Cavco Industries, Inc.

We're standing by and welcome to the Capco Industries fourth quarter fiscal year 2023 earnings call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Mark Fusler, Corporate Controller and Investor Relations. Please go ahead, sir.

Good day, and thank you for joining us for Capco Industries' fourth quarter and fiscal year 2023 earnings conference call. During this call, you'll be hearing from Bill Bohr, President and Chief Executive Officer, Allison Aiden, Executive Vice President and Chief Financial Officer, and Paul Bigby, Chief Accounting Officer. Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements, including statements of expectations or assumptions about CAFCO'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 Capco. I encourage you to review Capco'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. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, May 19, 2023. CAFCO 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. I would like to turn the call over to Bill Bohr, President and Chief Executive Officer. Bill?

Thanks, Mark. Welcome, and thank you for joining us today to review our results for the fourth quarter of 2023. This quarter saw the full impact of the economic pressures and retail inventory issues we've been experiencing through the latter months of calendar 2022 and into this year. Volume's were down 10% year-over-year. Revenue dropped approximately 6%, or $29 million, and pre-tax profit was down about 15%. So it's clearly been a challenging operating environment. On the positive side, we have seen improvement in order rates with net orders up meaningfully compared to the last two quarters. In fact, on the same plant basis, net orders were about double what we saw in Q3. We spoke last quarter about watching orders as we entered the seasonally stronger selling season, and it's a good sign that we also saw that order rate improve throughout the fourth quarter. And while average selling price is off sequentially, pricing has held up well despite the drop in industry shipment. Overall, our average selling price was down about 6% sequentially. However, the majority of that decline was mixed-driven as opposed to price reduction. A very important component of our business model and something we focus on in downturns is keeping our cost structure as variable as possible so we can maintain profit and cash flow at lower volumes. This is something that can be seen in this quarter's results. Factory-built gross margins remained high at 24.4%, essentially flat year-over-year despite the negative impact of solitary purchase accounting. Certainly, this was helped by pricing and commodity cost improvement compared to last year. However, it's also due to outstanding cost management in our plants as they transition to reduced schedules. Despite same-plant production rates being off 24% from the peak last summer, gross margins have held, and on a comparable basis, excluding one-time items and solitaire, SG&A was lower than last year's quarter. Our leaders have adjusted quickly and very well, and we're demonstrating the focus on cost and efficiency we consider to be key to our success. The bottom line is that in a challenging demand environment, we posted operating income of $54.3 million in similar free cash flow generation. I'm very proud of these results that demonstrate the expertise, resilience, and nimbleness of our operating teams. Regarding market conditions, it's difficult to generalize across the system in an environment like this, but I'll try. For some time, we've been facing a retail inventory issue that has kept wholesale orders below actual industry retail sales. We're nearing the end of that issue and getting closer to a one-to-one ratio of home buyer demand and manufacturer orders. I've commented before that this issue will not go away suddenly, and my comment here is not to say that every local area and dealer has gotten to their target inventory. However, in general, this issue is largely behind us, and that's a positive for order rates going forward. As I've kept in touch with both independent retailers and our own stores, there's a lot of optimism. Retailers are seeing healthy traffic. Quotes have remained at a high level, frankly higher than we saw over the previous two years. We watch quotes as a leading indicator of future deposits. The traffic and quote data support the view that, to the extent interest rates and macroeconomic factors allow, the fundamental need for our homes is building positive pressure for future order improvements. We've seen in the total housing industry that new home sales are starting to improve, further indicating that buyers are adjusting to the interest rate changes, and in many cases, adjusting their expectations of the home they can afford. Supporting this view after several years of product mix shifting toward multi-section homes, we're now seeing that trend reverse toward single-section homes. As Alison will cover in more detail, this quarter we completed the Solitaire acquisition and continued share repurchases while maintaining a strong cash balance. So our capital allocation approach remains unchanged by the current order environment. I want to express my sincere appreciation to all the folks at Solitaire and within CAFCO who have worked on various aspects of the integration. It's hard work and they've made really great progress. I've spoken in the past about the very real benefit of rounding out product offerings, both in the Solitaire and Capco-owned stores. Our retail team has moved quickly, and this is well underway. We're also focused on product updates and product development, particularly aimed at lower price point homes. So, through a lot of hard work, everything is moving forward with a very good combination. Let me switch gears. Last quarter, I talked about the milestone achieved in January. when we went live with capcohomes.com, our new customer-facing digital home marketplace. I won't repeat all the aspects involved in this game-changing improvement in how we support our dealers and our prospective homebuyers, but I do want to give a sense of our progress. Early traffic and lead generation has been strong and is expected to continue growing. We've been very happy with the reaction of our retailers. Particularly, our smaller retailers have been enthusiastic about having an easy-to-use website they can update with prices, photos, and videos. And all retailers are benefiting from the additional exposure and leads being funneled to them for follow-up. With the site now in place and fully functional, we will be continuing the process of adding more Capco brands and expanding the suite of customization options to support our retailers and homebuyers. With that, I'd like to turn it over to Alison to discuss the financial results in more detail.

