capital expenditures Property, Plant and Equipment, net (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :-------------------------------- | :-------------- | :------------ | | Land | $34,777 | $32,154 | | Buildings and improvements | $142,890 | $100,775 | | Machinery and equipment | $56,601 | $48,638 | | Construction in progress | $12,474 | $29,281 | | Total at cost | $246,742 | $210,848 | | Accumulated depreciation | $(56,774) | $(46,832) | | Property, plant and equipment, net | $189,968 | $164,016 | - Depreciation expense for the six months ended October 1, 2022, was $7.3 million, a substantial increase from $2.9 million in the prior year period[42] 9. Goodwill and Other Intangibles Goodwill and other intangibles were stable, but amortization expense for intangible assets significantly increased year-over-year Goodwill and Other Intangibles, net (in thousands) | Category | October 1, 2022 Net Carrying Amount | April 2, 2022 Net Carrying Amount | | :---------------------------- | :---------------------------------- | :-------------------------------- | | Goodwill | $100,577 | $100,993 | | Trademarks and trade names | $15,680 | $15,680 | | State insurance licenses | $1,100 | $1,100 | | Customer relationships | $10,166 | $11,108 | | Other | $504 | $571 | | Total | $128,027 | $129,452 | - Amortization expense for intangible assets was $1.0 million for the six months ended October 1, 2022, compared to $339,000 for the six months ended October 2, 2021[44] 10. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities increased due to higher warranties and rebates, despite fewer customer deposits Accrued Expenses and Other Current Liabilities (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :----------------------- | :-------------- | :------------ | | Salaries, wages and benefits | $55,232 | $54,172 | | Customer deposits | $48,255 | $56,318 | | Estimated warranties | $30,841 | $26,250 | | Unearned insurance premiums | $26,453 | $24,917 | | Accrued volume rebates | $24,897 | $18,641 | | Other | $77,718 | $70,790 | | Total | $263,396 | $251,088 | 11. Warranties Estimated warranty liability increased as charges to costs and expenses surpassed payments and deductions for the six-month period Activity in Liability for Estimated Warranties (in thousands) | Metric | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Balance at beginning of period | $26,250 | $18,032 | | Charged to costs and expenses | $28,627 | $17,119 | | Payments and deductions | $(24,036) | $(16,334) | | Balance at end of period | $30,841 | $25,745 | 12. Other Liabilities Non-current other liabilities slightly decreased, mainly due to reductions in secured financing and redeemable noncontrolling interest Non-current Other Liabilities (in thousands) | Category | October 1, 2022 | April 2, 2022 | | :------------------------------------------- | :-------------- | :------------ | | Finance lease payables | $6,280 | $6,316 | | Other secured financing | $2,585 | $2,933 | | Mandatorily redeemable noncontrolling interest | $2,290 | $2,371 | | Total | $11,155 | $11,620 | | Less current portion | $(735) | $(784) | | Non-current portion | $10,420 | $10,836 | 13. Reinsurance and Insurance Loss Reserves Standard Casualty Company's premiums increased, but net incurred losses exceeded claim payments, leading to a higher reserve for claims Premiums (in thousands) | Metric | Six Months Ended Oct 1, 2022 Written | Six Months Ended Oct 1, 2022 Earned | Six Months Ended Oct 2, 2021 Written | Six Months Ended Oct 2, 2021 Earned | | :----------------------------- | :----------------------------------- | :---------------------------------- | :----------------------------------- | :---------------------------------- | | Direct premiums | $14,896 | $14,388 | $13,149 | $12,319 | | Assumed premiums—nonaffiliated | $17,846 | $16,168 | $16,814 | $15,008 | | Ceded premiums—nonaffiliated | $(8,643) | $(8,643) | $(7,361) | $(7,361) | | Total | $24,099 | $21,913 | $22,602 | $19,966 | Activity in Reserve for Claims (in thousands) | Metric | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Balance at beginning of period | $8,149 | $7,451 | | Net incurred losses during the period | $16,586 | $15,257 | | Net claim payments during the period | $(16,945) | $(15,358) | | Balance at end of period | $7,790 | $7,350 | 14. Commitments and Contingencies The company faces repurchase obligations, mortgage commitments, and a $1.5 million SEC penalty settlement related to a former CEO's trading - Maximum liability under repurchase agreements with financial institutions for distributor inventory financing approximated $189.4 million at October 1, 2022, up from $141.0 million at April 2, 2022. A reserve of $5.0 million was held for these commitments[56] - Outstanding interest rate lock commitments (IRLCs) had a notional amount of $37.0 million as of October 1, 2022[59] - The company settled an SEC civil action on September 23, 2022, agreeing to an injunction and