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spk09: Good day, and thank you for standing by. Welcome to the fourth quarter fiscal year 2024 CAFCO industry earnings call. At this time, I'll participate on listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mark Fuster, Corporate Controller, Investor Relations. Please go ahead.
spk08: Good day, and thank you for joining us for Capital Industries' fourth quarter and fiscal year 2024 earnings conference call. During this call, you'll be hearing from Bill Bohr, President and Chief Executive Officer, Allison Aden, Executive Vice President and Chief Financial Officer, and Paul Digby, Chief Accounting Officer. Before we begin, we'd like to remind you that 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 CAFCO'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 any 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 24th, 2024. CAPCO undertakes no obligation to revise or update any forelooking 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 Bohr, President and Chief Executive Officer. Bill?
spk06: Thanks, Mark. Welcome and thank you for joining us today to review our fourth quarter results. The fourth quarter was the transition quarter we were looking for. Coming out of the holidays, we had a number of plants on four-day schedules, four-day-a-week production schedules, and several took extended holiday shutdowns in January due to low backlogs at the time. Those initial lost production days at the beginning of the quarter drove our essentially flat, sequential wholesale shipments. During the quarter, though, order rates strengthened, and almost all of our plants have now worked their way back to five-day schedules and begun increasing their daily production rates. We saw the first quarter-to-quarter backlog increase since the downturn began, which is what we were looking for to indicate that buyers are continuing to return to the market. We had hoped this would be facilitated by declining mortgage rates, but as you know, that didn't happen. Still, buyers are returning because they need homes, they're adjusting to the higher rates, and they're adjusting their expectations around the home they can afford. On the same plant basis, orders continued their sequential improvement for the sixth straight quarter. It hasn't been dramatic, but it has been consistently improving despite the lack of rate relief noted earlier. Within the context of what I've said here, our capacity utilization for the quarter was consistent with the last few at approximately 60%. However, given the downtime earlier in the quarter, the takeaway is that we left the quarter at a higher utilization than we started. Regarding the backlog improvement, We ended the quarter with $191 million, up from $160 million in Q3. Pricing in the backlog was basically flat, so this represents a unit backlog improvement of roughly 20%. At quarter end, we had about seven to eight weeks in the backlog. Despite a small reduction in average selling price, we were able to maintain gross margin in the housing segment at 22.4%. which was flat compared to the gross margin last quarter. I know there's continuing interest in understanding the status of community orders. We've discussed this for several quarters, having said that we expect it to take a few quarters into calendar 2024 to really see meaningful improvement. Community orders are still lagging. Every community has its own story, so improvement will happen over a period of time. Our expectation remains that community orders will improve this calendar year as inventory levels come down. The order strength we've seen thus far has primarily come from retail dealers, so the order boost from communities is still ahead. Commenting on the fiscal year, our teams across operations, including retail and financial services, really showed their ability to react quickly and effectively to market dynamics. Despite the slowdown, we've maintained healthy margins, profitability, and cash flows. Now, as we increase schedules, our operators are ramping production rates in an effort to keep backlogs in check. This is the nature of the industry, and the ability to adapt quickly is being shown throughout our operations. I want to take a few minutes to comment on the year we just completed and some of the really important accomplishments. Our stated objective is the market got hit with rapid interest rate increases was not only to effectively manage the cycle, but to stay focused on our priorities so we would come out of the down cycle stronger and even more prepared to supply homes to deserving families. First and foremost, our plants continued an impressive improvement in our safety results. This fiscal year, our total recordable injury rate was reduced 37%. This continues a multi-year trend of significant improvement, and in calendar 2023, we experienced a 35% lower incident rate compared to the industry benchmark. We also grew our retail footprint by adding 15 stores in the fiscal year after growing 19 stores in fiscal year 23. This growth is in support of our plant distribution needs, and our current system stands at 79 retail locations. We announced the first nationally available HUD-approved line of duplex homes. Interest in our Anthem series has exceeded expectations, and we anticipate orders for this new answer to the affordable housing crisis to grow in the coming quarters. We also continued development and rollout of our digital marketing platform across our family of brands with very strong contacts and lead generation. We completed the integration of the Solitaire Acquisition, which closed in late fiscal year 23. This included efforts to optimize product offerings across the combined retail system, as well as refreshing the Solitaire product offering. The full impact of this acquisition will show in the improving markets. We advanced our people strategy with continued improvements in leadership and development, pay and benefits, career processes, and workplace improvements. This work is resulting in higher skills, reduced turnover, and improved job satisfaction, and it creates the foundation for our long-term success. A critically important part of that people strategy is training and development. After a standing start only a few years ago, CAFCO was recognized this past year as one of the top training organizations in the world through the training magazine's APEX award. We purchased $110 million of our stock while maintaining a very strong balance sheet capable of supporting our continued growth investment. With all these improvements, steady increases in orders, and a return to normal community orders still ahead of us, we're looking forward to producing more quality, affordable homes in the quarters and years ahead. With that, I'd like to turn it over to Allison to discuss the financial results in more detail.
