Cavco Industries Earnings 2019-12-28

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Document

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 December 28, 2019



☐	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 jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3636 North Central Ave, Ste 1200
	Phoenix	Arizona	85012
(Address of principal executive offices, including zip code)

(602) 256-6263

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01	CVCO	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 24, 2020, 9,142,281 shares of Registrant's Common Stock, $.01 par value, were outstanding.

CAVCO INDUSTRIES, INC.

FORM 10-Q

December 28, 2019

TABLE OF CONTENTS

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

CAVCO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)



	December 28, 2019		March 30, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	216,882	$	187,370
Restricted cash, current	13,026		12,148
Accounts receivable, net	39,411		40,701
Short-term investments	13,945		12,620
Current portion of consumer loans receivable, net	37,151		30,058
Current portion of commercial loans receivable, net	15,433		15,234
Inventories	110,144		116,203
Assets held for sale	—		3,061
Prepaid expenses and other current assets	55,994		44,654
Total current assets	501,986		462,049
Restricted cash	350		351
Investments	31,229		32,137
Consumer loans receivable, net	52,841		56,727
Commercial loans receivable, net	28,924		27,772
Property, plant and equipment, net	71,407		63,484
Goodwill and other intangibles, net	89,962		82,696
Operating lease right-of-use assets	10,710		—
Total assets	$	787,409	$	725,216
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	27,050	$	29,305
Accrued liabilities	132,878		125,181
Current portion of securitized financings and other	1,862		19,522
Total current liabilities	161,790		174,008
Operating lease liabilities	7,795		—
Deferred income taxes	8,439		7,002
Securitized financings and other	14,125		14,618

Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares authorized; No shares issued or outstanding	—		—
Common stock, $0.01 par value; 40,000,000 shares authorized; Outstanding 9,141,191 and 9,098,320 shares, respectively	91		91
Additional paid-in capital	251,941		249,447
Retained earnings	343,143		280,078
Accumulated other comprehensive income (loss)	85		(28		)
Total stockholders' equity	595,260		529,588
Total liabilities and stockholders' equity	$	787,409	$	725,216

See accompanying Notes to Consolidated Financial Statements

Table of Contents

CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Nine Months Ended
	December 28, 2019			December 29, 2018			December 28, 2019			December 29, 2018
Net revenue	$	273,722		$	233,700		$	806,439		$	721,633
Cost of sales	213,867			184,679			627,819			571,720
Gross profit	59,855			49,021			178,620			149,913
Selling, general and administrative expenses	36,844			30,833			108,191			90,081
Income from operations	23,011			18,188			70,429			59,832
Interest expense	(490		)	(923		)	(1,278		)	(2,836		)
Other income, net	2,211			(318		)	10,198			3,604
Income before income taxes	24,732			16,947			79,349			60,600
Income tax expense	(3,834		)	(3,563		)	(16,284		)	(11,949		)
Net income	$	20,898		$	13,384		$	63,065		$	48,651

Comprehensive income:
Net income	$	20,898		$	13,384		$	63,065		$	48,651
Reclassification adjustment for securities sold or matured	15			14			17			38
Applicable income taxes	(3		)	(3		)	(4		)	(8		)
Net change in unrealized position of investments held	(14		)	62			126			11
Applicable income taxes	3			(13		)	(26		)	(2		)
Comprehensive income	$	20,899		$	13,444		$	63,178		$	48,690

Net income per share:
Basic	$	2.29		$	1.47		$	6.91		$	5.36
Diluted	$	2.25		$	1.44		$	6.81		$	5.24
Weighted average shares outstanding:
Basic	9,138,202			9,097,993			9,120,241			9,075,156
Diluted	9,293,941			9,270,220			9,259,203			9,282,178

