CAVCO INDUSTRIES INC. [CVCO] Filings

10-Q 1 cvco-20230701.htm 10-Q cvco-20230701

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 July 1, 2023


☐			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)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class	Trading Symbol(s)	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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


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 July 28, 2023, 8,677,178 shares of the registrant's Common Stock, $0.01 par value, were outstanding.

CAVCO INDUSTRIES, INC.

FORM 10-Q

July 1, 2023

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of July 1, 2023 (unaudited) and April 1, 2023			1
Consolidated Statements of Comprehensive Income (unaudited) for the three months ended July 1, 2023 and July 2, 2022			2
Consolidated Statements of Cash Flows (unaudited) for the three months ended July 1, 2023 and July 2, 2022			3
Notes to Consolidated Financial Statements (unaudited)			4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			23
Item 4. Controls and Procedures			24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			25
Item 1A. Risk Factors			25
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issue r Purchases of Equity Securities			25
Item 3. Not applicable
Item 4. Not applicable
Item 5. Other Information			25
Item 6. Exhibits			26
SIGNATURES			27

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

CAVCO INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)


	July 1, 2023		April 1, 2023
ASSETS	(Unaudited)
Current assets
Cash and cash equivalents	$	352,234	$	271,427
Restricted cash, current	13,560		11,728
Accounts receivable, net	84,877		89,347
Short-term investments	14,173		14,978
Current portion of consumer loans receivable, net	13,477		17,019
Current portion of commercial loans receivable, net	48,772		43,414
Current portion of commercial loans receivable from affiliates, net	1,491		640
Inventories	253,986		263,150
Prepaid expenses and other current assets	76,117		92,876
Total current assets	858,687		804,579
Restricted cash	585		335
Investments	17,967		18,639
Consumer loans receivable, net	25,891		27,129
Commercial loans receivable, net	51,612		53,890
Commercial loans receivable from affiliates, net	3,584		4,033
Property, plant and equipment, net	223,663		228,278
Goodwill	115,498		114,547
Other intangibles, net	29,398		29,790
Operating lease right-of-use assets	26,162		26,755
Total assets	$	1,353,047	$	1,307,975
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	28,634	$	30,730
Accrued expenses and other current liabilities	264,742		262,661
Total current liabilities	293,376		293,391
Operating lease liabilities	22,114		21,678
Other liabilities	7,909		7,820
Deferred income taxes	5,702		7,581
Redeemable noncontrolling interest	1,120		1,219
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; Issued 9,347,220 and 9,337,125 shares, respectively	93		93
Treasury stock, at cost; 671,801 shares	(164,452)		(164,452)
Additional paid-in capital	272,175		271,950
Retained earnings	915,667		869,310
Accumulated other comprehensive loss	(657)		(615)
Total stockholders' equity	1,022,826		976,286
Total liabilities, redeemable noncontrolling interest and stockholders' equity	$	1,353,047	$	1,307,975

See accompanying Notes to Consolidated Financial Statements

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CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended
		July 1, 2023		July 2, 2022
Net revenue		$	475,875	$	588,338
Cost of sales		357,996		443,614
Gross profit		117,879		144,724
Selling, general and administrative expenses		61,680		66,136
Income from operations		56,199		78,588
Interest income		4,618		1,314
Interest expense		(266)		(161)
Other income (expense), net		126		(431)
Income before income taxes		60,677		79,310
Income tax expense		(14,266)		(19,616)
Net income		46,411		59,694
Less: net income attributable to redeemable noncontrolling interest		54		92
Net income attributable to Cavco common stockholders		$	46,357	$	59,602

Comprehensive income
Net income		$	46,411	$	59,694
Reclassification adjustment for securities sold		3		—
Applicable income taxes		(1)		—
Net change in unrealized position of investments held		(56)		(142)
Applicable income taxes		12		30
Comprehensive income		46,369		59,582
Less: comprehensive income attributable to redeemable noncontrolling interest		54		92
Comprehensive income attributable to Cavco common stockholders		$	46,315	$	59,490

Net income per share attributable to Cavco common stockholders
Basic		$	5.35	$	6.68
Diluted		$	5.29	$	6.63
Weighted average shares outstanding
Basic		8,670,434		8,918,280
Diluted		8,758,080		8,988,929

See accompanying Notes to Consolidated Financial Statements

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CAVCO INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended
	July 1, 2023		July 2, 2022
OPERATING ACTIVITIES
Net income	$	46,411	$	59,694
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	4,566		3,946
Provision for credit losses	19		(167)
Deferred income taxes	(1,868)		(2,442)
Stock-based compensation expense	1,438		1,425
Non-cash interest income, net	(297)		(257)
Loss (gain) on sale or retirement of property, plant and equipment, net	190		(232)
Gain on investments and sale of loans, net	(3,165)		(288)