Thank you, Bill. Net revenue for the period was $476.4 million, down 5.8% for $29.1 million compared to $505.5 million during the prior year's fourth fiscal quarter. Within the factory-built housing segment, net revenue was $456.1 million, down 6.6% for $32.2 million from $488.3 million in the prior year quarter. The decrease was primarily due to a decline in base business units partially offset by a 4.4% increase in average revenue per home sold and $28 million from the solitary acquisition. Financial services segment net revenue increased 18.4% to $20.3 million from $17.2 million, primarily due to more insurance policies enforced and higher premium rates, partially offset by lower interest income earned on the acquired consumer loan portfolio that continues to amortize. Consolidated gross profit as a percent of net revenue was 25.3%, down 30 basis points from the 25.6% IN THE SAME PERIOD LAST YEAR. IN THE FACTORY BUILT HOUSING SEGMENT, THE GROWTH PROFIT DECREASED SLIGHTLY TO 24.4% IN Q4 OF 2023, VERSUS 24.5% IN Q4 OF 2022, PRIMARILY DUE TO SOLITARE PURCHASE ACCOUNTING ADJUSTMENTS ON THE ACQUIRED INVENTORY. UNDER ACCOUNTING RULES, THE INVENTORY ACQUIRED IS RECORDED AS FAIR VALUE, WHICH APPROXIMATES THE SALES PRICE. THEREFORE, WHEN ACQUIRED INVENTORY IS SOLD, NO REVENUE IS RECOGNIZED. THIS REDUCED THE FACTORY BILLS IN CONSOLIDATED GROWTH MARKET PERCENTAGES BY 40 BASIS POINTS IN THE FOURTH QUARTER. GROWTH MARGIN AS A PERCENT OF REVENUE IN FINANCIAL SERVICES DECREASED TO 45.7% IN Q4 OF 2023 FROM 58.5% IN Q4 OF 2022 AS A RESULT OF WEATHER EVENTS IN TEXAS AND IN ARIZONA. SELLING GENERAL AND ADMINISTRATIVE EXPENSES WERE 66.4 MILLION OR 13.9% OF NET REVENUE COMPARED TO 59.7 MILLION OR 11.8% OF NET REVENUE DURING THE SAME QUARTER LAST YEAR. THE INCREASE IS PRIMARILY DUE TO HIGHER EXPENSES ENCOURAGED IN LEVERAGING THIRD-PARTY CONSULTANTS ASSISTING WITH THE ENERGY TAX CREDIT PROJECT, HIGHER LEGAL COSTS, SPECIFICALLY RELATED TO AN INDEMNIFIED FORMER OFFICER AND HIS ONGOING SEC LITIGATION COSTS, DEAL COSTS RELATED TO SOLITARE, AND THE ADDITION OF SOLITARE SG&A COSTS IN Q4 OF 2023. INTEREST INCOME FOR THE FOURTH QUARTER WAS 3.9 MILLION. UP 212% IN THE PRIOR YEAR QUARTER. THE INCREASE IS PRIMARILY DUE TO HIGHER INTEREST RATES ON OUR INVESTOR TAX BALANCES AND INCREASED LENDING UNDER OUR COMMERCIAL LOAN PROGRAM. NET OTHER INCOME THIS QUARTER WAS .7 MILLION COMPARED TO NEGATIVE 2.5 MILLION OF EXPENSE IN THE PRIOR YEAR QUARTER. THIS INCREASE IS PRIMARILY DRIVEN BY GAINS ON CORPORATE EQUITY SECURITIES IN THE CURRENT compared to losses incurred in the prior year. Free tax profit was down 14.6% this quarter to $58.6 million from $68.6 million for the prior year period. The effective income tax rate was 19.1% for the fourth fiscal quarter, compared to 22.1% in the same period last year. The lower rate was the result of tax credits related TO THE SALE OF ENERGY EFFICIENT HOMES AVAILABLE UNDER THE INTERNAL REVENUE CODE SECTION 45L IN THE CURRENT QUARTER. NET INCOME ATTRIBUTABLE TO CAPCO SHAREHOLDERS IS $47.3 MILLION COMPARED TO THAT INCOME OF $53.6 MILLION IN THE SAME QUARTER OF THE PRIOR YEAR. DILUTED EARNINGS FOR SHARE THIS QUARTER WAS $5.39 FOR SHARE VERSUS $5.80 FOR SHARE in last year's fourth quarter. Before we discuss the balance sheet, I'd like to highlight that we continue to execute on our capital allocation priorities with the recently closed acquisition of Solitaire Homes and share repurchases of $30 million in the fourth quarter. The purchase of Solitaire Homes utilized approximately $106 million in net cash, leaving us with over $270 million of cash subsequent to the purchase. We will continue to appropriately deploy this capital in keeping with our strategic priorities. Now I'll turn it over to Paul to discuss the balance sheet.

Thanks, Alison. Comparing the April 1st, 2023 balance sheet to April 2nd, 2022, our cash balance was $271.4 million, up $27.2 million from the end of the prior fiscal year. The increase is due to net income adjusted for non-cash items and changes in working capital, partially offset by the acquisition of solitaire homes, common stock buybacks, and purchases of property plan equipment, primarily related to the purchase and development of our Hamlet, North Carolina facility, and continued development of our Glendale, Arizona facility. Investments, including short-term, are now primarily due to the return of capital from a joint venture and failed corporate marketable equity securities. Inventories increased from the Solitaire acquisition, offset by declines in raw materials and home sales at our retail locations. Prepaid and other assets are higher, resulting from prepaid taxes associated with higher taxable income in the current year and timing of estimated payments. Property, plant, and equipment is up primarily due to the Solitaire acquisition, and the purchase of our facility in Hamlet, North Carolina, and the development of our Glendale, Arizona facility, as previously discussed. Accrued expenses and other current liabilities increased from higher rebates payable, more setup, freight, and foundation work, and higher warranty reserves. Lastly, stockholders' equity was approximately $976.3 million as of April 1, 2023, up $145.8 million from $830.5 million as of April 2, 2022. This completes the financial report, and now I'll turn it back to Bill.

Thanks, Paul. As Allison and Paul explained, our balance sheet remains very healthy, and this supports a continuation of the consistent strategy and capital allocation path we've been delivering upon. The demand downturn and need to work through industry inventory fits within our expectation that manufactured housing is a cyclical business. However, these cycles are within the broader context of an increasing need for our homes. With a strong balance sheet, a proven ability to adjust as needed and against the backdrop of the dire need for affordable housing, we're staying focused on the bigger picture and opportunity to positively impact that housing crisis. We will continue to invest in operational improvements and growth, And we'll continue using share buybacks to responsibly manage the balance sheet. With that, Jonathan, please open the line for questions.

Certainly. As a reminder, if you have a question at this time, please press star 1-1. One moment for our first question. And our first question comes from the line of Daniel Moore from CJS Securities. Your question, please.

Thank you, Bill, Alex, and Paul. Thanks for the call, Bill. Maybe ask one or two extras today, given a lot of moving parts. But you touched on the order rates. Maybe a little more clarity on the kind of cadence of new order rates in Q4 and thus far into Q1. In other words, do you have enough net new orders coming in to maintain the level of production and sales we saw in Q4 over the next few quarters, or do we anticipate needing to further curtail production, at least in the near term?

Yeah, we've pulled back on production, as I indicated, with the decline in production rate. And yes, certainly as the order rates are coming in now, I think we're kind of in a balance. In fact, you know, I always will point out that there are differences plant to plant, region to region. We've got some plants that have gone down to a four-day work week that are feeling optimistic and getting ready to go back to five. So it's differential, but I'd say across the whole system, you know, we're in the seasonally stronger period of time as well. So I'm feeling pretty good about the balance we have right now.

Got it. So at least in the short term, you know, wouldn't expect, you know, further declines and maybe start to pick up a little bit in terms of production.

Yeah, that's where I think we're trending. You know, everything's on a Everything's subject to kind of a shaky and economic environment, but we're feeling pretty optimistic. And as I said, I, you know, take a little bit from everything you're picking up. We were at an industry event a couple weeks ago, and I'll tell you the tone was very positive there as I talked to retailers. So, you know, getting the inventory behind us is a big deal. We talked about that, and then suddenly it kind of disappears from the conversation when it's no longer an issue. But even that one-to-one ratio creates a pickup in manufacturing orders that I think will be really helpful.