See accompanying Notes to Consolidated Financial Statements

Table of Contents

CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



	Nine Months Ended
	December 28, 2019			December 29, 2018
OPERATING ACTIVITIES
Net income	$	63,065		$	48,651
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,208			3,468
Provision for credit losses	138			500
Deferred income taxes	1,407			(732		)
Stock-based compensation expense	2,268			2,936
Non-cash interest income, net	(1,134		)	(660		)
Gain on sale of property, plant and equipment, net	(3,416		)	(39		)
Gain on investments and sale of loans, net	(11,801		)	(5,200		)
Changes in operating assets and liabilities:
Accounts receivable	2,196			(863		)
Consumer loans receivable originated	(121,637		)	(98,692		)
Proceeds from sales of consumer loans	117,127			96,679
Principal payments on consumer loans receivable	7,816			9,681
Inventories	11,567			(6,257		)
Prepaid expenses and other current assets	(676		)	(9,248		)
Commercial loans receivable	487			(20,556		)
Accounts payable and accrued liabilities	(3,295		)	(3,310		)
Net cash provided by operating activities	68,320			16,358
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(6,487		)	(6,318		)
Payments for Destiny Homes, net	(15,937		)	—
Proceeds from sale of property, plant and equipment and assets held for sale	73			110
Purchases of investments	(4,648		)	(5,497		)
Proceeds from sale of investments	8,126			6,530
Net cash used in investing activities	(18,873		)	(5,175		)
FINANCING ACTIVITIES
Proceeds (payments) from exercise of stock options	226			(114		)
Proceeds from secured financings and other	76			392
Payments on securitized financings and other	(19,360		)	(6,112		)
Net cash used in financing activities	(19,058		)	(5,834		)
Net increase in cash, cash equivalents and restricted cash	30,389			5,349
Cash, cash equivalents and restricted cash at beginning of the fiscal year	199,869			199,258
Cash, cash equivalents and restricted cash at end of the period	$	230,258		$	204,607
Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	15,901		$	15,845
Cash paid for interest	$	604		$	1,912
Supplemental disclosures of noncash activity:
Right-of-use assets recognized	$	14,322		$	—
Operating lease obligations incurred	$	14,347		$	—

See accompanying Notes to Consolidated Financial Statements

Table of Contents

CAVCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, the "Company" or "Cavco") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for Quarterly Reports on Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that the Company believes are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified to conform to current period classification. The Company has evaluated subsequent events after the balance sheet date through the date of the filing of this report with the SEC, and there were no disclosable subsequent events. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the Notes to the Consolidated Financial Statements included in the Company's 2019 Annual Report on Form 10-K for the year ended March 30, 2019, filed with the SEC on May 28, 2019 ("Form 10-K").

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements ("Notes"). Actual results could differ from those estimates. The Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the interim periods are not necessarily indicative of the results or cash flows for the full year. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to March 31^st of each year. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to March 31^st. The Company's current fiscal year will end on March 28, 2020.

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. The Company designs and builds a wide variety of affordable manufactured homes, modular homes and park model RVs in 20 factories located throughout the United States, which are sold to a network of independent distributors, community owners and developers and through the Company's 39 Company-owned retail stores. Our financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Co. ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association and Federal Home Loan Mortgage Corporation seller/servicer and a Government National Mortgage Association mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Standard Casualty provides property and casualty insurance primarily to owners of manufactured homes.

Adoption of New Accounting Standards.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases ("Topic 842"). This guidance amends previous accounting considerations and treatments for leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet for both finance leases and operating leases. For finance leases, the lessee recognizes interest expense and amortization of the ROU asset and for operating leases, the lessee recognizes straight-line lease expense.

Effective March 31, 2019, the Company adopted Topic 842 using the modified retrospective transition approach. This approach provides a method for recording existing leases at adoption, without restating comparative periods. The Company also elected to adopt the package of practical expedients provided in the guidance, which allowed the Company to retain the historical classification for each lease, and provided relief from reviewing existing or expired contracts to determine if they contain leases under the new guidance. In addition, an accounting policy election was made to account for non-lease and lease components as a single lease component for all asset classes. The Company also made an accounting policy election to exclude ROU assets and lease liabilities for leases with an initial term of twelve months or less from the Consolidated Balance Sheet.

As a result of such adoption, net operating lease ROU assets and lease liabilities of $13.0 million and $13.5 million, respectively, were added to the Company’s Consolidated Balance Sheet as of March 31, 2019. The difference between the additional lease assets and lease liabilities reflects existing accrued rent balances that were reclassified to the operating lease ROU asset as of March 31, 2019. The standard did not materially impact our consolidated Net income and had no impact on cash flows. See Note 9 for additional information.

Accounting Standards Issued But Not Yet Adopted.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, which will now require a forward-looking impairment model based on expected losses rather than incurred losses. The guidance also requires increased disclosures. ASU 2016-13 will be effective beginning with the first quarter of the Company's fiscal year 2021 and will be applied using a modified retrospective transition method. While early adoption is permitted, the Company does not plan to early adopt the guidance. The Company is currently evaluating the effect ASU 2016-13 will have on the Company's Consolidated Financial Statements and disclosures.

From time to time, new accounting pronouncements are issued by the FASB and other regulatory bodies that are adopted by the Company as of the specified effective dates. Management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's Consolidated Financial Statements upon adoption.