a $1.5 million monetary penalty, which did not materially impact financial statements[61] 15. Stockholders' Equity and Redeemable Noncontrolling Interest Stockholders' equity significantly increased due to net income and paid-in capital, partially offset by common stock repurchases Changes in Stockholders' Equity (in thousands) | Metric | April 2, 2022 Balance | October 1, 2022 Balance | | :--------------------------------------------------- | :-------------------- | :---------------------- | | Total Stockholders' Equity attributable to Cavco Stockholders | $830,455 | $928,932 | | Redeemable Noncontrolling Interest | $825 | $926 | | Net income attributable to Cavco common stockholders (6 months) | $133,718 | $133,718 |\ | Common stock repurchases (6 months) | $(38,960) | $(38,960) | 16. Earnings Per Share Basic and diluted EPS substantially increased for both periods, driven by higher net income and a lower weighted average share count Earnings Per Share (EPS) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to Cavco common stockholders | $74,116 | $37,610 | $133,718 | $64,656 | | Basic EPS | $8.32 | $4.09 | $15.01 | $7.03 | | Diluted EPS | $8.25 | $4.06 | $14.88 | $6.97 | | Weighted average shares outstanding (Basic) | 8,903,703 | 9,190,866 | 8,910,933 | 9,194,577 | 17. Fair Value Measurements Fair values of financial instruments were largely consistent with book values, except for consumer and commercial loans receivable Book Value and Estimated Fair Value of Financial Instruments (in thousands) | Financial Instrument | October 1, 2022 Book Value | October 1, 2022 Estimated Fair Value | April 2, 2022 Book Value | April 2, 2022 Estimated Fair Value | | :----------------------------------- | :--------------------------- | :----------------------------------- | :----------------------- | :--------------------------------- | | Available-for-sale debt securities | $19,488 | $19,488 | $17,760 | $17,760 | | Marketable equity securities | $14,441 | $14,441 | $16,780 | $16,780 | | Non-marketable equity investments | $20,761 | $20,761 | $20,479 | $20,479 | | Consumer loans receivable | $46,970 | $53,340 | $49,884 | $53,354 | | Commercial loans receivable | $76,105 | $71,878 | $68,566 | $65,942 | 18. Related Party Transactions Sales to related parties, mainly manufactured housing distributors, increased for both periods, as did receivables from related parties - Total sales to related parties were $20.1 million for the three months and $37.3 million for the six months ended October 1, 2022, compared to $14.0 million and $28.8 million, respectively, in the prior year periods[74] - Receivables from related parties included $5.1 million of accounts receivable and $2.2 million of commercial loans outstanding as of October 1, 2022[74] 19. Business Segment Information Factory-built housing saw substantial growth in revenue and income, while financial services income declined despite stable revenue Net Revenue by Segment (in thousands) | Segment | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :---------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Factory-built housing | $559,602 | $342,094 | $1,132,199 | $654,377 | | Financial services | $17,790 | $17,449 | $33,531 | $35,588 | | Total Net Revenue | $577,392 | $359,543 | $1,165,730 | $689,965 | Income (loss) before income taxes by Segment (in thousands) | Segment | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | | :-------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Factory-built housing | $90,374 | $46,893 | $170,146 | $80,452 | | Financial services | $2,437 | $2,128 | $1,975 | $4,047 | | Total | $92,811 | $49,021 | $172,121 | $84,499 | Total Assets by Segment (in thousands) | Segment | October 1, 2022 | April 2, 2022 | | :---------------------- | :-------------- | :------------ | | Factory-built housing | $1,096,450 | $929,535 | | Financial services | $168,216 | $225,437 | | Total Assets | $1,264,666 | $1,154,972| 20. Subsequent Event Cavco signed a binding offer to acquire Solitaire Homes for $93 million, expanding its manufacturing and retail presence in the Southwest and Mexico - On October 27, 2022, Cavco signed a binding offer to acquire Solitaire Homes, Inc., including four manufacturing facilities and twenty-two retail locations[77] - The purchase price for Solitaire Homes totals $93 million, expected to be funded entirely with cash on hand and to close early in the Company's fourth fiscal quarter of 2023[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and outlook, highlighting growth in housing, challenges in financial services, strategic initiatives, liquidity, and inflation impacts Forward-Looking Statements - The report contains forward-looking statements regarding financial performance, industry conditions, liquidity, acquisitions, and economic factors, which involve risks and uncertainties that could cause actual results to differ materially[80][81] Introduction - This section should be read in conjunction