Changes in operating assets and liabilities, net of acquisitions
Accounts receivable	3,692		(12,076)
Consumer loans receivable originated	(36,737)		(47,467)
Proceeds from sales of consumer loans receivable	42,363		47,881
Principal payments received on consumer loans receivable	1,819		2,421
Inventories	9,110		(10,751)
Prepaid expenses and other current assets	15,151		7,359
Commercial loans receivable originated	(28,726)		(22,776)
Principal payments received on commercial loans receivable	25,216		18,981
Accounts payable and accrued expenses and other current liabilities	3,111		12,989
Net cash provided by operating activities	82,293		58,240
INVESTING ACTIVITIES
Purchases of property, plant and equipment	(4,183)		(25,007)

Proceeds from sale of property, plant and equipment	4,434		283
Purchases of investments	(1,710)		(4,228)
Proceeds from sale of investments	3,545		4,553

Net cash provided (used) by investing activities	2,086		(24,399)
FINANCING ACTIVITIES
Payments for taxes on stock option exercises and releases of equity awards	(1,363)		(848)
Proceeds from exercise of stock options	150		—

Payments on finance leases and other secured financings	(157)		(165)
Payments for common stock repurchases	—		(38,960)
Distributions to noncontrolling interest	(120)		(240)
Net cash used in financing activities	(1,490)		(40,213)
Net increase (decrease) in cash, cash equivalents and restricted cash	82,889		(6,372)
Cash, cash equivalents and restricted cash at beginning of the fiscal year	283,490		259,334
Cash, cash equivalents and restricted cash at end of the period	$	366,379	$	252,962
Supplemental disclosures of cash flow information
Cash paid for income taxes	$	8,123	$	18,486
Cash paid for interest	$	185	$	71
Supplemental disclosures of noncash activity
Change in GNMA loans eligible for repurchase	$	(1,873)	$	(2,620)
Right-of-use assets recognized and operating lease obligations incurred	$	687	$	1,159

See accompanying Notes to Consolidated Financial Statements

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CAVCO INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," 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 addition, references throughout to numbered "Notes" refer to these Notes to Consolidated Financial Statements, unless otherwise stated.

In the opinion of management, these financial statements include all adjustments, including normal recurring adjustments, that are necessary to fairly state the results for the periods presented. Certain prior period amounts have been reclassified including from Other income (expense), net to Interest income to conform to current period classification. We have 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 our 2023 Annual Report on Form 10-K for the year ended April 1, 2023, filed with the SEC ("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 accompanying notes. Due to uncertainties, actual results could differ from the estimates and assumptions used in preparation of the Consolidated Financial Statements. 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 31st 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 31st. The current fiscal year will end on March 30, 2024 and will include 52 weeks.

We operate in two segments: (1) factory-built housing, which includes wholesale and retail factory-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance. We design and build a wide variety of affordable manufactured homes, modular homes and park model RVs through 29 homebuilding production lines located throughout the United States and two production lines in Mexico. We distribute our homes through a large network of independent distribution points in 48 states and Canada and 68 Company-owned U.S. retail stores, of which 41 are located in Texas. The financial services segment is comprised of a finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), and an insurance subsidiary, Standard Casualty Company ("Standard Casualty"). CountryPlace is an approved Federal National Mortgage Association ("'FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer and a Government National Mortgage Association ("GNMA" or "Ginnie Mae") 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.

During fiscal 2023, we completed the acquisition of Solitaire Inc. and other related entities (collectively "Solitaire Homes"), including their four manufacturing facilities and twenty-two retail locations by acquiring 100% of the outstanding stock of Solitaire Homes. The results of operations are included in our Consolidated Financial Statements from the date of acquisition. See Note 20.

In addition to the below, for a description of significant accounting policies we used in the preparation of our Consolidated Financial Statements, please refer to Note 1 of the Notes to Consolidated Financial Statements included in the Form 10-K.

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2. Revenue from Contracts with Customers

The following table summarizes Net revenue disaggregated by reportable segment and source (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Factory-built housing
Home sales		$	439,744	$	555,276
Delivery, setup and other revenues		17,365		17,321
		457,109		572,597
Financial services
Insurance agency commissions received from third-party insurance companies		899		1,397
All other sources		17,867		14,344
		18,766		15,741
		$	475,875	$	588,338

3. Restricted Cash

Restricted cash consisted of the following (in thousands):


	July 1, 2023		April 1, 2023
Cash related to CountryPlace customer payments to be remitted to third parties	$	12,883	$	11,123
Other restricted cash	1,262		940
	14,145		12,063
Less current portion	(13,560)		(11,728)
	$	585	$	335

Corresponding amounts for customer payments to be remitted to third parties are recorded in Accounts payable.

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 in the Consolidated Statements of Cash Flows (in thousands):


	July 1, 2023		July 2, 2022
Cash and cash equivalents	$	352,234	$	238,072
Restricted cash	14,145		14,890
	$	366,379	$	252,962

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4. Investments

Investments consisted of the following (in thousands):


	July 1, 2023		April 1, 2023
Available-for-sale debt securities	$	17,292	$	18,555
Marketable equity securities	9,798		9,989
Non-marketable equity investments	5,050		5,073
	32,140		33,617
Less short-term investments	(14,173)		(14,978)
	$	17,967	$	18,639

Investments in marketable equity securities consist of investments in the common stock of industrial and other companies.

Our non-marketable equity investments include investments in community-based initiatives that buy and sell our homes and provide home-only financing to residents of certain manufactured home communities and other distribution operations.