For a description of other significant accounting policies used by the Company in the preparation of its Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K.

2. Revenue from Contracts with Customers

The following table summarizes customer contract revenues disaggregated by reportable segment and the source of revenue for the three and nine months ended December 28, 2019 and December 29, 2018 (in thousands):



	Three Months Ended				Nine Months Ended
	December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018
Factory-built housing
U.S. Housing and Urban Development code homes	$	208,966	$	174,068	$	619,001	$	545,071
Modular homes	24,508		25,698		63,327		72,046
Park model RVs	10,219		10,037		34,831		27,743
Other ⁽¹⁾	13,413		10,539		41,405		35,338
Net revenue from factory-built housing	257,106		220,342		758,564		680,198
Financial services
Insurance agency commissions received from third-party insurance companies	783		704		2,212		1,979
Other ⁽²⁾	15,833		12,654		45,663		39,456
Net revenue from financial services	16,616		13,358		47,875		41,435
Total Net revenue	$	273,722	$	233,700	$	806,439	$	721,633


(1)	Other factory-built housing revenue from ancillary products and services including freight, used homes and other services.


(2)	Other financial services revenue includes consumer finance and insurance revenue that is not within the scope of ASU 2014-09, Revenue from Contracts with Customers ("Topic 606").

3. Restricted Cash

Restricted cash consisted of the following (in thousands):



	December 28, 2019		March 30, 2019
Cash related to CountryPlace customer payments to be remitted to third parties	$	12,352	$	10,426
Other restricted cash	1,024		2,073
	$	13,376	$	12,499

Corresponding amounts are recorded in accounts payable and accrued liabilities for customer payments and deposits, respectively.

The following table provides a reconciliation of Cash and cash equivalents and Restricted cash reported within the Consolidated Balance Sheets to the combined amounts shown on the Consolidated Statements of Cash Flows (in thousands):



	December 28, 2019		March 30, 2019		December 29, 2018		March 31, 2018
Cash and cash equivalents	$	216,882	$	187,370	$	192,869	$	186,766
Restricted cash, current	13,026		12,148		11,284		11,228
Restricted cash	350		351		454		1,264
Cash, cash equivalents and restricted cash per statement of cash flows	$	230,258	$	199,869	$	204,607	$	199,258

Table of Contents

4. Investments

Investments consisted of the following (in thousands):



	December 28, 2019		March 30, 2019
Available-for-sale debt securities	$	10,391	$	13,408
Marketable equity securities	13,473		11,073
Non-marketable equity investments	21,310		20,276
	$	45,174	$	44,757

The Company's investments in marketable equity securities consist of investments in the common stock of industrial and other companies.

As of December 28, 2019 and March 30, 2019, non-marketable equity investments included contributions of $15.0 million to equity-method investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities. Other non-marketable equity investments included investments in other distribution operations.

The Company records investments in fixed maturity securities classified as available-for-sale at fair value and records the difference between fair value and cost in Accumulated other comprehensive income (loss).

The following tables summarize the Company's available-for-sale debt securities, gross unrealized gains and losses and fair value, aggregated by investment category (in thousands):



	December 28, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Residential mortgage-backed securities	$	5,267	$	17	$	(48	)	$	5,236
State and political subdivision debt securities	3,695		138		(2		)	3,831
Corporate debt securities	1,321		4		(1		)	1,324
	$	10,283	$	159	$	(51	)	$	10,391



	March 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Residential mortgage-backed securities	$	6,625	$	3	$	(119	)	$	6,509
State and political subdivision debt securities	4,883		117		(17		)	4,983
Corporate debt securities	1,635		3		(19		)	1,619
U.S. Treasury and government debt securities	300		—		(3		)	297
	$	13,443	$	123	$	(158	)	$	13,408

Table of Contents

The following tables show gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position (in thousands):



	December 28, 2019
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Residential mortgage-backed securities	$	399	$	—		$	2,896	$	(48	)	$	3,295	$	(48	)
State and political subdivision debt securities	302		(1		)	102		(1		)	404		(2		)
Corporate debt securities	299		(1		)	250		—			549		(1		)
	$	1,000	$	(2	)	$	3,248	$	(49	)	$	4,248	$	(51	)

March 30, 2019

Less than 12 Months

12 Months or Longer

Total

Price	188.00	EPS	8
Shares	9	P/E	23
MCap	1,742	P/FCF	29
Net Debt	-206	EBIT	98
TEV	1,536	TEV/EBIT	16
TTM 2019-09-28, in MM, except price, ratios