with the Company's Consolidated Financial Statements and related Notes in Part I, Item 1 of this Report[82] Company Overview - Cavco Industries, Inc. is a leading producer of factory-built housing products, including manufactured homes, modular homes, and park model RVs, distributed through independent and company-owned retailers. It also operates financial services subsidiaries, CountryPlace Acceptance Corp. (finance) and Standard Casualty Company (insurance)[83] - The company operates 26 homebuilding production lines across the U.S. and recently opened two new lines in Glendale, Arizona, and Hamlet, North Carolina[85] - Subsequent to the quarter, Cavco signed an offer to acquire Solitaire Homes, Inc., which includes four manufacturing facilities and twenty-two retail locations, strengthening its Southwest presence and expanding into Mexico[87] Company and Industry Outlook - Industry home shipments increased 14.2% for the first 8 months of calendar year 2022, reflecting the industry's ability to provide affordable housing solutions[88][89] - Cavco focuses on identifying niche market opportunities, building quality, energy-efficient homes, and maintaining a conservative cost structure and strong financial position[91][92] - The company continues to make commercial loan programs available to its wholesale distribution chain and invests in community-based lending initiatives to expand financing availability and product distribution[94][95] - Challenges include volatile material and labor costs, which may affect gross margins, and efforts are ongoing to improve recruitment and retention of qualified production employees to meet demand[96][98] Net Revenue Net Revenue by Segment and Homes Sold (in thousands, except per home sold) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Change ($) | Change (%) | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Factory-built housing Net Revenue | $559,602 | $342,094 | $217,508 | 63.6% | | Financial services Net Revenue | $17,790 | $17,449 | $341 | 2.0% | | Total Factory-built homes sold | 5,111 | 3,597 | 1,514 | 42.1% | | Net factory-built housing revenue per home sold | N/A | N/A | N/A | N/A | | Six Months Ended Oct 1, 2022 | | | | | | Factory-built housing Net Revenue | $1,132,199 | $654,377 | $477,822 | 73.0% | | Financial services Net Revenue | $33,531 | $35,588 | $(2,057) | (5.8)% | | Total Factory-built homes sold | 10,457 | 7,297 | 3,160 | 43.3% | | Net factory-built housing revenue per home sold | $108,272 | $89,678 | $18,594 | 20.7% | - Factory-built housing revenue increased due to higher home sales volume and selling prices, with the Commodore acquisition contributing $107 million and $208 million for the three and six months, respectively[104] - Financial services net revenue increased 2.0% for the three months due to higher home loan sales, but decreased 5.8% for the six months primarily from realized/unrealized losses on marketable equity securities and lower interest income[106] Gross Profit Gross Profit by Segment (in thousands) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Factory-built housing Gross Profit | $149,665 | $82,299 | $67,366 | 81.9% | | Financial services Gross Profit | $7,934 | $7,629 | $305 | 4.0% | | Consolidated Gross Profit % of Net Revenue | 27.3% | 25.0% | N/A | 2.3% | | Six Months Ended Oct 1, 2022 | | | | | | Factory-built housing Gross Profit | $289,251 | $148,572 | $140,679 | 94.7% | | Financial services Gross Profit | $13,072 | $15,369 | $(2,297) | (14.9)% | | Consolidated Gross Profit % of Net Revenue | 25.9% | 23.8% | N/A | 2.1% | - Factory-built housing gross profit and gross profit percentage increased due to higher average sales prices[111] - Financial services gross profit increased for the three months due to higher home loan sales but decreased for the six months primarily due to higher insurance claims from weather events and greater unrealized losses on marketable equity securities[112] Selling, General and Administrative Expenses Selling, General and Administrative Expenses (in thousands) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Change ($) | Change (%) | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Factory-built housing SG&A | $61,640 | $40,347 | $21,293 | 52.8% | | Financial services SG&A | $5,254 | $5,025 | $229 | 4.6% | | Consolidated SG&A as % of Net revenue | 11.6% | 12.6% | N/A | (1.0)% | | Six Months Ended Oct 1, 2022 | | | | | | Factory-built housing SG&A | $122,563 | $75,844 | $46,719 | 61.6% | | Financial services SG&A | $10,467 | $10,360 | $107 | 1.0% | | Consolidated SG&A as % of Net revenue | 11.4% | 12.5% | N/A | (1.1)% | - Factory-built housing SG&A increased due to the Commodore acquisition and higher salary, incentive compensation, legal, and professional fees[114] - As a percentage of Net revenue, SG&A improved by 100 and 110 basis points for the three and six months, respectively, due to better utilization of fixed costs on higher sales[115] Other