We record investments in fixed maturity securities classified as available-for-sale at fair value and record the difference between fair value and cost in Accumulated other comprehensive loss in the Consolidated Balance Sheets.

The amortized cost and fair value of our investments in available-for-sale debt securities, by security type are shown in the table below (in thousands):


	July 1, 2023				April 1, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Residential mortgage-backed securities	$	2,328	$	2,237	$	2,567	$	2,488
State and political subdivision debt securities	5,172		4,910		6,023		5,769
Corporate debt securities	10,623		10,145		10,745		10,298
	$	18,123	$	17,292	$	19,335	$	18,555

The amortized cost and fair value of our investments in available-for-sale debt securities, by contractual maturity, are shown in the table below (in thousands). Expected maturities differ from contractual maturities as borrowers may have the right to call or prepay obligations, with or without penalties.


	July 1, 2023
	Amortized Cost		Fair Value
Due in less than one year	$	3,590	$	3,510
Due after one year through five years	11,565		10,906
Due after five years through ten years	250		250
Due after ten years	390		389
Mortgage-backed securities	2,328		2,237
	$	18,123	$	17,292

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Net investment gains and losses on marketable equity securities were as follows (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Marketable equity securities
Net gain (loss) recognized during the period		$	460	$	(2,342)
Less: Net (gain) loss recognized on securities sold during the period		(20)		74
Unrealized gain (loss) recognized during the period on securities still held		$	440	$	(2,268)

5. Inventories

Inventories consisted of the following (in thousands):


	July 1, 2023		April 1, 2023
Raw materials	$	85,289	$	92,045
Work in process	29,087		29,022
Finished goods	139,610		142,083
	$	253,986	$	263,150

6. Consumer Loans Receivable

The following table summarizes consumer loans receivable (in thousands):


	July 1, 2023		April 1, 2023
Loans held for investment, previously securitized	$	20,055	$	21,000
Loans held for investment	12,880		13,117
Loans held for sale	7,599		10,846
Construction advances	376		706
	40,910		45,669
Deferred financing fees and other, net	(398)		(368)
Allowance for loan losses	(1,144)		(1,153)
	39,368		44,148
Less current portion	(13,477)		(17,019)
	$	25,891	$	27,129

The following table represents changes in the estimated allowance for loan losses, including related additions and deductions to the allowance for loan losses (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Allowance for loan losses at beginning of period		$	1,153	$	2,115
Change in estimated loan losses, net		(9)		(210)
Charge-offs		—		(19)
Recoveries		—		19
Allowance for loan losses at end of period		$	1,144	$	1,905

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The consumer loans held for investment had the following characteristics:


	July 1, 2023		April 1, 2023
Weighted average contractual interest rate	8.1	%	8.2	%
Weighted average effective interest rate	9.6	%	8.8	%
Weighted average months to maturity	153		150

The following table is a consolidated summary of the delinquency status of the outstanding amortized cost of consumer loans receivable (in thousands):


	July 1, 2023		April 1, 2023
Current	$	38,722	$	43,252
31 to 60 days	1,040		1,247
61 to 90 days	77		213
91+ days	1,071		957
	$	40,910	$	45,669

The following table disaggregates gross consumer loans receivable by credit quality indicator and fiscal year of origination (in thousands):


	July 1, 2023
	2024		2023		2022		2021		2020		Prior		Total
Prime- FICO score 680 and greater	$	5,378	$	1,440	$	183	$	996	$	1,963	$	16,864	$	26,824
Near Prime- FICO score 620-679	694		265		—		1,008		1,087		9,680		12,734
Sub-Prime- FICO score less than 620	—		—		—		19		50		938		1,007
No FICO score	—		—		—		—		—		345		345
	$	6,072	$	1,705	$	183	$	2,023	$	3,100	$	27,827	$	40,910


	April 1, 2023
	2023		2022		2021		2020		2019		Prior		Total
Prime- FICO score 680 and greater	$	9,471	$	185	$	1,051	$	1,982	$	1,191	$	16,601	$	30,481
Near Prime- FICO score 620-679	1,695		—		1,012		1,131		1,550		8,244		13,632
Sub-Prime- FICO score less than 620	84		—		19		51		—		1,033		1,187
No FICO score	—		—		—		—		24		345		369
	$	11,250	$	185	$	2,082	$	3,164	$	2,765	$	26,223	$	45,669

As of July 1, 2023, 39% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 15% was concentrated in Florida. As of April 1, 2023, 44% of the outstanding principal balance of the consumer loans receivable portfolio was concentrated in Texas and 13% was concentrated in Florida. Other than Texas and Florida, no state had concentrations in excess of 10% of the outstanding principal balance of the consumer loans receivable as of July 1, 2023 or April 1, 2023.

Repossessed homes totaled approximately $1.1 million as of both July 1, 2023 and April 1, 2023 and are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets. Foreclosure or similar proceedings in progress totaled approximately $0.6 million and $0.5 million as of July 1, 2023 and April 1, 2023, respectively.

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7. Commercial Loans Receivable

The commercial loans receivable balance consists of direct financing arrangements for the home product needs of our independent distributors, community owners and developers.

