Cavco Industries, Inc.

Thank you for standing by. Welcome to the fourth quarter in Cisco Year 2021, Casco Industries, Inc. Earnings Call Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press start and zero on your touch-tone telephone. I would like to turn the conference over to your host, Mr. Mark Fossler, Director of Financial Reporting and Investor Relations. Please go ahead.

Good day and thank you for joining us for Capco Industries' fourth quarter and fiscal year 2021 earnings conference call. During this call, you'll be hearing from Bill Bohr, President and Chief Executive Officer, Paul Bigby, Chief Accounting Officer, and myself. Before we begin, we'd like to remind you that comments made during this conference call by management may contain forward-looking statements under the provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations or assumptions about Capco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets, or future market conditions. All forward-looking statements involve risks and uncertainties which could affect Capco's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of CAFCO. I encourage you to review CAFCO's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent forms, 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Some factors that may affect CAFCO's results include, but are not limited to, the impact of local or national emergencies, including the COVID-19 pandemic, and such impacts from state and federal regulatory action that restricts our ability to operate our business in the ordinary course and the impacts on customer demand and the availability of financing for our products, our supply chain and the availability of raw materials for the manufacture of our products, the availability of labor and the health and safety of our workforce, our liquidity and access to the capital markets, the risk of litigation and regulatory action, potential reputational damage that Capco may suffer as a result of matters under inquiry, adverse industry conditions, our involvement in vertically integrated lines of business, including manufactured housing consumer finance, commercial finance, and insurance, market forces and housing demand fluctuations, our business and operations being concentrated in certain geographic regions, loss of any of our executive officers, additional federal government shutdowns, and regulations affecting manufactured housing. This conference call also contains time-sensitive information that is only accurate as of the date of this live broadcast, Thursday, May 27, 2021. CAPCO undertakes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. Now I'd like to turn the call over to Bill Bohrer, President and Chief Executive Officer. Bill?

Welcome and thank you for joining us today to review our results for the fourth quarter and fiscal year. Reflecting on the year, I went back to last year's call. By the time we reported in May of last year, we were starting to see some positive demand signs. However, the magnitude of the pandemic was increasingly apparent and it was an incredibly uncertain time. At CAFCO, we were already well into the process of implementing policies and approaches to support our employees while safely keeping all of our operations open to support our customers. Nobody could have guessed at what was ahead and we said on the call that projections and predictions were meaningless. We set clear principles for the path forward and we remained flexible. We now know that we were in the early stages of a long and very challenging year. To be reporting our 11th straight year of increased revenue and operating earnings with that backdrop is remarkable. And it can only be attributed to the people at CAFCO who have persevered and remained extremely committed. That's true for the year and has been demonstrated again in the fourth quarter when the Texas freeze and power outages impacted people across all of our operations. Again, they found ways to quickly open back up even while dealing with their personal challenges due to the unprecedented weather event. The business results speak for themselves, but were only possible through extraordinary and very capable efforts. Focusing on a few of the results, we recorded the highest quarterly net revenue in our history. Our manufacturing utilization was approximately 75%. Well, that's lower than before the pandemic and little consolation given the rapidly growing backlog. It's very good progress in light of persistent labor and supply challenges that have not let up. At times during the quarter, utilization did reach 80%. despite significantly less hours worked and the supply inefficiencies we've discussed before. Backlogs were up again this quarter, growing $131 million to $603 million. That equates to approximately 32 to 34 weeks. But we need to keep pushing to produce more. It's been the extraordinary order rates that are driving those backlogs. Order rates were up 50% over last year's fourth quarter and 40% for the year. These incremental orders account for about 85% of the backlog growth this year. After a dip in forest product costs in October and November, which favorably impacted our fourth quarter margins, supply costs escalated rapidly. For example, oriented strand board was up 275% over the past year and 48% from the start to the end of the fourth quarter. As we've worked to increase inventories where possible to address supply risk, we expect a lag in our manufacturing margins, whereby cost of goods sold will continue to drift up, even after spot markets hopefully peak and decline. The bottom line here is that I feel we've done a good job keeping up with input costs, and I expect gross margins will be moving around a bit from quarter to quarter due to this lag in material costs hitting cost of goods sold and the wild changes in input costs that we've seen. Our retail operations continue to perform very well. Like other MH retailers, if they could get more homes, they could sell them. They have done a great job adjusting to the dynamics of the past year, which has meant an emphasis on e-leads and phone-ups during the bulk of the year when walk-ins were down. It's been a consistent story of higher conversion rates, which means people are out to buy, not just shop. Traffic and sales continue to follow a seasonal pattern, but at a significantly higher level than in recent years. Regarding financial services, I want to specifically recognize the outstanding job done by our people at Standard Casualty, who responded remarkably to the February Texas freeze, which was in their customer's time of need. This tremendous commitment made a huge difference for many impacted homeowners. Claims from that event exceeded our reinsurance limit of $2 million. Despite this, financial services had a strong quarter and year, with gross profit up 84% and 12% respectively. As Paul will explain, the quarterly comparison was to last year's period when we had some country-placed mortgage valuation adjustments and loan loss assumption changes resulting from the late March market disruptions. Regardless, the performance in both lending and insurance was strong. In the broader housing picture, the homebuilding industry is only touching the level of new unit starts needed to balance household formations. With supply and labor constraints, the country's pent-up demand for units from a decade of underbuilding is not yet being worked down. While we know there will be cycles driven by interest rates and other macroeconomic drivers, there is a tremendous need for more affordable housing. Beyond the past year's challenges and our need to focus on delivering strong results, we stayed focused on the long term as well. Our strategy of investing in our plants, seeking acquisitions and new growth opportunities, and investing in our people was not paused by the pandemic. As one example, during the quarter we announced the purchase and development of a new park model facility in Glendale, Arizona that will increase capacity for park model customers and also increase our HUD capacity because it frees up the second line in our Goodyear plant. That project is on schedule to open later this year. We're investing in improvements to our plants that will increase productivity and improve the workplace for our coworkers. And we're committing ourselves to training and career programs that will pay off in retention and skills improvement. These are the fundamentals that will enable CAFCO to produce more homes and have a bigger impact on affordable housing. With that, I'll turn it over to Paul to discuss the financial results in more detail.