Very helpful. That may be difficult to answer, but you produced, let me get the number real clear, you know, including Solitaire, 4,477 homes in the quarter. Any sense for what the underlying retail demand for your businesses and factories look like? Obviously, we were still in a destock period from inventory, so I wonder if you have any sense for that.

I'm not sure how to answer that. I think it's kind of similar to your first question, right, about where there's a balance. Is that right? I mean, I guess, yeah, I don't think I can give you anything with any precision. What I can tell you is that you know, as we, you might remember the last quarter, we said, Hey, the thing to watch is whether orders pick up as we get into the stronger selling season. And consistent with my comments, you know, you look at the, if you dissect the quarter a little bit, we left the quarter at a much higher order rate than we entered it. So again, I feel like we're, we've done a good job of pulling back production rate, keeping costs variable. And now with the, optimism we're seeing in retailer activity and the subsiding of the inventory issue, I think we're in pretty good shape. I'm not sure I can give you anything more than that.

No, that's helpful. And now that we're through solitary purchase accounting, how should we think about gross margins, at least in the factory-built housing portion of your business over the next one to two quarters, say, relative to Q4?

I think if we, you know, think about growth margins and consistent with what we've talked about before, we've got to think about kind of three areas. In pricing, I think we touched on that, you know, we're holding our own, still seeing some pressure, but certainly holding our own. From a cost perspective of raw materials, you know, commodities are still somewhat consistent and, you know, slightly offset by non-commodity items. With regards to Solitaire, the 40 basis points for the purchase accounting, we do expect that as we anticipated when we made the purchase, we can continue for another couple of quarters. But long-term Solitaire will perform up to manufacturing gross margin and ASP rate.

Yeah, it's important to point out that when a new home sale out of Solitaire, there's no negative margin impact. It's just getting through these zero margin homes from purchase accounting, and that'll take us a little while, as Allison said.

Very helpful. And it dovetails into my next question, which is just in terms of Solitaire, do you expect it to begin to contribute positively to pre-tax income this quarter, or might that take a little bit longer? And what's the glide path to getting to your average margins, factory-built housing margins? Yes.

I think we can think of it kind of in a life path associated with moving through the purchase accounting. The other thing is that we talked about was we have a site that's sunken that had just come online during the purchase, and we will see that ramp up. That will help add and be accrued.

Got it. Do you have the capacity utilization quarter? Didn't see that in the release.

Yeah. You talked about that. Yeah. Do you have that, Mark?

Yeah, so kind of on a just full operating days available, we were just about at 60%. As Bill mentioned, we did have those scheduled down days on the four-day work week, so we were just about 70% considering those.

That's helpful, Mark. Okay. And last, please, for me, I appreciate the commentary about cabcohomes.com. You know, where do you see that? Maybe... two, three years out in terms of, is there a target, you know, percentage of homes that you see coming from that, you know, that sales channel or just a, you know, kind of incremental to growth over time? Any color on that would be helpful. Thanks.

And Dan, I don't know if I have a numeric target, but I'd put it in a bigger context than even what you're posing the question because, you know, we know how much everyone's doing their homework for any significant purchase online. So I think it's really kind of central to our strategy. I would not be surprised if the vast majority of home sales a couple of years from now, I kind of would believe that they're happening today, that they're starting with that online experience. So we think it's right at the core of how homes are gonna be marketed. And we also think that it's, a huge benefit to us in our relationship with dealers because we're really supporting the dealers. As I said in my comments, and I didn't want to be too long-winded in them, but for many small dealers, their eyes are lighting up when our folks talk to them and say, hey, it would be very easy for you to have a microsite that markets your dealership with all of our automated data behind it, and you can add photos and you can add information. so they're going to be so much more effective and our relationship with them is that much deeper. And then as we continue to, you know, we've gotten good results in the early days on visitors and conversions. Conversions meaning, you know, a visitor who actually asks for more information or hits a button and calls the dealer that the site provides for them. So we're seeing good early numbers on that. And what that's all about is kind of funneling targeted leads to those dealerships. So I know I'm talking a little bit in concepts, but I think this is the starting point for the vast majority of home sales for us, possibly now, but definitely as time progresses. So as far as targets, I don't know what to say except most.

Now that is helpful. Appreciate it. I may jump back with a follow-up or two. Thank you.

All right. Thanks, Dan. Thank you. One moment for our next question. And our next question comes from the line of Greg Palm from Craig Hallam. Your question, please.

Yeah. Hey, thanks for taking the questions here. I maybe wanted to follow up along some of the earlier questions about just kind of overall activity levels, demand environment. Bill, you said, you know, order rates ended the quarter at a much higher rate in the beginning. Any way you can sort of quantify that? And just to be clear, what have you seen in April and May specifically as well? Have those order rates continued to increase in the whatever, six or seven weeks post-order end?

Yeah, I'm just looking at some data to see what I can frame for you. I can tell you, I mean, one thing, talking net, and I'm not saying this is the biggest driver, but one thing, when I talk about order rates, I'm talking about a net of cancellations. Cancellations have basically fallen back down to not being an important part of the conversation. So part of that, to be fair, is because our backlogs in many places are very short. So if folks place an order, it's going to go into production. So not taking too much credit for the cancellation reduction, it's kind of natural. But we're talking about net orders and just eyeballing it or looking at some data. March was on a same plant basis was well higher than we've seen in nearly a year. And you're asking me about numbers in April. I'll just tell you that directionally our net orders on the same plant basis are up over March. Some of that's seasonal, but the significance of the pickup is, I think, bigger than seasonal in my opinion. And also, you know, being able to say we got a really good seasonal pickup in wholesale orders while inventories were reducing is a pretty large statement, I believe.

Yeah, and that's interesting. And I know, you know, maybe order rates aren't even a great approximation of the actual activity levels, because I think what you said is whether you look at traffic or, you know, quoting has been really strong. Why hasn't that maybe resulted in higher order rates today and more importantly, higher production levels? I mean, is it just as simple as the inventory levels were just a little bit higher and it took a little bit longer to work through because I think everybody's trying to get a sense for why at least industry production data was so weak and not just calendar Q1, but March specifically. I know that there is some sort of a lag involved, but maybe you can just tie that back out to the production if you're able to.