Commercial loans receivable, net consisted of the following (in thousands):


	July 1, 2023		April 1, 2023
Loans receivable	$	107,246	$	103,726
Allowance for loan losses	(1,614)		(1,586)
Deferred financing fees, net	(173)		(163)
	105,459		101,977
Less current portion of commercial loans receivable (including from affiliates), net	(50,263)		(44,054)
	$	55,196	$	57,923

The commercial loans receivable balance had the following characteristics:


	July 1, 2023		April 1, 2023
Weighted average contractual interest rate	7.5	%	7.6	%
Weighted average months outstanding	10		9

The following table represents changes in the estimated allowance for loan losses (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Balance at beginning of period		$	1,586	$	1,011
Change in estimated loan losses, net		28		43
Balance at end of period		$	1,614	$	1,054

Loans with indicators of potential performance problems are placed on watch list status and are subject to additional monitoring and scrutiny. Nonperforming status includes loans accounted for on a non-accrual basis and accruing loans with principal payments 90 days or more past due. As of July 1, 2023 and April 1, 2023, there were no commercial loans considered watch list or nonperforming. The following table disaggregates our commercial loans receivable by credit quality indicator and fiscal year of origination (in thousands):


	July 1, 2023
	2024		2023		2022		2021		2020		Prior		Total
Performing	$	26,639	$	63,412	$	10,907	$	3,268	$	2,015	$	1,005	$	107,246


	April 1, 2023
	2023		2022		2021		2020		2019		Prior		Total
Performing	$	80,193	$	16,028	$	4,071	$	2,203	$	1,231	$	—	$	103,726

As of July 1, 2023, there were no commercial loans 90 days or more past due that were still accruing interest, and we were not aware of any potential problem loans that would have a material effect on the commercial loans receivable balance.

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As of July 1, 2023 and April 1, 2023, we had concentrations of our outstanding principal balance of the commercial loans receivable balance in New York of 17% and 18%, respectively. No other state had concentrations in excess of 10% of the outstanding principal balance of the commercial loans receivable as of July 1, 2023 or April 1, 2023.

As of July 1, 2023 and April 1, 2023, one independent third-party and its affiliates comprised 13% and 12%, respectively, of the net commercial loans receivable principal balance outstanding, all of which was secured.

8. Property, Plant and Equipment, net

Property, plant and equipment, net, consisted of the following (in thousands):


	July 1, 2023		April 1, 2023
Property, plant and equipment, at cost
Land	$	39,823	$	39,822
Buildings and improvements	168,091		167,291
Machinery and equipment	73,733		76,826
Construction in progress	7,136		5,472
	288,783		289,411
Accumulated depreciation	(65,120)		(61,133)
	$	223,663	$	228,278

Depreciation expense for the three months ended July 1, 2023 and July 2, 2022 was $4.2 million and $3.4 million, respectively.

9. Goodwill and Other Intangibles

Goodwill and other intangibles, net, consisted of the following (in thousands):


	July 1, 2023						April 1, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Indefinite-lived
Goodwill	$	115,498	$	—	$	115,498	$	114,547	$	—	$	114,547
Trademarks and trade names	16,980		—		16,980		16,980		—		16,980
State insurance licenses	1,100		—		1,100		1,100		—		1,100
	133,578		—		133,578		132,627		—		132,627
Finite-lived
Customer relationships	15,000		(4,267)		10,733		16,900		(5,818)		11,082
Other	1,114		(529)		585		1,114		(486)		628
	$	149,692	$	(4,796)	$	144,896	$	150,641	$	(6,304)	$	144,337

During the three months ended July 1, 2023, fair value adjustments were made to certain assets and liabilities of Solitaire Homes in connection with purchase accounting measurement period adjustments. This resulted in additional Goodwill of $1.0 million. See Note 20.

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Amortization expense recognized on intangible assets for the three months ended July 1, 2023 and July 2, 2022 was $0.4 million and $0.5 million, respectively. Customer relationships have a weighted average remaining life of 7.6 years and other finite lived intangibles have a weighted average remaining life of 3.3 years.

Expected amortization for future fiscal years is as follows (in thousands):


Remainder of fiscal year 2024	$	1,177
2025	1,530
2026	1,488
2027	1,415
2028	1,299
2029	1,265
Thereafter	3,144
	$	11,318

10. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	July 1, 2023		April 1, 2023
Customer deposits	$	46,122	$	45,193
Salaries, wages and benefits	45,998		47,100
Estimated warranties	32,401		31,368
Unearned insurance premiums	29,835		27,901
Accrued volume rebates	23,943		22,858






Other	86,443		88,241
	$	264,742	$	262,661

11. Warranties

Activity in the liability for estimated warranties was as follows (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Balance at beginning of period		$	31,368	$	26,250

Charged to costs and expenses		13,409		15,004
Payments and deductions		(12,376)		(12,452)
Balance at end of period		$	32,401	$	28,802

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12. Other Liabilities

The following table summarizes secured financings and other obligations (in thousands):


	July 1, 2023		April 1, 2023
Finance lease payables	$	6,224	$	6,243
Other secured financing	2,184		2,379
Mandatorily redeemable noncontrolling interest	2,300		2,268
	10,708		10,890
Less current portion included in Accrued expenses and other current liabilities	(2,799)		(3,070)
	$	7,909	$	7,820

13. Debt

We are party to a Credit Agreement that expires in 2027 with Bank of America, N.A., providing for a $50 million revolving credit facility (the "Revolving Credit Facility"), which may be increased up to an aggregate amount of $100 million. Borrowings under the Revolving Credit Facility generally bear interest at the Secured Overnight Financing Rate plus a credit spread and a margin based on our Consolidated Total Leverage Ratio.