10-Q	2019-12-28	Filed 2020-01-31
10-Q	2019-09-28	Filed 2019-10-30
10-Q	2019-06-29	Filed 2019-07-30
10-K	2019-03-30	Filed 2019-05-29
10-Q	2018-12-29	Filed 2019-02-05
10-Q	2018-09-29	Filed 2018-11-08
10-Q	2018-06-30	Filed 2018-08-08
10-K	2018-03-31	Filed 2018-05-30
10-Q	2017-12-30	Filed 2018-02-07
10-Q	2017-09-30	Filed 2017-11-08
10-Q	2017-07-01	Filed 2017-08-08
10-K	2017-04-01	Filed 2017-06-13
10-Q	2016-12-31	Filed 2017-02-07
10-Q	2016-10-01	Filed 2016-11-09
10-Q	2016-07-02	Filed 2016-08-10
10-K	2016-04-02	Filed 2016-06-21
10-Q	2015-12-26	Filed 2016-02-04
10-Q	2015-09-26	Filed 2015-11-05
10-Q	2015-06-27	Filed 2015-08-06
10-K	2015-03-28	Filed 2015-06-10
10-Q	2014-12-27	Filed 2015-02-03
10-Q	2014-09-27	Filed 2014-11-05
10-Q	2014-06-28	Filed 2014-08-06
10-K	2014-03-29	Filed 2014-06-11
10-Q	2013-12-28	Filed 2014-02-06
10-Q	2013-09-28	Filed 2013-11-06
10-Q	2013-06-29	Filed 2013-08-06
10-K	2013-03-30	Filed 2013-06-11
10-Q	2012-12-29	Filed 2013-02-06
10-Q	2012-09-30	Filed 2012-11-07
10-Q	2012-06-30	Filed 2012-08-09
10-K	2012-03-31	Filed 2012-06-12
10-Q	2011-12-31	Filed 2012-02-08
10-Q	2011-09-30	Filed 2011-11-09
10-Q	2011-06-30	Filed 2011-08-09
10-K	2011-03-31	Filed 2011-06-03
10-Q	2010-12-31	Filed 2011-02-09
10-Q	2010-09-30	Filed 2010-11-05
10-Q	2010-06-30	Filed 2010-08-06
10-K	2010-03-31	Filed 2010-05-21
10-Q	2009-12-31	Filed 2010-02-09

8-K	2020-03-30	Other Events, Exhibits
8-K	2020-01-30	Earnings, Exhibits
8-K	2020-01-28	Officers, Exhibits
8-K	2020-01-27	Officers, Amend Bylaw, Exhibits
8-K	2020-01-13	Other Events
8-K	2019-10-28	Earnings, Exhibits
8-K	2019-07-29	Earnings, Exhibits
8-K	2019-07-09	Officers, Shareholder Vote
8-K	2019-06-21	Officers
8-K	2019-05-29	Enter Agreement, Officers, Exhibits
8-K	2019-05-23	Earnings, Exhibits
8-K	2019-03-29	Enter Agreement, Officers, Other Events, Exhibits
8-K	2019-02-22	Enter Agreement, Officers, Other Events, Exhibits
8-K	2019-02-05	Enter Agreement, Officers, Exhibits
8-K	2019-02-04	Earnings, Exhibits
8-K	2019-01-08	Enter Agreement, Officers, Other Events, Exhibits
8-K	2018-12-11	Amend Bylaw, Other Events, Exhibits
8-K	2018-11-08	Earnings, Exhibits
8-K	2018-08-31	Officers
8-K	2018-08-06	Earnings, Exhibits
8-K	2018-07-11	Officers, Shareholder Vote
8-K	2018-05-29	Earnings, Exhibits
8-K	2018-02-06	Earnings, Exhibits

EX-31.1	a20191228-exhibit311.htm
EX-31.2	a20191228-exhibit312.htm
EX-32	a20191228-exhibit32.htm



	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 28, 2019 (unaudited) and March 30, 2019	1
Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended December 28, 2019 and December 29, 2018	2
Consolidated Statements of Cash Flows (unaudited) for the nine months ended December 28, 2019 and December 29, 2018	3
Notes to Consolidated Financial Statements	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
Item 4. Controls and Procedures	44
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 1A. Risk Factors	45
Item 5. Other Information	45
Item 6. Exhibits	45
SIGNATURES	46

CVCO 10Q Quarterly Report

Cavco Industries Earnings 2019-12-28