Cavco Industries, Inc. Stock

Ladies and gentlemen, thank you for standing by. Welcome to the Second Quarter Fiscal Year 2027 Cavco Industries Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Mark Fusler, Corporate Controller and Investor Relations. Please go ahead.

Good day, and thank you for joining us for Cavco Industries Second Quarter Fiscal Year 2027 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and myself.

Before we begin, we'd like to remind you that comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our expected and future business and financial performance and are not promises or guarantees of future performance.

They are expectations or assumptions about Cavco'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 Cavco'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 Cavco.

For a discussion of the material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, October 30, 2026.

Cavco undertakes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law.

Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

Thanks, Mark. Welcome, and thank you for joining us today to review our second quarter results for fiscal 2027. In the first quarter, we reported unit shipment and revenue records. And now in the second quarter, we were able to better those records. I'll stop short of implying that the market is strong. It isn't. However, the quarter orders -- this quarter, orders continued to exceed our pace of shipments, resulting in another to exceed our pace of shipments, resulting in another sequential increase in our backlog. We're entering the winter months and orders are slowing as they typically do.

At the same time, across the system, the end of quarter backlog averaged a healthy 8 to 10 weeks. Overall, we're shipping more than last year. Orders are slowing but are well above last year's levels, and our backlog is 63% higher. Heading into winter, we're in good position to lean in on production where backlogs allow, knowing we can respond to changing markets as needed.

And to provide some context about orders on a same plant basis, we were up high single digits compared to last year and down sequentially from a very strong Q1. In the second quarter, we shipped a record 5,972 homes. Last quarter, revenue exceeded $600 million for the first time, and this quarter, it was up another 7.6% to $656 million, and year-over-year revenue was up about 17.9%.

Our capacity utilization was about 75%, still well below levels we're able to sustain. So from a longer-term perspective, there remains significant room to reach higher volumes, which I think is important given the regulatory momentum and the continuing affordable housing supply deficit.

Factory-built gross margin increased 30 basis points from last quarter. This was a good outcome given ongoing materials inflation. While differential across operating areas, we saw product pricing increase enough to offset the negative margin impact of growing materials costs. And to be clear about consolidated average selling price, the overall increase was from both single-section and multi-section homes selling at higher prices rather than driven by changes in product or distribution mix.

It's important we discuss the increasing role being played by data center workforce housing in our orders, shipments and backlogs. Data center orders and shipments increased significantly during the quarter. Like any other channel, we don't intend to specifically break out the units and orders, but I want to talk through how this dynamic impacted the quarter.

First, because we had healthy backlogs going into the quarter, there was not a net meaningful impact on shipments. In other words, had we not seen these workforce housing orders, we had plenty of other business and would have shipped a similar overall volume.

Regarding price, these units are generally single sections and they have a higher price than typical single-section homes. So there was an upward effect on average selling price. But having said that, my earlier comments about sequential product price increases still hold true for the base residential units. Workforce housing shipments added to what would have already been an increase in product pricing.

Shifting to margin. The pricing is higher on workforce housing, mainly because the material cost of a unit is significantly higher. Generally, these units are built with 6 or 7 self-contained living spaces with in-room toilets and showers. Taking all of this into account, there was no meaningful impact on our percent gross margin resulting from the workforce housing shipments, higher price, higher cost, neutral impact on gross margin percent.

The big positive of these incremental workforce housing orders is that they're adding to the backlog, thereby enabling us to lean in on production despite heading into the winter months and with continued economic uncertainty.

Overall, this is a developing opportunity. And frankly, we don't have a clear view about how much this will grow, how susceptible the orders may be to delays or cancellations or how long we'll see a meaningful level of remote data center projects.

Switching gears, I want to acknowledge the contribution our financial services operations continue to make. There's not a lot to discuss here except the continuing strong performance. Overall, pretax profit was up a couple of percent over a very good quarter last year.

Insurance had another in a string of strong quarters with low claims. We're also benefiting from reduced reinsurance costs due to both the general reinsurance market improving and our dramatic improvement in claims performance the last couple of years.

CountryPlace Mortgage continued to ramp up originations after securing new investors for loan purchases, which we've mentioned in previous quarters. And shifting to capital allocation, we repurchased $30 million of company stock in the quarter. Since initiating our repurchases just over 5 years ago, we've returned $642 million to our shareholders through buybacks without hampering any strategic growth investment in our plants, greenfields, acquisitions or otherwise.

In Q2, we surpassed cumulative repurchases of 20% of our shares over that time, and we finished the quarter with a healthy $272 million of unrestricted cash.

Now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the second fiscal quarter of 2027 was $656.4 million, up 18% compared to $556.5 million during the prior year period. Sequentially, net revenues increased $46.4 million, driven by a higher units sold and higher average revenue per home sold.

Within the factory-built housing segment, net revenue was $633.7 million, up $98.6 million or 18.4% from $535.1 million in the prior year quarter. This increase was primarily due to the addition of American Homestar, an increase in legacy homes sold and an increase in legacy average revenue per home sold.

The increase in legacy average revenue per home was primarily due to product pricing increases, partially offset by a lower proportion of homes sold through our company-owned stores and more single wides in the mix.

Financial Services segment net revenue was $22.6 million, up $1.2 million or 5.6% sic [ 5.8% ] from $21.4 million in the prior year quarter. This increase was due to higher loan sales in our mortgage division. Consolidated gross margin in the second fiscal quarter as a percentage of net revenue was 22.5%, down from 24.2% in the same period last year.

In the factory-built housing segment, the gross profit was 21.1% in Q2 of 2027, slightly down from 22.9% in Q2 of 2026. The reduction is due to higher input costs, partially offset by increased product pricing. Financial services gross margin as a percentage of revenue increased to 60.2% in Q2 of 2027 from 55.6% in Q2 of 2026, driven primarily by improved underwriting margins.

Selling, general and administrative expenses in the second quarter of 2027 were $77.7 million or 11.8% of net revenue compared to $72.2 million or 13% of net revenue during the same quarter last year. The increase in these costs was primarily due to the addition of American Homestar, along with increased compensation and employee benefit expense.

These expense increases were partially offset by a $7 million onetime return of premiums related to additional D&O insurance that was purchased back in 2019. Interest income for the second quarter was $3.6 million, down from $5 million in the prior year quarter, resulting from lower cash balances after the purchase of American Homestar.

Pre-tax profit was up 9.1% this quarter to $73.4 million from $67.3 million for the prior year period. The effective income tax rate was 24.4% for the second fiscal quarter compared to 22.1% in the same period of the prior year. The increase in the effective rate was primarily driven by lower tax credits compared to the prior year quarter.

Net income was $55.4 million versus $52.4 million in the same quarter of the prior year, and diluted earnings per share this quarter was $17.17 (sic) [ $7.17 ] compared to $6.55 in last year's second quarter.

During the quarter, we repurchased $30 million of common shares under our Board-authorized share repurchase program, leaving approximately $158 million under authorization for future repurchases.

Now I'll turn it over to Mark to discuss the balance sheet.

Thanks, Allison. In the quarter, we had an increase in cash and restricted cash of $31.7 million, bringing our balance to $297.9 million. Cash provided by operating activities was $96.4 million. Cash used in investing activities was $33.8 million, primarily related to plant improvements and related equipment and cash used in financing activities was $30.9 million, primarily due to share repurchases.

Comparing the September 26, 2026 balance sheet to March 28, 2026, accounts receivable increased from greater homes sold, inventories increased from raw material purchases in anticipation of increased costs. Prepaid expenses and other current assets decreased from expected tax refunds.

Property, plant and equipment increased from investment in the new El Mirage facility in addition to other plant improvement projects. Accrued expenses and other current liabilities increased from higher customer deposits, volume rebates and warranty accruals on higher sales and treasury stock increased due to stock buybacks executed in the period.

Now I'll turn it back to Bill.

Thank you, Mark. With this report, we've hit a year since joining forces with American Homestar. And thus far, that acquisition has exceeded expectations with higher-than-assumed tangible synergies and rapid increases in productivity. A lot of hard work has gotten us to this point.

A couple of weeks ago, I was able to spend several days with the plants and stores that came to us in the acquisition and the teamwork and focus on making the right products for the market has been tremendous. As we move into comparable periods, we won't be specifically highlighting the operations going forward. So I want to take a quick opportunity to really thank everyone involved in such a successful acquisition and integration.

On another note, since our last earnings call, we showed the first off-chassis home at HUD's Innovative Housing Showcase in Washington, D.C. Earlier this week, HUD Secretary, Scott Turner and U.S. Congressman, Eli Crane visited our Phoenix plant to discuss Cavco's readiness to provide innovative products that are being enabled by the ROAD to Housing Act.

I can tell you my message was we're ready. So let's figure out how to get these things out there. But while we manage the near-term business, we're also working very hard on the huge opportunities that lie ahead.

Michelle, could you please open the line for questions?

[Operator Instructions] And our first question comes from Daniel Moore with CJS Securities.

Just the components of growth, you shipped 15% more homes year-over-year in the quarter compared to HUD Code shipments in the low single digits. Can you just kind of break out organic versus the contribution from American Homestar.

Yes, we had -- yes, thanks, Dan. So we did have increase in our legacy brand as well. So kind of the low single digits.

Yes. One thing that is going to be -- I know there's going to be a ton of interest as there should be in workforce housing. One thing I'll point out to folks is that again, we're early in this. We're trying to figure it out. We're going to try to share information as we can on the magnitude and all that.

One thing that's probably going to be a little bit of a complication as people interpret the industry is that the vast majority of those units will not be HUD code. So when you're looking at HUD Code and then comparing any participants shipments and sales, there's going to be a little disconnect due to that gap.

But I'd characterize the -- as I said, like from a shipments perspective in the quarter, and I think this is relevant to your question, Dan, we had a good backlog going into the quarter. And if we hadn't shipped workforce housing units this quarter, we would have worked on our backlog that we had in kind of the normal single-family residential units.

So from my perspective, looking back at the quarter, it was going to be about in that same range regardless. Does that make sense?

Absolutely does. I think you're reading my sheet of questions as it relates to the workforce housing question here. So you're jumping ahead of me. That's helpful.

I'll hold back.

All good. Taking another 10,000 feet up, it seems like -- and maybe workforce housing is skewing it a little. But if you look at the growth relative to certainly, site-built seems to be diverging even more.

So are you seeing more -- whether it's opportunities community by community, maybe more early impact of ROAD to Housing, do you see that -- are we seeing evidence that we're sort of breaking away from the overall housing market, if you will?

No, it certainly seems like in the near term, there's a divergence, and we've talked over time that while we're subject to a lot of the same macro effects and macro forces, the business models are clearly different and the customer base is clearly different. I'd hesitate to say we're seeing the early effects of ROAD to Housing because I think it's too early.

We're pushing to try to work with HUD and others to figure out how we can really put that law into action with things like the products we can make off chassis. But at this point, I wouldn't attribute much of any deviation there. I've tried to keep up on the site builders as they've announced and as folks like you have had comments on their performance.

It really is different. I mean my understanding is they've had some level of spec building that now they're trying to ease back on. We don't have that in our industry. Our industry is kind of a pool structure where a customer has to make an order and it flows back to us and we make it.

So we're not having those kinds of headwinds that I think they have. The other thing in my view, and I'm trying to think through this just like you guys are, in my view, our customers -- many of them are just trying to find the time when they can get approved for a loan and buy a house. And so they've been out there. We've told you for a long time that traffic has been healthy.

People are out there trying to find the opportunity to buy a home. So there's quite a bit of like, I don't know, pent-up or demand that's sitting on the benches that's waiting to come forward. And we've kind of -- I think we've kind of seen that come forward a little bit recently. And maybe that's different. I don't -- you can be the judge -- maybe that's different than a site builder where their buyers might -- especially if it's a move-up buyer, they might have a little bit more discretion and thought about when they pull the trigger.

So I don't know if I can simply explain it, but those are some thoughts about the differences between the 2 businesses. And I know they're struggling because they've offered incentives for quite a long time. And as much as they try to get off them, they're having difficulty doing that. A lot of those factors just aren't part of our business model. And I think we're showing a little bit more of a steady road right now because of that.

Super helpful. One or 2 more, I'll jump out. Just given the increase in backlog, are you -- are we thinking about holding production relatively steady kind of going into the winter months? There's usually some seasonality, but at the same time, in the last few quarters, you've been saying we're going to lean into this increase in orders and reincrease production.

So how should we think -- how are you thinking about the next quarter or 2 here?

Yes, I'd probably always drive you guys crazy because I say it's kind of plant dependent. But I will say that we have fewer and fewer plants that don't have the kind of backlog where they can consider increasing production. I mean we've -- we're pretty healthy across our system with just a couple of plants that have lean backlogs at the moment.

So yes, the tug of war is that going into these winter months, every year, you hear us say -- we don't know what the winter is going to hold, and it's a little ways before spring selling season. So that causes our teams and our leaders to be hesitant. But as I said, one good -- the big positive workforce housing is it's added to our backlog. And to your point, I'm of the mindset, and I think all of our leadership is of the mindset that, that gives us the ability to push a little bit. And we do that with confidence because we've seen our organization know how to adjust if they have to.

So yes, Mike, our tone in the company is let's work on this backlog. Let's not let it -- in one scenario, you don't want it to run away from you and get big. That would be wishful thinking and hopeful. But let's not let it get big, let's push production even though we're heading into the winter months.

That is really helpful. Last one, maybe Allison, but just factory-built gross margin, slight improvement sequentially. Obviously, raw material general inflation is not going away. So just expectations regarding kind of trajectory from where we were this quarter over the next maybe quarter or 2 or 3.

Yes, sure. I appreciate that. In our last quarter, I think we indicated that material costs were increasing. And we said that the bigger unknown was really the extent to which the industry orders and the capacity utilization would enable price increases to offset the pricing cost. And in Q2, we, in fact, were fortunate and price increases were available.

So that's how our margin was able to grow by 40 basis points. And just to kind of focus on the point on material escalation, steel, which is up almost 150%, if you will, since the beginning of the year, separate from the gross margin discussion, there's obviously availability risk that we're also managing. So as we think about Q3 and forward, we're in the same position as we were last quarter.

Material inflation is -- seems more of a probability and a risk. And just on the price side, there's also areas where price we can take increases. But it's a local-by-local event, as we've always said. And as winter months hit, we can't be sure if continued price increases will be available or if the ASP will fully offset what's likely to be continued material inflation.

So as we always talk about consistently, it's a little hard to project the gross margins. And really, what we stay focused on is the business model, and that's our ability to really leverage our variable costs. and continue to take pricing increases where we can.

And our next question will come from Greg Palm with Craig-Hallum.

I am going to try to beat a dead horse here and ask a few on workforce housing, even though it doesn't sound like you want to quantify much. But I guess, first, I'm curious, like what types of structures are you building for the industry? And what exactly constitutes a unit?

Yes. That's an interesting question, and I'm learning a lot real time, to be honest, but I can share what I believe to be the best understanding on that. There's really and others might correct me on this, but here's what I know, Greg, think about it in 3 buckets. One bucket is when a project is in construction, the need was really temporary construction worker, construction office type structures.

And we provide some of those.

That's probably over time, that's going to be a relatively small part of what gets built and those structures may move to the next project, right? They're just kind of temporary. Then there's another relatively small component that is -- and where we're getting opportunities really is remote data centers, right? We're not getting opportunities to build housing in cities where there are some data centers.

But where it's remote, the kind of leadership team, those kind of people need housing. And those, I would tell you to think of as kind of a single-family residential unit looks very much like we make typically. What we're finding out is that while you hear that data center employment might be relatively low, there actually isn't a large need for people to maintain, clean, keep the facility updated.

And that's where I think we're going to see the most sizable component of workforce housing. And the things that the units we're making come in different shapes and sizes for sure. But think of a single wide that if you look at it like head on the long side of the single wide, you see 6 or 7 rooms that have their own bathroom facility, their own shower, but there's like 6 or 7 lined up in a single wide.

And then on site, those might be positioned with a corridor down the middle. That's where we're seeing a lot of the -- probably the biggest component of the volume. And as I said earlier, those units are not going to show up in the HUD code numbers. So it makes it a little bit tough to track how companies are doing if this becomes a big component of overall demand. But does that give you a feel for it?

Yes. And I guess specifically, I just want to make sure I'm understanding this right. So one single unit might have like 6 or 7 rooms. So I guess what would the ASP on something like that be? Because I'm guessing that's way, way more than a traditional single wide.

Yes. And there's a range about what we're seeing. I mean we're seeing kind of generally under $100,000 wholesale, but kind of can be in the $70,000 to $100,000 wholesale. And that's what I tried to explain in the prepared comments because now as I've described that, 7 showers, 7 toilets, 7 sinks, the material costs go up.

That's why the pricing is up. And when you kind of net it all out, including labor and these things are running fairly well through our plants. Once you kind of get to -- once your team gets a feel for how to make them, it's not really slowing us down significantly.

So when you have that higher materials cost, your gross margin effect is really not when you consolidate it with the rest of the company, it's kind of right in line.

Yes. Okay. And in terms of like geographic, is there a certain region where you're seeing the most activity? And just overall, can you at least -- I know there's maybe limited visibility somewhat and things are happening on the fly. But presumably, you have some sort of pipeline or contract you're working against, right?

Yes. We've got a few different intermediaries really. It's almost like selling through a dealer. We've got a few intermediaries. And we've seen a lot of volume in Texas area, but I wouldn't tell you that it's isolated to that. And over time, we're starting to see it spread out into other regions.

So I don't think it's going to be an incredibly localized. But early on, some of the bigger projects we've been involved in has been kind of in remote areas of Texas.

Okay. All right. Maybe just one non-workforce housing question, then I'll hop back. But last quarter, you mentioned going back to the HUD code business, price competition. I think that was tied mostly to Texas. I don't know. Now it sounds like maybe you didn't mention that, so maybe it's lessened, but now maybe the industry is focused on this other sort of category. So maybe that lessens the risk going forward. But what are you seeing?

Shiny object syndrome. You're tying back to the comments we made about retail, I believe, last quarter.

Yes, correct.

Even as we talked about it, I was kind of getting shaky and nervous that people are going to really focus on it because we brought it up. We brought it up because it was a meaningful impact on our consolidated margins. We felt people needed to hear about it. But what I tried to say then is these markets are moving. And we were seeing increased wholesale pricing. And we focus on Texas in this discussion only because so much of our retail is focused there, right? That's not a statement necessarily about Texas.

But we're seeing wholesale prices continue to rise in Texas, and we were seeing on the retail side, a lot of competition for the buyers that were out there. So their pricing wasn't going up commensurate with that. And I tried to frame that as I think this -- we're explaining it. We think you need to know about it, but we also think this is a market in transition and a moment in time.

If we fast forward to what happened this quarter, I think we've got some positive indications that it was a moment in time. However, like what we've continued to see is the wholesale pricing is going up to our retailers. And for everybody's knowledge, when we sell an internal manufactured home from one of our plants to our retail, we do it on a market basis and arm's length basis.

So I think it really reflects what's going on in the market. So their invoice cost of that purchased home into retail has been rising, but we saw this quarter the retail price start to go up as well. And net-net, the margin was still kind of in the same ballpark in retail it was previously. But the fact that the prices are starting to move up, I think, is a good indication that this is something we keep our eye on, but we're not expecting it to be like an ongoing systemic issue.

And our next question is going to come from John Lovallo with UBS.

The first one is just in our conversations with folks across the industry, it seems like there's some market participants that have been at least somewhat less enthusiastic about participating in workforce housing. And it seems to us like the ASP is pretty solid. I guess I'm curious how the profitability compares.

And also, is there any risk to just kind of damaging the brand by doing this type of product? I'm just trying to figure out why others would not be more inclined to participate.

Yes. I'm not sure I could answer why someone might be less inclined as we talked about the gross margin is kind of right in our wheelhouse. So I'm not worried about profitability. The one thing that I think we need to be careful about and are being very careful about is we're not we're not just loading all these orders into one or a few plants to the point where they're not able to take care of their independent dealer customers or their community customers.

So that would be a potential risk if a company just like kind of made all the rest of their business wait while they just focused on workforce housing. It's not to the magnitude, and we're being very mindful about trying to basically put these orders, spread these orders in our system smartly so that we're not hurting our independent dealer customers.

From a brand perspective, I'm not sure I see it. I mean we're still going to make a quality unit. It's obviously a very different application. It's not one that a customer is really going to be confused by. It's not going to be something that they're seeing in their neighborhood, for example. So I think it's kind of an nicely opportunity.

And this industry and Cavco through time and through history, we've done workforce housing for oilfields as an example. And it's just -- in times like this, it's really welcome because it's added orders that give you that extra backlog.

Yes. That makes sense to me. Next question is the 21st Century ROAD to Housing Act obviously received a lot of attention, but there was a recent executive order that was called decreasing housing costs for the American people that included provisions, many of which were aimed at increasing coordination across federal agencies, also support for innovation and standardizing some of the permitting for manufactured housing. Any thoughts on these initiatives and how meaningful they could be for the industry?

Yes. John, I'm kind of in a little bit of a wait-and-see mode, and that's not any pessimism. But the executive order by its very nature is somewhat general. And like you said, it was directional for some of the government agencies in different areas. There were aspects of it that are on things like automatically eliminating mortgage interest when someone's equity gets to a certain level.

If there's an impact on us from something like that, it's not even secondary. And I think directionally, you can get on board with the idea of let's not have people paying out of their pockets for something that's not needed.

But probably the most interesting one, but there's very little definition around it is the task force that the President kind of assigned to HUD and I guess it was FHFA to co-chair to just look at opportunities in factory-built housing to make the regulatory and inspection and approval processes more efficient.

From my two cents, and I feel a little bit like I'm sticking my neck out on something I haven't learned enough about. But from my two cents, manufactured housing under the HUD code is kind of a model for that kind of efficiency. So if that task force starts to look at other areas like modular or hybrid systems, I think that could be something that leads to some good outcomes for affordable housing in general.

So we'd be all for it. But it's still general. And so I'm not sure I have really a well-informed opinion about it at this point, John.

Got it. Got it. Last one from my end and just going back to an earlier question on sort of the divergence between on-site and manufactured housing in terms of demand. Wondering if you could sort of pinpoint what the core buyer has looked like more recently? I mean, are these folks former renters? Are they just more rate-sensitive folks? Is there an average wage bracket that you're seeing? I mean anything that might help explain the difference?

Yes. We tend to think in broad strokes that we've got kind of 2 core customer groups. One is that first-time buyer, low income, relatively low income, and they need a good affordable house, and they're trying to just figure out if they can get out of rent, right? So that's definitely a big part of the market.