spk00: Thank you, Bill. Net revenue for the fourth fiscal quarter of 2024 was $420.1 million, down $56.3 million, or 11.8% compared to $476.4 million during the prior year period. Sequentially, net revenues decreased $26.7 million, driven by a reduction in both units sold and, to a lesser extent, average selling prices, partially offset by higher revenues in financial services. Within the factory-built housing segment, fourth quarter revenue was $398.5 million, down $57.6 million or 12.6% from $456.1 million in the prior year quarter. The decrease was primarily due to a reduction in homes sold. Sequentially, for the factory-built housing segment, net revenues compared to the prior quarter was down $28.4 million or 6.7% from $426.9 million. The decrease was due to a reduction in homes sold and lower average selling price per home. Factory utilization for Q4 of 2024 was approximately 60% when considering all available days for production, but was nearly 70% excluding scheduled downtime for local market conditions. This utilization level was consistent with the past four quarters. For the financial services segment, Net revenue increased 6.4% to $21.6 million in Q4 of 2024 from $20.3 million in the prior year period. This increase was primarily due to more insurance policies in force and higher insurance premiums as recent rate increases become realized, partially offset by fewer loan sales. Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 23.6%, down 170 basis points from 25.3% in the same period last year. In the factory-built housing segment, the gross profit declined 200 basis points to 22.4% in Q4 of 2024 versus 24.4% in Q4 of 2023, driven by lower average selling prices and volume, partially offset by lower input costs. Gross profit as a percentage of revenue and financial services decreased slightly to 45% in Q4 of 2024 from 45.7% in Q4 of 2023. Selling, general, and administrative expenses in the fourth quarter of fiscal 2024 were $61.4 million, or 14.6% of net revenue, compared to $66.4 million, or 13.9% of net revenue during the same quarter last year. The decrease in SG&A expense was due to costs in the prior year that did not recur in 2024, including costs for third-party tax consultants, solitary acquisition costs, lower costs for the litigation between an indemnified former officer and the SEC, and lower compensation on reduced earnings. Speaking of the SEC litigation with the former officer, in May of 2024, the SEC settled all outstanding claims against our former CFO, closing all pending matters. Interest income for the fourth quarter was $5.3 million, up 35.6% from the prior year quarter. The increase over the prior year is primarily due to higher interest rates on larger cash balances. Pre-tax profit was 26.7% this quarter to 42.9 million from 58.6 million for the prior year period. The effective income tax rate was 21% for the fourth fiscal quarter compared to 19.1% in the same period last year. Net income to CAFCO stockholders was 33.9 million compared to net income of $47.3 million in the same quarter of the prior year. Diluted earnings per share this quarter was $4.03 versus $5.39 per share in last year's fourth quarter. Now I'll turn it over to Paul to discuss the balance sheet.
spk03: Thank you, Alison. Comparing the March 30, 2024 balance sheet, April 1, 2023, The cash balance was $352.7 million, up $81.3 million or 30% from $271.4 million at the end of the prior fiscal year. The increase is primarily due to net income adjusted for non-cash items such as depreciation, stock compensation expense, and gain on sale of loans and investments of $11 million. Working capital adjustments providing approximately $55.7 million of cash related to inventory and account receivable decreases, and consumer and commercial loan activity with payments received and the sale of loans greater than the use of cash for originating loans. These increases were partially offset by paydowns in accounts payable and accrued liabilities, the acquisition of Kentucky Dream Homes for $17.9 million, net P&E purchases of $17.4 million, and share repurchases of $109.3 million. Restricted cash and related Other current liability increased from cash collected on service loans in our financial services segment. Prepaid and other assets was lower due to reduction in delinquent GINI-made loans, partially offset by higher prepaid insurance. The remaining change is due to normal amortization of prepaids. Property, plant, and equipment is down primarily due to current year purchases more than offset by depreciation and the sale of unutilized equipment acquired with Solitaire. Accrued expenses and other current liabilities are down from lower accrued bonuses, customer deposits, and as mentioned above, reduction in delinquent Ginnie Mae loans. Lastly, stockholders' equity exceeded $1 billion, up $57.1 million from $976.3 million as of April 1, 2023. With that, I'll turn it back to Bill. Thank you, Paul.