As of July 1, 2023 and April 1, 2023, there were no borrowings outstanding under the Revolving Credit Facility and we were in compliance with all covenants.

14. Reinsurance and Insurance Loss Reserves

Certain of Standard Casualty's premiums and benefits are assumed from and ceded to other insurance companies under various reinsurance agreements. We remain obligated for amounts ceded in the event that the reinsurers do not meet their obligations.

The effects of reinsurance on premiums written and earned were as follows (in thousands):










	Three Months Ended
	July 1, 2023				July 2, 2022
	Written		Earned		Written		Earned
Direct premiums	$	10,379	$	8,676	$	7,728	$	7,050
Assumed premiums—nonaffiliated	9,800		8,570		9,028		7,957
Ceded premiums—nonaffiliated	(6,127)		(6,127)		(4,229)		(4,229)
	$	14,052	$	11,119	$	12,527	$	10,778

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Typical insurance policies written or assumed have a maximum coverage of $0.4 million per claim, of which we cede $0.2 million of the risk of loss per reinsurance. Therefore, our risk of loss is limited to $0.2 million per claim on typical policies, subject to the reinsurers meeting their obligations. After this limit, amounts are recoverable through reinsurance for catastrophic losses in excess of $3.0 million per occurrence, up to a maximum of $100 million in the aggregate for that occurrence.

Standard Casualty establishes reserves for claims and claims expense on reported and incurred but not reported ("IBNR") claims of non-reinsured losses. Reserves for claims are included in the Accrued expenses and other current liabilities line item on the Consolidated Balance Sheets and claims expenses are recorded in Cost of sales on the Consolidated Statements of Comprehensive Income. The following details the activity in the reserve for the three months ended July 1, 2023 and July 2, 2022 (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Balance at beginning of period		$	10,939	$	8,149
Net incurred losses during the period		11,077		8,777
Net claim payments during the period		(9,015)		(8,352)
Balance at end of period		$	13,001	$	8,574

15. Commitments and Contingencies

Repurchase Contingencies. The maximum amount for which the Company was liable under the terms of repurchase agreements with financial institutions that provide inventory financing to independent distributors of our products approximated $157 million and $178 million at July 1, 2023 and April 1, 2023, respectively, without reduction for the resale value of the homes. During the fourth quarter of fiscal 2023, we received one repurchase demand notice and the inventory was acquired during the current quarter. Our reserve for repurchase commitments, recorded in Accrued expenses and other current liabilities, was $3.9 million at July 1, 2023 and $5.2 million at April 1, 2023.

Construction-Period Mortgages. Loan contracts with off-balance sheet commitments are summarized below (in thousands):


	July 1, 2023		April 1, 2023
Construction loan contract amount	$	1,594	$	2,214
Cumulative advances	(376)		(706)
	$	1,218	$	1,508

Representations and Warranties of Mortgages Sold. The reserve for contingent repurchases and indemnification obligations was $0.7 million as of July 1, 2023 and April 1, 2023, included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets. There were no claim requests that resulted in the repurchase of any loans during the three months ended July 1, 2023.

Interest Rate Lock Commitments. As of July 1, 2023, we had outstanding IRLCs with a notional amount of $31.1 million. For the three months ended July 1, 2023 and July 2, 2022, we recognized insignificant non-cash gains on outstanding IRLCs.

Forward Sales Commitments. As of July 1, 2023, we had $1.1 million in outstanding forward sales commitments ("Commitments"). During the three months ended July 1, 2023, we recognized an insignificant gain and during the three months ended July 2, 2022, we recognized a non-cash loss of $0.3 million relating to our Commitments.

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Legal Matters. We are party to certain lawsuits in the ordinary course of business. Based on management's present knowledge of the facts and (in certain cases) advice of outside counsel, management does not believe that loss contingencies arising from pending matters are likely to have a material adverse effect on our consolidated financial position, liquidity or results of operations after taking into account any existing reserves, which reserves are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets. However, future events or circumstances that may currently be unknown to management will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

16. Stockholders' Equity and Redeemable Noncontrolling Interest

The following table represents changes in stockholders' equity attributable to Cavco's stockholders and redeemable noncontrolling interest during the three months ended July 1, 2023 (dollars in thousands):


	Equity Attributable to Cavco Stockholders
				Treasury stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Total		Redeemable noncontrolling interest
	Common Stock
	Shares	Amount
Balance, April 1, 2023	9,337,125	$	93	$	(164,452)	$	271,950	$	869,310	$	(615)	$	976,286	$	1,219
Net income	—	—		—		—		46,357		—		46,357		54
Other comprehensive loss, net	—	—		—		—		—		(42)		(42)		—
Issuance of common stock under stock incentive plans, net	10,095	—		—		(1,213)		—		—		(1,213)		—
Stock-based compensation	—	—		—		1,438		—		—		1,438		—