Components of Net Income Other Components of Net Income (in thousands) | Metric | Three Months Ended Oct 1, 2022 | Three Months Ended Oct 2, 2021 | Change ($) | Change (%) | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest expense | $233 | $203 | $30 | 14.8% | | Other income, net | $2,339 | $4,668 | $(2,329) | (49.9)% | | Income tax expense | $18,613 | $11,338 | $7,275 | 64.2% | | Effective tax rate | 20.1% | 23.1% | N/A | (3.0)% | | Six Months Ended Oct 1, 2022 | | | | | | Interest expense | $394 | $367 | $27 | 7.4% | | Other income, net | $3,222 | $7,129 | $(3,907) | (54.8)% | | Income tax expense | $38,229 | $19,770 | $18,459 | 93.4% | | Effective tax rate | 22.2% | 23.4% | N/A | (1.2)% | - The decrease in Other income, net, was primarily due to a $3.3 million gain recognized in the prior year from the Craftsman acquisition remeasurement and a $1.1 million unrealized loss on corporate marketable investments in the current year, partially offset by higher interest income on cash balances[121] - The effective tax rate benefited from $2.7 million of estimated non-recurring net tax credits related to the sale of energy-efficient homes under the renewed Internal Revenue Code §45L program[122] Liquidity and Capital Resources - The company believes its cash and cash equivalents, along with cash flow from operations, will be sufficient to fund operations and growth for the foreseeable future[123] - Cavco expects to continue evaluating potential acquisitions and strategic investments, which may require significant cash use[123] Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended Oct 1, 2022 | Six Months Ended Oct 2, 2021 | Change ($) | | :--------------------------------------------------- | :--------------------------- | :--------------------------- | :--------- | | Cash, cash equivalents and restricted cash at beginning of fiscal year | $259,334 | $339,307 | $(79,973) | | Net cash provided by operating activities | $162,942 | $80,087 | $82,855 | | Net cash used in investing activities | $(34,933) | $(156,045) | $121,112 | | Net cash used in financing activities | $(39,224) | $(18,873) | $(20,351) | | Cash, cash equivalents and restricted cash at end of the period | $348,119 | $244,476 | $103,643 | Critical Accounting Estimates - There have been no significant changes to critical accounting estimates during the six months ended October 1, 2022, compared to those disclosed in the Form 10-K[129] Other Matters - High inflation and rising interest rates could adversely impact gross margins and the ability of home buyers to obtain affordable financing, posing a risk to future profitability and financial position[130] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's quantitative and qualitative disclosures about market risk since the Form 10-K filing - No material changes from the quantitative and qualitative disclosures about market risk previously disclosed in the Form 10-K[132] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of October 1, 2022, with no material changes in internal control over financial reporting - The Company's President and Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of October 1, 2022[133] - There has been no material change in the Company's internal control over financial reporting during the fiscal quarter ended October 1, 2022[134] PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings information is incorporated by reference from Note 14 to the Consolidated Financial Statements - Legal proceedings information is incorporated by reference from Note 14 to the Consolidated Financial Statements[137] Item 1A. Risk Factors Readers should consider risk factors from the 2022 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 2022 Annual Report on Form 10-K, as well as additional unknown risks[138] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board approved a $100 million stock repurchase program on May 26, 2022, with no repurchases made to date - The Board of Directors approved a $100 million stock repurchase program on May 26, 2022, with no repurchases made under this new program as of the report date[139] Item 5. Other Information No other information required under this item was not previously disclosed - There is no other information required to be disclosed under this item which was not previously disclosed[140] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including certifications, XBRL taxonomy documents, and the interactive data file List of Exhibits | 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 Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Rule 13a-14(a)/15d-14(a) | | 32 | Certification of Principal Executive Officer and Principal Financial Officer 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 - The report was signed by William C. Boor, Director, President and Chief Executive Officer, and Allison K. Aden, Executive Vice President, Chief Financial Officer & Treasurer, on November 4, 2022[145]