And the other tends to be actually kind of retirees, 55 and older people, maybe they're downsizing, maybe they're getting a second home for snowbirding, right? And that still holds true. And I don't think that we've identified or noticed any like structural trend about new customers.

I think if there is one, and we've struggled to quantify this for ourselves and for you guys, if there is one, it's the buyer who historically would have only looked at site-built homes and because site builders are unable to hit first-time buyer price points and they're actually moving up and away from those price points, some of those customers are finding their way to manufactured housing and they're liking what they see and they're buying from us.

So if there's any trend that I would point to and it's a little bit of an empty statement because I can't quantify it. I do think we're getting more opportunity at what we consider the high price points and a site builder considers the low price points.

One thing I've noticed in the earnings releases over the last couple of quarters with homebuilders is a number of them talking about we're going to skew a little bit away from first -- what they call first-time buyers and a little bit more into first-time move-up. When I hear that as a manufactured housing person, that sounds like opportunity. It sounds like they continue to move up in price. And if we can get access to the locations that those buyers want to live, that's pure opportunity for us. And I think that's a shift out of all the customer dynamics you're asking about.

And the next question is going to come from Jesse Lederman with Zelman.

Nice job in the quarter. Really exciting on the workforce housing opportunity. I wanted to ask a couple of clarifying questions. One is for Mark on the low single-digit increase that he noted earlier on shipments. I wasn't sure if that was referring to the organic increase or if that was the American Homestar increase and then the remainder, which I guess would be like low double digits would be the organic during the quarter?

Yes, I was referring to the legacy. So yes. Same plant.

Yes, if we go back to the consistent plant group.

Okay. So the organic, I guess, in other words, or legacy was up low single digits and the rest is American Homestar?

That's right.

All right. That's helpful. Another clarifying one on single wides. Allison, I think you mentioned on the ASP part of what partially offset the increase in like-for-like pricing was perhaps more single wides in the mix, whereas I think we previously had discussed over the last few quarters really more of a shift to the multi-section homes.

So I would love for any more commentary on kind of what the price point mix during the quarter and then also what you think is driving it and what your expectations for that is going forward?

Yes. I think it's a little bit of that kind of Bill mentioned, too, is that some of the buyers that are coming in are looking at what they can afford. And so we are seeing some go to the more single wides. But still the pricing has held. And I think our ability to really focus on our pricing structure that's allowing us to pass through the increase on the materials is really kind of the key element to focus on.

I mean that mix can bounce around. You're right. I mean, for a while, if I go back a little bit further for a while, it was leaning towards singles and it leaned toward multis. And now we've had a quarter or 2 where even when you take out the workforce housing, it was still leaning a little bit more towards singles.

I don't have a really great answer for that, except in hindsight, when we see some of those movements and we look back over time, you kind of have to chalk it up to normal variation, to be honest. But the interesting thing this quarter with price, and I'm hammering a point we've already made is we've had plenty of quarters where we've seen a little uptick in price that we've had to tell everybody, yes, but it was really product mix and it was really a degree of integration with our company stores.

It wasn't really product price. And this quarter, it's the opposite. And I think it's important for people to hear that like the single wides and the multi-sections are both selling at a higher price than they were previously.

Absolutely. I think that's a helpful distinction. What's your sense on that? Obviously, we know like a lot of potential buyers are and current renters who may want to buy are constrained from an affordability perspective and from inflation and all these different things.

Your sense for the consumers' ability now at retail, like if retail is going to pass along those price increases, too, what's the ability for the potential buyer to absorb any further increases?

Yes. I think that's the point. I mean, from a business perspective, when we're looking at it just in isolation, pricing sounds great. But to your point, it's making it harder for folks. So yes, we're very conscious of that. And your point is very well taken. And what's hard to understand is what would be the demand sensitivity to a small increase or a small reduction in price.

But as I always point out, it's a local market. And so I think sometimes people think that there's some kind of pricing power where we can just decide to go raise or lower the price. I think this price -- these product markets are much more efficient than that. And right now, the price is going up, and it's making it harder for folks for sure. If they get a little interest rate relief, that's huge, too, right?

I mean that can offset that effect pretty quickly. And I hesitate to say it because it's not a trend now, but in the last few weeks, we've seen a slight downward movement in interest rates that might offset their monthly cost effect of the price increase.

Okay. That's helpful, Bill. One follow-up on the interest rate stuff. I know you've talked about the chattel rate being stickier, but presumably, it does still kind of get benchmarked to some degree like over the last months, even before we kind of had this pullback, I would assume chattel rates grew because of what we are seeing on the 30-year mortgage rate.

So what is kind of the time frame through which the -- I know it's stickier, but like how quickly is it actually almost repricing up or down when the 30-year mortgage rate is moving, especially when there's such volatility as we've seen lately?

Yes. My feeling is it's pretty sticky. I don't think it responds very quickly, and it will move a little and it will stay there for a while. So it's not very responsive. I think you're right that it's somehow correlated, but it is not an immediate reaction. Now we've talked a lot about what you need really for that market to become efficient is for some kind of secondary market.

And the GSEs, we're still trying our hardest to get the GSEs to take note of that and start buying home-only loans. Who knows if and when we'll ever get a breakthrough there. But the other thing, just like we've told folks that we've got investors that are new investors, probably more appropriate investors than we've had in the past for those loans. That's helpful, too, right?

If people like us at the CountryPlace are out there finding flow-through investment money that's probably tied to insurance liabilities, so they can offset a similar term, then that helps the market become more efficient, too. So I'm kind of interested to see where this goes and maybe the coming years, it might be, but maybe we're moving toward a more efficient market.

Got it. Yes. We're eagerly watching to see what the GSEs do as well as it pertains to the chattel rates. Last one for me. I really appreciate all the help as always. It almost sounded like when you were talking about the backlog and you were saying if we didn't take the workforce orders, we kind of would have ended up in a similar place anyway, which kind of sounds like you maybe had some orders that you didn't accept because -- like you almost took the workforce housing orders in lieu of other potential orders or demand.

So I just want to allow you to maybe clarify if that's right. And whether or not you're almost taking a step -- you need to for one reason or another, and it doesn't seem like you do, you're only, I guess, at 75% capacity utilization. Of course, a strong number, but still room to go. Just love your clarity on that.

Yes, I'm glad you asked the question because I wouldn't have been sensitive to that possible confusion. Yes, by no means are we not taking other orders. So my point was that we're at a healthy backlog level. We're not at a high backlog level where it's become a problem for customers. If you're -- if you go back in time and you're like pushing a year, that's an issue.

We're at 8 to 10 weeks and heading into the winter months, we're still taking all the orders. The backlog just kind of helps us with that dynamic we talked earlier where a given plants kind of concerned that they're going into the winter season, and they don't know how strong orders are going to be.

If workforce housing adds a little to their backlog on top of taking all the other orders, it helps us lean in a little bit harder on production. So yes, by no means do I want people to feel like we're taking one order over the other. We're not in that mode at this point.

And our next question will come from Tyler Batory with Oppenheimer.

First one for me, I'll continue the trend here on the workforce housing topic. Is there a lot of competition for this business? And are you mostly competing with other manufactured housing producers or with different types of temporary housing?

And then from your perspective, what helps you win this business? And what differentiates you from some of the others that might be trying to get into this space?

Yes. It's an interesting and good question. Yes, I'm sure we're not the only ones getting workforce housing business. So I don't want that to be perceived. It's competitive to some extent. There are at this point, kind of intermediaries that are finding the opportunities with the projects and then kind of talking to the manufactured housing type companies to produce them.

So it's kind of a very natural market in that sense. But -- and your other question, it's not my perception that for a given remote data center, they would be looking at some other form of housing.

I think factory build is the appropriate housing or the appropriate construction method for that stuff. So I think it's in our wheelhouse as an industry. And I'm sure it's competitive. What's making the difference, I think, is as it is with any sale, right?

It's an intermediary coming to us and it's a pricing discussion. It's when can you deliver discussion and all the things that we would face if we were dealing with a land lease community or any other customer.

Okay. Okay. And then in terms of the order and demand commentary, I mean, obviously, you have the workforce housing that's coming in. You talked about orders below last quarter's pace. Just how much of that deceleration is just normal seasonality? Just want to confirm that there isn't any sort of change in underlying demand outside of what's happening with workforce housing.

Yes. It's a great question. Yes, we talked about a drop-off and it's really thinking sequentially, right, from Q1. And I'll remind people, sometimes when you have those comparisons, you think that the drop-off saying something negative about the current quarter when you're comparing to a quarter that was pretty darn strong. And Q1 was strong.

We had -- I don't remember what we disclosed as far as the sequential uptick, but we had a couple of quarters where we were significantly into double-digit increases quarter-to-quarter. So a little bit of this is the comparison to a very strong Q1 in orders. And then yes, absolutely, seasonality, we would typically see Q2 be a little bit slower than Q1 from a seasonality perspective.

I guess to put it in some perspective, I'd say that orders this quarter are very much in the range of what we've seen in the last couple of years. In the last couple of years, we've always prospectively been racking our brains trying to figure out where is this going because there's been a lot of uncertainty in the market.

But when you look back, we've kind of been in the zone. And our second quarter orders are not out of line with that zone. So it's not like they've fallen off a cliff. And I'm talking about excluding workforce housing. So it's not strong, but the level of orders is still manageable. And as I said repeatedly, I think it's in a range that we're very able to adjust up or down from here.

Okay. Okay. Very helpful. And then my last question, just the capacity addition that you have coming online mid-2027. Just remind us how much spending is left there? And then help us think about just what the ramp-up looks like in terms of initial earnings contribution and when you really kind of get to a more stabilized level of production there?

Yes. We haven't been out with actual capital numbers on that. The start-up is still pretty much online for sometime like mid-calendar next year. Projects have risk there, but I think we've been able to manage this one where so far, we've stayed roughly on schedule.

It's going to be a big -- initially, it will be one production line, but it will be a sizable production line as far as capacity and throughput. So we haven't really put projections out to isolate that one production line to give specific numbers at this point.

Okay. Very good. That's all for me.

Tyler, I'll make one more point on your previous question just because I'm looking at some of the data as I answered, and I think everything I said kind of put it contextually in the right place.

But maybe one way to think about Q2 orders is that they were slightly up year-over-year. So even while we saw a drop-off from that very strong Q1 year-over-year, this is definitely -- we're not trying to tell people we've seen a drop off a cliff here.

And our next question comes from Catherine Lapey with Gabelli.

Congrats again as well on the great quarter. Could you talk a little bit about the 75% capacity utilization in light of the strong 8- to 10-week backlog. So I'm wondering what's holding up the capacity utilization and what would get that number to 80%, 85%, 90%.

Yes, it's kind of that dynamic we've been talking about. I mean we've been -- if you look at the last year or so, we've been kind of increasing that number a little bit. We -- capacity utilization is not a perfect number. And so we do tend to round it off a little bit when we communicate it. And the other thing about it is that as we do projects, and we've been doing a lot of projects in our existing plant system, but we adjust up the denominator, right?

So it's a moving target when you really think about the pieces and parts of it. So we've been in that 75% range, but I think over time, on an increasing view of total capacity, and that's why we -- you have seen us increase the total amount we put out. What's holding it up is this whole dynamic -- well, 2 things, I would say.

One is I've definitely observed that it seems a lot easier to reduce product pace than it is to increase it. Usually, when we're in the opposite mode, you can allow attrition to bring your staffing levels down and you can kind of adjust down pretty rapidly. When you're going the other direction, it can be more challenging. Now you're hiring people, training them and trying to go up. We're good at managing that, but that is a dynamic that always is at play.

And then the other thing is that, yes, backlogs have been increasing. And but -- and they're at a good healthy level right now. But when you're heading into winter months, there's that question in a given plant of is now the time to increase? Or should we just kind of hang out at this level and see and wait for spring to decide when to increase.

So that's -- those are the kind of plant-by-plant discussions we have. And every one of our plants is in a different place on that. We've got some plants that are basically producing relatively full. They've been at 80-plus percent for a while. We've got other plants that have a thinner backlog that haven't -- we haven't together decided to push production very hard yet given their backlog and their market dynamics.

So it's all this tug of war between are we entering a slowing period? Is the backlog big enough to bridge it? All that goes into the decisions about how hard to push the production.

Okay. Great. Just a quick follow-up on that. Would you say that the workforce housing orders are targeting a specific sector of plants? Like are they closer to the plants that are already at that 85% capacity utilization? Or is the location of the workforce housing going to help with some of the plants with leaner backlogs? Or is it just pretty variable and hard to tell?

Yes, it's a little bit variable. I mean the projects are where they are. We probably have plants that can reach them no matter where they are because I think our system covers the landscape pretty well. But this kind of ties Catherine, into some comment I made subtly earlier, I think, that was we're able to -- and I think the guys are doing a great job at this.

We're able to take in sizable orders and then think about where we're going to produce them, even if we break that order up and make it in a couple of plants. So it does relate to this capacity utilization dynamic. And if we've got a plant that's full, we're going to look to try to move those orders. You're still going to be relatively in the same region, but move those orders to where we've got more upside in capacity utilization.

Great. Yes, that makes a lot of sense. Just one last question for me. I'd love to hear a little more on the breakdown of CapEx this quarter, particularly how much is attributable to El Mirage and then how much is just kind of steady CapEx that we can expect in the future?

Yes. I think if you look at this quarter and last quarter, you do see kind of a tick up from the last -- the previous 3 quarters, which represents kind of the maintenance level. So I think that just looking at historically, while it's not -- the increase would not be completely attributable to El Mirage because we always have several projects and some phase of capital improvement.

But I think that directionally kind of gives you an indicator of the investment that we're making. And I think the key is when we looked at El Mirage, we did what we do with all of our major product decisions, and that's go through a pretty labor-intensive return calculation. But at the end of the day, the capital spending per capacity for El Mirage is going to be right in line with with historically the way that we've laid capital out for capacity additions.

Allison, if you had to throw a number out for like sustaining capital, it's probably 8, maybe as high as 10.

Between 8 and 9, that's usually. And you can see that's slightly over the D&A. So that kind of proves out what the maintenance capital has to be.

To Allison's point, we've got projects going on in our plants, too. We've -- individually, they're all relatively small from a total company level, but we've done so many of them that they're always sneaking into those numbers.

Small but important.

And the next question is going to come from Greg Gibas with Northland Securities.

Bill, Allison, Mark, congrats on the results. I wanted to -- you noted federal and state-level support, not only with the Road to Housing Act, but also other reforms that you expect to open exciting opportunities in the years ahead. I imagine that's in reference to zoning regulations, better financing access.

But maybe to provide a little more clarity, I was wondering what you're most excited about and if there's any potential developments along those lines that we should keep an eye out for?

Yes. Good question. I'm excited about what's going on federally. Obviously, it's not over with the ROAD to Housing Act and people are always already talking about ROAD 2.0 and what might be involved in that. So we continue to have momentum there, and I think we've talked a lot about that.

But probably equally as excited about the trends we're seeing at the state level where more and more states are passing state-level laws to try to even the playing field for factory-built housing to get into -- it's a zoning issue to get into areas we've really been kept out of in the past. So I don't even know if I could put one ahead of the other. I think both of those are pretty much equally exciting and both are equally important.

ROAD to Housing at some level is allowing us to make the products that fit into urban and close end markets and the state level work is probably more where the rubber hits the road to give us access to those markets. So really, we need both. We're getting good support in both areas, and that's what I think is going to really change the game.

Makes sense and good to hear. I was going to ask about workforce housing orders, but I think that's been addressed. So what are your plans maybe for other off-chassis HUD homes? How -- can you maybe speak to the demand or interest, how that's trended following the unveiling of the Grande Arbor and kind of how the pipeline looks for future home designs?

Yes. It's noticeably from my perspective, in my conversations with traditional developers, people that maybe are small in a certain location that have spent their careers doing site-built projects, they're perking up at the idea of maybe I should switch to manufactured housing.

And if I can get low sets and 2 stories, it really seems to have captured the imagination and attention of those kinds of builders. And we've had -- I can tell you, since the law passed, we've had several projects that have come to us to learn and talk about whether that's the next opportunity, which is why it's so important to continue pushing on like let's get the rulemaking done if that's what it takes or let's get some efficient alternate construction letter process in place so that we can start selling these things.

But yes, that's -- I think that's what it's opening up. People are excited about 2-story officially made HUD code homes and certainly ground set.

And our last question is going to come from Daniel Moore with CJS Securities.

I know you, after an hour and 2 minutes, wanted one more word. So I...

Started us off, you're going to finish this off here.

I'll make it quick. This is the first quarter we've heard about it in a more meaningful way. So just can you talk to like the number of intermediaries? Is that growing that you're interacting with or in discussions with over the last 1, 3, 6 months? Just kind of trying to get a second derivative momentum idea of how this is kind of playing out in real time.

Yes. And we haven't been hiding the ball. I mean I'll tell you, it really kind of hit this quarter for us. I mean this is a quarter that it was even really a thing as far as really tangible shipments and tangible orders.

Yes, I think the intermediaries are going to grow. I mean we've worked with a couple in these early days, but I just think this is going to continue to unfold, and I don't think it's going to ultimately be just a few people that are intermediaries between the manufactured housing companies and the data center projects. So it's -- we're waiting into it.

We've got some key relationships at this point. I think we'll expand that as we go forward. But as I said in my comments, it's very hard to predict how long, how stable, how big. So we're just going to have to keep our eyes -- our ear to the ground and try to be as helpful as we can to you guys understanding it.

And I will now turn the call back to Bill Boor for closing remarks.

Yes. For those who have hung in with us, thanks for hanging in with us. It's great that people are real interested, and I hope we're giving you good information to understand not only where we were this quarter, but where we're heading. And it's obviously great to be able to report such strong results amidst an environment that has high interest rates and continuing uncertainty in the economy.

Going into the winter months, we've talked this. It's always a challenging point in the year. We know activity will slow with the weather and the holidays. But what's different this year is we're entering that period with the largest backlog since 2022, '23 when interest rates ran up. So we really feel like we're well positioned to react as needed to the markets. Thanks, everyone, for joining us and for your interest in Cavco, and we look forward to keeping you updated.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Thank you for standing by, and welcome to the Cavco Industries Inc. First Quarter Fiscal Year 2027 earnings call and webcast. [Operator Instructions]. As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead, sir.

Good day, and thank you for joining us for Capital Industries first quarter Fiscal year 2027 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, Chief Accounting Officer.

Before we begin, we'd like to remind you that the comments made during this conference call that management may contain forward-looking statements. Forward-looking statements include statements about our future or expected business and financial performance and are not promises or guarantees of future performance.

There are expectations or assumptions about Cavco'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 Cavco'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 Cavco.

For a discussion of material risks and important focus factors that could affect our actual results, please refer to these contained in our statements and filings with the SEC, which are also available on our Investor Relations website and at sec.gov.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, July 31, 2026. Cavco undertakes no obligation to revise or update any forward-looking statements 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 Boor, President and Chief Executive Officer. Bill?

Thanks, Mark. Welcome, and thank you for joining us today to review our first quarter results for fiscal 2027. It's only been about 2 months since our year-end call in late May when we told you that March had showed a big pickup in orders, and there was an associated backlog increase.

The good news is that, that order momentum has carried through the first quarter and even with sequential shipments being up 13%, our backlog still grew more than 50% from last quarter's ending level. Sequential orders were up double digits in every region. And as a result, backlog grew significantly across the country as well.

The Q1 backlog is also 50% higher than a year ago. And last year, it was declining rather than growing. Shipment improvement across the country led to a quarterly record of 5,657 units. Our production increases resulted in capacity utilization of 75%, still significantly below levels we're able to sustain, so there remains significant room to reach higher volume levels, assuming strong orders persist. This is the first quarter in our history that revenue exceeded $600 million. It was up about 10%, both sequentially and year-over-year.

So just to conclude on these points, we raised production and shipments significantly and still saw a large increase in orders and backlogs, both sequentially and year-over-year. Factory-built gross margin dropped 40 basis points from last quarter, driven by 2 factors. Part of the downward pressure came from increased costs in manufacturing.

The other factor was related to retail pricing. Wholesale pricing to independents remain generally stable across all regions, so that was not the driver. However, in our company-owned retail markets, which are concentrated in the Texas area, we saw increased price competition and these lower retail prices contributed to the sequential gross margin decline.

We do continue to see higher retail traffic in Texas, but closing rates declined. This indicates that demand is good, but competition for qualified buyers intensified during the quarter.

Shifting to Financial Services. As reported last quarter, we have found reliable purchasers of meaningful loan volume which has enabled a nice improvement in loan origination and sales. This quarter, the origination growth met our expectations, and we anticipate we will be able to grow loan sales into future periods.

Separately, while the first quarter is a seasonally higher insurance claims quarter, that operation continued their strong performance and exceeded our profit expectations. The favorable insurance claims results over the past couple of years have resulted in lower reinsurance costs as well.

Very recently, we also received important outside confirmation of the strong insurance performance and trajectory when A.M. Best moved to a positive outlook for our financial strength and issuer credit ratings. Shifting to capital allocation.

Our strong cash generation enabled us to continue investing in planned expansions and strategic projects, while still repurchasing another $30 million of company stock. In a little over 5 years since we began our buybacks, we have now deployed over $600 million in repurchases with the objective of maintaining a responsible balance sheet.

Over 19% of our outstanding shares have been bought back through this return of capital to our shareholders. And we finished the quarter with a healthy $243 million of unrestricted cash.

Finally, a few weeks ago, the Road Housing Act became law. The bipartisan support for the new law and the prominence of manufactured housing elements within it are indicative of the growing awareness that our industry is an in-place solution to the affordable housing shortage in our country.

The benefits of this law will show themselves over time as we are able to place innovative home designs in urban and suburban locations with improved market acceptance appropriate regulations and better support for our homebuyers funding needs. As I've commented in the past, pay attention to what's happening at the state level as well where more states are engaged in lowering unnecessary barriers to our homes being placed where they are needed.

Now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the first fiscal quarter of 2027 was $610 million, up 9.5% compared to $556.9 million during the prior year period.

Sequentially, net revenues increased $59.8 million, driven by an increase in units sold, partially offset by a decrease in average revenue per homes sold. Within the factory-built housing segment, net revenue was $586 million, up $50.3 million or 9.4% from $535.7 million in the prior year quarter. The increase is primarily due to the addition of American HomeStar and an increase in legacy average revenue per home sold.

The increase in legacy average revenue per home was primarily due to a higher proportion of homes sold through our company-owned stores and more multi wise in the mix, partially offset by product pricing decreases.