Distributions	—	—		—		—		—		—		—		(120)
Valuation adjustment	—	—		—		—		—		—		—		(33)
Balance, July 1, 2023	9,347,220	$	93	$	(164,452)	$	272,175	$	915,667	$	(657)	$	1,022,826	$	1,120


	Equity Attributable to Cavco Stockholders
				Treasury stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Total		Redeemable noncontrolling interest
	Common Stock
	Shares	Amount
Balance, April 2, 2022	9,292,278	$	93	$	(61,040)	$	263,049	$	628,756	$	(403)	$	830,455	$	825
Net income	—	—		—		—		59,602		—		59,602		92
Other comprehensive loss, net	—	—		—		—		—		(112)		(112)		—
Issuance of common stock under stock incentive plans, net	5,957	—		—		(848)		—		—		(848)		—
Stock-based compensation	—	—		—		1,425		—		—		1,425		—
Common stock repurchases	—	—		(38,960)		—		—		—		(38,960)		—
Distributions	—	—		—		—		—		—		—		(240)
Balance, July 2, 2022	9,298,235	$	93	$	(100,000)	$	263,626	$	688,358	$	(515)	$	851,562	$	677

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17. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (dollars in thousands, except per share amounts):


	Three Months Ended
		July 1, 2023		July 2, 2022
Net income attributable to Cavco common stockholders		$	46,357	$	59,602
Weighted average shares outstanding
Basic		8,670,434		8,918,280
Effect of dilutive securities		87,646		70,649
Diluted		8,758,080		8,988,929
Net income per share attributable to Cavco common stockholders
Basic		$	5.35	$	6.68
Diluted		$	5.29	$	6.63

Anti-dilutive common stock equivalents excluded		39		1,617

18. Fair Value Measurements

The book value and estimated fair value of our financial instruments were as follows (in thousands):


	July 1, 2023				April 1, 2023
	Book Value		Estimated Fair Value		Book Value		Estimated Fair Value
Available-for-sale debt securities	$	17,292	$	17,292	$	18,555	$	18,555
Marketable equity securities	9,798		9,798		9,989		9,989
Non-marketable equity investments	5,050		5,050		5,073		5,073
Consumer loans receivable	39,368		44,604		44,148		50,686
Commercial loans receivable	105,459		99,281		101,977		97,106
Other secured financing	(2,184)		(2,078)		(2,379)		(2,332)

See Note 20, Fair Value Measurements, and the Fair Value of Financial Instruments caption in Note 1, Summary of Significant Accounting Policies, in the Form 10-K for more information on the methodologies we use in determining fair value.

Mortgage Servicing. Mortgage Servicing Rights ("MSRs") are recorded at fair value in Prepaid expenses and other current assets on the Consolidated Balance Sheets.


	July 1, 2023			April 1, 2023
Number of loans serviced with MSRs	4,018			4,070
Weighted average servicing fee (basis points)	34.69			34.71
Capitalized servicing multiple	176.5		%	98.99		%
Capitalized servicing rate (basis points)	61.23			34.36
Serviced portfolio with MSRs (in thousands)	$	512,707		$	520,458
MSRs (in thousands)	$	3,140		$	1,788

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19. Related Party Transactions

We have non-marketable equity investments in other distribution operations outside of Company-owned retail stores. In the ordinary course of business, we sell homes and lend to certain of these operations through our commercial lending programs. For the three months ended July 1, 2023 and July 2, 2022, the total amount of sales to related parties was $15.1 million and $17.2 million, respectively. As of July 1, 2023, receivables from related parties included $6.5 million of accounts receivable and $5.1 million of commercial loans outstanding. As of April 1, 2023, receivables from related parties included $5.7 million of accounts receivable and $4.7 million of commercial loans outstanding.

20. Acquisition

On January 3, 2023 (the "Acquisition Date"), we completed the acquisition of Solitaire Homes, including their four manufacturing facilities and twenty-two retail locations by acquiring 100% of the outstanding stock of Solitaire Homes for $110.8 million, subject to customary adjustments.

Our provisional estimates of the fair values of the assets that we acquired and the liabilities that we assumed were based on the information that was available as of the Acquisition Date. We are continuing to evaluate the underlying inputs and assumptions used in our valuations. Accordingly, these provisional estimates are subject to change during the measurement period, which is up to one year from the Acquisition Date. During the first quarter of fiscal 2024, we made certain adjustments to the assets and liabilities based on information that became available.