Yeah. I mean, you're, you're, you're hitting all the points that I can make, to be honest. I mean, you do have, we've had the inventory thing. So that's the, you know, an order of a home that leaves the retail lot is not getting replaced because the retailer wants to get inventory down. So that does not turn into an order when you've got an inventory problem. And I commented that I feel like that discussion is about ready to be over. Um, and then, uh, So, I mean, that's one big factor. And then when we look at traffic and clothes, traffic has actually been, in my view, pretty healthy throughout, right? And I've always said that what I think that indicates is the underlying need. There are people out there trying to figure out, can I afford a home? My family needs a home. They're trying to do that work, and they were just kind of put on their heels by the interest rate. increases on top of dramatic increases for our product. But the traffic has consistently been there. The order strength over the last several months, or I'm sorry, not order, the closed strength over the last several months, I view as a positive indicator, but that's really a couple-month leading indicator to the extent it's correlated to orders because it takes people time to make the decisions. And, you know, so it's easy to be talking to a number of retailers and ask for quotes. It indicates a high level of activity of shopping, trying to figure out how to make the purchase, but it won't result in the correlation between quotes and a true order is not quick. It can be a couple months. So I'm not bothered by the fact that we're seeing those positive indicators, but we're not but we haven't seen the pickup in wholesale orders. I think it's very explainable by those factors, and I think it's common.

Yeah, and I just wanted to be sure I heard you right. You talked about, you know, at least I think some plants move into a five-day work schedule. Are any of them at five days today, or how many are going to five days? I mean, I assume that alone would mean... you know, all else equal, higher rates of production going forward versus what we've seen. But maybe you can just confirm that.

Yeah, our plants have been kind of changing schedules based on their unique circumstances. And my comment was generally that, you know, as we talk to our plants, which we stay in very close contact with them, they're all in their own situation. I would say the majority had reduced to four-day schedules in the last couple months. And my comment was that now those conversations are turning where they're saying, hey, we're thinking about whether we're seeing enough out of retail right now that we might be able to find back to five. So I don't have a number to tell you out of our entire plant system who's on the verge of going back to five. It's just the conversation has shifted in that direction, which is a positive.

Understood. Okay. On pricing, I think you said the majority of the ASP decline sequentially was just due to mix. Do you foresee that being in kind of an ongoing trend? Or do you think sort of the bulk of that was, you know, basically witnessed this quarter? And to be clear, any change in ASP from solitaire or was it pretty consistent?

You're saying solitaire period to period or solitaire's impact on our average selling price.

Solitary impact on overall selling price, correct?

Yeah, I think we looked at that and they weren't a meaningful plus or negative to the average selling price across the company. And you can actually watch from the data that we provide because we give both units and floors. So you can kind of do the algebra and figure out that we had a pretty significant move toward single wide sales from the multi-section. And I don't necessarily think that's a bad thing. I think that's indicative of the affordability issues that people are facing. So people are kind of lowering their expectations. They're moving down in the house they might have been able to afford in previous periods. And they're starting to get off their heels and try to make those decisions and place orders. And I've talked in the past We can track the average selling price. It's obviously an important piece. But in my opinion, and when we look at the data at an operating level, we price our products. I said this before, and I don't know if people completely get what I'm saying, but we price our products so that, you know, our time in our factory is at a consistent profitability, whether we're making a single-module home or a multi-section. So I don't view it as a profit issue to see that next shift, but it certainly can have an impact on average selling price. Okay.

All right. I think I'll leave it there for now. Appreciate all the insights. Thanks.

Thank you. Thank you. And as a reminder, if you have a question, please press star 1-1. One moment for our next question. And our next question comes from the line of Jay McCandless from Wedbush. Your question, please.

Hey, everyone. Thanks for taking my questions. Could you give us a sense of where chattel rates are today and maybe where they were this time last year?

Yeah, sure, Jay. I can do that. So, right now, chattel rates are running just a little bit over 9%, so they can be between 9 and 9.75. So, that's up roughly from about 7.5% a year ago. Thanks.

And then, so, Bill, just to drill down some more, because I was intrigued by your comments around more single section. There isn't going to be a profitability drop-off anymore if you're building more singles versus multis. Is that what you're trying to get across?

That's what we aim for with pricing and operating our plants, because, again, I kind of view it as we're selling time. We're selling time and capacity in our plants, and so – You know, you've got a lot of complexity in this discussion because you can have challenging to make single-wides, you can have easier to make double-wides. Some products float through the plant easier than others. But in general, you know, our pricing approach tries to equalize the profitability we get for the use of our capacity is kind of the concept that I'm trying to explain.

All right.

I think one topic we haven't talked about are the park operators. What type of demand and pricing pushback are you seeing from them?

Yeah, that's a good catch, and I probably should have commented on it earlier. We actually have seen community operators drop off a bit recently in their wholesale orders, and I was initially really puzzled by it. I took the opportunity to talk to a few of them, and initially I was struggling with the answer, but They convinced me. The comments I got basically summarized were we would be ordering more homes right now if we could get them permitted and set in the field. So they have been very clear that their issue is placement of the homes, not the need for the homes. But it has been an issue because we can use the orders, of course. Whereas they've been a source of strength in orders relative to dealers in past quarters, we have seen a drop-off more recently. I'm hoping that we'll figure out how to solve this permitting and, and set issue as an industry, because it's a silly thing to be getting in the way of orders right now, in my opinion. Gotcha.

And then, um, just to kind of clarify, cause it seems like, you know, at the beginning you talked about how we're through the worst of the D stocking, but then when you were talking about the retail channel, You said some dealers, I think, are still hesitant to replace homes. I guess where, in talking to the retail operators, where do you think they are in terms of their inventory levels and, more importantly, their floor plan lenders' comfort with where their inventory levels are now?

Yeah, I'm not sure what I said that you were picking up there. My comment, I think, was intended to say, you know, there are probably – dealers out there that are still saying my inventory is too high. But in general, when you look at it across the system, it's really, you know, in my opinion, it's gotten to the point where it's not really a factor at this point on the one-to-one ratio. So I was just kind of acknowledging that there's still some to be done probably in isolated situations, but I think we're through it. I have not, you know, and I have thought about talking to folks about this floor plan I have not seen or heard that to be a constraint, really. You know, as we've talked before, dealers are e-stocking for good business reasons. They're managing their turn rates. Their cost of funds on floor planning has gone up. So they're trying to get their inventory down on their own. But I have not noted any dramatic forcing function coming from the floor plan lenders.

All right, I think I had that. That's all my questions.

Thank you again. Thanks, Jeff. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Bill Bohrer for any further remarks.

Okay, thanks, Jonathan. I think our results this quarter highlight the ability of the organization to manage costs and to generate cash, even when conditions are challenging. And everyone at CAFCO is ready for the inevitable return of demand so that we can help more families get the homes they need. So with that, I'll thank you as always for your interest in CAVCO, and we look forward to keeping everyone updated on our progress.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day. Music Playing Thank you. Thank you. Thank you. you Thank you for standing by and welcome to the Capco Industries fourth quarter fiscal year 2023 earnings call and webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Mark Fusler, Corporate Controller and Investor Relations. Please go ahead, sir.