Financial Services segment net revenue was $24 million, up $2.8 million or 13.3% from $21.2 million in the prior year quarter. This increase was generated by higher loan sales and gains on the insurance subsidiary's equity portfolio. Consolidated gross margin in the first fiscal quarter as a percentage of net revenue was 22.1%, down from 23.3% in the same period last year.

In the factory-built housing segment, the gross profit was 20.8% in Q1 of 2027, down from 22.6% in Q1 of 2026. The reduction was due to higher cost per unit sold. Financial Services gross margin as a percentage of revenue increased to 52.4% in Q1 of 2027 from 40.9% in Q1 of 2026. The increase was primarily due to the growing impact of premium rate increases, gains on the insurance subsidiary equity portfolio and underwriting changes on policy in addition to higher loan sales.

Selling, general and administrative expenses in the first quarter of 2027 were $81.8 million, or 13.4% of net revenue compared to $69.1 million or 12.4% of net revenue during the same quarter last year. The increase in these expenses was primarily due to the addition of American HomeStar, along with the increases in compensation and employee-related costs and sales and marketing efforts.

Interest income for the first quarter was $3.3 million, down from $5.1 million in the prior year quarter, resulting from lower cash balances after the purchase of American HomeStar. Pretax profit was down 14.6% this quarter to $55.8 million from $65.3 million for the prior year period. The effective income tax rate was 24.2% for the first fiscal quarter compared to 20.9% in the same period of the prior year.

The effective tax rate increased compared to the prior year period, primarily due to a reduction in Energy Star tax credits. Net income was $42.3 million, compared to net income of $51.6 million in the same quarter of the prior year, and diluted earnings per share this quarter was $5.43 versus $6.42 per share in Q1 of 2026.

During the quarter, we repurchased $30 million of common shares under our Board-authorized share repurchase program. leaving approximately $188 million under authorization for additional repurchases.

Now I'll turn it over to Paul to discuss the balance sheet.

Thank you, Allison. In the quarter, we had an increase in cash and restricted cash of $8.6 million, bringing our balance to $266.2 million. Cash provided by operating activities was $74.5 million, cash used in investing activities was $27.5 million related to planned improvements in equipment and cash used in financing activities was $38.4 million primarily due to the share repurchases Allison just referred to.

When we compare the June 27, 2026 balance sheet to March 28, 2026, accounts receivable increased from the increase in homes sold in the quarter. Total commercial loans receivable increased on greater loans originated with more shifting in the long term due to the nature and timing of the contracts.

Inventories increased from raw material purchases in anticipation of increased costs at our facilities and more finished goods at retail locations for anticipated sales activity. cruise expenses and other current liabilities increased from higher customer deposits, volume rebates and warranty accruals as a result of higher sales, partially offset by lower bonus accruals due to the fiscal year 2026 payouts.

Lastly, treasury stock increased due to stock buybacks executed in the period.

And then with this, I'll turn it back to Bill.

Thank you, Paul. Just to summarize our opening remarks, it was great that we saw the momentum in March really carried forward through the first quarter and it led to record volume and strong backlog growth.

The demand environment has felt very uncertain for a long time. But currently strong orders and backlogs are supporting increased production across the system.

So with that, Jonathan, why don't we go ahead and open the line for questions.

And our first question for today comes from the line of Daniel Moore from CGS Securities.

Backlog growth, 50%, as you talked about, implies net new orders reaching the highest quarterly level that we've seen since 2021. Just talk about what's driving that, break it down between retail REIT communities. And I was going to ask about pockets of strength geographically, but it sounds like it's pretty broad-based. Any additional color there would be great.

Yes, it has been broad-based. I mean when we looked at the regional dynamics on orders, the ones that had the biggest numbers are ones you really would expect to coming out of winter, the Midwest and the Northeast.

So I think the big message there is as we said and you identified is that it's pretty broad-based. We don't always see that sometimes these things can move differentially we saw double-digit sequential growth in every region. I want to like take me to your next part of your question.

Just between retail REIT communities, anything relative areas of strength there?

Yes, I'm sorry. Yes, we saw that as well. On a percentage basis, I won't go into the actual percentages, but across the 3 channels that we track, builders, developers being one, communities being another and then retail, all of those were up 10% sequentially. So community, we've talked the last several quarters because it can be very balance, but it was strong this quarter, and none of the channels seem to really be out of the game of increased orders.

And in terms of the cadence, has that increased continued into June and into July as we kind of look into fiscal Q1 and at this stage? Is it fair to say we're starting to see a more accelerated kind of share shift away from site built? Or is it a little too early to call?

Yes, I'm always kind of hesitant to call trends too quick. I will tell you, I mean, we're just finishing up July here, right? So -- and we don't like to go too far into reporting on the next quarter, but I will say we haven't really seen a crack. So we're still seeing generally a continuation. Yes. I think Watch in manufactured housing relative to site builders is always interesting. They're showing from my look, they're showing a lot more volatility over a number of quarters when you just compare new home sales to MH shipments. I don't know always what to read into that. I know they're dealing with more issues around inventory in the market and trying to wean themselves off in sands and those are problems manufactured housing just doesn't have right now.

We generally don't have incentives, but we don't have inventory plugging up the retail channels. So we've got some advantages there. And I do think that followed a few of the site builders calls this quarter, and it seems like, if anything, they continue to move up in price point. And so generally, I think about that upward horizon of what the playing field is for manufactured housing, and it just keeps feeling like it gets bigger, right? So talk out a lot, and I hope it's not redundant.

But at the upper price points, the question is really how much competition overlap do we have with site builders, and I feel like they continue to move up and abandon first-time buyer type prices, I don't think they can hit them. And then at the lower horizon where our prospective customers are just trying to figure out if they can qualify for a low-price quality home that's where the real pain has been. And we haven't seen those folks get much relief with interest rates or anything else.

I do think it's telling, in my opinion that we've seen this increase in orders, not just for a month, but over a few months now, and it feels to me like people have somewhat accepted the level of interest rates we're at. We got a little bit of stability in rates earlier, which helps the buyer get all the way through the process and have some consistency in what their loan is going to look like when they get to the end of the process.

And I think it's just people were struggling to get homes and it just kind of started to push through again. It's the opposite of when industry sometimes pull orders forward. In this case, it seems like we had some very real pent-up demand that has started to really press through. So the comparison with site builders is always an interesting one, but my big takeaway is I see them continuing to move up in price point.

And can you just tell a little bit more color on what's happening inside the plants in real time? Are we starting to ramp production month-over-month given the increase in backlog holding steady, what are you seeing there?

Yes. Yes. backlogs are a funny thing, right? I mean they're never stable. They're always either going up or down. We have generally and looking across our plants across the country, we have a bias where the plants are increasing production. And we saw it this quarter. I mean we got to pick up in orders in March, and we produced and shipped more homes in the first quarter. And as I was trying to indicate right now, the backlog support us continuing to increase production.

The majority of our plants will hardly any, were down, the majority were up compared to flat from quarter-to-quarter. The dynamic is interesting because when folks go a long period of time without a good backlog, and they're struggling to keep -- just keep the orders coming in to produce. Sometimes we can have a tendency to want the backlogs to be big before we really press behind them.

And so we try to counteract that human tendency to want to cushion. And right now, with the backlogs at the levels they are, and I'm not sure we mentioned it, we're kind of in the 7- to 9-week range. That's up quite a bit. Our discussions with our plants are a push behind us because big backlogs aren't great either, right? So it's a nice feeling to be able to lean in a little bit on these orders and backlogs.

Helpful. Last for me, a lot of moving parts, obviously, but the pricing pressure you talked about at retail, was that largely kind of Texas and surrounding markets? Or is that something that you're seeing more prevalent across the country?

Yes. We know that we experienced -- what we experienced in our stores. I don't -- part of the reason why I highlighted in my remarks that our stores still are largely concentrated in Texas we've expanded out of there for sure, but there's still a core concentration there. That was to say that I don't think we should assume that, that gets extrapolated across the rest of the country.

I think -- it's been an interesting dynamic. I hope that my comments explained it reasonably well because if you're a manufacturer in Texas, you're feeling really good, right? Your prices are stable -- maybe you're going to have an opportunity if orders keep coming in and backlogs grow to even increase a little bit.

And then on the retail side, they've got a lot of people out there shopping, and I think it just got a little competitive this quarter. So we'll keep our eye on it. Not having company-owned retailers or visibility into what's going on as other -- in other markets is a little less clear, but I just don't think we should draw rash conclusions about what's going on countrywide or even if this is just a dynamic we've seen in the near term here. We'll keep an eye on it.

And our next question comes from the line of Jesse Lederman from Zelman.

Could you help us understand like would the pricing pressure a captive retail? I know it seems to be concentrated in Texas and like I don't want to make it like too big of a deal, but -- is that because the stores you think had too much inventory and that could end up filtering through to reduce orders from the manufacturing facilities? Or can you help us kind of think through the moving pieces there and what you think the cause of it was the pricing pressure at retail?

Yes, that's a good question. It's important. Probably I should have brought it out somehow in my comments. You're picking me up a little bit. We definitely have not seen inventory really pick up.

I think the I think it's a transaction-by-transaction dynamic that they've got a lot of people shopping, and those people are jumping around store to store and the retail folks have just gotten pretty and I'm going to use the term aggressive, and I don't want to be extreme, but they've been competing for those orders. I made the comment that closing percentages were down, but that's down on higher traffic, so we're still getting sales and things are still moving through the system, but with a lot of shoppers out there, it just seems like for the moment, at least, it's gotten pretty competitive.

And I wouldn't -- I also would say it's not dramatic, like we're not seeing ourselves or others selling at prices that aren't profitable in retail. It's just a little tighter -- if you think about the spread between the selling price at retail and their invoice on the home, they have other costs. But if you just think about that spread, it's a little bit tighter than it was before. And maybe that's just the market kind of settling out as all those folks are out there shopping.

Sure. That makes sense. What's the appetite to continue to compete on cost in those markets versus like wanting to maintain your retailer margin? Like how do you kind of think through those dynamics?

Yes. Every day, every store is kind of the answer to that. I think it's just -- we have good healthy discussions with all of our retail, particularly the regional level, kind of just making sure we're all keeping our eye on that balance, right? I mean I think it's an indication that we operate in a market. And so those guys are out there trying to do the calculus around whether -- we're going to make more near-term profit if we tighten up that margin and get the extra incremental sale or if we're going to make more total profit if we don't.

And right now, it's kind of leaned a little bit more towards getting that order. Again, I don't want to overblow it. I think that it's -- and it's not -- it's something that gets worked out kind of at the operating level with our close involvement.

Okay. But good to hear it doesn't sound like it's anything to where they're looking at destock and that will filter through to fewer orders from the independent retailers?

Yes. Jess, that's where I think your question is actually really helpful to make sure the picture is complete. We have not seen inventory increase in our retail or in the independents that we sell.

Okay. Great to hear. A couple more from me on the SG&A, assuming a certain percentage of those costs are variable, of course, just kind of isolating what that implies for the fixed portion of SG&A looks like those costs were up roughly 2% sequentially, which would obviously already normalize for American Home Star. So it sounds like maybe that was like some stock-based comp and whatnot -- is that expected to persist? Or will those costs kind of unwind a little bit back to levels from fiscal 4Q as we move through the year here?

I think what's important is to highlight that from last quarter to this quarter, we were able to leverage our SG&A as a percentage of revenue, which is at the core of our business model. And if you look from an absolute dollar increase perspective, the quarter-to-quarter increases were associated with investment that we would expect when we're working toward having a pipeline growth, so our sales and bonus commission structure, those parts that drive the sales growth and drive the pipeline growth, we see those expenses come through SG&A. And that was a big part of the change from this quarter to last quarter.

We've also been invested in our sales and marketing. And again, that's -- those are long-term investments that we make. The dollar impact can become lumpy, depending on activities that we have in marketing from 1 quarter to the next. But what we saw in SG&A and the raw dollar increase is kind of consistent with what we'd expect continued very thoughtful major increase for sales and sales support activity along with consistent, but small investment in shared services, and we continue to be able to leverage SG&A as a percentage of revenue as we move forward.

Okay. That's really helpful, Allison. So it sounds like to summarize, there are some incremental costs, fixed costs kind of isolating for the revenue growth and leveraging the variable costs that will probably kind of remain in kind of the structure for the next few quarters at least that are more structural in positioning the company for the expected growth in the future. Is that right?

That's a fair characterization.

Okay. And last one for me, I could requeue after is on the gross margin. Allison, you've given some really great commentary on costs in real time. and what we can expect based on maybe some cost in what you know from during the quarter and subsequent to quarter end and how that may flow through to subsequent quarters relative to what you just printed. So would love any commentary there, given you did gross margin down 180 basis points year-over-year despite pretty steady capacity utilization. So would just love any commentary you can give there.

Yes, of course. And I think what we'll focus on here is a little bit of what everybody probably wants is an understanding of how tariffs are impacting our COGS. Well -- and we know there's an upward impact on our COGS. However, it's really difficult to precisely estimate the impact of tariffs. I think this quarter, our best overall estimate is that case was negatively impacted by about $5 million of tariffs and just inflationary costs compared to the prior quarter.

And what we've talked about is our suppliers' ability to really pass through that tariff. It is a large function of the level of demand for their products. So is the demand for lumber and steel, which are the 2 main commodities we're watching start to heat up, we are likely to see that impact our profit margin. But I think it's important that we're not seeing anything that we didn't expect. We continue to focus on the core of our COGS, which is low fixed cost, being able to leverage their factory overhead offset as much increase in materials that we can. So we're seeing that working, and we feel comfortable with where we're positioned going forward.

Okay. That sounds good. And so that $5 million seems relatively steady, which that was $5 million was last quarter and your expectations moving forward aren't materially different than that $5 million.

Yes. We all have limited visibility at this point to the impact of [indiscernible], but that's a fair statement.

Okay. And are there mitigating efforts that you're using to kind of work down that $5 million? Is there any way you think all else equal, you could get that number lower? Or have you kind of exhausted those options?

No, we absolutely continue to work forward. Our supply chain and our purchasing group is 1 of the strongest I've ever had the pleasure of being with and they have been on top of the situation now for going on 18 almost 24 months. So there's a lot of activity around supply chain.

There's a lot of strong partnerships that we've had in really across all the commodities, particularly lumber and steel. We'll continue to leverage those and fight the good side.

And our next question comes from the line of Greg Palm from Craig-Hallum.

Just wanted to follow up on the last, I guess, thinking about the margin levels because we've been dealing with inflationary input in tariffs for sort of years and I know the impact maybe gotten a little bit worse, but is it more of a byproduct your inability to pass through these costs now? Just given all of a sudden, we're recognizing, obviously, a much bigger headwind now than we have been.

Yes, I can comment on that quickly. Also might want to add to what I say. Yes. The -- I've been kind of -- I've had a view for a long time that our product markets have kind of separated from cost to a great extent.

So we really are not a cost-plus manufacturer in any way. Having said that, when our costs go up, if we've got the opportunity -- well, say it a different way. We -- our selling price on a home is based on the demand and what the market says that home is worth, not necessarily the cost we put into it.

So I think the way this plays out is if we continue as an industry to see higher backlogs and higher capacity utilization, then you could expect price to go up, and that will be an upward pressure on gross margins regardless of what's going on in cost. So I don't know that everyone shares my view, but to some extent, my mental model is that these things are somewhat separate.

If we had the opportunity to increased price in the market because the demand suggested that we do it. So that's my view. And I know that's kind of different than others in some cases, and it's a pretty extreme view. But -- it's not as simple as saying, hey, our price went up, so let's go raise our cost on up. So let's go restor price of equal amount to see if we can get it back.

Go ahead if you continue to finish the thought or not?

No, I was just checking to see if people are on the table here in what I said.

I think that's an excellent way to cover the point.

So I guess you kind of alluded to demand and if others in industry, I mean do you think others are seeing the level of orders that you're seeing right now, I mean, just based on what you've announced in terms of backlog implied orders, July, I mean do you think that this is an industry thing where everybody is seeing the same activity?

Yes. I don't really have a strong view. I don't have visibility into their orders and backlogs to be honest. So I guess we'll find out over time we follow the HUD numbers, as you do. I know you follow that and look at how we're performing relative to that, they can be bouncy as well. But over time, I think they tell a story.

And I'm happy with our numbers over a number of quarters have compared to the movements in HUD shipments as a proxy for overall factory build housing. So I feel like we're doing well. But as the HUD shipments come out, we'll see the extent to which the whole industry is experiencing the same things. I mean a 50% increase in backlog kind of is -- I mean, that's a big quarter jump. And I don't think the entirety of that is unique to us. I just think we've certainly done a good job of making sure we get hopefully more than our share of them.

Yes. Let me ask it this way. Are you, as a company, whether that's at the national level, at the local level, doing anything differently, pricing homes differently than a competition; and b, what you would have been doing a year ago? I mean I'm just trying to get a sense for whether maybe there's a company-specific item here that is translating into much, much higher order growth.

Not price. I'll tell you categorically, it's not -- if you're asking if the company has changed some strategy around pricing to go get orders, I would say, absolutely not. We haven't changed our system, our system. Our philosophy is very much staying in close contact with our local operators, but they make a lot of the decisions and I can say on the manufacturing side, and this is something we talked to them a lot about on the manufacturing side, the process is for them to be close to the market and make sure that our products are basically priced right in line with what we're seeing from the competition for like products.

So yes, categorically, I'd just say that we haven't -- we haven't gone into a mode where we're chasing market share with price. I think where we're chasing market share is with things like projects that improve our quality, which we've done a lot of those over the past year. A lot of emphasis that we've talked in the past, and I won't drive you through around how we go to market, digital marketing, branding, product lines, national sales force to make sure we're touching all the right people within the larger customers, that's the hard work we've been doing over a number of years that I do think makes a difference.

Yes. That makes sense. And then, I guess, just lastly, now that Rod Housing Act finally passed. Are you getting any more feedback from the channel from the regulatory folks, I mean, just trying to get a sense for when you think some of this stuff that was included in the bill might actually start to benefit the industry?

Yes. I think I always kind of try to tell people, and I'm at the same time, incredibly excited about what that law represents and the opportunities it gives us over time and also kind of realistic in my expectations about how quickly we see like actual volume come from it.

One thing I've told people, and I might have said on these calls in the past that really caught my attention, and this is a little while ago, when the industry really got focused on trying to pursue this renewable chassis, I was frankly surprised when I talked to the company-owned retail leaders, folks within our organization and retail and also some independents at how excited they were about it because they don't always have the multiyear perspective, but they felt like there was a market for that quickly.

So I think as we get the state definition is to align to the removable chassis and as municipalities start to realize they've got a open their minds to these good solutions. The permit removing a chassis really gives them a home that's even that much less distinguishable from the site build, I think it's real volume.

It will just take a little bit of time to get through that process, and it will be kind of an upward curve, right? So we're not -- we're not sitting on this end, sitting here doing projections about how much incremental volume this stuff will add over what time period. But directionally, I know it's going to be helpful and it's going to help us break down some of the zoning barriers and -- so it's good stuff.

And our next question comes from the line of John Lovallo from UBS.

Maybe Allison, I'll start with. It seems like demand is pretty good. Pricing may be under a little bit of pressure the retail side, but I wanted to focus on the $5 million of cost inflation. It seems to us at least that the recent rises in lumber, steel and aluminum would result in a little bit more margin pressure than perhaps you're alluding to going forward. And I just want to make sure that I'm understanding that correctly. And also, I mean, how do you kind of factor in diesel and freight into the equation?

Yes, excellent question. And one of the things as we talk about the increases that we're seeing in the current period, when we -- the way to think about that is -- if you look at what's going on in the commodity markets right now, which we can all see and particularly if we think about those for lumber and for steel, what's going on right now in about 60 to 90 days comes through and their cost of goods sold.

So as we report on it, it probably does feel a little bit of a lag indicator to what we're seeing in the marketplace. But we've seen that as a consistent part of our business model. So the -- we have -- we use that time period as an opportunity to make sure that we're sourcing at the right levels and that we are getting as competitive with pricing as possible.

But to your point, we will see the impact in lumber and steel this quarter, and we'll -- we expect to continue to see that in the out quarters. But it's something that everybody can have visibility to be watching those commodity markets with us.

Got it. Okay. And then -- sorry, Bill, were you going to say something?

No. No, we're good.

Okay. Sorry. Yes. Maybe then switching to you, Bill, just back on the 21st Century Road to Housing Act, I mean, obviously, a positive. But we've been reading more and more that the HUD is currently understaffed, given the dose pretty much took an access to the workforce there. I mean how do you think about the ability of HUD to actually execute upon this with the staffing levels that they have in place?

Yes. That's an interesting question because I haven't really -- I haven't been conscious of a big concern there. So unless I'm missing something, I think I think we aren't seeing it as a barrier of the interesting question for me to talk to some people in D.C. and ask them directly.

When you look at -- they've got some things that they do have to do some pretty heavy lifting on around one of the ways the road the housing tries to impact zoning. And I think the federal government's ability to do that is somewhat limited. One of the things they have there is some direction to HUD to examine construction financing approaches and to give kind of models for how to set specifications for municipalities.

It's kind of like they're trying to give tools to municipalities to enable municipalities to relax some of the barriers. I think that will take work right? That's going to be labor intensive for us. But some of the others that we're excited about, like the -- removing the chassis, I think there's enough focus on that. And we're -- the infrastructure that's in place to provide guidance to HUD around specifications is all there. So I really think that they won't be slowing those kind of things down. That's kind of my perspective, though, John. I'm not sure if you're picking up that's a concern. I'm going to turn into it more.

Yes. I mean we've heard that through several channels. But look, we're obviously a lot newer to this than you are. So you're probably right. The other thing I wanted to ask you about, though, is that the recently put out a pretty cautious statement to the FHFA regarding the potential changes to the lending guidelines within the Duty to Serve program. And I guess the question is how are you thinking about the potential impact of DTS related to Cavco and just the broader industry? And more generally, how are you thinking about the opportunity for improved financing through either the HUD at FHFA.

Yes. Some of what's in the road to housing is direction to various departments to use the word that's been thrown around a bit -- so generally to modernize their programs. And I want to address that. I think that work just should happen. And those are things like raise your loan limits because you're out of market, right?

So let's not talk so much about that. But the the duty to serve. If we go back in time -- and again, this is my view of things. I think there's a lot going on here, so I'll preface it with that. If we go back in time, the GSEs a number of years ago, kind of prominently had aspects of duty to serve related to home-only lending, which they do not buy home-only loans. And then it just kind of quietly got less and less and went away.