The following table presents our provisional estimates of the fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date as of the end of the 2024 first quarter (in thousands):


	January 3, 2023		Adjustments		January 3, 2023 (as Adjusted at July 1, 2023)
Cash	$	5,119	$	(77)	$	5,042
Investments	334		—		334
Accounts receivable	3,536		(778)		2,758
Inventories	58,045		(54)		57,991
Property, plant and equipment	36,109		(70)		36,039
Other current assets	1,519		—		1,519
Intangible assets(1)	3,400		—		3,400
Total identifiable assets acquired	108,062		(979)		107,083
Accounts payable and accrued liabilities	11,251		(28)		11,223
Net identifiable assets acquired	96,811		(951)		95,860
Goodwill(2)	13,970		951		14,921
Net assets acquired	$	110,781	$	—	$	110,781

(1) Includes $1.3 million assigned to trade names, which are considered indefinite lived intangible assets and are not subject to amortization, $1.9 million assigned to customer-related intangibles, subject to a useful life of 10 years amortized on a straight-line basis, and $0.2 million for covenants not to compete from the sellers amortized on a straight-line basis over the term of 5 years.

(2) Attributable to the Factory-built housing segment, all of which will be deductible for income tax purposes.

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Pro Forma Impact of Acquisition (Unaudited). The following table presents supplemental pro forma information as if the above acquisition had occurred on April 3, 2022 (in thousands, except per share data):


	Three Months Ended
	July 2, 2022
Net revenue	$	624,511
Net income attributable to Cavco common stockholders	61,645
Diluted net income per share	6.86

21. Business Segment Information

We operate principally in two segments: (1) factory-built housing, which includes wholesale and retail factory-built housing operations, and (2) financial services, which includes manufactured housing consumer finance and insurance. The following table provides selected financial data by segment (in thousands):


	Three Months Ended
		July 1, 2023		July 2, 2022
Net revenue:
Factory-built housing		$	457,109	$	572,597
Financial services		18,766		15,741
		$	475,875	$	588,338

Income (loss) before income taxes:
Factory-built housing		$	61,825	$	79,772
Financial services		(1,148)		(462)
		$	60,677	$	79,310


	July 1, 2023		April 1, 2023
Total assets:
Factory-built housing	$	1,151,632	$	1,107,555
Financial services	201,415		200,420
	$	1,353,047	$	1,307,975

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45Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements in this Report on Form 10-Q ("Report") include "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often characterized by the use of words such as "believes," "estimates," "expects," "projects," "may," "will," "intends," "plans," or "anticipates," or by discussions of strategy, plans or intentions. Forward-looking statements include, for example, discussions regarding the manufactured housing and site-built housing industries; our financial performance and operating results; our strategy; our liquidity and financial resources; our outlook with respect to Cavco Industries, Inc. and its subsidiaries (collectively, "we," "us," "our," the "Company" or "Cavco") and the manufactured housing business in general; the expected effect of certain risks and uncertainties on our business, financial condition and results of operations; economic conditions, including concerns of a possible recession, and consumer confidence; trends in interest rates and inflation; potential acquisitions, strategic investments and other expansions; the sufficiency of our liquidity; that we may seek alternative sources of financing in the future; operational and legal risks; how we may be affected by any pandemic or outbreak; geopolitical conditions (including the continuing Russia-Ukraine conflict); the cost and availability of labor and raw materials; governmental regulations and legal proceedings; the availability of favorable consumer and wholesale manufactured home financing; and the ultimate outcome of our commitments and contingencies. Forward-looking statements contained in this Report speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document. We do not intend to publicly update or revise any forward-looking statement contained in this Report or in any document incorporated herein by reference to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by law.

Forward-looking statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, many of which are beyond our control. To the extent that our assumptions and expectations differ from actual results, our ability to meet such forward-looking statements, including the ability to generate positive cash flow from operations, may be significantly hindered. Factors that could affect our results and cause them to materially differ from those contained in the forward-looking statements include, without limitation, those discussed under Risk Factors in Part I, Item 1A of our 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "Form 10-K").

Introduction

The following should be read in conjunction with the Company's Consolidated Financial Statements and the related Notes that appear in Part I, Item 1 of this Report. References to "Note" or "Notes" pertain to the Notes to our Consolidated Financial Statements.

Company Overview

Headquartered in Phoenix, Arizona, we design and produce factory-built homes primarily distributed through a network of independent and Company-owned retailers, planned community operators and residential developers. We are one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments. Our products are marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood, MidCountry and Solitaire. We are also a leading producer of park model RVs, vacation cabins and factory-built commercial structures. Our finance subsidiary, CountryPlace Acceptance Corp. ("CountryPlace"), is an approved Federal National Mortgage Association ("FNMA" or "Fannie Mae") and Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") seller/servicer, and a Government National Mortgage Association ("GNMA" or "Ginnie Mae") mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. Our insurance subsidiary, Standard Casualty Company ("Standard Casualty"), provides property and casualty insurance primarily to owners of manufactured homes.

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We operate a total of 31 homebuilding production lines in Millersburg and Woodburn, Oregon; Riverside, California; Nampa, Idaho; Phoenix, Glendale and Goodyear, Arizona; Deming, New Mexico; Duncan, Oklahoma; Austin, Fort Worth, Seguin and Waco, Texas; Montevideo, Minnesota; Dorchester, Wisconsin; Nappanee and Goshen, Indiana; Lafayette, Tennessee; Douglas and Moultrie, Georgia; Shippenville and Emlenton, Pennsylvania; Martinsville and Rocky Mount, Virginia; Crouse and Hamlet, North Carolina; Ocala and Plant City, Florida; and two in Ojinaga, Mexico. We distribute our homes through a large network of independent distribution points in 48 states and Canada and 68 Company-owned U.S. retail stores, of which 41 are located in Texas.