Good day, and thank you for joining us for Capco Industries' fourth quarter and fiscal year 2023 earnings conference call. During this call, you'll be hearing from Bill Bohr, President and Chief Executive Officer, Allison Aiden, Executive Vice President and Chief Financial Officer, and Paul Bigby, Chief Accounting Officer. Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements, including statements of expectations or assumptions about CAFCO'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 Capco. I encourage you to review Capco'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. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, May 19, 2023. CAFCO 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. I would like to turn the call over to Bill Bohr, President and Chief Executive Officer.

Bill? Thanks, Mark. Welcome and thank you for joining us today to review our results for the fourth quarter of 2023. This quarter saw the full impact of the economic pressures and retail inventory issues we've been experiencing through the latter months of calendar 2022 and into this year. Volumes were down 10% year-over-year, revenue dropped approximately 6% or $29 million, and pre-tax profit was down about 15%. So it's clearly been a challenging operating environment. On the positive side, we have seen improvement in order rates with net orders up meaningfully compared to the last two quarters. In fact, on the same plant basis, net orders were about double what we saw in Q3. We spoke last quarter about watching orders as we entered the seasonally stronger selling season, and it's a good sign that we also saw that order rate improve throughout the fourth quarter. And while average selling price is off sequentially, pricing has held up well despite the drop in industry shipment. Overall, our average selling price was down about 6% sequentially. However, the majority of that decline was mixed-driven as opposed to price reduction. A very important component of our business model and something we focus on in downturns is keeping our cost structure as variable as possible so we can maintain profit and cash flow at lower volumes. This is something that can be seen in this quarter's results. Factory bill gross margins remained high at 24.4%, essentially flat year over year despite the negative impact of solitaire purchase accounting. Certainly, this was helped by pricing and commodity cost improvement compared to last year. However, it's also due to outstanding cost management in our plants as they transition to reduced schedules. Despite same plant production rates being off 24% from the peak last summer, gross margins have held, and on a comparable basis, excluding one-time items and solitaire, SG&A was lower than last year's quarter. Our leaders have adjusted quickly and very well, and we're demonstrating the focus on cost and efficiency we consider to be key to our success. The bottom line is that in a challenging demand environment, we posted operating income of $54.3 million in similar free cash flow generation. I'm very proud of these results that demonstrate the expertise, resilience, and nimbleness of our operating teams. Regarding market conditions, it's difficult to generalize across the system in an environment like this, but I'll try. For some time, we've been facing a retail inventory issue that has kept wholesale orders below actual industry retail sales. We're nearing the end of that issue and getting closer to a one-to-one ratio of home buyer demand and manufacturer orders. I've commented before that this issue will not go away suddenly, and my comment here is not to say that every local area and dealer has gotten to their target inventory. However, in general, this issue is largely behind us, and that's a positive for order rates going forward. As I've kept in touch with both independent retailers and our own stores, there's a lot of optimism. Retailers are seeing healthy traffic. Quotes have remained at a high level, frankly higher than we saw over the previous two years. We watch quotes as a leading indicator of future deposits. The traffic and quote data support the view that, to the extent interest rates and macroeconomic factors allow, the fundamental need for our homes is building positive pressure for future order improvements. We've seen in the total housing industry that new home sales are starting to improve, further indicating that buyers are adjusting to the interest rate changes and, in many cases, adjusting their expectations of the home they can afford. Supporting this view after several years of product mix shifting toward multi-section homes, we're now seeing that trend reverse toward single-section homes. As Alison will cover in more detail, this quarter we completed the Solitaire acquisition and continued share repurchases while maintaining a strong cash balance. So our capital allocation approach remains unchanged by the current order environment. I want to express my sincere appreciation to all the folks at Solitaire and within CAFCO who have worked on various aspects of the integration. It's hard work and they've made really great progress. I've spoken in the past about the very real benefit of rounding out product offerings, both in the Solitaire and CAFCO-owned stores. Our retail team has moved quickly, and this is well underway. We're also focused on product updates and product development, particularly aimed at lower price point homes. So, through a lot of hard work, everything is moving forward with a very good combination. Let me switch gears. Last quarter, I talked about the milestone achieved in January when we went live with capcohomes.com, our new customer-facing digital home marketplace. I won't repeat all the aspects involved in this game-changing improvement in how we support our dealers and our prospective homebuyers, but I do want to give a sense of our progress. Early traffic and lead generation has been strong and is expected to continue growing. We've been very happy with the reaction of our retailers. Particularly our smaller retailers have been enthusiastic about having an easy-to-use website they can update with prices, photos, and videos. And all retailers are benefiting from the additional exposure and leads being funneled to them for follow-up. With the site now in place and fully functional, we will be continuing the process of adding more Capco brands and expanding the suite of customization options to support our retailers and homebuyers. With that, I'd like to turn it over to Allison to discuss the financial results in more detail.

Thank you, Bill. Net revenue for the period was $476.4 million, down 5.8% for $29.1 million compared to $505.5 million during the prior year's board fiscal quarter. Within the factory-built housing segment, net revenue was $456.1 million, DOWN 6.6% OR 32.2 MILLION FROM 488.3 MILLION IN THE PRIOR YEAR QUARTER. THE DECREASE WAS PRIMARILY DUE TO A DECLINE IN BASE BUSINESS UNITS PARTIALLY OFFSET BY A 4.4% INCREASE IN AVERAGE REVENUE PER HOME SOLD AND 28 MILLION FROM THE SOLITARY ACQUISITION. FINANCIAL SERVICES SEGMENT NET REVENUE INCREASED 18.4% to $20.3 million from $17.2 million, primarily due to more insurance policies enforced and higher premium rates, partially offset by lower interest income earned on the acquired consumer loan portfolio that continues to amortize. Consolidated gross profit as a percent of net revenue was 25.3%, down 30 basis points from the 25.6% IN THE SAME PERIOD LAST YEAR. IN THE FACTORY BUILT HOUSING SEGMENT, THE GROWTH PROFIT DECREASED SLIGHTLY TO 24.4% IN Q4 OF 2023 VERSUS 24.5% IN Q4 OF 2022 PRIMARILY DUE TO SOLITARE PURCHASE ACCOUNTING ADJUSTMENTS ON THE ACQUIRED INVENTORY. UNDER ACCOUNTING RULES, THE INVENTORY ACQUIRED IS RECORDED AS FAIR VALUE, WHICH APPROXIMATES THE SALES PRICE. THEREFORE, WHEN ACQUIRED INVENTORY IS SOLD, NO REVENUE IS RECOGNIZED. THIS REDUCED THE FACTORY BILLS IN CONSOLIDATED GROWTH MARKET PERCENTAGES BY 40 BASIS POINTS IN THE FOURTH QUARTER. GROWTH MARKET AS A PERCENT OF REVENUE IN FINANCIAL SERVICES DECREASED TO 45.7% IN Q4 OF 2023 AND 58.5% IN Q4 OF 2022 AS A RESULT OF WEATHER EVENTS IN TEXAS AND IN ARIZONA. SELLING GENERAL AND ADMINISTRATIVE EXPENSES WERE 66.4 MILLION OR 13.9% OF NET REVENUE COMPARED TO 59.7 MILLION OR 11.8% OF NET REVENUE DURING THE SAME QUARTER LAST YEAR. THE INCREASE IS PRIMARILY DUE TO HIGHER EXPENSES ENCOURAGED IN LEVERAGING THIRD-PARTY CONSULTANTS ASSISTING WITH ENERGY TAX CREDIT PROJECTS, HIGHER LEGAL COSTS, SPECIFICALLY RELATED TO AN INDEMNIFIED FORMER OFFICER AND HIS ONGOING SEC LITIGATION COSTS, DEAL COSTS RELATED TO SOLITARE, AND THE ADDITION OF SOLITARE SG&A COSTS IN Q4 OF 2023. INTEREST INCOME FOR THE FOURTH QUARTER WAS 3.9 MILLION. UP 212% IN THE PRIOR YEAR QUARTER. THE INCREASE IS PRIMARILY DUE TO HIGHER INTEREST RATES ON OUR INVESTOR CASH BALANCES AND INCREASED LENDING UNDER OUR COMMERCIAL LOAN PROGRAM. NET OTHER INCOME THIS QUARTER WAS .7 MILLION COMPARED TO NEGATIVE 2.5 MILLION OF EXPENSE IN THE PRIOR YEAR QUARTER. THIS INCREASE IS PRIMARILY DRIVEN BY GAINS ON CORPORATE EQUITY SECURITIES IN THE CURRENT YEAR compared to losses incurred in the prior year. Free tax profit was down 14.6% this quarter to $58.6 million from $68.6 million for the prior year period. The effective income tax rate was 19.1% for the fourth fiscal quarter, compared to 22.1% in the same period last year. The lower rate was the result of tax credits related TO THE SALE OF ENERGY EFFICIENT HOMES AVAILABLE UNDER THE INTERNAL REVENUE CODE SECTION 45L IN THE CURRENT QUARTER. NET INCOME ATTRIBUTABLE TO CAPCO SHAREHOLDERS IS 47.3 MILLION COMPARED TO THAT INCOME OF 53.6 MILLION IN THE SAME QUARTER OF THE PRIOR YEAR. DELUDED EARNINGS FOR SHARE THIS QUARTER WAS $5.39 FOR SHARE VERSUS $5.80 FOR SHARE in last year's fourth quarter. Before we discuss the balance sheet, I'd like to highlight that we continue to execute on our capital allocation priorities with the recently closed acquisition of Solitaire Homes and share repurchases of $30 million in the fourth quarter. The purchase of Solitaire Homes utilized approximately $106 million in net cash, leaving us with over $270 million of cash subsequent to the purchase. We will continue to appropriately deploy this capital in keeping with our strategic priorities. Now I'll turn it over to Paul to discuss the balance sheet.

Thanks, Alison. Comparing the April 1st, 2023 balance sheet to April 2nd, 2022, our cash balance was $271.4 million, up $27.2 million from the end of the prior fiscal year. The increase is due to net income adjusted for non-cash items and changes in working capital, partially offset by the acquisition of solitaire homes, common stock buybacks, and purchases of property plan equipment, primarily related to the purchase and development of our Hamlet, North Carolina facility and continued development of our Glendale, Arizona facility. Investments, including short-term, are done primarily due to the return of capital from a joint venture and failed corporate marketable equity securities. Inventories increased from the Solitaire acquisition, offset by declines in raw materials and home sales at our retail locations. Prepaid and other assets are higher, resulting from prepaid taxes associated with higher taxable income in the current year and timing of estimated payments. Property, plant, and equipment is up primarily due to the Solitaire acquisition and the purchase of our facility in Hamlet, North Carolina, and the development of our Glendale, Arizona facility, as previously discussed. Accrued expenses and other current liabilities increased from higher rebates payable, more setup, freight, and foundation work, and higher warranty reserves. Lastly, stockholders' equity was approximately $976.3 million as of April 1, 2023, up $145.8 million From 830.5M as of April 2nd, 2022. This completes the financial report and now I'll turn it back to Bill.

Thanks Paul. As Allison and Paul explained, our balance sheet remains very healthy and this supports a continuation of the consistent strategy and capital allocation path we've been delivering upon. The demand downturn and need to work through industry inventory fits within our expectation that manufactured housing is a cyclical business. However, these cycles are within the broader context of an increasing need for our homes. With a strong balance sheet, a proven ability to adjust as needed and against a backdrop of a dire need for affordable housing, we're staying focused on the bigger picture and opportunity to positively impact that housing crisis. We will continue to invest in operational improvements and growth. And we'll continue using share buybacks to responsibly manage the balance sheet. With that, Jonathan, please open the line for questions.

Certainly. As a reminder, if you have a question at this time, please press star 1-1. One moment for our first question. And our first question comes from the line of Daniel Moore from CJS Securities. Your question, please.

Thank you, Bill, Alex, and Paul. Thanks for the call, Bill. Maybe ask one or two extras today, given a lot of moving parts. But you touched on the order rates. Maybe a little more clarity on the kind of cadence of new order rates in Q4 and thus far into Q1. In other words, do you have enough net new orders coming in to maintain the level of production and sales we saw in Q4 over the next few quarters, or do we anticipate needing to further curtail production, at least in the near term?

Yeah, we've pulled back on production, as I indicated, with the decline in production rate. And yes, certainly as the order rates are coming in now, I think we're kind of in a balance. In fact, you know, I always will point out that there are differences plant to plant, region to region. We've got some plants that have gone down to a four-day work week that are feeling optimistic and getting ready to go back to five. So it's differential, but I'd say across the whole system, you know, we're in the seasonally stronger period of time as well. So I'm feeling pretty good about the balance we have right now.

Got it. So at least in the short term, you know, wouldn't expect, you know, further declines and maybe start to pick up a little bit in terms of production.

Yeah, that's where I think we're trending. You know, everything's on it. Everything's subject to kind of a shaky and economic environment, but we're feeling pretty optimistic. And as I said, I, you know, take a little bit from everything you're picking up. We were at an industry event a couple weeks ago, and I'll tell you the tone was very positive there as I talked to retailers. So, you know, getting the inventory behind us is a big deal. We talked about that, and then suddenly it kind of disappears from the conversation when it's no longer an issue. But even that one-to-one ratio creates a pickup in manufacturing orders that I think will be really helpful.