And I think part of that was their regulator. FHFA was not interested in it. They were dealing with big issues around conservatorship and other things, and it's a small market. for those GSEs. Now in the last like a month or 2, I think FHFA has done a 180 and kind of looked at them and said, "You guys got to really look at doing these things. " I am really excited about where that might lead.

Now I don't have -- I'm not going to get overly optimistic because we've been through it before. But if we make real progress with the GSEs on them creating a secondary market for home only loans, I think that's a huge plus for the industry. And I've talked about that in Congress as well that that I talked earlier in answer to one of Dan's questions, I think about the folks at the lower horizon that are just trying to see if they can afford to own a home, improve the secondary market. You develop a secondary market through the GSEs for home-only loans.

And I think those lines become more affordable immediately. So I'm I'm like cautiously excited about that increased positive discussion. We're starting to hear the ruling we're starting here. And if that goes somewhere and they start to really take action on that. It will be -- I imagine it will be slow. They'll do pilot programs initially and all that to make sure they have data frankly, whatever because these loans are proven to be good loans, good investor risk for the coupon that's on these loans currently. So -- if they test it, they're going to find that, that's a market they should be operating in to support affordable housing.

So sorry for the ramp, you kind of trigger on something that I just frustrated it hasn't already happened. And we've seen 180 where they're now getting a little bit of pressure to look at this stuff again, and I think that's a great thing.

And our next question comes from the line of [ Jordan Mot ] from Philadelphia Financial.

I appreciate the long answer last time, by the way. I know of any stick built owner that's up 50% in backlog. I mean if they're up 5%, it's been a home run. So it's clearly showing the affordability gap. I have 2 questions. One is your operating margin reflects your current utilization.

But if you get a big increase in orders -- the first thing that's going to happen on is that the operating margin will go up to 12% to 15% because you're fill up the factories versus build new factories, correct? So is it an increase in volume have more than a direct flow through because the margins will increase?

Well, you get 2 things. One is you will get that spreading of fixed cost, which helps, right? I mean we -- we always tell folks that we strive to be as variable as possible in our cost structure, but there's certainly some fixed cost even at cost of goods sold line. So you definitely get that. The other thing you'll get is that -- it's kind of the other side of the coin about affordability.

But if plants start to be full, that means that retailers are looking for more homes because they know they can sell them. And that's when you start seeing pricing rise and more than covering maybe some of these operating costs. So really, that's 2 effects, I think, what you're pointing at.

But it's not unreasonable to think that there could be upside margin pressure if these backlogs come through?

Well, if they continue, right? I mean if we see there's a lot of scenarios. This is the uncertainty in the industry. If we see for whatever reason, we see orders now slow down a bit. We got a backlog. So we'll be able to run that for a period and maybe -- but in that scenario, it will come down over time, and we'll kind of be back to where we started.

If orders stay at the level they're at right now, the industry utilization is going to go up and the industry patient goes up, you're going to be in that different pricing scenario.

Second question is, there's different trials of HUD funding. And right now, your mortgages are 300 to 400 basis points higher than traditional stick-built homes. When does the first trial began? And how much do you think a 300 or 400 basis point improvement in cost would even further exacerbate that affordability difference for you guys?

Yes, it's clear. 300 or 400 basis points on land home is high, right? I mean the land home tends to run looking more about 0.5 to 1% higher than a stick-build land-home mortgage, so probably what you're looking at is the difference between a home-only loan.

Correct. Just the home-only low. Correct.

And those really don't move with mortgage rates. They're very sticky. -- and Art really is driven by like the 10-year as land home rates. And again, that's where we're talking. That's where I got on my soapbox a minute ago talking about the GSEs and what a big difference it would make. It's that home-only lending market where a lot of our customers are just barring against the home.

And if that comes down because the market becomes more efficient, then that really has a big impact on our market and folks' ability to afford homes, which I think is your question.

Correct. And when do you think the first trial could start in that? Because like I said, it's 300 to 400 basis points less on the home only.

Yes. I'm not sure that you're going to see home-only loan rates come down to being anywhere close to par with the land home because the loan values are smaller. And so there's some just fixed cost of origination and things like that, that will probably always have land home be a bit higher -- or I'm sorry, home only be a bit higher than a land home loan. And I can't even -- I would be probably foolish to guess when the GSEs might try to actually start buying loans.

I mean, we're going to talk to them as much as they want to talk, and we'll provide loans if that's what we have to do. But I can't even make an educated guess on when we might see some movement there because we've been disappointed in the past.

Okay. But it's a huge positive.

Yes, absolutely. The direction of the discussion in D.C. is what's exciting, right? We just have to keep feeding that.

[Operator Instructions] Our next question is a follow-up from the line of Jesse Lederman from Zelman.

I have a couple similarly related to the legislation, but more on the state level side, Bill, like you kind of talked about earlier, which seems really encouraging. We understand that a lot of the kind of reform on the state side specifies more similar zoning as for site-built single-family homes, but specifically for homes that are titled as real property on the MH side. So curious what you're hearing out of builder developers from your Rolodex in terms of what their appetite might be in some of those states. And if that's increasing relative to discussions you've had previously?

Yes, here's where I'm going to fight my tenancy to want to not overpromise and tell people about things that are on -- that are probably still out in time, but I will I will tell you your question that we have had an increase of discussions with land developers that historically we haven't had before. So I think that I think people are starting to show up to the story.

I don't know if I'm getting ahead of myself to set any expectations there. But you asked the question, and we've had some really good discussions with some folks that 2 years ago probably wouldn't have been interested.

That's awesome. Great to hear. And question on -- this is probably premature, but just curious for the removal of the permanent chassis requirement really just makes it optional. I'm curious if that introduces any inefficiencies at the factory. If you're going to have to -- one home is maybe going to be chassis less.

The other home is going to have a chassis like if you thought through kind of the logistics of actually adding essentially a new product line to all of your different factories.

Yes. It's -- I mean, factories had unique constraints, but I'm pretty optimistic about this for a couple of reasons. One, if you've got a factory that's making both HUD and modular, they already do it, right? So it's not a big technological leap for that factory. And a lot of it has to do, if a factory is constrained, it's due to some physical limitations in their factory.

The other thing I'll tell you is that one of the things we've invested in, in a lot of our projects in our plants is to instead of rolling the chassis in and building the floor on that and dragging that down the line, which kind of creates not as high quality from a level floor perspective. A lot of our project investments have been to build the home off the chassis and at the end of the line, raise it up and set it on to the chassis.

So any factory that's set up that way is in great shape to build this product because we'll just be picking it up and setting on a chassis won't forever be tied to. -- versus the next home coming down the line might be built to stay on that chassis. But we think that from a manufacturing perspective, we can adapt to this pretty readily.

Okay. Awesome. That's really interesting. Two more quick ones for me. On transportation costs, freight costs have increased as well. I'm curious to the extent to which that also flows through the COGS line and how material that is?

So we have seen increases in the transportation -- but I think they've been somewhat offset partially at least by improvements that we're making in services and that they flow both through. So it's kind of a net impact of what we want to see as far as our customer service, slightly offset by some of the cost of the transportation is having to us.

When you think -- what do you mean exactly when you talk about customer service?

Cost of service. So cost of our positions to go out and perform service requests to service.

Okay. That's helpful. And last one for me again. Really appreciate all the color. It's incredibly insightful. I've heard kind of mixed things on the removal of the chassis, if that's really going to strip costs out or if costs from perhaps the recycling of the steel from the chassis will just be replaced with the need to crane set homes or some other offsets. Curious what your math suggests on the potential cost removal from removing the chassis?

Our view is a little more on the conservative side. You offset the the cost of not bearing a big steel chassis in the home forever, you offset that cost with -- you're going to need a little more structural like wood, for example, for the structure because the chassis does provide some structural integrity -- when you get to the site to set the home instead of being able to kind of roll it in place, set it up and go, you're going to be looking at a lot more sets to require cranes.

So for us, we're not really viewing it as big of a cost savings element as we are viewing it as a product innovation element and something that's going to allow us to make products that we'll continue to break down those zoning barriers and get into urban areas and things like that. You'll have customers in.

We fully expect to still make a lot of homes on permanent chassis. You'll have customers that don't value that, and their set might be less expensive. So their total delivered cost might be lower with a permanent chassis and you'll have others that want to have their homes set very close to ground. They're going to invest in the foundation to do that.

They're okay with -- they're okay with the added setup costs. And so we're really going to have just an opportunity to sell to those types of customers. So we view it that way, Jesse, more than as a cost savings.

This does conclude the question-and-answer session of today's program. I'd like to hand the perk to Bill Boor, President and CEO, for any further remarks.

Yes. Thank you -- we feel good about our positioning. I think that hopefully, that's coming through. We feel like we're really well positioned. And I think that's because we've been very consistent in investing in our plants through the cycle. And I've alluded to during the Q&A, we've had a very methodical and committed execution of a long-term go-to-market strategy that I think is paying off for us.

So correctly predicting where the market is going to be even a couple of quarters out. It's really difficult. But instead, we just stayed steady and nimble, which is what I think is necessary and uncertain and sometimes volatile markets.

So we believe building a better company and bringing better solutions to the affordability crisis is what creates value over time, and that's where our focus remains, really thank all of you for joining us and for your interest in Cavco, and we look forward to keeping you updated. Thank you.

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

Thank you for standing by, and welcome to the Cavco Industries Fourth Quarter 2026 Earnings Call and Webcast. [Operator Instructions] As a reminder, today's program is being recorded.

And now I'd like to introduce your host for today's program, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead, sir.

Good day, and thank you for joining us for Cavco Industries' Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, 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. Forward-looking statements include statements about our future and expected business and financial performance and are not promises or guarantees of future performance. They are expectations or assumptions about Cavco'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 Cavco'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 Cavco. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, May 22, 2026. Cavco undertakes no obligation to revise or update any forward-looking statements, 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 Boor, President and Chief Executive Officer. Bill?

Welcome, and thank you for joining us today to review our fourth quarter results for fiscal 2026. I want to take a few minutes to talk about the fiscal year, and then we'll get into the fourth quarter discussion. The headline is that in a year in which total industry HUD shipments were down slightly, we hit an all-time high of 20,842 homes shipped. Operating income was up 14%, excluding a $10 million noncash write-off last year. In the broader picture, our peak-to-peak ability to deliver homes is up significantly due to the continuous improvement in our plants, the major plant modernization projects we've completed in recent years and the acquisition of American Homestar. And as I'll touch on in a moment, this time last year, our backlogs were declining going into Q1, while this year, they're increasing.

In fiscal '26, we also continued a multiyear strategy to transform how we go to market. We built on our unified branding under the Cavco name by rolling out our nationwide product line framework in Q4, which makes it much easier for potential buyers to shop our homes and for our dealer partners to help those customers find the homes that best fit their needs. We believe these advancements that began several years ago with a redesign of digital marketing have significantly improved our position and will contribute to market share growth in an industry we also expect to be growing in the coming years.

Turning to the quarter. Sequential revenue was down 5% and operating income was down 6%. However, both were up compared to last year by 8% and 33%, respectively. Again, last year's quarter had a $10 million intangible write-down. So excluding that, this year, the quarter operating profit was up about 6% year-over-year.

While Q4 weather is expected to be challenging across the Northern U.S., this quarter got off to a slow start with unusual weather across the southern states. We lost production days and market time in January and early February. Our capacity utilization for the quarter was approximately 70%, and our production pace was generally in balance with orders through most of the quarter. We then saw a large pickup in wholesale orders in March, which expanded backlog late in the quarter. The order pickup was big enough that we finished the quarter with almost 25% more floors in the backlog than when we started it. And we finished with 5 to 7 weeks of backlog, which, again, was growing as we closed out the quarter.

Average selling price was down about 2% sequentially. If we break that apart, our company-owned retail sales were healthy, but down from a very strong third quarter. This decrease in the percentage of our integrated sales, coupled with a mix shift towards single-section homes, accounted for the sequential ASP drop. Product pricing was essentially flat.

We feel good about what we're seeing with retail traffic, wholesale orders and backlog growth. The combination of these 3 positive signals gives us the opportunity to push some production where lower backlogs had been holding our plants back.

Touching on American Homestar. We're through a lot of the operational integration, with most of the work ahead focused on systems integration. As we reported last quarter, our internal view of tangible cost synergies had increased from our deal assumptions and was in excess of $10 million annually. That view still holds, and in Q4, we were already very close to that pace. We still see more opportunity ahead to exceed $10 million, mostly in SG&A and additional purchasing savings.

In Financial Services, both the lending and insurance operations contributed to another strong quarter. We reached a new agreement with a purchaser of home-only loans that allowed us to ramp up originations and sell some loans off the balance sheet. The investor agreement will enable us to continue ramping loan originations and sales going forward. In insurance, we had continued strong results from a combination of underwriting changes we've talked about in previous quarters and continued favorable claims experience.

Now shifting back to manufacturing. I want to touch on the press release we issued Wednesday evening announcing that we broke ground on a new plant in the fourth quarter. This decision is part of an overall Southwest operations strategy to create growth and optionality in the region. It will be a high-capacity, state-of-the-art plant here in the Phoenix area with 1 line initially and the infrastructure in place for a second line in the future.

We have been very consistent in our strong conviction about the growing role of factory-built housing in meeting the supply needs of the nation and in our capital allocation approach. We're confident this is a solid investment that will enable us to expand our selling area in the Southwest. We're expecting the Cavco El Mirage plant to be operational in mid-calendar year 2027.

Continuing on the topic of capital allocation, strong cash generated by operations enabled us to deploy over $360 million in the fiscal year. We continued our share repurchases during the quarter with another $30 million used to buy back company stock. For the year, we completed $160 million of share repurchases. We also invested $173 million to acquire American Homestar and an additional $35 million to expand and modernize our existing plants. And we finished the year with a healthy unrestricted cash balance of $237 million.

Finally, I want to comment briefly on the legislation passed by the House this week by a 396 to 13 vote. The prominence of American housing in the bill demonstrates the bipartisan awareness of the critical role our homes need to play in resolving the housing supply crisis. Various parts of the bill enable product innovation, reduce regulatory confusion, improve consumer and commercial funding availability and encourage zoning improvement. I feel I've had a front row seat to watch this work develop over the last several years, and I want to acknowledge our industry association leaders at MHI who worked over a long period of time. First, to increase awareness of our solutions in D.C., and then ensure the legislation itself protected and enhanced the industry's ability to make more homes.

As you'd expect, there were potential traps in the process, and the folks at MHI were masterful working through it all. It's expected that this bill will be approved by the Senate, and the White House has already issued a statement of support. The benefits will take time to fully develop, but they are real and they will be impactful.

Now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the fourth fiscal quarter of 2026 was $550.1 million, up 8.2% compared to $508.4 million during the prior year period. Sequentially, net revenues decreased $30.9 million, driven by a decrease in both units sold and average revenue per home sold.

Within the Factory-Built Housing segment, net revenue was $528 million, up $40.2 million or 8.2% from $487.9 million in the prior year quarter. The increase was primarily due to the addition of American Homestar and the 7.8% in legacy average revenue per home sold, partially offset by an 8.9% decrease in legacy home units sold. The increase in legacy average revenue per home was primarily due to a higher proportion of homes sold through our company-owned stores, product pricing increases and more multi-wides in the mix.

Financial Services segment, net revenue was $22.1 million, up $1.6 million or 7.7% from $20.5 million in the prior year quarter. An increase were due to greater loan sales after securing a long-term investor agreement, and to a lesser extent, the addition of American Homestar Financial Services. Consolidated gross margins in the fourth fiscal quarter as a percentage of net revenue was 23.1%, up from 22.8% in the same period last year.

In the Factory-Built Housing segment, the gross profit was 21.2% in Q4 of 2026, down from 22.3% in Q4 of 2025. The reduction is due to higher cost per unit sold. Financial Services gross margin as a percentage of revenue increased to 69.4% in Q4 of 2026 from 36.8% in Q4 of 2025. This increase is primarily due to the growing impact of rate increases and underwriting changes on policies, in addition to higher loan sales.

Selling, general and administrative expenses in the fourth quarter were $75.6 million or 13.7% of net revenue compared to $77.5 million or 15.2% of net revenue during the same quarter last year. The decrease in these expenses was primarily due to the $10 million write-off of trade name values as part of the rebranding project in the prior year, partially offset by the addition of American Homestar. Interest income for the fourth quarter was $3.2 million, down from $4.5 million in the prior year quarter, resulting from lower cash balances after the purchase of American Homestar.

Pretax profit was up 27.1% this quarter to $54.6 million from $42.9 million for the prior year period. The effective income tax rate was 22.2% for the fourth fiscal quarter compared to 15.4% in the same period of the prior year. The increase in the effective tax rate was primarily driven by lower tax credits and reduced stock-based compensation benefit related to the prior year quarter. As a reminder, we've benefited from Energy Star tax credit program. The IRS code has eliminated these credits effective June 30, 2026, and as a result, we will not benefit from these credits in the future. Net income was $42.5 million compared to $36.3 million in the same quarter of the prior year. And diluted earnings per share this quarter was $5.42 versus $4.47 in last year's fourth quarter.

Before we discuss the balance sheet, I'd like to take a minute to talk about capital allocation. During the quarter, we repurchased $30 million of common shares under our Board-authorized share repurchase program. In addition, the Board of Directors recently extended the authorization by an additional $150 million, reflecting confidence in our strong cash generation, leaving approximately $218 million under authorization for future repurchases. Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, purchasing additional acquisitions, and consistently assessing opportunities within our lending operations. Share buybacks will then serve as a mechanism to prudently manage our balance sheet after considering these initiatives.

Now I'll turn it over to Paul to discuss the balance sheet.

Thank you, Allison. In the quarter, cash and restricted cash increased $15.1 million, bringing our balance to $257.6 million. Operating cash flow provided $67.4 million, consisting of $50.2 million in net income and noncash adjustments and $17.2 million from working capital. Investing activities used $22.6 million primarily for plant capital expenditures, while financing activities used $30 million, driven by share repurchases.

When we compare the March 28, 2026 balance sheet to March 29, 2025, several of the balances increased from the addition of American Homestar, including inventories, property, plant and equipment, goodwill and intangibles, accrued liabilities and deferred income taxes. The decrease in short-term consumer loans receivable is due to the increase in loan sales after securing a long-term agreement to sell loans to a third-party investor.

Long-term investments increased from more fixed income and equity holdings at the insurance subsidiary. Legacy accrued expenses and other current liabilities increased from higher customer deposits and volume rebate and warranty accruals, which were partially offset by lower insurance loss reserves. Treasury stock increased through the stock buybacks executed in the period.

With that, I'll turn it back to Bill.

Good. Thank you, Paul. I want to take a minute before going to Q&A to talk about operating excellence. In manufacturing, that shows itself in volume, certainly, but a great indicator of the quality of an operation is the safety culture and results. Our recordable injury rate has improved each of the last 5 years. Over that period, we reduced our injury rate 65%. And while we started above the industry benchmark, we've been well below it each of the last 4 years.

Yes, I bring this up partly because in addition to investors, our employees sometimes tune into these calls, and I really want to acknowledge the focus they've brought to this priority and their important accomplishments. But I also bring it up for the external audience to understand that these types of safety improvements are indicative of the focus we have on executing the fundamentals with excellence. I'm as proud of these safety results as anything else we've accomplished over the past several years.

I could cite examples of operational process improvement across all our operations, from retail's intense focus on training, to the work that insurance has done to rethink their operation that's led to significantly improved results, to the work in CountryPlace to source new investors and improve our customer-facing systems. Periodically, I think it's important to highlight examples like these that say something about the real improvement over extended periods of time that can be overlooked in our quarterly cadence. These are examples of that intense focus on day in and day out process execution and how that leads to the outcome of improving business results over time.

So Jonathan, I guess with that, why don't we go ahead and open it up for questions.

Certainly. And our first question for today comes from the line of Daniel Moore from CJS Securities.

Yes. Bill, Allison, Paul, thanks for the color. Maybe just talk about the sequential improvement we saw in March and whether that held true into April and thus far in May in terms of traffic, order rate sequentially? And then where are you seeing the most improvement from a geographic perspective and where there may be some areas that are still a little bit sluggish?

Yes, I'll take an initial stab at that. The -- yes, it really was a quarter where -- we always talked in the third quarter call about being anxious to see how the spring selling season shapes up. And January and February, I wouldn't necessarily say they were slow, but they weren't showing a significant pickup. And then it just kind of came in March. And so we felt that was a real positive. It was a significant jump up. And to be honest, it occurred across the board in every region. Some of the stronger results, but this is all relative, it was pretty noticeable literally in every region that we track. Some of the strongest results, if you differentiate, were in the Northwest, the Southwest and Texas.

But again, I wouldn't take anything away from the significant uptick that we saw in the other regions. Dan, can you -- I know I didn't address all your questions. Can you remind me your other question?

Yes. Just into April and thus far in May, whether you're seeing steady from March, continued improvement across those markets? What are we seeing sequentially?

Yes. Yes. It's kind of -- as you guys know, we don't like to get too far into forward or into the current quarter, but this quarter comes -- the earnings announcement comes kind of late, so it's fair to give a little bit of an indication of how this quarter is shaping up. So I'll continue on that discussion that April order rates stayed up at that relatively, in that March level. And I guess, one of the best indicators of continued strength is that, I'm looking at our backlog weeks in all of our regions, and each one of those showed an improvement in backlog through April.

So we did see it. It wasn't just a blip, we did see it pick up. May, we're still in the middle of -- I can tell you, we talked about the spring selling season in retail, which is kind of the lead, right? You get a sale in retail, and that causes a wholesale order that eventually gets built. Retail, typically hitting into May, you'll see a little bit of a slowdown as people are focused on other things. But I haven't really looked that closely at how May is going to come out in total, and I haven't sensed that we feel like something really died off from the pace that we're seeing in March and April.

So all seem to be pretty positive indicators. And I'm going to -- I want to temper those comments as I think I always should, and you guys know this. It's still an uncertain environment out there, but what we saw in March and April and orders and backlog growth were pretty encouraging.

Super helpful. And as that ties into production, it sounds like in your prepared remarks, that gave you confidence to pick up production rates a bit as we move into fiscal Q1? Just want to make sure I'm hearing that correctly and whether or not you expect to see some level of increase in shipments sequentially, Q1 versus Q4?

Yes. As you guys know, when we talk about backlog in aggregate, it's kind of the average of a system that has a lot of plants in different markets, in different stages of the cycle. And we've been in that mode for quite a while, where we've had some plants that have had plenty of backlog for quite a while, and so they've been running at a pretty high level. And we've had other plants across the country that have had to hold it back a little bit because of low backlogs.

With this across-the-board improvement in backlogs in general, I think it does give us the ability for some of those plants that have been riding the break a little bit to let it go. So yes, I do expect us to increase. We're not in business to see our backlogs to get to extraordinarily high levels. We like the range that they're in now in total, and we want to be producing at that level of orders.

Really helpful. And maybe one more, and I'll jump back in queue. Can you talk about what you're expecting or seeing from 232 tariffs? And then just more generally, expectations for gross margins, particularly in Factory-Built Housing of -- basically Q1 and the next quarter or 2 relative to the 21.2% I think we did in fiscal Q4?

Yes. Thanks for that. It gives us a chance really to talk about the impact of tariffs, which we -- consistent with our comments last quarter, we know it's having an upward impact on our COGS. It's really difficult to precisely estimate the amount of the impact. But I would say that the impact this quarter is very much consistent with last quarter.

Really, the reason for the challenge is simply the suppliers' ability to pass through tariffs is tightly tied to the function of the level of demand for their products. So the demand for lumber or steel starts to heat up, we're likely going to see a more fulsome impact from tariffs. And if we just think about how that relates into margins, as we've said in the past, it's difficult to project forward on margins. But indeed, a key component that does impact our margins is the cost of these commodities. And primarily that's lumber, that's OSB.

And for the last several quarters, we've been benefiting from pretty low and I'd call it, stable lumber and OSB prices. But recently, we have seen lumber started to tick up. And as we all watch the indexes for both lumber and OSB commodities, where really we can expect any changes that we do see to roll through our COGS, cost of goods about 60 days later, I think important development is that we're expecting a pretty negative impact from steel producers who are starting to really announce price increases and stringent allocation limitations.

Just as a balancing factor, right, our margins are also dependent upon pricing. And it's been a good fact pattern to see overall product price somewhat stabilized during the last 2 quarters. But we are in a position at this point to really call that a trend as it certainly varies as we've talked about, pricing can vary by geographical location.

And then just to tie in some of Bill's comments on financial services, our margins also depend on the activity in our Financial Services segment, and most notably, our insurance division. And we certainly have seen strong Financial Services margins in the recent quarters that have helped lift our consolidated gross margins. So just kind of summarizing that, we certainly do acknowledge that the higher material input costs are expected and will pressure our margins. We're going to continue to stay very focused on maintaining our low fixed cost and being able to flex our variable cost with the increase in production. So hopefully, that helps a bit.

Thank you, Allison, and I'll jump back with any follow-ups. Appreciate it.

And our next question comes from the line of Greg Palm from Craig-Hallum.

Yes. I wanted to go back and maybe go over the demand environment a little bit more. Spring, seasonality-wise, usually you see some improvement. So I guess I'm curious, was it better than you expected? Like can you just help maybe characterize kind of what you saw in March and April versus what you'd normally see in, call it, a normal year?

Yes. I think when we look at just on the wholesale side, I think January is usually the slow month coming out of the holidays. Nothing surprising there. And we did get nailed across the South. I mean, no one likes to talk about weather in these calls in any context, but we lost production in some plants, and no one was out buying homes for a little while in kind of the late January, early February time frame.

So living through that, it wasn't surprised -- surprising to see kind of orders at the level they were. And in a way -- and I'm not sure this is the right characterization. In a way, I feel like we got a pretty good spring, it just showed up really late in the order numbers. And so seeing March increase the way it did, it just looked to me like a little bit of a delayed spring, but a pretty solid one.

And like I said a minute ago, it kind of all starts in retail. And when retail starts selling homes, they start placing orders. And with that stuff happening late in the quarter, that's why you saw -- for us, you saw more of a backlog increase than necessarily a shipped volume increase. But yes, I mean, Greg, I think to kind of be more concise than that wordy answer, I would say that we felt pretty good about it by the time the quarter ended and as we flowed into April.

Yes. Okay. That's fair color. And then in terms of -- you talked about geographic mix. What did you see across like the community channel relative to what you saw or what you're seeing across kind of retail right now?

Yes, I appreciate that because I didn't think to comment on it in the prepared remarks. But trying to tie back the discussions we had last quarter, right, Greg, last quarter, we told folks that communities were down a little bit for us. But I also tried to emphasize that when you look quarter-to-quarter at community volume, it can be bouncy even when nothing in particular is really going on that's noteworthy.

So to follow up that comment last quarter, this quarter, we saw communities bounce back up. So I think it helped just to confirm that Q3 wasn't a trend. There wasn't something wrong in the community channel, and we saw it bounce back pretty healthily this past quarter. So when you got flattish volume, what does that mean about the channels? Some of the offsetting drop was in the dealer channel this time. And that, again, I wouldn't tell -- we're kind of reporting the facts, but I wouldn't tell people that we note anything that's really necessarily wrong in the dealer channel.

I think that those late orders, a lot of those were coming through that dealer channel. And so I think we'll just see this as kind of normal variation within the channels. So communities bounced back a bit. I expect retail will because they were the source of a lot of our orders.

Okay. Understood. And then last one, you kind of alluded to the regulatory stuff, ROAD to Housing Act. And -- help us understand the timeline of some of these perceived benefits that you might see? And I don't know if there's a way for you to kind of rank order what you're focused on the most, but just curious to get your thoughts there?

Yes. That's a good challenge to do that. You're on the fly. Yes. I think a lot has been talked about the permanent chassis removal. We're going to -- I'll tell you one thing about the permanent chassis, which I was happy to see. When we talk to the dealers or internal and external, I was actually a bit surprised when this chassis discussion started, how many of our retail folks were really kind of positive and excited about the prospect.

So we're in good shape. I mean, when you make a modular home, you're generally making it a removable chassis. And so our factories that do modular kind of from an engineering and factory perspective are in a position to make HUD code homes without a chassis as soon as that law gets changed, the wording gets changed in the definition. And as I said before, as soon as states kind of conform to it.

So it will take a little bit of time. And I think -- excuse my cough. I think we'll probably be talking about it every quarter because it's interesting and it's a future opportunity. But it will kind of layer in over time. And I think it's going to be significant in the long term. The zoning, different things can happen at the federal state and local level as far as what can be done to help the supply of factory-built housing, and the federal has gotten the message. I mean, when I talk to folks in D.C., they're very aware of the zoning challenges, but those decisions largely get made at the local level. This legislation has some aspects to it that talk about providing kind of carrots in the form of funding for municipalities that enable or take down zoning barriers. That's the battle we've been waging for years and years.

So how much that takes root will be interesting to watch. But I think we talked about it last quarter that some states are chiming in on this as well. We've got some legislation coming. It's already been passed in both Texas and Kentucky in particular that kind of even the playing field, take away the discriminatory barriers to Factory-Built Housing. So I think that's a pretty prominent one that maybe will take a little longer just because -- I've learned not to be too optimistic about zoning solutions, but I think we're pushing in the right direction.

The primacy of the HUD -- of HUD as our primary regulator, that's a little bit probably less about volume, although it will help keep bad regulations that cause the cost of our homes to go up, it will keep that at bay. And we'll be able to work with HUD to improve the houses over time in ways that are cost efficient. So that's a little bit less about volume, I guess, but a really important aspect of the overall law.

And then the other one I'd touch on, which I've always kind of harped on in D.C. whenever I get it at anyone's ear is they're pushing for FHA Title I financing, which is home-only financing to -- I'll use the term modernize their programs. There's almost no loans done for home-only purchases through FHA programs. And that's just flat out not right. And so the law is pushing FHA to modernize things like their loan limits, eligibility and things like that.

That's real funding availability, cost of funding improvement for our customers, which is critical. So I'm not sure I really prioritize them, and I'm not sure if I gave a sense of timing. I think these things do take time, but I'm also very -- I think they're huge improvements. I think there are things that over time are going to make a real difference.

All right.

Yes. As you're jumping off, one other thing I think I will touch on is people have heard a lot about the institutional investor ban, and a lot of that's around the build-to-rent or purchase-to-rent model that a lot institutional investors have been doing. Probably a topic for a separate discussion at some point if we wanted to sit around and just talk about opinions about whether that's useful or not. I'll stay out of that space.

But it was a real threat to -- like unwittingly, it was a real threat to the home or the community ownership model that's been so successful for manufactured housing over time, the land lease communities. Because as you can imagine, if they got defined as an institutional investor, they wouldn't be buying homes. And again, giving a lot of credit to MHI, we got an exemption, a clear exemption from any institutional investor ban on the purchase of homes for manufactured housing, which is just gigantic. I mean, that averted a real mess. So wanted to throw that in as well because that's been really important here.

And our next question comes from the line of Jesse Lederman from Zelman & Associates.

Bill, I'd love to talk a little bit more about the El Mirage project. Obviously, pretty groundbreaking, no pun intended, building some more capacity here. To start the call, you kind of talked about the peak-to-peak capacity relative to entering the year is already a bit higher. So like layering that in, plus you're at 70% capacity, nationally, now. Like, why do you feel like adding new capacity and adding a new factory is a good use of funds? And what are the demand assumptions that support needing the additional capacity in that area?

Yes. That's -- I mean, it's a very fair and good question, Jesse. We -- I'll start by saying this, we are very -- in my opinion, we look at investments, whether they're plant modernization projects or acquisitions or something as significant as a new plant like this. We look at them in a very -- with a lot of scrutiny. We're very focused on whether we believe we can get an appropriate return for the risk and making sure that we're investing above the cost of capital. So you'll have to take it on faith, but you can rest assured that we believe this is a return project.

Now it's -- we don't make a project decision like this that won't start up for over another year and will be a very long-lived asset. It will be in the system for decades. We don't make that based on how we're feeling about this quarter or what the last year looked like as far as demand. And I won't -- I'll say this because I think it's the best summary, but I don't mean to imply it as simple. We made this decision because there's a 4 million to 6 million housing unit deficit in the country, and we think factory-built housing is a solution. So if this industry gets to whatever full capacity is because we start to unleash that demand, this industry won't have enough capacity to meet that opportunity and that need.

So I think we're going to need greenfield capacity. And I'm clearly thinking longer term than this quarterly call. And it was with that strategic conviction that we took this on. It's going to give us some optionality in the region. We look at it not on a single plant with blinders. We look at it in perspective to the other plants we've got in the region and we look at our market opportunities. Frankly, in Arizona, historically, if you look through time, we've limited our selling area because we didn't want to generate long-term dealer relationships in further away markets like up into Colorado and places like that if we couldn't continue to supply those folks when the market was strong.

And so we've kind of self-limited a little bit in the Southwest over time. And one of the opportunities this is going to open up for us is to actually push into some of these geographies with some distribution. So I hope that helps give kind of a flavor at least how we're thinking about it. I understand, and I think it's a very fair question about how do you pull the trigger on new capacity when you've been under full capacity for a while. And again, my most simple answer is 4 million to 6 million unit housing deficit.

Yes. That's a great response, Bill. I appreciate that. It's a long-term decision that you made, and it's helpful to understand that even in the near term, you think there's some demand in areas around the region where you're already operating that can be unlocked.

Not sure if these next couple are for you or Allison, but kind of want to understand, one, the investment in the facility overall, if you're willing to share? And then two, how the -- like the margin drag on the P&L kind of as you're ramping up the facility to capacity, how we should think about the timing of that maybe in calendar '27 and beyond, kind of what that looks like and how to think through that?

I think that -- let's address the margin because as we bring on an additional line consistently, we will ramp that lineup. But it's going to be one line of multiple lines that we have. So we obviously would scale the plant in total, right? So we scale -- we would scale the direct labor, we would scale the support. So I wouldn't anticipate that bringing on additional capacity in our network and the way that we're able to monitor it very closely with KPIs would create any kind of a noticeable drag.

Obviously, there will be a ramp-up period as there always is implants. But we're so skilled at doing this and focusing on just the core manufacturing key indicators and metrics that we'll do it in a major fashion. It's something that we've done before. It's something that we've proven we can do. So we're actually pretty excited about it, and we have plenty of time to plan for it as it comes online in a very methodical manner.

I think that's a good point that -- I was going to say maybe not to scale, but I'm not even sure that's true. Over the last several years, they weren't complete greenfields, but we brought -- Glendale was a completely new plan. I mean, why I say it wasn't a complete greenfield, we bought a building that was already -- the walls were up, but it had never been used for any other purpose, and we found it and saw that we could use it for park models. And so we essentially either greenfield at Glendale a few years ago.

And similarly, the Hamlet deal, which was kind of half acquisition, half greenfield, we bought a plant that was being used to make volumetrics. So like the multiunit 5-story hotel, apartment-type construction, and we bought that and retooled it. So in a way, that was bringing new volume into the manufactured housing single-family industry. So we do have a couple of examples in the last 4 or 5 years where we brought this stuff on. And I think we've been pretty successful even -- and we're not betting all the time that the market is going to be flat out, make everything you can make. So a lot of analysis, a lot of scenario planning, a lot of making sure that we were comfortable we could get an acceptable return and grow the market.

[Operator Instructions] Our next question is a follow-up from the line of Daniel Moore from CJS Securities.

Just one or two more. One of your Texas-based competitors recently cited, pretty interesting incremental demand in that market for workforce housing related to both the data center build-out as well as energy. I'm wondering what you're seeing or expect to see as it relates to that in Texas, which is a considerable market for you?

Yes. I don't have the benefit of exactly what they said, but I would probably echo the statements. We have seen some market opportunities, particularly around energy. So yes, I think -- and I do -- I made my comments earlier when asked about regions that Texas was one of the areas that we have seen orders kind of pick up relative to even other healthy regions.

Helpful. And one more. Just -- I mean, can you expand on, as it relates to the agreement with the new third-party lender? How should we think about that enhancing the trajectory or margin opportunity in Financial Services? And any specifics around -- I assume you're -- there's quarterly or annual specified amounts of loans that you're supposed to generate. I don't know what you're willing to share there, but maybe it could be helpful.

Yes.

Yes, I'll take this. So the forward flow agreement includes a minimum commitment of approximately $25 million of originated loans per quarter over a 2-year period. Then if we talk about it from an economic standpoint, it's consistent with our existing gain on sale transactions. So we're not really seeing a material change in our margin profile. I think strategically, we're looking at this more as increasing our lending capacity in a capital-efficient manner rather than really a marked margin expansion.

I'll just try to echo and follow on to those comments that I believe, over time, we've talked with folks that in our capital allocation, we are willing within -- we're not talking about changing our balance sheet to be a lender, but we are willing at times when there's no buyers of our loans to use some of our balance sheet to originate loans and hold them on the balance sheet.

And we did a little bit of that. I think it got up -- I'll look around the table to confirm my number -- into the mid- to high 30s of loans that we have on our balance sheet. And we did that with a belief that one, at some point in time, we're going to find investors that are going to be interested in those loans. And two, if we don't, we originate good loans, and that's not a bad plan B.

But our plan A is always to originate loans for other investors. And I'll tell you the folks at CountryPlace, these are not simple short discussions to get these in place. They did a really good job working with this investor to develop a partnership basically. And that gives us the certainty now to increase our originations, and to Paul's point, even more capital-efficient because we'll originate loans and we'll be selling them off. So the pace of activity in CountryPlace will go up, but the balance sheet won't grow accordingly. So this is kind of what we had planned and hoped for when we did some loans onto our own balance sheet over the last couple of years.

And our next question comes from the line of Ian Lapey from Gabelli Funds.

Congratulations on a good quarter and year. It's been about a year since the brand realignment. Can you just talk about how you think that's gone so far?

Yes, I think it's gone really well. We should probably do a poll of independent dealers and even our internal salespeople. But I think it has gone very well, rebranding all of our plants under Cavco. It's created so much more opportunity for us to market kind of more across regions.

And then it's kind of this progression that again, I could talk all day about, but this progression we've had of digital marketing to get everything under the same brand. And then we did this product line work this year, which we just kind of unveiled in Q4, which takes all the products that any one of our factories makes, and they can be -- based on their characteristics, put within one of these product lines.

So it's really interesting, in my opinion, what we've done, and I'm excited about it that we're not telling our plants to make different products. We expect our plants to make products that are good for their local market. But now we're putting an umbrella structure on. And so our marketing team can market on a broader base, a given product line, and we know our customers can then shop the product line that makes most sense for them and find homes in their area that fit within that product line.

So it's -- the branding has been a critical part of getting to this point. And I think the acceptance -- one of the things you know you're going to have to manage through when you rebrand like that is -- and I'll just use this as a glaring example -- the independent dealers that we've had relationships with for decades have been used to selling whatever it is, Fleetwood Homes or Palm Harbor Homes. To them, that's their partnership. And we ask them to shift their mindset to selling Cavco homes.

And it took some conversation, but I think people have gotten it. They've seen the value in it. And I believe that most of those folks, if not the vast majority of those folks, in my opinion, get it now and they're happy with the change.

Okay. Great. And then on the CountryPlace investor agreement, are these only your homes? Are they only at your retailers? Are they at independent retailers? Oh, sorry.

No, go ahead, I interrupted you.

The other part was, is the investor ultimately planning to securitize these? Or do you know?

Yes, they are not solely for Cavco-produced homes. CountryPlace, like most lenders, I think, in the business, CountryPlace will lend on various manufacturers. Their relationship is really more with the dealer or the community operator to give another opportunity, another option for the lender or for the source of the loan for their customers. So it's not exclusive to Cavco.

We do at times, and we've done this particularly within our owned retail. We do, at times, do special programs focused on Cavco homes, but they'll lend to any manufacturer. And so the buyer of these loans is not solely getting loans on Cavco homes.

And as far as their plants, probably out of my zone to comment and speculate. I mean, the source of some of this money -- and we've seen this over time in the lending business. The source is really insurance company money that they're managing. And so my understanding, my expectation is they're going to portfolio those loans for the most part. And I guess you could envision a scenario where a buyer of manufactured homes gets enough that they want to do a securitization.

But at our pace that we're talking about $25 million a month or a quarter, you need to get up to, call it, $200 million of a portfolio to have an efficient securitization. So it's certainly not a near-term plan that they would be securitized, in my opinion. In my opinion.

Yes. And then last one, what are you expecting for CapEx this fiscal year? And I don't think you said how much the new plant would cost. I imagine that will be a big chunk of the CapEx this year.

Yes. We're not going to go down into any plant-specific information, including the capital in the project. But your question -- and you can correct me if I'm wrong -- your question might be around sustaining capital? Or do you want to know more broadly, our estimate, including projects?

Yes. I mean, I think CapEx was $35 million in this fiscal year and so curious [indiscernible] the next year?

Maybe the way for us to handle that and you guys might have the numbers specifically to separate sustaining from plant modernization investments.

Yes, I think the way that we thought of it before -- and you're right, around the $35 million. When you -- I use a gauge capital investment, when you look at the all-in depreciation rate, and because we're in a growth scenario, we're investing about $10 million in addition to what's being depreciated off every year. So that gets to your $35 million number.

And then as Bill mentioned, the amount that we're investing in El Mirage, I'm not going to comment specifically. But clearly, it's right down the fairway of our strategic capital allocation. We're investing in our plants and in our organic growth. So I think the good news here is that we continue to find investment opportunities for our cash that have a pretty strong IRR hurdle.

Just to put an exclamation point on that. One of the things we look at in the new investment, including El Mirage -- and it's not how we make it. We don't make the decision simplistically, but we look at the capital spending per capacity unit as just a check, and El Mirage is kind of right in the zone where we've done acquisitions and plant modernizations and other projects. So it's kind of a nice verification that we're feeling right about the return.

But I think dividing -- and you might have basically said this. I think dividing the $35 million, it includes both sustaining capital and plant modernization, which we've been doing a good bit over the last several years. And I guess -- I'm trying to make sure I understand. I guess your comment is that our depreciation is about our sustaining capital.

Right, plus some amount for growth, as you would expect in our kind of where we are in a business model.

So $35 million clearly isn't just sustaining capital. That had some serious projects in.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Bill Boor for any further remarks.

All right. Thanks, Jonathan. I'll just say a word or two here. As every CEO probably in every earnings call the last couple of years has said, uncertainty still feels like it's pretty high with our macro backdrop. We need to be focused on reacting quickly to changing conditions rather than locking in on any prediction. And that's kind of how we run the business. Even in the near term, we've got to be ready to turn and go a different direction.

I think that nimbleness is where our teams have really shown -- they really excelled over time. But against that continuing uncertainty for the moment, it's nice to see orders up, and backlogs allow us to lean in on throughput. We're intent on setting more shipment records in the future. I mean, I started off by talking about hitting an all-time high for a fiscal year, and hopefully, we'll have many more records in the future in that regard. And that means we're making a bigger dent in the country's unmet need for quality affordable homes.

So I really want to thank everyone for joining us and for your interest in Cavco, and we look forward to keeping you updated.

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

Good day, and thank you for standing by. Welcome to the Third Quarter Fiscal Year 2026 Cavco Industries, Inc. Earnings Call Webcast. [Operator Instructions] 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 Fusler, Corporate Controller and Investor Relations. Please go ahead.

Good day, and thank you for joining us for Cavco Industries Third Quarter Fiscal Year 2026 Earnings Conference Call. During this call, we hear from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, 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. Forward-looking statements include statements about our future or expected business and financial performance and are not promises or guarantees of future performance.

They are expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies and current or future volatility in the credit markets or future market conditions.

All forward-looking statements involve risks and uncertainties, which could affect Cavco'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 Cavco.

For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, January 30, 2026. Cavco undertakes no obligation to revise or update any forward-looking statements 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 Boor, President and Head Executive Officer. Bill?

Thanks, Martin. Welcome, and thank you for joining us today for our third quarter results for fiscal 2026. There are a lot of moving parts in our Q3 results, mostly due to the closing of the American HomeStar deal and its impact on the quarter. Later in my comments, I'll discuss the integration activities and our solidifying view of the deal synergies.

But I'd like to start by framing the discussion that Allison and Paul will fill in around the profit and EPS results. The year-over-year EPS decrease is best dissected starting from the bottom of the income statement. Our tax rate was considerably higher than a year ago, partly due to declining tax credits from the phasing out of the ENERGY STAR program and partly due to nondeductible deal costs.

Moving up the P&L to SG&A. The increase this quarter was mainly the result of bringing American HomeStar overhead costs into the company and the aforementioned onetime transaction costs. These SG&A and tax rate items represent a considerable part of the year-over-year EPS difference but not all of it.

So now let's get into the underlying business environment and results. Based on HUD shipment data, industry shipments slowed in October and November, those 2 months were down 13% from the calendar 2024 period. We don't yet have the December data point to round out the quarter. We were not immune to the overall decrease.

Excluding the volume pickup we got from American Home Star our volume was down about 4% compared to last year and 6% sequentially. From an operational perspective, we took some additional down days around the holidays where it made sense. But we deliberately maintained our daily production rate or floors per day so that we could stay positioned for opportunities in the spring selling season.

While we're all looking to see how orders shape up in the weeks ahead, the bias in our plants generally is to hold pace and go up from here whenever orders and backlogs allow. As part of staying poised for market opportunities, we utilized about a week of overall backlog similar to what we did last year in the third quarter, and we finished this quarter in the 4 to 6 weeks range.

Early indications are that backlogs are stable and could increase or if we pick up production pace be maintained at this level heading into the spring. Last quarter, I referenced some relative slowdown in the Southeast region of the country compared to other regions. I said at the time that we didn't see any systemic reason for the variation and sure enough the Southeast stabilized and saw higher volume in Q3 versus Q2, while most all of the other regions had declining shipments.

Regarding channels, communities represented most of the reduced volume we experienced retailers remained steady quarter-to-quarter. A positive indicator of underlying demand continues to be average selling price, which grew sequentially despite the volume drop off.

After considering the impacts of product mix and retail integration, both of which pushed average selling price up. single section home prices were roughly flat and multi-section pricing was up. We have seen the trend toward multi-section homes for a while now, both in the HUD DATA and our results. It's difficult to pinpoint any one reason. However, it seems fair to conclude the affordability at the lowest price levels is increasingly strained. In other words, households that are seeking to become homeowners of the lowest priced homes seem to be increasingly priced out or they're lacking the confidence to purchase in this environment.

Sequentially, our gross margin dropped in the quarter despite the average selling price increase. While usually, the primary factors driving movement in factory-built gross margin or manufacturing costs, those period-to-period changes roughly netted out. We saw some compression between retail and wholesale prices in our retail operations, which drove the bulk of our gross margin decrease.

To be clear, those retail comments are based on our pre HomeStar network, not due to the addition of the acquired operations. And it's worth noting that retail, our retail operations remain primarily centered in the South Central region. We don't believe that price compression is either an indication of the broader market or that it represents a meaningful shift over time. I know the focus is rightly looking forward and trying to figure out where the industry will go from here in the coming quarters.

While the uncertainty remains the tone we are picking up in both our operations and in the market is optimistic. The leading indicators such as quotes and retail traffic remain healthy. Notably, policy discussions are increasingly focused on affordable housing and specifically on increasing supply of first time for first-time buyers.

Affordable housing is one of the highest voter priorities heading into the November election and policies to increase supply, remove barriers, enable innovation and help buyers are all supportive of factory-built housing.

It will be interesting to see the proposals shape up in the coming months. It's important to comment on financial services, where the trend continued with another strong quarter driven by our insurance operations.

Our lending operations have been less of a contributor in recent periods, however, we've been making progress identifying buyers of our loans, and I expect the originations and loan sales to pick up in the coming quarters. Both of these operations are important strategic contributors to the integrated value of Cavco and our ability to provide complete solutions for our homebuyers.

Now I'd like to take a few minutes to talk about the American HomeStar integration. First, we had a solid integration plan heading into the combination and both organizations have come together, really hitting the ground running as one company. We're right on that plan with impressive execution from HR benefits and payroll to finance, IT and operations.

Now that we've been together for over a quarter, our view of synergies is starting to firm up. What I'd like to share today is our view of the most tangible cost reduction synergies. We spoke previously about this deal offering meaningful purchasing labor and SG&A cost savings. Our total view of these tangible and measurable synergies is now above $10 million on an annual basis, and we estimate that about half has been achieved in the run rate as we entered Q4.

The positive impact didn't show itself in Q3 because the gains were achieved as the quarter progressed, and they were offset by integration costs that will decline going forward. I thought it important to provide this information at a time when we are well into our integration work and can provide a more informed view.

It's good news that the current picture is significantly higher than our pre-deal internal estimates. Additionally, there are a number of areas where precise quantification is difficult, but where we know value is being created.

Areas like the ability to optimize product within and across plants as the system grows and the ability to fill out company store offerings with Cavco product from various plants are examples of the very real ways in which the strategic benefits of a combination like this show.

Again, these are very real synergies and are not included in the tangible cost savings I laid out. And finally, we continued our share repurchases during the quarter with another $44 million used to buy back company stock. With this return of capital and the significant use of cash for the acquisition in the quarter, our unrestricted cash balance at the end of Q3 was a healthy $225 million.

Now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the third fiscal quarter of 2026 was $581 million, up $59 million or 11.3% from $522 million in the prior year quarter. Sequentially, net revenues increased $24.5 million, driven by the addition of American HomeStar, which contributed $42 million and an increase in average revenue per home sold, partially offset by a reduction in base business units sold.

Within the factory-built housing segment, net revenue was $558.5 million, up $57.6 million or 11.5% from $500.9 million in the prior year quarter. The increase was primarily due to the addition of American Home Star and an increase in base business average revenue per home sold, partially offset by a decrease in the number of base business homes sold.

The increase in base business average revenue per home was largely due to a higher proportion of homes sold through our company-owned stores, more multi wise in the mix, along with product pricing increases. Financial Services segment net revenue was $22.5 million, up $1.3 million or 6.2% from $21.2 million in the prior year quarter and sequentially up $1.1 million.

These increases were due to the addition of American HomeStar Financial Services and higher insurance premium rates, partially offset by fewer loan sales and fewer insurance policies in force. In the third fiscal quarter, consolidated gross margin as a percentage of net revenue was 23.4%, down from 24.9% in the same period last year. In the factory-built housing segment, gross profit was 21.7% in the third quarter, down from 23.6% in the prior year quarter.

The reduction was broadly due to higher per unit cost. Financial Services gross margin as a percentage of revenue increased to 65.2% in the third quarter from 55.5% in the prior year quarter. This increase is primarily due to lower weather-related claims, the growing impact of rate increases and underwriting changes on policies.

Selling, general and administrative expenses in the third quarter were $81.4 million or 14% of net revenue compared to $66 million or 12.6% of net revenue during the same quarter last year. Expenses rose primarily due to the addition of American HomeStar, which contributed $6.9 million in operating cost and $2.9 million in deal-related expenses, along with higher year-over-year compensation.

The American Home [ Serv ] operating costs are expected to decline as we realize projected synergies. Interest income for the third quarter was $3 million down from $5.4 million in the prior year quarter, primarily due to lower cash balances after the purchase of American HomeStar at the beginning of the quarter. Pretax profit was down 16.9% this quarter to $57.6 million from $69.3 million for the prior year period.

The effective income tax rate was 23.5% for the third fiscal quarter compared to 18.6% in the same period in the prior year. This increase was driven primarily by a reduction in tax credits and nondeductibility of certain American Home SAR deal costs.

Net income was $44.1 million compared to net income of $56.5 million in the same quarter of the prior year, and diluted earnings per share this quarter was $5.58 versus $6.90 in last year's third quarter. Before we discuss the balance sheet, I'd like to take a minute to talk further about capital allocation.

During the quarter, we repurchased just over $44 million of common shares under our Board-authorized share repurchase program, leaving approximately $98 million under authorization for further repurchases. Additionally, we've closed our acquisition of American HomeStar. Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, pursuing additional acquisitions and consistently assessing opportunities within our lending operations.

Share buybacks will then serve as a mechanism to responsibly manage our balance sheet after considering these initiatives. Now I'll turn it over to Paul to discuss the balance sheet.

Thank you, Allison. In the quarter, we had a decrease in cash and restricted cash of $157.5 million bringing our balance to $242.5 million. Cash provided by operating activities was $66.1 million. Cash used in investing activities was $179.7 million, primarily related to the American Home Star acquisition and cash used in financing activities was $43.9 million, primarily due to share repurchases.

As you would expect, when we compare the December 27, 2025 balance sheet to March 29, 2025, several of the balances increased from the addition of American HomeStar, including inventories, notes receivable, property, plant and equipment, goodwill and intangibles, accrued liabilities and deferred income taxes. Base business accrued expenses and other current liabilities increased from higher volume rebates and warranty accruals and finally, treasury stock increased due to stock buybacks executed in the period.

With this, I'll turn it back to Bill for closing remarks.

Thanks, Paul. before I turn it over to questions, I'd like to briefly comment on our continuing brand and market strategy progress. I know everyone is focused on the numbers of this call, but I think this is really important, and it reflects a long-term strategy that's been unfolding really nicely for us.

Over a long period, you've heard me talk initially about a redesign of our digital marketing infrastructure. We then rolled out dramatically improved websites not only for our operations but micro sites for our retail partners. Last year, we talked about rebranding 19 manufacturing brands to 1 under the Cavco name.

And most recently, at the Louisville show just a couple of weeks ago, we unveiled our product line framework that organizes every home made across our system under defined lines that we can then market locally and nationally. This is a huge milestone and a long-term strategy aimed at helping a potential home buyer more easily find their best fit Cavco home and helping our retail partners with more and better leads.

A lot of very impressive teamwork continues to be exhibited to transform our go-to-market strategy all the way from concept to customer conversations across the system. And I believe we're really well positioned to be a great partner for our retailers and to get more deserving families into quality homes.

So I imagine there may be a couple of questions. So Marvin, go ahead and open up the line.

[Operator Instructions] And our first question comes from the line of Daniel Moore of CJS Securities.

Bill, Allison, Paul. Let me start with utilization, obviously ticked a little bit lower than I think some people expected. Last quarter, you talked about keeping production steady overall. Where did you see maybe some pockets of weakness that caused you to pull back a little bit or take some more days of downtime. And I guess probably more importantly, how should we think about production as you see the world in Q4 relative to Q3?

Yes. It was interesting. I mean, October and November were kind of the downtick. And like I said for the industry, it was pretty sizable. As I commented in my opening remarks, we talked quite a bit about the Southeast last time because I just wanted to point out that it was standing out relative to the other is kind of struggling or just not as much pickup there as in other regions that really reversed.

And to be honest, Dan, I could kind of tick through them, but the Southeast was the strongest quarter as far as holding volume and gaining a little bit this quarter. And as you can imagine, I mean, there's -- we always talk about seasonality. I think the drop off in October and November was more than you would expect from seasonality, but everything across the north is going to slow a bit going into that quarter.

You picked up, I'm trying to make it clear to folks that increasing production in a plant is tougher than pulling back production because you've got to have the teams in place, you've got to have a level of training. And so our tactical decision, very similar to what we talked last year, even when you expect the third quarter to possibly be a little bit slower.

We, at our plants really held production rate. We held our staffing, we held production rate. And where we had to, which was in a cross system, if backlog logs were just too lean, those folks -- those plants just took a little extra time at the holidays and down days. And that's how we balance the market.

If we had done it the other way, we would have probably not been as well positioned now for the possibility of a nice increase in the spring season. So that's how we try to position ourselves. We don't may be frustrating to some people on the calls, but we don't do a lot of predicting and forecasting.

We do a lot of making sure we're able to adjust accordingly upward and downward when necessary. And our plans right now because we maintain that production rate are just in a really nice spot to be able to continue moving up if we get the spring selling season, we're hoping and expecting. There is -- I think people might get tired of us saying at this time of year, but when you're at the Louisville show and when you're talking to our plants and operating reviews when you're talking to customers, there is not a feeling of gloom.

People are generally optimistic, and we'll see how it develops. We started off the quarter. I'm jumping beyond your question, Dan, and I apologize if I'm going too far. Yes, we -- as everyone knows, the weather here in the beginning of the calendar year has been a bit challenging. And so that's likely to show is in January, straining some traffic and also delaying some shipments and setting of homes.

But the way I think about that is it's early in the quarter and those sales don't go away. So our plants even ones that had to miss some time in the -- due to the recent weather. We've got a number of plants, not a small number of plants that are running this Saturday because they want to keep up -- and so that's a good indication of their optimism going into the spring.

Very helpful. I'm going to maybe just pull on that string a little bit more and go back to the comments you made in the prepared remarks, which is -- we're in position, I think, if I heard correctly, to hold, in general, hold production year with backlogs potentially taking higher unless we decide to increase production, in which case, they might stay flat. So net-net, it feels like flattish sequentially and maybe a little upside to that is where you're seeing the world for fiscal Q4, but tell me if that's wrong.

You caught me. I slide in a little bit of an update there, a mid-quarter update, right? Because what I was trying to convey, and I didn't mean to be too subtle about it. What I was trying to convey is that as we sit here today, we're pretty comfortable that our backlogs are holding.

And if we get the uptick, you're almost inevitably going to get an uptick from the spring selling season. but we'll have kind of complete control and choice about whether to increase production rate and let the backlog kind of sit where it is or let the backlog move up a little bit for us. And 4 to 6 weeks is not a bad place to be if you feel like it's stable.

So yes, that's a little bit of a mid-course update on the first quarter that we're not feeling like that backlog is falling out from under us.

Really helpful. Shifting to gross margin, factory-built gross margins, you mentioned higher per unit costs. wondering, Allison, if we can just tease that out a little bit. .

I mean, the questions I'd have is there any lingering impact in acquisition accounting? And how do we think about the impact of kind of lower utilization versus mix in the quarter?

Yes. Thanks for that. On a year-to-year basis, I think as we will just kind of reflect on there was no consistent with what we foreshadowed last quarter in our statements there really was no impact to gross margins from the acquisition.

And when we think about margins year-over-year, they were down due to increases in input costs and just in summary, prices were stable, and they were resilient, even less so in fuller markets, it really speaks to kind of a consistent underlying demand.

Well, the reality was that prices did not increase enough to offset the input cost. This is a little unusual, particularly when we reflect on the retail side, but we don't think the -- we don't see that as a systematic change.

And as you mentioned, the retail margin was a little lighter, and I assume that flowed through there as well.

That's correct. .

That was 1 or 2 . That's a little bit of -- we haven't seen that historically. And while we wanted to call it out to help explain where we saw some of the downward impact on gross margin -- at the same time, I'm going to encourage people to listen when we say that our retail operations still are, even as we've expanded and they still are largely concentrated in Texas and surrounding states in the South Central.

And so I just wouldn't want people to project that retail margins across the country for independents or the industry in general, necessarily saw the same thing. It was 1 quarter where they -- they kind of compressed their cost of buying a home and then their cost of selling it. But it's localized, and we also don't think in Texas, we're reading a whole lot into it at this point. But it was a factor that was more significant than we've seen in the past on gross margin.

Helpful. Is -- in terms of mix, is retail slightly lower margin than producing homes? Or is it not necessarily the case?

Typically, we don't see that as the case.

Yes. Last for me. I'll jump out. deal-related costs. I think you said $2.9 million are those largely behind you? And can you quantify at all the impact of integration plan spend in the quarter and what that kind of looks like in fiscal Q4 and beyond?

Yes. The deal cost would have concluded in the third quarter when the deal was closed. And when we think about integration costs, we also, as Bill mentioned, absorbed a good bit of integration cost this quarter, which kind of tend to mute the uptick that we saw from early synergies I would say that both as the synergies begin to take hold and we see an uptick there, we'll also see the integration costs continue to decrease slightly as we go forward.

Follow-ups. Go ahead.

This felt like an investment quarter to kind of get us positioned with American Home star. I mean some of those deal-related costs are high things like adviser fees that are contingent on success of the deal that can't be capitalized.

So a lot of those, obviously, they're paid and they're behind us. So this quarter kind of got all the negatives out of the way on that. And I think going forward, we'll see the positive synergies really come to the front.

We'll go for our next question. Our next question comes from the line of Greg Palm of Craig-Hallum.

Yes. I guess just digging in a little bit more about activity by channel, Bill, I think you mentioned that you saw maybe relative weakness or underperformance, I forget the term is in communities versus retail.

So can you talk a little bit about what you're seeing from some of the REITs in the community in general as a whole?

Yes. Now you heard me right. I mean, when we look at the volume decrease that we saw, which -- well, I'll just stop there, when we look at the volume decrease we saw, it was pretty focused on the community side. And we went back and looked over quarters, and I will tell you that communities can be pretty volatile, right?

You look quarter-to-quarter. And what we're looking at actually is our revenue by channel. That can move up and down quarter-to-quarter, sometimes without explanation. As we come to the end of the year, I think there could be a lot of reasons for it. things like them, they have allocations to various suppliers.

We did pretty well earlier in the year. It could be a little bit of evening out there. Even their capital management as they come to the end of their calendar year I think, can play into the third -- our third quarter being down at times. What I haven't heard and did kind of go out to try to listen and see if it was a factor, I'm still not hearing communities with pessimism or feeling that if they set another house, they won't be able to find either a buyer or a renter for that house.

They're not concerned about the end consumer. And they're not -- we talk sales to communities to larger REITs really occur at different levels. We talk at higher levels about their overall plans for the coming year and years at times. And then the actual sales happening actually on a plant-by-plant basis at those higher level discussions.

I'm not hearing any bearish tone about slowing down their plans for the coming year or years. So it's an observation that communities were probably the biggest part of the weakness in sales this quarter. And I feel like I say this to you guys on a lot of things, I want to call it out. It's something we're watching, but I don't know that we should call it a trend at this point.

Yes. Understood. And are you able to -- I know you mentioned October, November a few times, but are you able to comment on kind of what you thought in December, just from the standpoint that I think you sort of hinted that October was maybe trending a little bit better and so on.

But at the same point, you mentioned or alluded to the really bad production data. So I'm just trying to figure out kind of December win? And what -- how sort of the cadence of activity played throughout the quarter?

Yes. My comments about October and November were only called out because that's the industry data that's available. I wasn't trying to not talk about what happened internally in December. So as you know, I mean we're all still waiting for the December shipment data but I'm doing this off the top of my head.

I think through the year, through the calendar year, we saw seasonally adjusted rates of shipments. In the early part of the year, it was pretty strong, up 106-ish, 106,000 or so. October, I think it dropped to March point up the data, to 96,000 seasonally adjusted rate in November it dropped to 93%. So those were significant moves down, denying it. And we just wish we had the data before this call to report on the industry data in December.

The shape, I would say, because we have told you guys in some quarters, the shape of how the quarter shaped out. I would actually tell you that this was lower October through December.

And I don't feel like the market -- even though that November seasonally adjusted rate for the industry was down compared to October. I don't know that internally, we felt like we're on a steep downward slope during the quarter. It was a holiday quarter, right? So you always have to figure that in. but it didn't feel like things were falling apart incrementally month-to-month.

Yes. Okay.

That...

Yes. That's helpful. And on the gross margins, you talked about what -- a little bit of compression at retail. And I'm just wondering, was this some sort of company specific strategy because you said it was not an industry thing.

And it kind of sounded like it was more, I don't know, certain geographies within your footprint, but I just wanted to better understand exactly what you meant.

Yes. I don't know if I can capably comment on other people. So I can't tell you whether that same dynamic was at play for others. I'd tell you, I mean, just to be very frank about it, our volume in retail was pretty strong compared to the market they're operating in.

And I still -- sometimes I talk about our retailers if it's still just Texas and in that area, it's broader than that now, but a lot of our retail results are still driven by Texas. So we saw a quarter where our volume was strong relative to what we were seeing in the market, and we had that compression.

So we're going to be looking at it and trying to figure out if we were under the market, to be frank. But I think it's that kind of a tactical discussion. It's something that I think from everything we can tell is isolated, and we'll jump on it and figure it out.

And just to be clear, there were no purchase accounting inventory step-up impacts in gross margin in the quarter? And is there a meaningful difference in HomeStar gross margins versus Cavco?

So no, there was no real impact on the consolidated gross margins gross profit due to any purchase accounting associated with the acquisition as we had experience in previous acquisitions, I think that's consistent with comments that we also shared last quarter. .

So in general, as we've mentioned, when we look at the acquisition, their margins tend to be broadly in line with capital margins.

That's at both retail and manufacturing.

Within the company.

The other thing we've commented on last time people had asked questions about it was they're more integrated on average. They were about 60% selling their homes through their stores. versus previous Cavco is in probably the 22% range.

So while they're small relative to the rest of the system, just directionally, that means that those integrated sales are upward pushing on the gross margin. So if anything, we have a little bit of an upward push from bringing American Home store into the company.

Yes. Okay. And by the way, this last one on that, do you have a metric for -- or an updated metric on the homes sold through company-owned stores, both as what it was in the quarter including HomeStar and maybe I don't know if you have it on a like-for-like or same-store basis if you exclude that impact since they sell a lot more through company-owned than you?

Yes, Greg, American HomeStar was 343 homes total.

Yes, just through retail. .

Not just the retail, right? So this quarter, our company-owned store was 1,339. And the prior year quarter was 1,075. So it's up 25%.

That would be, I think, consolidated with American HomeStar.

Okay. I'll run the net and maybe follow up offline.

Our next question comes from the line of Jesse Lederman of Zeiman.

I appreciate all the color thus far. I wanted to dig in a little bit more on kind of the cadence through the quarter and maybe into the beginning of the year here, appreciating you don't have national industry shipments yet for December.

Are you able to comment on internally, maybe your progress how things might feel if you're not willing to share specific numbers coming from November to December and then December to January, and maybe your outlook for the spring selling season?

Yes. December, if everything is equal, December is going to be a holiday month, and everything is going to slow down, right? So if you think about it on a seasonally adjusted average rate, which I find helpful, just -- let's just think conceptually on that basis was December a drop-off considering that it's always going to be a relatively slow month rate. .

I don't think December felt like it was a drop off from November, just as far as looking at our data and kind of the tone of what was going on in the industry. So I don't know if that's helpful because I can't be real quantified lacking the industry data. But if I had to guess what the industry data is going to come in saying for December, it's probably going to be similar seasonally adjusted rate to November, and we'll see if I'm right, but it didn't feel like it was slowing down.

I guess you're also asking for the sense of how we're doing so far this quarter. The one thing that we have talked about already in this call is that we're pretty comfortable that backlogs aren't dropping off for us. So that's a positive. And the thing that makes it really hard to give an update even to the extent we're willing to share, Jesse is that man the weather.

I mean we're just a few weeks in and that storm really is going to kind of shake things up for the month, but it will be muted by the time we get to the end of the quarter is my expectation. So I wouldn't expect people to overly react to that comment about the January weather when you're thinking about what Q4 might look like because, again, those sales don't go away.

And our plants are already actually running Saturdays and doing things like that to make up for that lost time. So over time, that just moves activity from 1 week or 1 month to another. Not something that we're really concerned about. So I apologize if that's not as complete as you like, Jesse, but that's kind of my reaction to the question.

No, that's really helpful. I appreciate the comments there. When you say backlogs aren't dropping off, it seems have kind of stabilized in the near term, is that at a similar utilization that you ended the quarter with? Or have you slowed things maybe just to touch quarter-to-date, maybe given the weather, given some other trends you've seen?

No, we haven't slowed things. I mean think about our production rate in 2 pieces, right? It's how much we make a day across the whole system and then how many days we operate. We have not slowed -- we didn't slow in the third quarter as far as production rate, and we haven't slowed -- giving you the update, but we haven't slowed here early January.

However, we have lost operating days due to the storm. And that's where I said we're doing things to try to recapture that time. So we're not in the mode at this point of general like we get a pull back our daily production rate in the plants. And instead, we're trying to make sure we hold it and are ready to go up.

Okay. That's great to hear. What is your sense from conversations maybe at the Louisville show or from communities or other dealers that's driving some of the optimism for the spring selling season that makes you think that you could see an increase in backlog or perhaps an increase in capacity utilization. Are there any early indicators that you're hearing or you're seeing or you're looking for that give you that confidence?

Yes. The tone of the show, and I actually wasn't able to go, but I'll tell you, I talked a lot with people at [indiscernible] because it's always a great interest, and our team was pretty actually pretty jacked up about the show. Frankly, which made me feel really good. They were happy with how we showed it up, but they are also happy with the discussions they had with our customers, the dealers and the communities about their prospects for the new year. .

And I think we all look at similar things. Traffic, I look at quotes, which I think is a bit of a directional long lead indicator -- if we see quote activity drop off, then that makes me think about what our order is going to be like in a month or 2, we have not seen them drop off. They've been actually pretty healthy.

So I think everybody kind of hits Louisville show excited about what Spring could offer. So that's just the nature of our attitudes and our mindsets. But then the more tangible measures around traffic and quotes and activity like that still seems to be pretty strong. So that's what we're reading at this point.

And we're really anxious we get to this point in the year. It's always interesting when we have our conference call because it's a little early even for us to have a feel for how early spring is shaping up, right?

We're not there yet, but we get pretty anxious this time of year to look at even weekly sales activity because it gives us an early indication of the spring. We're just not there yet.

Got it. Okay. Two more for me. One is, from an inventory level perspective, is there any evidence maybe across your captive retail that you're aware of that there's any evidence of destocking that could pressure near-term orders even if end demand is recovering a bit?

You're saying destocking? Or are you worried about overstocking?

Overstocking sorry.

Yes. No, I actually think that from the time when we had that big problem now it feels like at least 1.5 years, 2 years ago, people have been pretty disciplined. I don't think there's any I certainly haven't heard of anyone stocking up, and there's a reason for that. I mean, let's think about just the dealers, right?

They can order a home and because backlogs are where they're at, it's not a long way to get that home. So they're not jumping back in line with multiple orders because they're worried about the pace at which they can receive a home. So that causes them to really stick very close to whatever their individual store target inventory is -- so I really don't think we've seen any buildup there.

Okay. That makes a lot of sense. And the last one for me is a little bit more high level. given you have great exposure in Texas, particularly bolstering that with the American HomeStar acquisition, we're aware of some legislation that's been passed that's set to be effective in the middle of 2 just statewide to level the playing field a little bit more, at least as it pertains to zoning for manufactured homes relative to single-family homes.

Quite frankly, surprised -- we haven't heard much about that or even other statewide legislation reform over the last few years. What are your thoughts on that? Why maybe have we not heard of it? Is there optimism surrounding it -- any clarity there would be great.

Yes, I read your note on that, and you also cited Kentucky, which is a big market and Kentucky's changes are a little bit more sweeping, right, more possibly more impactful on a local basis. So I don't know why we haven't heard more about it.

I thought it was good that you covered it. I think maybe people just aren't keeping tabs on what's going on with those legislatures. But it's a great example of that slow progress but definitely progress that the industry is going to make over time about zone.

Having states actually put legislation in place to either encourage or actually push local municipalities to open up a little bit to these solutions is a great development. So I think we should be excited about it. I don't know if the next obvious question is how big of an impact do we think it's going to make?

I don't have that for you, but man, it's something that we should be looking at and you put a spotlight on it.

[Operator Instructions] Our next question comes from the line of Daniel Moore of CJS Securities.

Just a couple of more lots you covered a lot of ground, but maybe any color on sort of bucketing the updated and upgraded synergy targets? I think you said $10 million -- how do we kind of think about the -- where those are coming from? And you mentioned roughly half actions or we should see starting in the March quarter? How do we think about the cadence there going forward as well? .

Do you want that one? .

Sure, I'll go forward. So we talked to talked about leaving on an annualized rate of $5 million into the quarter. and ultimately being like a $10 million level, right, which would be about $2.5 million a quarter. So as we think about the next quarter ahead of us, if we've exited that third quarter at [indiscernible] 5 on an annualized basis. It puts us at perhaps a $1.25 million positive uplift to profitability in Q4. .

As you think about it, the areas that we've talked about as far as where the synergies would hit on the geography of the P&L when we first talked about the acquisition is so consistent today is we look to have purchasing savings and optimization.

We also look to have direct labor savings at the college level. And certainly, through the course of time, we've proven that we're very effective and efficient in driving synergies to our shared services which is our SG&A area. So those would be broadly the bucket that we would quantify the $10 million.

Perfect. On the ASP front, jumped to 107,000 during the quarter. How do we think -- how much of that is mix from American Home Star which obviously includes a higher percentage of homes through captive retail. And is that a number that we think is sustainable as we move forward here?

Yes, Dan, this is Mark. So it increased a little bit due to the high proportion of homes sold through company-owned stores, but it was about $1,000 increase of the sequential increase that you saw.

American HomeStar. Yes.

We kind of had a lot of things. We talk about all these variables that make our average selling price so hard to dissect. This was a period where a lot of things were kind of pushing it upward. American Homes start pushing it upward mostly because of their integration with -- between manufacturing and retail. I know I'm using integration in different ways on this call. The shift overall, even in our previous business toward a retail a little bit. We had that going on. .

Definitely a product mix shift moves towards multi, which we've seen for a number of quarters. And then I think I commented about the -- what we think is the best proxy for what is a given product selling for now versus the previous period, that was up a bit. So -- and this is a quarter where everything was kind of pushing the price up.

Got it. We talked a lot about the defect the factory-built gross margin in Q3. Kind of any thoughts about factory-built gross margins on a looking at Q4 and how we should expect relative to Q3 over the next quarter or two?

I think Allison commented that I think on the commodities, if you just look at them, there's some movement up. I mean, lumber is starting to move, some steel increases that have been announced, and we'll see how they flow through. .

So Allison, you might have more color, but I think directionally, there is going to be some cost of good -- the bill of materials focused on building materials. There is going to be some materials movement, right?

Yes. I mean, and to build on a little bit, we haven't touched on it yet, but let's introduce it here, we know the tariffs are having an upward impact on our COGS is getting really difficult to precisely estimate the impact. But if we think about it this quarter, our best estimate overall that COGS was impacted by about $3 million this quarter. .

And the reason for the challenge of really being able to project that going forward, which, to your point, would fall within manufacturing. The challenge is that just simply put, the suppliers' ability to pass through tariffs it's also partially a function of the level of demand for the products.

So for example, if the demand for lumber or steel starts to heat up, we're likely to see the full impact of tariffs. So that's the area that we would be watching for as far as pressure on the margins.

Helpful. And last one, the tax rate. I appreciate you kind of delineating some of those pressures this past quarter. How would we think about where that should settle out in fiscal Q4? And how much is transitory, how much is kind of permanent? .

Yes. No, thanks for the question. I think just high level, it's reasonable to use the rate of 23.5% that we experienced in Q3 and then subtract out of that, the nonrecurring item of about 1%, which has hit the tax rate or increase the tax rate, and that was really due to the nondeductibility of the American wholesale deal cost. So that will occur in Q4. So you take that 23.5% down .

I'm showing no further questions at this time. I'll now turn it back to President and CEO, Bill Boor for closing remarks.

Yes, I'll be brief. We've talked a lot here in this one, but happy to have follow-up calls. We're looking forward to the coming months. I think we're positioned well to execute when the market improves. Part of that positioning is just having the ability to adjust quickly to near-term conditions.

And I think we've shown our ability to do that over time. We don't get too nervous because we know that factory built housing is the primary solution to the housing unit shortage in the country. And that's what we're working every day to step up to that challenge.

So I really do appreciate everyone's interest in joining us for the call, and we look forward to keeping you updated. Thank you.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Second Quarter Fiscal Year 2026 Cavco Industries, Inc. Earnings Call Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations.

Good day, and thank you for joining us for Cavco Industries Second Quarter Fiscal Year 2026 Earnings Conference Call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, 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. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. Their expectations or assumptions about Cavco'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 Cavco'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 Cavco.

For a detailed discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, October 31, 2025.

Cavco undertakes no obligation to revise or update any forward-looking statements whether written or oral to reflect actual 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 Boor, President and Chief Executive Officer. Bill?

Thanks, Mark. Welcome, and thank you for joining us today to review our second quarter results for fiscal 2026. We saw focused execution across our operations that led to the strong overall results we're reviewing today.

Revenue was up 9.7% year-over-year and flat sequentially. Our operating profit was up about 27% over last year's Q2 and up 3% over last quarter. All operations contributed to these results, as I'll touch on. I want to start by discussing the general market as there were some notable regional differences.

Using published industry data year-to-date, national shipments are up over 3% through August. In many regions, mainly across the Northern U.S., year-to-date shipments are up double digits. Recent months continued to show strong year-over-year shipment comparisons in those states and regions. In contrast, last quarter, we spoke about the Southeast, showing some volume risk.

And clearly, the region did slow in the quarter. Shipments in the area bounded by the Carolinas and Tennessee down to Louisiana and East are down about 4% year-to-date and down 10% in July and August compared to last year, the point being industry shipments are currently showing significant regional differences.

Shifting to our operations. In recent quarters, we have pushed production across our system, knowing we can adjust back if needed. And we did need to slow our Southeast production in Q2 and the plants reacted well. That reduction was accomplished through a combination of extended downtime during the 4th of July holiday and production rate reductions where plant backlogs were low.

Across that Southeast region, we're operating our plants just above last year's pace. while all other regions maintained elevated production rates from Q1 to Q2 and at a significantly higher pace than last year. Pointing out these regional differences is not intended to be alarmist in any way.

Sitting here at the end of October, we've seen backlogs in our plants that serve the Southeast stabilize and edge up over the last month. There's nothing systemic we can point to that explains the regional shifts, and we'll keep monitoring and adjusting production to manage appropriate backlogs. On the subject of backlogs overall, we remained at about 5 to 7 weeks.

Unit backlog was up slightly quarter-to-quarter and as explained, that was the result of selectively pulling back on production. Overall wholesale orders were down just slightly. Turning to average selling price, and I want to really make it clear here that my comments are sequential, not year-over-year. Our consolidated average selling price was up this quarter. When we separate the various drivers, wholesale prices were essentially flat.

Pricing did hold up across the board, including in the Southeast, with what I consider to be basically insignificant variation by geography. The significant upward movement in reported ASP was primarily the result of a higher percentage of recognized units from retail and to a lesser degree, a mix shift toward multi-section homes. We've seen a few quarters where multi-section homes increased relative to single sections after a string of quarters where it went the other way.

We aren't reading too much into that variation at this point. I spent a lot of time noting the relative strength across the Northern U.S. in comparison to the Southeast because the divergence is noteworthy during a period with continuing market uncertainty. We're making no prediction about forward demand in the Southeast.

At the moment, the market seems in balance with manufacturer production. And frankly, there are scenarios that it strengthens and others that it weakens from here. We're comfortable operating in this environment because we've demonstrated the ability to closely monitor and adjust as we did this quarter. I don't want to miss the opportunity to highlight the continuing strong performance in financial services.

In the first 2 quarters, revenue is up about 5%. However, operating profit is up $14 million from a loss last year to an $8 million profit this year. This has been driven by our insurance business. Weather has played a part, but the majority of the increased profitability has resulted from aggressive actions taken to pair unprofitable policies and changes that were made to underwriting and claims management.

I want to really acknowledge the insurance operation for the great job they've done and it's clearly showing in our results. As previously announced, after Q2 ended, we were able to close the American Homestar acquisition. After almost a month together, integration is moving quickly and very well, thanks to the people from both companies who took advantage of the time between the announcement and closing to plan all aspects of integration.

The combined company is off to a great start. The commitment to the smooth transition by the American Homestar leadership has been very apparent, and it's made all the difference. And finally, while I have the floor, I can touch on capital allocation. Alison will cover in more detail. We continued investing in our existing plants. We closed on the American Homestar acquisition immediately after the quarter using cash on hand, and we were able to repurchase $36 million of our common shares. All of this, of course, was enabled by our strong balance sheet and cash generation, and this balanced capital allocation approach will continue going forward.

Now I'll turn it over to Allison to give more details on the financial results.

Thank you, Bill. Net revenue for the second fiscal quarter of 2026 was $556.5 million, up $49 million or 9.7% of $507.5 million in the prior year quarter. Sequentially, net revenues decreased $0.3 million, driven by a decrease in homes sold, partially offset by an increase in average revenue per home sold.

Within the factory-built housing segment, net revenue was $535.1 million, up $48.8 million or 10% from $486.3 million in the prior year quarter. The increase was primarily due to a 5.4% increase in homes sold and a 4.4% increase in average revenue per homes sold. The increase in average revenue per homes sold was primarily due to a higher proportion of homes sold through our company-owned stores with more multi wides in the mix and product pricing increases.

Factory utilization in the second fiscal quarter was approximately 75% versus 70% in the prior year period. Financial Services segment net revenue was $21.4 million, up $0.3 million or 1.4% from $21.1 million in the prior year quarter and sequentially up $0.2 million. These increases were due to higher premium insurance rates, partially offset by fewer loan sales and fewer insurance policies.

In the second fiscal quarter, consolidated gross profit as a percentage of revenue was 24.2%, up 130 basis points from 22.9% in the same period last year. In the factory-built housing segment, gross profit was 22.9% in the second fiscal quarter of 2026, flat with the prior year quarter. Financial Services gross profit as a percentage of revenue increased to 55.6% in the second quarter, up from 21.8% in the prior year quarter.

This increase is primarily due to fewer claims from storms in the insurance business. Selling, general and administrative expenses in the second quarter was $72.2 million or 13% of net revenue compared to $67 million or 13.2% of net revenue during the same quarter last year. The increase in these expenses was primarily due to higher incentive compensation and deal costs from the recently announced American Homestar acquisition.

Interest income for the second quarter was $5 million, down from $5.7 million in the prior year quarter, primarily driven due to lower interest rates on our invested cash balance. Pretax profit for the second quarter was $67.3 million, up $12.3 million or 22.4% from $55 million in the prior year period.

Effective income tax rate was 22.1% for the second fiscal quarter compared to 20.3% in the same period in the prior year. This increase was driven primarily by a reduction in expected tax credits, partially offset by [indiscernible] from stock-based compensation. Net income was $52.4 million compared to income of $43.8 million in the same quarter of the prior year. And diluted earnings per share this quarter was $6.55 per share versus $5.28 per share in last year's second quarter.

Before we discuss the balance sheet, I'd like to take a minute to talk further about capital allocations. Shortly after the close of the second quarter, we completed the American Homestar acquisition. During the second quarter, we also repurchased just over $36 million of common shares under our board authorized share repurchase program, and we have approximately $142 million under authorization for future repurchases remaining.

Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, pursuing additional acquisitions, assessing opportunities within our lending operation and continuing to buy back shares. Now I'll turn it over to Paul to discuss the balance sheet.

Thank you, Allison. In the quarter, we had an increase in cash and restricted cash of $31.6 million, bringing our balance to $400 million. Cash provided by operating activities was $78.5 million. Cash used in investing activities was $12.4 million and cash used in financing activities was $34.5 million, primarily due to share repurchases.

When we compare the September 27, 2025 balance sheet to March 29, 2025, the increase in accounts receivable is related to organic growth in the factory built housing segment with unit shipments up 2% in the period over the prior year-end. Inventories increased from higher finished goods at company-owned retail stores. The decrease in prepaid expenses and other current assets as a result of lower prepaid insurance and prepaid taxes.

Property, plant and equipment increased from continued investments in our existing manufacturing facilities. Deferred income tax change from an asset to liability primarily due to acceleration of certain expenses that were previously capitalized and bonus depreciation, both due to changes in new tax law.

Accrued expenses and other current liabilities increased from higher volume rebates and warranty accruals on increased sales. And finally, treasury stock increased due to stock buybacks year-to-date. As a reminder, we closed on the American Homestar acquisition after quarter end. Therefore, the cash balance does not reflect a reduction from the purchase price, which is $190 million before certain customary adjustments and funded with cash on hand.

Now with that, I'll turn it back to Bill. .

Josh, can we open it up for questions?

[Operator Instructions]

Our first question comes from Daniel Moore with CJS Securities.

Let me start with Bill, I'm trying to -- just really good color, obviously, regionally and what you're seeing, backlog held up nicely despite 5% growth in shipments. Maybe just talk a little bit further about how orders are trending thus far into fiscal Q3 and where you expect to be able to maintain current levels of production as we enter seasonally slower periods, perhaps in some of the northern states ahead of next spring selling season.

Yes, I know I threw a lot at you with the regional stuff. And it's interesting because a lot of times people ask about the regions, and I kind of just wave it off because I don't see any significant differences. But it's kind of -- might have beat at the death in the comments. It's pretty -- it's a pretty marked difference between that isolated southeastern area. And part of that message though really should be also how strong it is elsewhere.

I mean we really do have double-digit growth, a big part of the U.S. geography right now. And the question about orders, our wholesale orders were down just a little bit in the quarter. That's probably not unusual. The summer can be that way. And as far as our view going forward, I won't speculate too much, but I'd say this is a quarter that's interesting. October can be pretty strong and then you kind of get into the holidays. So it comes in strong and tends to slow down through the holidays.

Overall, seasonality, now we can measure it over long periods of time. A lot of years, it's really more about the general strength in the market that drives the direction of orders quarter to quarter. I'm not sure I said that well, the seasonality can be overshadowed just by market strength and market weakness shifts.

Right now, it still does feel like a balanced market in many ways. I said earlier, even in that Southeast that I'm pointing to a lot, I feel like we're in balance. We had to pull back a little bit in summer on the shipments that we had in our plants serving that area. But as I indicated, given a little bit of an update through the early part of this quarter, we've seen our backlog stabilize and grow a little bit there.

So we're kind of in a nice balance. And like I said, I don't know how to speculate and call whether it's going to strengthen from here, which is very possible or whether we continue to see some cracks there. So it will be an interesting quarter, I guess. But right now, we're feeling pretty comfortable with the nice balanced market. Does that address...?

It does. If I heard correctly, your production rates staying relatively steady. You ticked them down a little bit in the Southeast, but kind of holding from here for the interim and waiting to see. Is that the best way to describe it?

Yes, I was probably focused in that comment about the Southeast that we're feeling in balance with where we've adjusted to. The other parts of the country, we have plants that are looking to try to bring on a little production right now. So it's really a very differential situation on operations. And I feel like we've been at a high level the last several quarters have felt like this. It hasn't been blowing and going, but it's been pretty healthy, and you got to keep [ drawing on the ball ] because at a given plant, it can move one way or the other.

So I'm not intending to be evasive, it's more that we're just seeing all conditions across the country. And [ at side ] of the Southeast, we have plants that are still edging it up. We did have a number of our plants outside of the Southeast from quarter 1 to quarter 2 increased production.

Very helpful. And Texas is obviously a big market for MH and bigger now with American Homestar for you. How would you describe that market? We've seen numbers all over the board in terms of the HUD code shipments. So what are you seeing in that market?

Yes. Well, you guys can see the HUD code stuff. I'm looking here year-to-date, it's almost flat, right, year-to-date, cumulatively. And in the early summer, it was down just a little bit in Texas, but I'll tell you what we're feeling. Our retail is primarily based in or centered in Texas. That's starting to not be the case as we've expanded, but it's still the core of our retail business. And we had a really, really good quarter in retail. So the market is there. Our retail guys are doing a great job of going and getting it, which pulls through our production. So we're feeling pretty good about Texas in general, I'd say, right now.

Really helpful. Factory-built gross margins ticked up slightly on essentially flat revenue sequentially. Just talk a little bit about your expectations for the next quarter or 2. Do we see a little more input cost pressure, tariffs other running through COGS? Or are these at the levels that we just saw this quarter, reasonably sustainable, Allison?

Yes. I'll give the tough questions to Allison.

No, thank you for the question. And I think when we think about the margins, it's always hard to project forward. But let's touch on a couple of elements that that we typically do look to the strength of our business model, particularly with the backdrop of the tariffs, I think really shined through of how we focus very much on keeping as much favorable cost up and fixed costs low.

As far as margins in total, we think about the ASP, and I think we've done a good job, good job of kind of addressing where we are and perhaps different alternatives of where we can go. So let's talk about the cost component in tariffs because I think that's probably a focus of what's ahead and what investors want to know.

We estimate that the impact of tariffs in Q2 was approximately $2 million of additional expenses that hit our cost of goods. And if you remember during our Q1 press release, we shared an estimate as the projected overall impact could reach, and this is over the course of the out quarters, $2 million to $5.5 million a quarter, if the total tariffs that were being discussed at that time were fully implemented.

So post our Q1 last quarter's earnings release, the Canadian lumber countervailing duties have been increased in the long term, 14.5% to 35% and and that actually happened at the very end of July of this year. And then subsequent to that, the duty has also been announced is an increase of 10% tariffs placed additionally on top of that. These tariffs obviously are fully implemented, and we've seen the back and forth this thing going on for the last several months. So we stay close to it.

obviously, it should have a meaningful impact on the cost of our homes by increasing the price of lumber for framing, for floors, for roof, not unlike other homebuilders. So we continue to stay focused on it, continue to really lean into our efficiencies and effectiveness of being a manufactured builder of affordable housing providers. And we -- the obvious focus is our ability to pass these costs through pricing will be very dependent upon local market conditions as we've consistently said.

A positive is the decision that came about in recent weeks to really kind of kick out the China tariff increase [ out of here ]. that will help us reduce our estimate probably to the lower end of the range that we provided. It will clearly avoid some increases that we were anticipating to the electrical and plumbing that we purchased from China through intermediaries.

So I went a little long on that, just to kind of sort of piecemeal to you all, just kind of keep it all inclusive. So all of those are what we're factoring in. Obviously, as we talked about, the largest component that we use are the commodities of lumber and OSB as all builders. We all have access to that, as you can see in the spot market. And basically, the rates and levels that you see when you look at the commodity markets, in general, we can think about those factoring through our cost of goods at about 60 to 90 days. Does that help a bit?

It does. No, that was great color. 1 more and I'll jump back in queue...

I'll just add a couple of comments, Dan. When you're looking at Q2 specifically, you might remember that in Q1, we saw product -- like product price increases. So we had a good beginning to the quarter coming out of Q1 with prices up. And then on the cost side, a lot of these tariff risks are concerning, and we're really keeping our eye on it. But in the quarter on the cost side, we've actually continued to see lumber really at a pretty low cost. -- it almost defies logic when these Canadian softwood lumber tariffs have been -- tariffs and duty increases have been put in place. We're still seeing lumber at a pretty low level right now.

So that really contributed to the nice gross margin this quarter and a lot of what we're going to be focused on going forward as some of these risks.

Very good. No, that's super helpful. Last one, turning attention to American Homestar. I guess, first off, the numbers that you gave back when you announced the deal in July, how are they trending relative to those -- I think it was $194 million revenue, $18 million EBITDA, any change there, good or bad? And second, how do we think about potential impact of maybe acquisition accounting. That's been something we've discussed in the past with some of the others for the first sort of quarter or 2 out of the box.

Yes, good questions. I mean we've had them for a month, so I'm not sure I have a huge update on kind of trends, but I do just -- I mean, they're going to fold in. It's 2 more plants in a system that now has 33 plants. So that's pretty much pro rata. They'll fall right in line there. They are heavier than our concentration before the deal on the retail side. So we'll get considerable impact from the retail side.

But from a business perspective, they're folding right in as part of the business, not better or worse than the rest of the operation. I do think, and I know we didn't put it out there with synergies, but I do think my comments about integration. So over time, we'll kind of pretty likely we'll kind of tell you guys how integration is going, and I think we're going to be able to add some meaningful value to the deal on top of them.

So it's not just a complete bolt-on. It's a bolt-on that I think will be lifted over the next several quarters. I appreciate the question on the purchase accounting. I am going to let someone else answer because they'll do it better, but it's an important one, and we've looked at it.

From the acquisition accounting perspective, we think about the potential impact on the consolidated gross margin level, it's probably going to be pretty small. And the reason for thatis, if we look at this particular acquisition, there is really a high markability to their type of products. So we'll be able to get to market faster, be more successful out of the gate.

Also in addition to that, their inventory levels are extremely rational. So if we compare and contrast this to, say, the previous acquisitions that we've done, while we have had an impact to the consolidated margin, we believe that in this particular acquisition that will really be very low and pretty noneventful.

Our next question comes from Greg Palm with Craig-Hallum.

I wanted to maybe go back to the market or the industry growth or I guess lack thereof, I'm pretty sure that the industry reported or we'll report, I guess, declines on a year-over-year basis in units for the recent quarter. But you've continued to outgrow the industry by a pretty meaningful amount sort of quarter in, quarter out for the last year plus. So maybe you can just better sort of highlight what are you doing right? What are you doing better? What's allowing you to outgrow the industry to that sort of magnitude?

Yes. I appreciate the recognition. I know that there is volatility in market shares from quarter to quarter. So I'm always a little bit hesitant to declare victory. But we've talked about things over time that we've done that I do think are really settling in a tremendous amount of work over, frankly, a couple of years where we initially really moved forward in digital marketing. And that really didn't completely take hold until we followed that with the rebranding that we did earlier this calendar year.

And the rebranding, again, coupled with digital marketing, I think our ability to generate good leads customers, consumers that are educated on our products has just set forward in a dramatic way from those changes. And we're probably at the beginning of really realizing that. I think that was a strategy that unfolded. It took literally a few years to get to where we are. But I think now it's time to make hay with that.

We've also talked about structurally, we were certainly different than the other large players and the fact that you know what we always talk about, we treat this as a very local market. We put a lot of decision-making and accountability on our local operations. And we didn't have a national sales team until the last several years. And the work that's been done by that group to just bring better training and accountability of sales teams across our organization, I think, is starting to gain traction.

And it also has improved our selling approach to communities and developers because a lot of those communities and developers, when they're larger organizations, they need to have contact at various levels in the organization. And frankly, we had a gap. And so I think we've closed that gap. I could go on and on. I think our product team has done a really good job of innovating product design. So all these things are focused at trying to not just stay with the market, but to try to gain a little share. And I certainly believe that that's impacting the results.

Okay. Yes. That's helpful color. And then shifting to the mix in the quarter. You mentioned more homes from company-owned retail. Do you have that percent for the quarter and how that compares to both your [ go periods ] as well as sequentially. And just curious what you're seeing thus far in October as it relates to the most recently completed quarter.

Yes, I can take that, Greg. So this quarter, we're about 22.9% that were sold through our retail channel. And that's up sequentially 4% from 18.9% this last quarter. And then year-over-year, the percentage was 21%. So we're up about 1.9% year-over-year.

And any color on, at least from a high level what you're seeing in October?

I think continuation in general. I mean, I wouldn't say any discontinuity. I think retail has been, as I mentioned earlier, and answered one of Dan's questions, retail in Texas has really been outdoing themselves. They've been doing a great job. So I think they're continuing on that path. And the market in Texas is at least supportive enough for them to dramatically improve the results.

I don't think some of the percentage as Mark just went through are really -- they're essentially same-store comparisons. The system -- while we have grown the system over time, I think if we went back and looked, we've been at kind of that 80 retail store level going back through that comparison period of last year. So it really is same store, same footprint improvement on the retail side. And yes, October, not trying to get too much into it, but October really hasn't been a discontinuity with that.

Okay. And just remind us, as it relates to homes story, I mean, presumably that number maybe even goes up a little bit more, all else equal because of the proportion of homes that Homestar was going through company-owned stores, right?

That's right. I mean they'll bring -- with the Homestar deal, we go from 31 to 33 plants, and we go from approximately 80 to 100 in round numbers on the store side. And I think I'm right on this. I think their degree of integration through their retail is around 60%. So 60% of their manufactured homes were going through their company-owned stores. So it will shift that it will have an upward effect on that percent integration.

Okay. All right. Lastly, I'm going to throw a broad question at you because there's a whole bunch of different things going on in the regulatory front, whether it's chassis removal or some of the financing stuff zoning. But just curious to get your high-level thoughts on the potential of some of that and obviously, the longer-term impact of some of that stuff goes through?

Yes. One thing that happened is the HUD code got updated, and we feel really pretty positive about that. I mean the HUD code updates were few and far [ between ] for a long time, and I've talked in the past about the relationship between the industry and HUD. It's not like they regulate us, but it's a positive working relationship. So getting the HUD code update, I think, is a positive.

Some of the good things that come out of that are duplexes up to, we call them 4 plexes, being able to build more than 1 family units. That's now part of it, eliminated a lot of bureaucracy that goes with some of the more typical, we used to have to get specific letters to allow some deviations from what was in the code, and they fix a lot of those problems in the code so that the bureaucracy is down on letters. It also added some cost items that. I think the industry generally supports an update to the electrical code that requires us to put more GFI and more tamper-resistant outlets.

And also, they kind of lowered the strength value rating on Southern Yellow Pine. I'm going into a lot of detail here. I guess it's not necessary, but this will add some marginal cost to the homes. So I think they were legitimate and valid cost increases. More broadly in regulatory, we've talked before, chassis is getting a lot of notoriety and support on both sides of the aisle. It's a matter of how do you attach those kind of things to a much larger bill that actually gets through the outlet.

But I think we're pretty optimistic at an industry level that we will get the chassis removal to open up a lot of innovation. We're trying to get HUD identified as the sole regulator so that we can avoid some of the dysfunction that happened with the Department of Energy over the last couple of years and also working some things to make sure that all forms of ownership for communities are given an equal opportunity to provide more homes.

So there's a lot going on in D.C., those bigger items. I'm always kind of interested because I get involved in it to figure out, okay, how do you actually like you can have confidence one of these things is going to get done, but the actual route it takes is a lot of times uncertain. So we'll just have to stay tuned on the timing for some of that. But those changes like the HUD that was passed in the Senate as part of the road Bill, so now it's in the house for consideration.

Our next question comes from Jay McCanless with Wedbush.

So I guess to take the price question a little bit further, you said American Homestar, 60% of their sales go through retail. So at least something more than that 23% going forward? I mean have you guys even trying to plan out or get an idea internally of what that split could look like?

Yes. I haven't done the [indiscernible] to be honest. I came to say that because it's a pretty straightforward question, but I haven't tried to figure out apples to apples if nothing changed, how much that would lift the percentage. But again, you pretty much ratio, Jay, that our plant ownership is going up. And I would just at this level to get an estimate, I would assume that their plants operate out typical to our average plant. So that's 2 divided by 30 increase on that side. And then you've got the 20 stores added to what was previously an 80-store retail system, I'm standing with the 60%. So I apologize, I haven't done it, but I think we could probably get there pretty quick.

No, that's fine. I just -- I didn't know if that was a stat you all had had ready for the call. I guess the second question is nice to hear a little more multi-section business this quarter. Is that something you think continues? Is it what you're seeing in the backlog right now for the plants?

Yes. I commented that we're always watching that, and we're always interested to see if we're seeing trends. We saw quite a few quarters where it was a small movement in the other direction. So this is kind of swinging back a little bit. I'm not sure that we've really got a theory that it's a trend. We've got 2 -- I think, 2 quarters now that multi increase as a percentage. But I don't think we're ready to declare that a trend. It kind of seems a little bit more like normal variation right now.

Got it. And then one last question on pricing. Could you talk about -- you identified the Southeast region versus other regions, especially up north, I guess how big of a pricing delta is there? And are there some modular units running through those northern markets that made up the ASP a little bit as well?

I'll have to come back to make sure I understand the second part. The pricing difference. I mean what's been interesting is that when you look at the change in pricing because obviously, our plants across the country make different products. So it's not apples-to-apples on like a dollar amount of pricing. But the change has held up very strong. And what I was trying to point to is for all the discussion about a drop-off in volume in the Southeast, the Southeast did not give up any pricing. So pricing is holding across the country right now. You asked a question about the Northeast and modular that I'm not sure I captured.

No, I guess let me ask it a better way. If you think about a standard like-for-like single section home that you sell in your northern markets versus your southern market, I would assume that there's a price differential just from higher cost markets, et cetera. Is that something you guys have identified or talked about before?

I think that's that's directionally correct. I mean some of them are modular and yes, even the coating can be different up there that can drive some costs up so directionally, I think you're right.

Are you kind of trying to figure out if that's a driver of the mix of non-Southeastern plants to Southeastern plants, is a driver of the ASP increase?

Yes, that's exactly why I'm going for.

I think directionally, it probably is. I don't know that I feel it's a significant I guess, is what I'd say. I think it couldn't be argued that it's not an upward driver, but I'm not sure it really shows up in the calculations as a significant driver.

Okay. All right. Well, and then the last question I had, just kind of talking about where channel rates now, what type of -- is there anything that -- I don't know, the Senate passed diversion of the bill, I guess, we have to wait for the government to get back open for the house of reps to pass their side of it. But yes, if you could talk about where channel rates are right now and what type of anything new or interesting on the mortgage side we need to be watching.

On the -- just trying to touch the regulatory side of it, a lot of discussion. I've been one that's really pushed hard in D.C. for Congress directing the GSEs and to actually follow through on their duty to serve plans that involve doing some [indiscernible] lending programs. I wouldn't say that I feel like the discussion is right, but I'm not sure there's anything imminent on that, I guess, is my sense of that. So I'm not -- I wouldn't hold your breath that we're going to see something coming out of D.C., but we keep working on it. Then on your actual rate discussion, I think Mark has the information.

Yes. Yes. So on rates, they've been trickling down just a little bit at these last 3 months or so about down 70 basis points to about 8.5%, so mid-8% range now.

Our next question comes from Jessie Lederman with Zelman & Associates.

Nice job on the quarter. Bill, I remember a couple of quarters ago, when you talked about on the financial services gross margin specifically, we had a long discussion about what you were trying to do there in terms of making sure the underwriting and what's actually being covered is more appropriate. So a nice job that that's come to fruition.

Thanks, Jesse. Thanks for the good memories. .

A high-level question for you, Bill, on kind of the political discourse. Of course, there's been a lot of public chatter between FHFA Director, [indiscernible] and Trump with a larger public site-built homebuilders regarding affordability and increasing production and things of that nature. I was wondering if you've been involved in any conversations where you may be or they may be coming to you in terms of manufactured housing or factory built housing generally being a solution for affordable housing in this country.

Have you been able to kind of input yourself or manufactured housing into those conversations at all over the last couple of months?

I think absolutely. And I'm not speaking just on behalf myself, I'd more say that the industry and the industry association has done a really good job. And literally, you can compare and contrast from just a few years ago when manufactured housing was kind of on the outskirts of people's consciousness sometimes in D.C. and now we're part of every conversation. So I think tremendous ground has been taken as far as just highlighting what the industry can do and both sides of the aisle, House and Senate, I've testified a couple of times up there. Manufactured housing is front and center in people's minds.

Now the challenge, I think, is that there are certain things the federal government can do that would really have a big impact. And we've talked about some things like the HUD code, definition of removable chassis, things like encouraging the GSEs, things like removing some of the dysfunctional bureaucracy that happens at times. And I think they're working on that. Where it's harder for them to impact directly are the things that are more function at the state and local level.

And that's where you really see the zoning challenges that limit the supply of what we do. So I'm not saying the federal government can't do anything, but their ability to directly impact that maybe a little bit less than we'd like it to be. And we really have to do the work at the state and local level. At the industry association, we've really been focused on that strategically trying to make sure that industry associations working really closely with the states because I think that's where those battles need to be won.

So I feel great about. Like I don't feel like we're missing any share of mind or being left out of any good discussion in D.C. about affordable housing at this point.

Great. Good to hear. Next one, I think is for Alison on the gross margin. I just maybe want to clarify some things. So it sounded like encouragingly, the tariff impact was at the low end of the $2 million to $5.5 million range in the fiscal second quarter. But given since you gave those numbers last quarter, you've had some incremental tariff increases on Canadian lumber.

So it sounds like going forward, it'll be maybe towards the middle to higher end of that $2 million to $5.5 million per quarter range. That's kind of how it sounded, but then I think you made a comment about being encouraged by some other aspects of what you're seeing that it might be toward the lower end? So just kind of hoping for some clarification on the...

Yes. Let me clear -- thank you for the opportunity to clarify. So the range that we gave last quarter was $2 million to $5.5 million. And that to us is the range of if take -- if you remove any new Canadian lumber tariffs and antidumping increases, that range still holds. And if you think about that range, a good data point for us is that the China tariff increase kind of got pushed out. So that keeps us a little bit less to that range. Now take that range and add to it but we're just now -- what we're recently learning about the increase to Canadian lumber from a tariff perspective and an antidumping. That's not within that $2 million to $5.5 million quarter range.

We're not quantifying that increase or the impact from Canadian lumber because there's still quite a few elements that are churning. And so as we -- as those unfold, those elements around there has been an increase to 35% that was done at the very end of July, right, to the Canadian lumber. And then just recently, literally in October, discussions around another 10% increase. And if you take a step back and think about those recent articulations of what could be coming it's at this point, I feel like it's too early for us to put a box around that range. And so we'll continue to watch that. But those would be incremental cost to that $2 million to $5.5 million a quarter range. Does that help?

Yes. That's very helpful, Allison. A couple more. I think on last quarter's call, Bill, you talked about kind of the secondary market, you're maybe holding a few more loans on balance sheet, some fewer loan sales. Have you seen any shifts since then in the secondary markets appetite for chattel loans.

Yes, a lot of good discussion, and we're working pretty hard to generate some partnership there to free up additional lending capacity because as we've said a lot of times, we are willing to hold these loans to a point, but we really prefer to have buyers of the loans we originate. So there's been a lot of discussions, not really an update that I could provide as far as anything that's broken at this point -- broken through.

And I think -- I guess your question partly too, is appetite. I think there is an appetite out there for these loans. It's a hard process. A lot of the people that are talking to originators like us are folks managing insurance money, which is a really good fit, frankly, from a tenure perspective. And it's a complex process to get to an actual agreement with those folks. So they're showing a lot of interest, but the deals are a lot of work to get done.

Okay. Two more for me. One, on the Southeast, you mentioned that you didn't really give up any pricing in the Southeast, which obviously is encouraging. But on the other hand, how do you think through maintaining price, albeit at kind of lower order rates and shipment rates versus perhaps giving up a little bit of price and trying to stimulate some more demand or some more orders to increase capacity a bit?

Yes. It's a good question. It gives me a chance to probably put a different point in here in the discussion about the Southeast because I knew when I was talking about it that much, I might heighten people's sensitivity to it, just trying to draw the contrast for the most part. The capacity utilization, at least in our system, and I think it's probably a more general statement for the industry, is not at a terrible level.

I mean plants are operating. They're making money in the Southeast. And so every plant has kind of this ongoing decision every day about pricing strategy. And right now, I think it's not -- it's far from a Doomsday situation. So people feel like they're getting appropriate orders, and there hasn't been a motivation at this point to really aggressively compete on price. A lot of what our plants do, and this is a general statement as they go out and look at our product compared to other product that's in their local markets and ensure that they're priced accordingly.

And that's -- I'm sure how the other competitors do it. And at this point, no one's at a state of concern about the direction of the Southeast where they've kind of said we're just going to drop price and try to win market share that way. So I like that. I think it means that there's stability even with -- even though it's lagging the rest of the country from a market demand perspective. And that allows us to kind of stay the course and adjust as we need to going forward.

That's helpful. Yes. I guess it sounds like given the great commentary on the Northeast that's particularly strong, I guess, has made it sound a little worse than it is in the Southeast on a relative basis.

Yes. And just to clarify that real quick, I mean it's -- the strength is across the entire North, you just go right across the entire northern part of the U.S. and pretty much where you're outside of that localized Southeast area that I talked about things are pretty solid.

Great. And then last one on the CapEx, roughly $10 million this quarter, about $9 million last quarter. You noted there is investing in the plants. Can you maybe give a little color on the progress of those investments, what you're actually doing in the plants or those AI -- are those automation initiatives -- maybe just a little color on how that will come to fruition.

Yes, absolutely. Yes, we're really happy with some of the project opportunities we've had in our system and even through the period a couple of years ago when we were dealing with really a slowdown, we were still consistently investing in these projects. And I would characterize them, we can look at a plant, and we've got some outstanding resources on the engineering side frankly, people that came to us through the Commodore transaction. This has been one of the value adds of that transaction many -- several years ago.

We've got folks that I think when we announced that transaction, we talked about some manufacturing technologies where they were really able to do some things other companies haven't figured out, like lasers, floored gantry systems for fastening that are very safe and efficient, [ CDC ] machines. And so we've been seeing opportunities throughout our system to modernize using some of those technologies.

I would characterize the investment in any one plant to probably be between $2 million to $5 million. And every one of those projects is feeling like a home run because they not only hit us a little bit of additional throughput. And when you add several of those together, you've added a meaningful amount of capacity, but they also all seem to have very good safety and quality improvement aspects to them. So we're going to keep doing those. And that elevated -- I think the question was asked last quarter about whether that was a new level of sustaining capital. No, you're seeing investment capital in that number for sure.

[Operator Instructions] Our next question comes from Daniel Moore with CJS Securities.

I wanted to just ask 1 or 2 more on drilling down, and we talked about a lot of -- some of the potential legislation, but I get a lot of questions recently about chassis specifically. So -- what's the average cost of a chassis and roughly what percentage of your homes shipped come with the chassis today?

Yes. We estimate roughly about 1,500 per floor. So obviously, if you have multiple sections, you multiply that out.

I think your point is, we would basically recycle as much like they do in modular construction, right? You use a [ car ] essentially to get the floor to the site and then you can bring that back.

Yes. And what are HUD codes or [ chassied ] homes today that are as a percentage of our overall production roughly?

HUD versus modular in our system?

yes, really just percentage with chassis that are left on site, if you know what I mean.

Yes. Well, I can give you a break of HUD versus modular and that's probably a pretty good rate for what you're asking, we're probably about 80% HUD code homes and 20% modular.

Okay. And if it did pass, how would you think about that savings kind of dropping to margins versus maybe passing it on to the consumer? I know that's 1 or 2 steps down the road. But passing on the questions that I'm getting from investors.

Yes, we'd probably find a middle ground. I think some of it would go to our bottom line and probably some would be passed through as the savings to the customer. I'm kind of -- I guess my hesitation, not hesitation, the reason why I hesitate at all is because I haven't really thought about chassis as much as a cost driven thing as I think about it as an innovation-driven thing. But to your question on the hard numbers, I think there would be some middle ground where a good portion of that would drop to our bottom line.

Makes sense. And then lastly, obviously, great work as detailed on financial services, contributing $5 million operating profit, I guess, $4 million average the last 2 quarters. Were there -- would you consider those to be above the mean in terms of profitability when you sort of average out the business and what expected claims are. This is a little bit of a softer quarter, but how do we think about sort of average profitability at this stage going forward?

Yes, I'm going to take a shot and then you can tell me if I'm answering your question. We have benefited from lower-than-typical weather events and claims for sure. But as I said, and I know I'm not giving you specifics, the improvement -- we've dissected the improvement between how much we attribute to improved weather versus how much we attribute to the changes that we've made. And well over 50% of the improvement is due to the changes we've made. So I think we're at a new level of profitability in a typical weather environment. We've got a little bit of boost over the last 6 months from weather being very friendly for us. Does that help?

It is. Yes. .

I would now like to turn the call back over to Bill Boor for any closing remarks. .

Yes. Just real quickly, I know we're coming up on the top of the hour. Executing and shifting markets is really what it's all about in this industry, and we continue to tell you all that from a market perspective, there's uncertainty out there. But I think this quarter, kind of showed the nimble approach that we've embedded in our operations, and we're making real-time adjustments as conditions shift.

That's what I think we're focused on here because we know the conditions will change, and we just want to react to them very well. As we've discussed over time, in addition to managing the day-to-day challenges, we've undertaken an upgrade to our ERP system. We rebranded it, as I talked about, that improves the customer experience. We've executed the string of modernization projects we just touched on.

We completed the large American Homestar transaction, and it's really exciting to see the entire organization rise to all of these kind of extra challenges, which, by the way, are the things that position us for better performance over the long term, while at the same time, the organization is really delivering the kind of results we've discussed today. So I really want to thank everyone for your interest and for joining us, and we look forward to keeping you updated.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.