spk06: I can't let the moment pass without a comment about the SEC situation and closure of that issue. As Allison mentioned, our former CFO and the SEC reached a settlement that was recently made public. I've been here since the start of this situation, initially as an independent director and then in my current role. I'm very proud that this company has continued to operate with excellence and grow in many important ways during this time. I can't count how many times I've told investors how much I look forward to the day when I can report that this issue is behind us, and today is that day. To those investors who have stuck with us throughout, on behalf of everyone at CAFCO, thank you very much for your continued confidence in us. With that, Marvin, please go ahead and open the line for questions.
spk09: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Greg Palm of Greg Holm. Your line is now open.
spk01: Yeah. Hey, everyone. Thanks for taking the questions. I wanted to start with a little bit of color on what you're seeing in the community channel. You know, correct me if I'm wrong, but it didn't sound like there was sort of much change in expectations there. But, you know, curious if you can, you know, at least comment on, you know, visibility levels and, you know, relative to last quarter. Maybe we'll start there.
spk06: Yeah. Yeah. Thanks, Greg. It's... It is kind of more of the same on that. Even over the last several quarters, we kind of hate to speculate here, as you know, but we were still looking kind of well into calendar 2024 before we thought that we'd really start seeing community orders ramp up significantly. And so we're still not to that point. And it's kind of been more of the same. I think they're working through it. Even though the orders aren't here yet, I'm I'm confident in my discussions that inventories are coming down, and so we still feel the same as we have for a while, that we should see improvement this calendar year.
spk01: Yep, makes sense. And I know you're all cognizant of the fact that you don't provide any guidance, but you at least gave a little bit of color around production rates, where it was, where it is today, should we at least you know, is there any sort of sense on, you know, an increase in production rates, you know, for instance, this quarter versus last?
spk06: Yeah, you know, tried to characterize this quarter as we see it, which is this past quarter, which is that it's been one of transition. You know, our shipment numbers were really heavily influenced by the last production days that I mentioned at the beginning of the quarter. And as I said in my comments, We talk about a utilization of 60%, but if you think about that last time at the beginning, that means we finished the quarter at a higher pace. So we're starting to, as I indicated, schedules are getting back. It's not only schedules, but it's also run rates that the plants are managing, trying to ramp back up and stay kind of in line with market demand so that, in some cases, so the backlogs don't actually get away from us. I think we're clearly in a better position now than we were at the beginning of the calendar year. And then we were for most all of last year. We've seen that steady improvement in wholesale orders. And, you know, I do think I'm repeating myself here a little bit, but I do think that's noteworthy given that we haven't really seen interest rate relief. So if you have a view that interest rates have some potential for going down a little bit in the coming quarters. And if you agree with our view that community orders are a bit of a tailwind, then, you know, I think we're heading to some better times, you know, notwithstanding some significant economic shock.
spk01: Yeah, that makes sense. A couple for Allison, you know, first on SG&A, You know, I was down a little bit sequentially. Was that mostly just on, you know, lower revenue in the variable portion? And I guess more importantly, how do you sort of feel about SG&A going forward in terms of an absolute level?
spk00: Yes, as I mentioned in the call, when you compare it to the prior year, obviously we're down for some non-recurring costs. And quarter to quarter, you saw the reduction in that we have no SEC-related identified costs of former officer. I think that as we look at cost now and as we go forward, we've talked about that the SG&A is a high variable cost component to that. So, we're looking at a pretty steady state right now. And, of course, as the top line grows, we'll see our variable compensation flow through SG&A. So, still, as I said, it stays pretty consistent to the level of top line and still a high component that's variable.
spk01: Okay. My last one was just more of a clarification. Was there any purchase accounting impact on gross margin associated with the Solitaire acquisition in this past quarter, or are we past that at this point?
spk00: I'd say largely we're past that. It was a small amount.
spk06: Okay. We're still selling that inventory off, but it's pretty insignificant at this point, Greg.
spk01: Perfect. I will leave it there. Thanks.
spk06: Thank you.
spk09: Thank you. One moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone. Our next question comes from the line of Jay McCandless of Whitbush. Your line is now open.
spk04: Hey, good morning, everyone. So the first question I had was shipments being down 12% in the quarter versus the industry being up nearly 15%. Can you talk about what's going on there and what the plan is to maybe catch up and be back in line with the industry over the next couple of quarters?
spk06: Yeah, Jay, I think this is a really important question because I think there's noise in what people kind of see at a headline level. First point I want to make is that if you really dissect the industry shipments, and you can do this with publicly available HUD shipment data, if you really dissect it and look at it on a regional basis, even though the industry was up, I think I'm talking year over year for this discussion, even though the industry was up, up 15%, yeah, I think it was 14.7 Mark. Um, when you look at it regionally, the range of increases and decreases is more than you might expect. And just to give you a feel, um, The east-south central, which includes Tennessee, Alabama, Kentucky, Mississippi, just looking at the numbers here, that was up 50%. You contrast that to an area like east-north central, Illinois, Michigan, Ohio, which was down 31%. So I'm belaboring the point, but if you dissect that, you really have to look at how any given manufacturer lines up with their exposure to those regions. to get a clear picture of whether they, quote, stayed with market or not. Now, setting that aside, to really understand the answer to your question, the other thing I'd say, and I'm, again, working year-over-year numbers, you need to look at both shipments and backlog changes. And when you do, you really get a clearer picture of what underlying demand and a more normalized view of share is. So let's talk about last year. Let's remember where we were in the industry last year. The context behind our shipments then, we shipped just roughly 4,500 units. And during that quarter, our backlog dropped 180 million. So if you remember, we were kind of in a really declining backlog environment. So roughly 40% of our volume that quarter represented backlog depletion. Now, this quarter was the opposite. We shipped about 3,900, a little over 3,900 units, but our backlog grew 30 million. So, we shipped below the new order level. Why? Because, again, at the beginning, we lost days due to a lack of backlog in certain plants. So, I mean, that explains our year-over-year comparison in the context of underlying demand. You know, it's clearly stronger now, But the remaining question is why didn't the overall HUD market show the same trends, right? We don't have visibility into industry backlogs, but just, you know, if you just divided our shipments last year by HUD shipments, it would have suggested a 21% market share. Frankly, that's higher than our share of capacity. That's higher than our market share over time. So the only thing that I can conclude from that is that While we had the backlog and were still shipping at a relatively high rate and depleting that backlog, others in the industry presumably didn't have the same backlog. They had kind of already hit a point where they had to start pulling back. So we out-shipped the industry in that period of time. So I hope this isn't too lengthy. I think it's a really critical thing because I think it would be easy to misunderstand this shipment comparison. So what's the point? When you look at both shipment and backlog changes, you really get a more normalized view of underlying market share and underlying demand. And despite the shipment numbers, our underlying demand is significantly greater now than it was a year ago. So now that plants, you know, going forward, this was a quarter with some transition. And I'm going to keep saying that because, again, you had a company like us that had to take some downtime at the beginning, but then was getting back to higher schedules at the end. So once the industry kind of reestablishes a workable backlog, you're going to see the dynamics settle out, and you're going to see people reflecting more consistent, if you want to call it market share type ratios. So I hope that wasn't too much, and I'm happy to answer questions, but I really thought, you know, at face value, if people look at the year-over-year shipment numbers, I know that, in my opinion, you could really get off track just looking at those headlines. So, Jay, I threw a lot at you. Come back at me if you have questions, if any of that didn't make sense.
spk04: No, it makes sense. I guess the next one I had, if you look at the rapid rise in the number of retail stores, is there anything we need to be cognizant of from a GAAP accounting perspective in terms of those internal sales versus external sales? Maybe some of those shipments are getting not hung up, but maybe not recognized yet until those are sold at retail?
spk06: There's a little bit of that, and I could have added that to my long, complicated explanation, but I kind of felt like that was a little bit of a fringe issue for us. We certainly are more integrated if you just look at retail sales compared to our wholesale shipments. So that does create some changes, like you mentioned. They're kind of moment in time changes and over time they'll work themselves through. And of course it also changes things like, you know, average selling price, which is, you know, is a combination of retail and wholesale price for us. But I think you're right. I just don't think it was a kind of a main event that we would have highlighted.
spk04: Okay. Well, that's good. That's good to hear. Thank you. And then I guess, with the rise that we saw in mortgage rates in April and then a little bit of pullback in May, I guess, would it be safe to say that demand, and I think based on the way you answered some of the other questions, that this is the case, but has the demand that you saw exiting 4Q continued into 1Q25?
spk06: Yeah, we're definitely, you know, if you take that snapshot in time at the end of the quarter transitioning into our first fiscal quarter, it was definitely, you know, definitely up. And I think that, you know, I apologize for repeating myself. I just think that's noteworthy because we didn't get the rate improvement, right? In fact, and it's split in hairs because it was pretty mild, but rates ended the quarter, the fourth fiscal quarter, a little bit higher than they entered it. So to have that kind of demand come through, you know, part of its spring selling season, but to have that kind of underlying demand come through without a boost in interest rate improvement, I think is really noteworthy.
spk04: Yeah, that is. And then when I think about inputs to gross margin, sounds like you're going to get a little bit of boost from potentially increased volume, but what about some of the other inputs, labor, OSB, some of those, I know there was some noise around OSB earlier in the year, so Any color commentary you can give us on gross margin and directionally how you're feeling about that as we move into the next quarter?
spk00: So, I mean, essentially, you know, we've seen lumber and OSB somewhat level off, but we continue to stay, obviously, close to that component of our gross margin as we move forward. But there's been just a little bit of volatility, so it is a little hard to predict.
spk04: Okay. And then the next question I had, just maybe could you talk about where chattel rates are now and maybe versus last year at this time?
spk08: Yeah, sure, Jay. So right now they're about still at that low 9% range, so kind of a range of 9 to 9.4. And then kind of if we look at kind of towards last year, it looks like they were in the high 8% range.
spk04: Okay, great. That is all I have for now. I'll get back in queue. Thank you. Thanks, Jay.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Daniel Moore of CJS Securities. Your line is now open.
spk07: Thank you. Thanks for taking the questions. Obviously, we covered a lot of them. I guess first off, maybe just talk about ASPs. Are you seeing the sort of trade down to lower priced, maybe lower optioned homes continue? And what was your expectations for the direction of ASPs versus what we saw in Q4 for the next couple of quarters?
spk06: Yeah. You know, it's been... kind of almost surprisingly consistent story over the last couple of months or last couple of quarters. I always first think about the same house selling out in the market and across the entire landscape, I'd say we continue to see really pretty minor leakage of pricing. And I'm always trying to put a context because it has been through our fourth quarter kind of just a very slow reduction and still at a pretty high level. But as far as trade down, I think we definitely have seen the mixed shift to singles, which we kind of looked at and say, well, some of that's probably people trading down. I mentioned in my comments that I think buyers are coming to terms with the home they can afford. That doesn't mean for everyone that you've got to go from a multi-section to a single section. It might just mean a reduction in options or a different floor plan. But the trend towards single, I think, and it's not been dramatic, but that trend kind of indicates what you're mentioning, Dan, that people are kind of moving down. You know, we always talk about this in a couple different parts of the market. At the intersection with technology, you know, a lower price, they're not low price, but lower price site-built home, we absolutely, you've heard me say it before, we absolutely know because of our own retail and our connection to our independent retailers, we know there are people that are considering and then many are buying, you know, higher price manufactured homes rather than their site-built options at this point. But, you know, yeah, they're moving down a little bit even within the manufactured housing scope. I think that's all how they've been adjusting to interest rates and the impact on the monthly cost.
spk07: Okay. And I appreciate the color on the community and community developers and kind of where we are and the expectation of an uptake later in the year. But aside from that as a static group, maybe just talk about dialogues, conversations, efforts you're having at expanding or increasing penetration. you know, to that obviously large category, even if orders are still a little quiet at the moment.
spk06: Yeah, no, you don't stop your efforts to stay close to those folks, and I think we as a company see an opportunity really to continue to deepen relationships there and get, frankly, get more business out of that group. It's really tightly connected to something we changed a couple years ago in our company. We had previously had all of our plants with their own sales teams, which we still have, and they're the ones closest to the, you know, where the rubber hits the road. But then we added a national sales team in manufacturing and a component of the national sales team was a group that we're still continuing to build out focused on communities. And when I talk about communities, I've said this before, when we say communities, historically, we've always included, you know, builder developers and land lease community operators kind of in that whole category. We've definitely upped our game as far as approaching that segment. Not only do we look forward to that segment coming back to the market, but we're looking forward to penetrating a little bit better ourselves.
spk07: You touched on this, Bill, prepared remarks, but as orders have improved, would you prefer to let backlogs continue to build as we look out into fiscal Q1, or do you expect to ramp production in line with order rates from what we saw exiting the quarter?
spk06: Yeah, you know, I remember, I haven't heard this discussion too much in the last little bit, but I remember in years gone by, the questions always revolved around what would be the ideal backlog, and My answer was always if you could lock one in and it wouldn't change, you'd want it to be probably around six weeks. It gives you time to plan your production, and it gives you a quick delivery for the customer, which is an advantage of factory-built housing. Now we're actually a touch above that, and it's increasing. But really, instead of thinking about it as an entire system, to answer your question more directly, each one of our plants is in a little bit different situation. We have some that I think they really got to work hard to keep the backlogs from getting away from, meaning getting too long. And we've got others that are under that seven to eight week range that are still open to build up to a more comfortable level. So it's, we got, the theme today is transition, right? We've kind of got the gambit as far as plants that are in a little bit different position, but they're all, you know, generally they're all seeing the opportunity to increase production. we definitely, if we can help it, we want to deliver homes. We don't want to see backlogs go anywhere near what we've seen in the past couple of years. And seven to eight weeks on average is a pretty nice spot.
spk07: Great. I'm going to ask one or two more quickly that kind of asked, but I'm not sure if I have perfect clarity on the answer, so forgive me. But Traffic and order rates at retail, how are they trending thus far in April and May? Have they picked up from where you left off at the end of fiscal Q1, given we're into a little bit seasonally stronger period?
spk06: Yeah. Yeah, I think you did pick up my comment. So you can kind of try to shy away from giving too much of an update in quarter. But there was a trajectory in the fourth quarter, right? And that trajectory, nothing's changed that trajectory. You know, this is – it's on an upward path. And I've kind of commented even through the downturn that traffic in retail has been pretty encouraging. You know, people didn't stop coming to retail stores. They were just puzzling over how to make the purchase happen. One of the things we've certainly noticed recently is that even though traffic is already at a healthy rate and improving, we're getting a higher conversion rate. And that's really what's changed is the conversion rate more than a huge uptick in the number of people that are visiting or calling. But it's been a positive trend.
spk07: Okay. Really helpful. And then last for me is we touched on the components of gross margin with utilization certainly improving. you know, as we exit the quarter and on that trajectory, is there any reason gross margins wouldn't be up a little bit? You know, is it sort of a bottom for the near term, or are we just kind of staying away from that? Thanks again. I appreciate it.
spk00: Yeah, I mean, I would say that, as we've talked about before, on the gross margins, it is fairly hard to predict And we did, you know, you're right in that despite a small reduction that we had in ASP this quarter, we were able to maintain the gross margin for the housing segment at 22.4%. So, you know, we continue to stay close to the price and pressure on price and continue to stay focused on watching the commodity pricing and really managing our variable costs. So, you see a lot of consistency in both the utilization in the ASP and in our ability to keep our costs on the variable cost structure. And that's resulted in fairly consistent margins over the last three quarters.
spk07: Okay. Thanks again. Appreciate the color. And congrats on putting the investigation fully to bed. I'm sure that's a long road, and the efforts are appreciated, as is the transparency. Thank you again.
spk06: Thanks a lot, Dan.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Michael Chapman of Avianz Capital Partners. Your line is now open.
spk05: Thanks. I guess everybody's kind of focused on the shorter term. I guess kind of a question more about kind of the longer term corporate strategy around retail and kind of capital finance. You mentioned conversion rates are going up and that's helping. And I would assume internally conversion rates are something that you would like to see increase. Obviously, you mentioned of buy downs of interest rates to help that. When you're thinking out three to five years, is the retail build out what helps you get closer to the customer and increase conversion rates? And is there a need to have a bigger captive finance component so that you can be even more adept at converting the customers at the end? And any thoughts around how you think that plays out for you guys over the next couple of years? I'd really appreciate it.
spk06: Yeah, let me try to tackle it. You can tell me if I leave anything out. The one thing I'd say about our strategy with retail in general or with distribution is that we are perfectly happy working with independent dealers in close relationships. We've got so many good relationships out there that have been going on for a long time. And we work with them, even our digital marketing project that we've talked about over time or not project, but our work in digital marketing. a lot of that has been focused on actually giving tools to our independent dealers to help them get leads and help them have closer real-time information about our products and quicker response times. So we don't really, you know, I've said this a number of times. When we think about company-owned retail, it's basically we will expand into company-owned retail when we look at one of our plants and have, long-term concerns about access to market. If the solution is to greenfield or buy a retailer in that area and own it, we're more than happy to do it. But it's not really a driver to us to, you know, grow retail in its own right outside of that strategic reason. And again, that's because we're so comfortable with the independence. So I think we can get just as close to the customer with digital marketing and tight relationships with retailers if they're independent, frankly, as we can, and so on. Maybe that's a little bit of an overstatement, but I think it's generally true. On financing, we're always looking at this. We have talked for a number of years now, when people talk to us about capital allocation, that we've got a healthy balance sheet, and we're always kind of looking at the balance of whether putting more capital allocation to our lending business makes sense. And why would it make sense? Well, on the commercial side, it would make sense if one of our dealers needed floor plan lending and we thought we could provide it and that would strengthen our relationship. And so we've done that for a long time and we'll continue to do it. And we'll expand it if that's what the market kind of indicates is the best opportunity. And on the consumer side, our country-placed mortgage has been doing consumer loans for, I think, 25 years. So it's kind of the same story that we haven't traditionally levered that in a big way to do things like rate buy-downs to increase turns, but it's a tool we have. And so we love our position both on commercial and consumer lending, and we're more than willing to lean in on that if that's what we think the opportunity is at any given point in the market. And I think we've got a machine on that side of the business that can really support our manufacturing business as well. So, really, let me know if I didn't touch on all aspects of your question. It was a good question.
spk05: Yeah, no, that's helpful. I mean, this is looking like we're close to the bottom. Your gross margins are a lot better now than they were, you know, last couple downturns. And I think that's the industry's consolidated. You guys have gotten better at what you do, but that gives you more flexibility. And then to your point, given how clean your balance sheet is, I mean, I would think that, you know, there's no need to run your gross margins up to 26, 27 if you can increase the velocity through your plants and actually get gross margins by just increasing the turns. And that's kind of where I'm getting at is with that flexibility, what are the levers? And you kind of mentioned it, that you can pull to do that. you're tight with your independent dealer channel, and obviously you can do buy downs and other stuff like that. But I think from an investor standpoint, we're always looking at what's happening in the site-built homes, and they seem to be able to get pretty good conversion rates and bring in traffic. And the idea would be, what are the things that you can do to get onto a similar trajectory that those guys have been on? Because it seems like Financial flexibility should allow you to try a bunch of different things. And so if you have or are planning, what those would be to allow you to increase the velocity would be helpful for us to know as investors.
spk06: Yeah. And I guess I would kind of tell you that the lending space is clearly an active space in our industry. And so we'll try things sometimes on a smaller scale that probably never kind of reach the radar screen. But it's all in kind of testing and figuring out what we think the right decision at the time is. If we went back, and this isn't true for now, but it's kind of more on the strategic question that you're asking. If we went back when the retailers were having big inventory challenges, frankly, I think it would have been a little bit foolish for us to think we could increase turns by, for example, doing a commercial lending program because the orders weren't out there to be had. You would have been kind of throwing away money. Now we're in a different situation, but we're on an upswing. So you have to decide, is the market giving us as much as we need so that we can keep backlogs in the right range in a given plant? Or would it help to kind of boost that a little bit? So those are the kind of discussions that are always going on here. One thing I'm really happy about in the company is that the leaders of all those operations, our lending leader is in very close contact, frankly, daily, if not daily. weekly if not daily, with leaders in our MH side. And so I think the team has really come together in a way where they can optimize these kind of issues.
spk05: But is there ability to increase capital to the lending side to increase conversion rates? That's kind of concurrent with what happens in the market, but is that something that you can do to increase the velocity through there by having more financing available, either floor plan or other for you guys? Or is that kind of like you've mentioned, there's small things you can do, but they're under the radar that it doesn't make sense to throw big amounts of money at that because the cost benefit's not there. And so strategically, there'll be changes on the margin, but nothing that is imminently noticeable from the outside.
spk06: Yeah, so what I was mentioning there is all part of your ear to the ground and trying to figure out what's going to be the best tradeoff at any given point in time. But to your question, can we allocate capital to it? Sure. I mean, that's why we have such a strong balance sheet. So, you know, if we saw the need to go out with more lending on the commercial or the consumer side, we absolutely have the firepower to do it. You know, from a company strategy perspective, we're a core business as a manufacturer, right? And we don't want our balance sheet to become a lending balance sheet. So we're also conscious of that and conscious of why people invest in us. But we absolutely have the ability, if there was a competitive situation, to kind of swing some capital over to the lending side and either act aggressively or protect our interests. Great. I appreciate it. Thanks for the time. Good questions. Thank you.
spk09: Thank you. One moment for our next question. Our next question comes from the line of Jay McCandless of Woodbush. Your line is now open.
spk04: Hey, thanks for taking my follow-ups. The first one, what was the share repurchase authorization at the end of fiscal 24? How much did you all have outstanding?
spk00: Yeah, so outstanding at the end of 2024, we have 126.4 million remaining on the authorization.
spk04: 126.4. Yes, uh-huh.
spk06: That was finishing up one, and then remember the board gave us an additional 100 million even as we were finishing up the last.
spk04: Got it. And still opportunistic on that, or how are you thinking about repurchase for this year?
spk00: We would stay consistent in our capital allocation strategy, and as we've touched on during the call, first and foremost, we like to put our dollars into our plan improvement. expansion of efficiency and effectiveness. Also, we stay active, as you've seen, historically in the M&A market. And then we really continue to, as Phil just mentioned, ongoing evaluation of opportunities in our lending operation. We really use the share repurchases. The balance is a way to really responsibly balance the cash that we have and responsibly manage the balance sheet. So you've seen historically when we're in the market and sometimes, you know, we'll deviate from quarter to quarter just based on activity that we're seeing in the marketplace and also vetting opportunities of some of our M&A pipeline.
spk04: And so then going back to the industry shipments in the first quarter of calendar 24, I mean, who's taking volume at this point? Is it the larger manufacturers or who, I guess, who do you guys think was driving that plus 15 for the quarter?
spk06: Hey, Jay, it kind of goes back to my long-winded answer that I think the regions are really what you'd have to dig into. I think it was more a regional story than it was one manufacturer taking. And a quarter isn't a long time for variations in those kind of numbers. So, if I would If I would give you any kind of trend, we touched on one of the other questions, but the products that are moving the best are the lower price points. So you've got regional differences and then a general movement toward lower price point homes. So any plant that is positioned in a region that had good growth and was positioned at lower price points was kind of in the sweet spot for that limited period of time. But I don't think you're seeing material shifts in market share just based on the data that you were looking at.
spk04: And then the last one I was going to ask, it sounds like there still is a little bit of pricing pressure out there. And kind of the same question as before, is that something that you're seeing the larger players, everyone trying to compete for price, or is this more smaller, more regional players where you're having to be more aggressive on your pricing to be competitive?
spk06: Yeah, well, I think one reason why we haven't seen bigger reductions in price in this downturn is that we really haven't seen anyone get into financial distress, right? Everyone's still presumably got pretty good gross margins and coming off some very strong earnings years. So people haven't been desperate in a sense of financial distress. We haven't had that activity. But the pricing reductions that we've seen are kind of very episodic and kind of very location-oriented. Whether it's big players or small, I don't think I could generalize about that. And it's been modest. It really has. If we see the order trends that we've talked a lot about on this call, then I think that kind of takes some of the motivation out of even that small amount of leakage away.
spk04: Okay. Well, so to paraphrase, and please fix or change this if I need to, but it sounds like the industry in general is behaving pretty well on price, but everyone is having to figure out ways to find affordability for their customers. Is that the right way to think about it?
spk06: Sure. Yeah, and a lot of that is in the retail store trying to get them to the right product.
spk04: Got it. Got it. Okay, great. Thanks for taking my follow-ups.
spk06: Thanks, Jay.
spk09: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Bill Bohr, President and CEO, for closing remarks.
spk06: I know we're running short on time, and I appreciate everyone's interest in a good discussion. There's no doubt we look back on fiscal 24 as a down year, but I wanted to share one reflection that I had when I was kind of looking over our results. Despite the down market resulting in our plant system running at a significantly reduced pace all year long, Not only was this the third highest net income year in our history, it more than doubled the income from three years ago, which was a record at the time. So I think just putting it in perspective, we've come a long way, and with expectations of improving conditions in front of us, I really feel like we're in a great position to deliver more homes than ever before. So thank you all, as always, for your interest in CAFCO, and we look forward to keeping you updated on our progress.
spk09: Thank you for your participation in today's conference. This has concluded the program. You may now disconnect.
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