Very helpful. That may be difficult to answer, but you produced, let me get the number real clear, you know, including Solitaire, 4,477 homes in the quarter. Any sense for what the underlying retail demand for your businesses and factories look like? Obviously, we were still in a destock period from inventories, so I wonder if you have any sense for that.

I'm not sure how to answer that. I think it's kind of similar to your first question, right, about where there's a balance. Is that right? I mean, I guess, yeah, I don't think I can give you anything with any precision. What I can tell you is that You know, as we, you might remember in the last quarter, we said, Hey, the thing to watch is whether orders pick up as we get into the stronger selling season. And consistent with my comments, you know, you look at the, if you dissect the quarter a little bit, we left the quarter at a much higher order rate than we entered it. So again, I feel like we're, we've done a good job of pulling back production rate, keeping costs variable. And now with the, optimism we're seeing in retailer activity and the subsiding of the inventory issue, I think we're in pretty good shape. I'm not sure I can give you anything more than that.

No, that's helpful. And now that we're through solitary purchase accounting, how should we think about gross margins, at least in the factory-built housing portion of your business over the next one to two quarters, say, relative to Q4?

I think if we, you know, think about growth margins and consistent with what we talked about before, we've got to think about kind of three areas. In pricing, I think we touched on that, you know, we're holding our own. Still seeing some pressure, but certainly holding our own. From a cost perspective of raw materials, you know, commodities are still somewhat consistent and, you know, slightly offset by non-commodity items. With regards to Solitaire, the 40 basis points for the purchase accounting, we do expect that, as we anticipated when we made the purchase, it can continue for another couple of quarters. But long-term Solitaire will perform up to our manufacturing growth margin and ASP rate.

Yeah, it's important to point on that. When a new home sale out of Solitaire, there's no negative margin impact. It's just getting through these zero margin homes from purchase accounting, and that'll take us a little while, as Allison said.

Very helpful. And it dovetails into my next question, which is just in terms of Solitaire, do you expect it to begin to contribute positively to pre-tax income this quarter, or might that take a little bit longer? And what's the glide path to getting to your average margins, factory-built housing margins? Yes.

I think we can think of it kind of in a life path associated with moving through the purchase accounting. The other thing is that we talked about was we have a site that's sunken that had just come online during the purchase, and we will see that ramp up. That will help add and be accreted.

Got it. Do you have the capacity utilization quarter? Didn't see that in the release.

Yeah. Talk about that. Yeah. Do you have that, Mark?

Yeah, so kind of on a just full operating days available, we're just about at 60%. Bill mentioned we did have those scheduled down days on the four-day work week, so we're just about 70% considering those.

That's helpful, Mark. Okay. And last, please, for me, appreciate the commentary about capcohomes.com. You know, where do you see that? Maybe... two, three years out in terms of, is there a target, you know, percentage of homes that you see coming from that, you know, that sales channel or just a, you know, kind of incremental to growth over time? Any color on that would be helpful. Thanks.

And Dan, I don't know if I have a numeric target, but I'd put it in a bigger context than even what you're posing the question because, you know, we know how much everyone's doing their homework for any significant purchase online. So I think it's really kind of central to our strategy. I would not be surprised if the vast majority of home sales a couple of years from now, I kind of would believe that they're happening today, that they're starting with that online experience. So we think it's right at the core of how homes are gonna be marketed. And we also think that it's, a huge benefit to us in our relationship with dealers because we're really supporting the dealers. As I said in my comments, and I didn't want to be too long-winded in them, but for many small dealers, their eyes are lighting up when our folks talk to them and say, hey, it would be very easy for you to have a microsite that markets your dealership with all of our automated data behind it, and you can add photos and you can add information. so they're going to be so much more effective and our relationship with them is that much deeper. And then as we continue to, you know, we've gotten good results in the early days on visitors and conversions. Conversions meaning, you know, a visitor who actually asks for more information or hits a button and calls the dealer that the site provides for them. So we're seeing good early numbers on that. And what that's all about is kind of funneling targeted leads to those dealerships. So I know I'm talking a little bit in concepts, but I think this is the starting point for the vast majority of home sales for us, possibly now, but definitely as time progresses. So as far as targets, I don't know what to say except most.

Now that is helpful. Appreciate it. I may jump back with a follow-up or two. Thank you.

All right. Thanks, Dan. Thank you. One moment for our next question. And our next question comes from the line of Greg Palm from Craig Hallam. Your question, please.

Yeah. Hey, thanks for taking the questions here. I maybe wanted to follow up along some of the earlier questions about just kind of overall activity levels, demand environment. Bill, you said, you know, order rates ended the quarter at a much higher rate in the beginning. Any way you can sort of quantify that? And just to be clear, what have you seen in April and May specifically as well? Have those order rates continued to increase in the whatever, six or seven weeks post-order end?

Yeah, I'm just looking at some data to see what I can frame for you. I can tell you, I mean, one thing, talking net, and I'm not saying this is the biggest driver, but one thing, when I talk about order rates, I'm talking about a net of cancellations. Cancellations have basically fallen back down to not being an important part of the conversation. So part of that, to be fair, is because our backlogs in many places are very short. So if folks place an order, it's going to go into production. So I'm not taking too much credit for the cancellation reduction. It's kind of natural. But we're talking about net orders. And just eyeballing it or looking at some data, March was on a same plant basis was well higher than we've seen in nearly a year. And you're asking me about numbers in April. I'll just tell you that directionally our net orders on the same plant basis are up over March. Some of that's seasonal, but the significance of the pickup is, I think, bigger than seasonal in my opinion. And also, you know, being able to say we got a really good seasonal pickup in wholesale orders while inventories were reducing is a pretty large statement, I believe.

Yeah, and that's interesting. And I know, you know, maybe order rates aren't even a great approximation of the actual activity level, because I think what you said is whether you look at traffic or, you know, quoting has been really strong. Why hasn't that maybe resulted in higher order rates today and more importantly, higher production levels? I mean, is it just as simple as the inventory levels were just a little bit higher and it took a little bit longer to work through because I think everybody's trying to get a sense for why at least industry production data was so weak and not just calendar Q1, but March specifically. I know that there is some sort of a lag involved, but maybe you can just tie that back out to the production if you're able to.

Yeah. I mean, you're, you're, you're hitting all the points that I can make, to be honest. I mean, you do have, we've had the inventory thing. So that's the, you know, an order of a home that leaves the retail lot is not getting replaced because the retailer wants to get inventory down. So that does not turn into an order when you've got an inventory problem. And I commented that I feel like that discussion is about ready to be over. Um, and then, uh, So, I mean, that's one big factor. And then when we look at traffic and clothes, traffic has actually been, in my view, pretty healthy throughout, right? And I've always said that what I think that indicates is the underlying need. There are people out there trying to figure out, can I afford a home? My family needs a home. They're trying to do that work, and they were just kind of put on their heels by the interest rate. increases on top of dramatic increases for our product. But the traffic has consistently been there. The order strength over the last several months, I'm sorry, not orders, the closed strength over the last several months, I view as a positive indicator, but that's really a couple-month leading indicator to the extent it's correlated to orders because it takes people time to make the decisions. And, you know, so it's easy to be talking to a number of retailers and ask for quotes. It indicates a high level of activity of shopping, trying to figure out how to make the purchase, but it won't result in the correlation between quotes and a true order is not quick. It can be a couple months. So I'm not bothered by the fact that we're seeing those positive indicators, but we're not but we haven't seen the pickup in wholesale orders. I think it's very explainable by those factors, and I think it's common.

Yeah. And I just wanted to be sure I heard you right. You talked about, you know, at least I think some plants move into a five-day work schedule. Are any of them at five days today, or how many are going to five days? I mean, I assume that alone would mean... you know, all else equal, higher rates of production going forward versus what we've seen. But maybe you can just confirm that.

Yeah, our plants have been kind of changing schedules based on their unique circumstances. And my comment was generally that, you know, as we talk to our plants, which we stay in very close contact with them, they're all in their own situation. I would say the majority had reduced to four-day schedules in the last couple months. And my comment was that now those conversations are turning where they're saying, hey, we're thinking about whether we're seeing enough out of retail right now that we might be able to climb back to five. So I don't have a number to tell you out of our entire plant system who's on the verge of going back to five. It's just the conversation has shifted in that direction, which is a positive.

Understood. Okay. On pricing, I think you said the majority of the ASP decline sequentially was just due to mix. Do you foresee that being in kind of an ongoing trend, or do you think sort of the bulk of that was basically witnessed this quarter? And to be clear, any change in ASP from solitaire, or was it pretty consistent?

You're saying solitaire period to period, or solitaire's impact on our average selling price.

Solitary impact on overall selling price, correct?

Yeah, I think we looked at that and they weren't a meaningful plus or negative to the average selling price across the company. And you can actually watch from the data that we provide because we give both units and floors. So you can kind of do the algebra and figure out that we had a pretty significant move toward single wide sales from the multi-section. And I don't necessarily think that's a bad thing. I think that's indicative of the affordability issues that people are facing. So people are kind of lowering their expectations. They're moving down in the house they might have been able to afford in previous periods. And they're starting to get off their heels and try to make those decisions and place orders. And I've talked in the past We can track the average selling price. It's obviously an important piece. But in my opinion, and when we look at the data at an operating level, we price our products. I've said this before. I don't know if people completely get what I'm saying. But we price our products so that our time in our factory is at a consistent profitability, whether we're making a single-module home or a multi-section home. So I don't view it as a profit issue to see that next shift, but it certainly can have an impact on average selling price. Okay.

All right. I think I'll leave it there for now. Appreciate all the insights. Thanks.

Thank you. Thank you. And as a reminder, if you have a question, please press star 1-1. One moment for our next question. And our next question comes from the line of Jay McCandless from Wedbush. Your question, please. Hey, everyone.

Thanks for taking my questions. Could you give us a sense of where chattel rates are today and maybe where they were this time last year?

Yeah, sure, Jay. I can do that. So, right now, chattel rates are running just a little bit over 9%, so they can be between 9 and 9.75. So, that's up roughly from about 7.5% a year ago. Thanks.

And then to build just to drill down some more, because I was intrigued by your comments around more single section, there isn't going to be a profitability drop off anymore. If you're building more singles versus multi, is that what, is that what you're trying to get across?

That's what we aim for with pricing and operating our plants, because again, I kind of view it as we're selling time. We're selling time and capacity in our plants. And so, um, You know, you've got a lot of complexity in this discussion because you can have challenging to make single-wise, you can have easier to make double-wise. Some products float through the plant easier than others. But in general, you know, our pricing approach tries to equalize the profitability we get for the use of our capacity is kind of the concept that I'm trying to explain.

All right.

I think one topic we haven't talked about are the park operators. What type of demand and pricing pushback are you seeing from them?

Yeah, that's a good catch, and I probably should have commented on it earlier. We actually have seen community operators drop off a bit recently in their wholesale orders, and I was initially really puzzled by it. I took the opportunity to talk to a few of them, and initially I was struggling with the answer, but They convinced me. The comments I got basically summarized were we would be ordering more homes right now if we could get them permitted and set in the field. So they have been very clear that their issue is placement of the homes, not the need for the homes. But it has been an issue because we can use the orders, of course. But they have, whereas they've been a source of strength in orders relative to dealers in past quarters, And we have seen a drop off more recently. I'm hoping that we'll figure out how to solve this permitting and set issue as an industry, because it's a silly thing to be getting in the way of orders right now, in my opinion. Gotcha.

And then just to kind of clarify, because it seems like, you know, at the beginning, you talked about how we're through the worst of the destocking. But then when you were talking about the retail channel, You said some dealers, I think, are still hesitant to replace homes. I guess where, in talking to the retail operators, where do you think they are in terms of their inventory levels and, more importantly, their floor plan lenders' comfort with where their inventory levels are now?

Yeah, I'm not sure what I said that you were picking up there. My comment, I think, was intended to say, you know, there are probably – dealers out there that are still saying my inventory is too high. But in general, when you look at it across the system, it's really, you know, in my opinion, it's gotten to the point where it's not really a factor at this point on the one-to-one ratio. So I was just kind of acknowledging that there's still some to be done probably in isolated situations, but I think we're through it. I have not, you know, and I have thought about talking to folks about this floor plan I have not seen or heard that to be a constraint, really. You know, as we've talked before, dealers are restocking for good business reasons. They're managing their turn rates. Their cost of funds on floor planning has gone up. So they're trying to get their inventory down on their own. But I have not noted any dramatic forcing function coming from the floor plan lenders. um all right i think i had that that's all my questions thank you again thanks jeff thank you this does conclude the question and answer session of today's program i'd like to hand the program back to bill boer for any further remarks okay thanks jonathan um i i think our results this quarter highlight the ability of the organization to manage costs and to generate cash even when conditions are challenging and everyone at kafka is ready for the inevitable return of demand so that we can help more families get the homes they need. So with that, I'll thank you as always for your interest in CAFCO, and we look forward to keeping everyone updated on our progress.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.