Company and Industry Outlook

According to data reported by the Manufactured Housing Institute, industry home shipments for the calendar year through May 2023 were 35,714, a decrease of 29.0% compared to 50,278 shipments in the same calendar period last year. Higher interest rates and continued inflationary pressures have tempered industry demand. However, the manufactured housing industry offers solutions to the housing crisis with lower average price per square foot than a site-built home and the comparatively low cost associated with manufactured home ownership remains competitive with rental housing.

The two largest manufactured housing consumer demographics, young adults and those who are age 55 and older, are both growing. "First-time" and "move-up" buyers of affordable homes are historically among the largest segments of new manufactured home purchasers. Included in this group are lower-income households that are particularly affected by periods of low employment rates and underemployment. Consumer confidence is especially important among manufactured home buyers interested in our products for seasonal or retirement living.

We employ a concerted effort to identify niche market opportunities where our diverse product lines and flexible building capabilities provide us with a competitive advantage. We are focused on building quality, energy efficient homes for the modern home buyer. Our green building initiatives involve the creation of an energy efficient envelope resulting in lower utility costs, as well as the higher utilization of renewable materials in our manufacturing process. We also build homes designed to use alternative energy sources, such as solar.

We maintain a conservative cost structure in an effort to build added value into our homes and we work diligently to maintain a solid financial position. Our balance sheet strength, including the position in cash and cash equivalents, helps avoid liquidity problems and enables us to act effectively as market opportunities or challenges present themselves.

We continue to make certain commercial loan programs available to members of our wholesale distribution chain. Under direct commercial loan arrangements, we provide funds for financed home purchases by distributors, community operators and residential developers (see Note 7 to the Consolidated Financial Statements). Our involvement in commercial lending helps to increase the availability of manufactured home financing to distributors, community operators and residential developers and provides additional opportunities for product exposure to potential home buyers. While these initiatives support our ongoing efforts to expand product distribution, they also expose us to risks associated with the creditworthiness of this customer base and our inventory financing partners.

The lack of an efficient secondary market for manufactured home-only loans and the limited number of institutions providing such loans results in higher borrowing costs for home-only loans and continues to constrain industry growth. We work independently and with other industry participants to develop secondary market opportunities for manufactured home-only loan and non-conforming mortgage portfolios and expand lending availability in the industry. Additionally, we continue to invest in community-based lending initiatives that provide home-only financing to residents of certain manufactured home communities. We also develop and invest in home-only lending programs to grow sales of homes through traditional distribution points. We believe that growing our investment and participation in home-only lending may provide additional sales growth opportunities for our factory-built housing operations and reduce our exposure to the actions of independent lenders.

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Key housing building materials include wood, wood products, steel, gypsum wallboard, windows, doors fiberglass insulation, carpet, vinyl, fasteners, plumbing materials, aluminum, appliances and electrical items. Fluctuations in the cost of materials and labor may affect gross margins from home sales to the extent that costs cannot be efficiently matched to the home sales price. Pricing and availability of certain raw materials have been volatile due to a number of factors in the current environment. We continue to monitor and react to inflation in these materials by maintaining a focus on our product pricing in response to higher materials costs, but such product pricing increases may lag behind the escalation of such costs. From time to time and to varying degrees, we may experience shortages in the availability of materials and/or labor in the markets served. Availability of these inputs has not caused significant production halts in the current period, but we have experienced periodic shutdowns in other periods and shortages of primary building materials have caused production inefficiencies as we have needed to change processes in response to the delay in materials. These shortages may also result in extended order backlogs, delays in the delivery of homes and reduced gross margins from home sales.

Our backlog at July 1, 2023 was $177 million compared to $244 million at April 1, 2023, a decrease of $67 million and down $823 million compared to $1.0 billion at July 2, 2022.

While it is difficult to predict the future of housing demand, employee availability, supply chain and Company performance and operations, maintaining an appropriately sized and well-trained workforce is key to meeting demand. We continually review the wage rates of our production employees and have established other monetary incentive and benefit programs, with a goal of providing competitive compensation. We are also working to more extensively use web-based recruiting tools, update our recruitment brochures and improve the appearance and appeal of our manufacturing facilities to improve the recruitment and retention of qualified production employees and reduce annualized turnover rates.

Results of Operations

Net Revenue













	Three Months Ended
($ in thousands, except revenue per home sold)	July 1, 2023		July 2, 2022		Change
Factory-built housing	$	457,109	$	572,597	$	(115,488)	(20.2)	%
Financial services	18,766		15,741		3,025		19.2	%
	$	475,875	$	588,338	$	(112,463)	(19.1)	%
Factory-built homes sold
by Company-owned retail sales centers	959		873		86		9.9	%
to independent retailers, builders, communities and developers	3,623		4,473		(850)		(19.0)	%
	4,582		5,346		(764)		(14.3)	%
Net factory-built housing revenue per home sold	$	99,762	$	107,108