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Cavco Industries Inc. (Nasdaq: CVCO), a Phoenix-based builder of manufactured homes and park model RVs, saw revenues decrease 4% during the second quarter of fiscal year 2021, which ended Sept. 26, according to financial results reported Thursday (Oct. 29).

• Net revenue decreased 4% to $258 million for the second quarter of fiscal year 2021 compared to $268.7 million in the same quarter last year. Net revenue for the first six months of fiscal 2021 was $512.8 million, a 3.7% decrease from $532.7 million in the comparable prior-year period.

◦ In the factory-built housing segment, Net revenue decreased 4.6% to $241million for the second quarter of fiscal year 2021 compared to $252.7 million in the same quarter last year. Factory-built housing net revenue for the first six months of fiscal 2021 was $479.1 million, a 4.5% decrease from $501.5 million in the comparable prior-year period.

Note that Destiny Homes was purchased in August 2019 and Lexington Homes was closed in June 2020. The decrease was primarily from 9% and 11% lower home sales volume during the three and six months ended Sept. 26, respectively, partially offset by higher home selling prices compared to last year. Strong incoming order rates that began in the last half of the first quarter continued throughout the second quarter of fiscal year 2021. Production inefficiencies from challenges related to the novel coronavirus COVID-19 (“COVID-19”) pandemic limited factory delivery volume, causing factory backlogs to increase dramatically, as discussed further below.

◦ Financial services segment net revenue increased primarily due to $0.7 million and $1.7 million of unrealized gains on marketable equity investments in the insurance subsidiary’s portfolio during the three and six months ended September 26, respectively, compared to $0.2 million in unrealized gains in each of the prior year periods. These unrealized gains resulted mainly from the recovery of the underlying equity markets during the relevant periods.

• Income from operations decreased 19.2% to $18.1 million for the second quarter of fiscal year 2021 compared to $22.4 million in the same quarter last year. Income from operations for the first six months of fiscal 2021 was $38.1 million, a 19.6% decrease from $47.4 million in the comparable prior-year period.

◦ In the factory-built housing segment, gross profit was lower in the three and six months ended Sept. 26, due to fewer home sales as a result of COVID-19 related production inefficiencies. During the second quarter of fiscal year 2021, the company incurred $0.5 million in expenses related to the Securities and Exchange Commission inquiry. However, the company also received a $0.8 million insurance recovery of prior expenses, resulting in a net benefit of $0.3 million for the second quarter of fiscal year 2021 compared to $0.8 million in expense in the second quarter of fiscal year 2020. For the six months ended Sept. 26, the company has recorded a net benefit of $0.2 million for investigation related expenses compared to $1.6 million in expense in the comparable prior-year period. Both periods incurred identical charges for the amortization of additional director and officer (D&O) insurance premium, which is now fully amortized.

◦ In the financial services segment, Income from operations was adversely impacted by $3.3 million and $4.4 million of higher weather-related claims volume compared to the three and six months ended Sept. 28, 2019, respectively. Interest income earned on the acquired loan portfolios that continue to amortize was also lower. These declines were partially offset by unrealized gains on marketable equity investments, as described above.

• Income before income taxes for the second quarter of fiscal year 2021 was $19.6 million, down 28.2% from $27.3 million for the second quarter of fiscal year 2020. For the six months ended Sept. 26, Income before income taxes was $41.3 million, down 24.4% from $54.6 million. Interest expense for the period decreased due to the repurchase of the 2007-1 securitized loan portfolio in August 2019, thereafter eliminating the related interest expense. Other income, net, declined primarily due to a $3.4 million net gain on the sale of idle land that was recorded in the second quarter of fiscal year 2020, as well as a reduction in interest earned in the current periods on cash and commercial loan receivables, given the lower interest rate environment.

• Income taxes totaled $4.5 million in the second quarter of fiscal year 2021 compared to $6.4 million, in the second quarter of fiscal year 2020. For the six months ended September 26, 2020, Income taxes totaled $9.6 million compared to $12.5 million for the same period of the prior year.

• Net income decreased 28.2% to $15 million for the second quarter of fiscal year 2021, compared to net income of $20.9 million in the same quarter of the prior year. For the six months ended September 26, net income was $31.7 million, down 24.9% from net income of $42.2 million in the prior-year period. Diluted net income per share was $1.62 and $3.42 for the three and six months ended September 26, respectively, compared to $2.25 and $4.56 for the same periods last year. Items ancillary to our core operations had the following impact on the results of operations (in millions):

Business Update on the COVID-19 Pandemic

In March 2020, the World Health Organization declared COVID-19 a global pandemic. As the business was considered essential, the company continued to operate substantially all of its homebuilding and retail sales facilities while working to follow COVID-19 health guidelines. The company has worked to minimize exposure and transmission risks by implementing enhanced facility cleaning, social distancing and related protocols while continuing to serve its customers. Operational efficiencies declined from adjusting home production processes to comply with health guidelines, managing higher factory employee absenteeism, limited new-hire availability and certain building material supply shortages. Accordingly, the company’s total average plant capacity utilization rate was approximately 65% during the second fiscal quarter of 2021, ending the quarter at approximately 70%. This is lower than pre-pandemic levels of more than 80%.

Sales order activity has continued to improve during the second fiscal quarter of 2021 to the point where home sales order rates were nearly 65% higher than the comparable prior-year quarter. Increased order volume is the result of a higher number of well-qualified home buyers making purchase decisions, supported by reduced home loan interest rates. Increased orders outpaced the challenging production environment during the quarter, raising order backlogs 134% to $321 million on September 26, compared to $137 million on Sept. 28, 2019, and $157 million on June 27. The backlog of home orders excludes orders that have been paused or canceled at the request of the customer.

Commenting on the quarter, Bill Boor, president and CEO said, “Across the company, our teams have done a tremendous job safely continuing operations over the last two quarters. In manufacturing, while our ability to produce homes has been hampered by labor and supply challenges, the rapid increase in our backlog has largely been driven by a sustained and unprecedented level of orders. That demand is clearly indicative of the long-term shortage of affordable housing and has been enabled by record-low interest rates. We are working very hard to increase production by addressing significant labor challenges. Throughout this period of time, we have demonstrated our ability to generate cash and our strong financial position continues to support our strategic direction.”

2020 Stock Repurchase Program

On Oct. 27, the company’s Board of Directors approved a $100 million stock repurchase program that may be used to purchase its outstanding common stock. This program replaces a previously standing $10 million authorization, which is now canceled.

The purchases may be made in the open market or one or more privately negotiated transactions in compliance with applicable securities laws and other legal requirements. The actual timing, number and value of shares repurchased under the program will be determined by the company in its discretion and will depend on a number of factors, including market conditions, applicable legal requirements and other strategic capital needs and opportunities. The plan does not obligate Cavco to acquire any particular amount of common stock and may be suspended or discontinued at any time.

The company expects to finance the program from existing cash resources. As of Sept. 26, the company had cash and short-term investments of approximately $329 million.

“Our priorities for capital remain unchanged. As we’ve continually evaluated those priorities alongside our growing cash balance, we have become convinced that we have the opportunity to return value directly to our stockholders without compromising our ability to create long-term value through investment. We remain committed to growth, both organically and through acquisitions,” said Boor.

Cavco Industries, Inc., headquartered in Phoenix, Arizona, designs and produces factory-built housing products primarily distributed through a network of independent and company-owned retailers. The company is one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments and marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle and Destiny. The company is also a producer of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes.