Cavco Industries, Inc. Aktie

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.

Good day, and welcome to the First Quarter Fiscal Year 2026 Cavco Industries, Inc. Earnings Call Webcast.

[Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the call over to Mark Fusler, Corporate Controller, Head of Investor Relations. Please go ahead.

Good day, and thank you for joining us for Cavco Industries First 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. 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, August 1, 2025. 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 first quarter results for fiscal 2026.

I'm happy to report it was a very strong quarter. Revenue was up 9.5% year-over-year and 16.6% sequentially. Our operating profit was up about 50% compared to both last quarter and a year ago, all operations contributed to these results, and I'll get into that.

Over the last several quarters, we've been executing on a plan to push production up where we have the backlog to support it. Increasing production rates can take some time. So this has been a decision in many of our plants between pressing forward with increases to take advantage of a possible continuation of the positive order trends. We're holding back out of concern that the trend might not hold in future quarters. We have deliberately chosen to press forward with the confidence of knowing our plants can adjust down if necessary.

While uncertainty about future quarter demand remains, this quarter our plan paid off. Orders increased resulting in an essentially flat sequential backlog even with our increased level of production. Executing this plan resulted in a record of 5,416 homes shipped this quarter.

We're often asked about regional differences on these calls, and I feel that, in most cases, there aren't any headline takeaways. The regions often show differences from quarter-to-quarter, but they tend to keep pace with each other over time.

This quarter, I do want to point out that the Southeast region did lag the orders with Q1 shipments very slightly below the preceding quarter. Our backlogs in the plant serving the Southeast have dropped, and we'll need to watch closely to see if we're able to maintain production levels there. We manage this on a plant-by-plant basis, and it just points to the continuing uncertainty in the overall market.

Another noteworthy result this quarter was the increase in average selling price. As we've discussed before, there are several factors affecting our ASP. First is the proportion of company shipments that go through our owned retail stores. This quarter, that driver actually had a downward effect on ASP because sales through our stores were relatively flat while wholesale shipments to third parties increased.

Next is the mix of single section to multi-section home shift. We saw the mix shift toward -- we saw that mix shift towards multi-section homes this quarter, which pushes ASP upward. However, the biggest effect this period was an increase in the average price for both single section and multi-section homes sold. This is the best approximation for the price of similar products from period to period. So we saw true price appreciation this quarter after a very long run of very modest declines. Whether this first upward move in a while becomes a trend depends on the direction of the industry orders going forward.

I don't want to miss the opportunity to point out the strong performance in Financial Services, which turned a significant loss a year ago into a nice profit this year, driven by better insurance results. It's never fun to explain that bad weather was the cause of poor insurance results, no one likes to hear that reason.

This quarter, it's only fair to acknowledge that favorable weather contributed to the year-over-year improvement. It's also important to understand that on top of the relatively good weather, we have made very meaningful improvements to our underwriting criteria and policy pricing, which are significantly improving the results under any weather conditions. Our insurance operations have done a fantastic job making sure policies are priced right for their risk, and we expect continuing strong results over time.

Shifting topics. A few weeks ago, we announced the agreement to purchase American Homestar. The acquisition, which will use approximately $184 million in cash, is expected to close early in our third quarter. As previously discussed, this deal brings with it an opportunity for significant cost reduction as well as product and retail optimization benefits.

Since the announcement, members of our leadership team have had the opportunity to visit many of the American Homestar operations. The introductory visits confirmed what we knew in general and from our due diligence work. This is the first class organization, and we continue to be very excited about what they will bring to Cavco.

The American Homestar acquisition, along with ongoing investments throughout our operations, demonstrates the execution of our capital allocation priorities. We also continued our 4-plus year buyback program, repurchasing $50 million of stock this quarter. Cumulatively, since the initial repurchase authorization in fiscal 2021, we've bought back 16.6% of our outstanding shares. With strong cash flows and a conservative balance sheet, we remain confident that we can repurchase shares without hindering any strategic opportunities.

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

Thank you, Bill. Net revenue for the first fiscal quarter of 2026 was $556.9 million, up $79.3 million or 16.6% compared to $477.6 million during the prior year. Sequentially, net revenues increased $48.5 million, driven by an increase in homes sold and the average revenue per home sold. Within the Factory-Built Housing segment, net revenue was $535.7 million, up $77.6 million or 17% from $458 million in the prior quarter. The increase is primarily due to a 14.7% increase in homes sold and a 1.9% increase in average revenue per home sold.

The increase in average revenue per home was due to product pricing increases and more multi-wides in the mix, partially offset by a lower proportion of homes sold through our company-owned stores. Capacity utilization for Q1 of 2026 was approximately 75% when considering all available production days versus 65% in the prior year quarter.

Financial Services segment net revenue was $21.2 million, up $1.6 million or 8.2% from $19.6 million in the prior year quarter. The increase was due to higher insurance premium rates, partially offset by pure loan sales and fewer insurance policies in force. Consolidated gross margin in Q1 as a percentage of net revenue was 23.3%, up 160 basis points from 21.7% in the same period last year.

In the Factory-Built Housing segment, the gross profit was 22.6% in Q1 of 2026, consistent with Q1 of 2025. Financial Services gross margin as a percentage of revenue increased to 40.9% in Q1 of 2026 from a negative 0.6% in Q1 of 2025. This increase is primarily due to the insurance division having fewer claim losses from storms as the prior year period was significantly impacted by multiple weather events in Texas and New Mexico.

Selling, general and administrative expense in the first quarter of 2026 was $69.1 million or 12.4% of net revenue compared to $64.9 million or 13.6% of net revenue during the same quarter last year. The increase was due to higher bonus and commission expenses on higher earnings compared to the prior year. Interest income for the first quarter was $5.1 million, down from $5.5 million in the prior quarter. Pretax profit was up 48.9% this quarter to $65.3 million from $43.9 million in the prior year period. The effective income tax rate was 20.9% for the first fiscal quarter compared to 21.5% in the same period in the prior year. Net income was $51.6 million compared to net income of $34.4 million last year, and diluted earnings per share this quarter was $6.42 and versus $4.11 in last year's first quarter.

Before we discuss the balance sheet, I'd like to take a minute to talk about capital allocation. During the first quarter, we repurchased $50 million of common share under our Board authorized share repurchase program, leaving approximately $178 million under authorization for future repurchases. Additionally, we announced our intention to acquire American Homestar, a transaction expected to utilize roughly $184 million in cash.

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 operation with share buybacks serving 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.

Thanks, Allison. In the quarter, we had a decrease in cash and restricted cash of $6.9 million, bringing our balance to $368.4 million. We generated $55.5 million of cash from operating activities, reflecting solid operating performance for the quarter. We used $7.7 million in investing cash flows for new equipment in certain facilities and used $54.7 million in financing activities, primarily due to stock buybacks.

Comparing the June 28, 2025 balance sheet to March 29, 2025, the increase in accounts receivables related to organic growth in the Factory-Built Housing segment with unit shipments up 7% in the first quarter of 2026 versus the sequential quarter. Inventories increased from higher finished goods of company-owned retail stores as well as higher raw material purchases to support increased production. The decrease in prepaid expenses and other current assets is a result of lower federal income tax prepayments primarily related to timing.

Increase in long-term commercial loans receivable is a result of increased lending under these programs as a result of larger sales volume. Accrued expenses and other current liabilities are up from the increased compensation and bonus accruals on higher earnings, increased insurance loss reserves and higher customer deposits. And finally, as previously discussed, treasury stock increased due to stock buybacks executed during the quarter.

Now I'll turn it back to Bill.

Okay. Thank you, Paul. Michelle, let's go ahead and open up the line for questions.

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

Obviously, the plan paid off, new orders increased nicely this quarter. Is that a level of ordering -- is that level of ordering continuing thus far into fiscal Q2, accelerating at all? Or do you expect that to moderate in coming quarters?

Yes. No real comment on the expectation. I mean you hit these months in the summer. And from a seasonal perspective, it can slow down a little bit. But we feel like at a high level, there's kind of a continuation. I mean there's definitely nothing that I'm seeing in the market or hearing about that says that we're seeing a drop. And I always refer as well -- even though I know it's a bit of a lagging indicator, I always refer to the HUD code shipments data on a seasonally adjusted basis, and that has remained strong in recent months. So we're still feeling like -- as I've indicated, I mean, we're really happy with the quarter. I think we executed really well as a company. Uncertainty continues out there. So we're going to have to keep watching.

Very helpful. You mentioned the Southeast. I mean, obviously, Florida has been challenged for a while. Are there [indiscernible] you're seeing any incremental softness?

Yes. Thanks. That's an opportunity to clarify because I didn't really think to make that as clear. Florida has been in its own situation for quite a while. And I'd have to say I really don't see any improvement there. Just in general, I think the real estate market there has been struggling. So we're holding our own and hanging in there and feel good about how we're positioned.

But my comments -- again, Dan, thanks for giving me a chance to clarify. My comments were a little broader than that and almost exclusive of Florida, which acts very separately. So you kind of -- you go up through the Southeastern states, and I don't want to sound like doom and gloom. I mean it was steady. In our case, as I talked about this direction of let's go ahead and lean into the backlogs we have, our plants have done a great job of accelerating production through that region. And compared to the other regions, it was a little of a standout lagging region for us this quarter as far as quarter-over-quarter activity.

So I don't know how to give the right tone on this, so I'll just kind of going to be as straightforward as I can with my comment. It's not doom and gloom, but it was the slowest of our major regions when we looked at what was generally a pretty positive quarter-to-quarter.

Got it. And okay. I'll follow up offline. But ASPs gave great color, greatly appreciated. Between the 2 factors, is it more a function of passing on inflation and input costs? Or is the mix meaningfully improving as well?

Yes. Mix shifted a little bit to multiple section homes, which, of course, would kind of be an upward move. But I'll tell you the biggest factor this time was really that we say same product appreciation. We really looked at in aggregate, single-section homes, did they move up in average selling price? And I'm thinking wholesale right now and multi-section homes, did they move up as well? And this quarter both moved up, and it's been a long time since we've seen that kind of price appreciation after correcting for product mix and after correcting for the proportion that's sold through our retail stores. So I did want to point out because I know there's been a long discussion about -- I keep overusing the term slow leakage that we have seen for a number of quarters in that, let's call it, pure price. And there was a significant upward bump this time. Again, those things can move around a little bit, but it's nice to see it move that direction.

Your other question was whether that was I think -- Dan, I think your other question was whether that was due to tariff pressure. I don't want to belabor it. I've got a little different view than some when we talk about this. It's a matter of price moving up where supply and demand for our products was healthiest, right? So we did have an impact from tariffs, and Allison commented on that, I believe, that we can go into that. And -- but I don't view us as necessarily being able to say, oops, our product -- our cost just went up, so we're going to pass through a price increase if the market doesn't support it. So I look at this price movement kind of as its own data point separate from our cost structure.

Okay. Very helpful. I know you don't give guidance. Financial Services had a really solid quarter. Just curious what you've seen so far quarter-to-date in terms of claims. Obviously, there's been some well-documented tragic flooding in Texas. I know it's isolated and your business is a lot more geographically diverse, but what are you seeing so far there?

Yes. Yes, you've said it well. I mean it was tragic what's going on there. From a claims perspective, it was not a huge generator of claims. And I think that's the nature of the pretty not dense area that a lot of that -- the flooding occurred. So we're not seeing an inordinate amount of claims from that event. And I think things are looking pretty good overall from a business perspective in insurance. And you're right, we do, do, I think, a very thorough job of making sure we diversify geographically and in other ways to spread the risk in our insurance business. But nothing big to note from that event or any others recently.

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

I wanted just to maybe clarify some of the prior questioning on kind of the regional differences. So going back to your comments on the Southeast region, I just -- is it more that you're seeing increased competition down in that region? Or is it a function of like the actual consumer traffic rates, deposits are slowing? I was just -- maybe you can kind of dig into that a little bit more. And then just to be clear, I mean, the Southeast region is pretty broad. So are there specific states that you're trying to call out or anything in particular?

Yes. We kind of just look at our plants that serve that area, and there's a pretty broad service radius for a plant. So frankly, we're looking at it all the way up to North Carolina and Virginia. So kind of Georgia up through North Carolina and Virginia. And I really do want to -- I'm glad you guys are asking me the question because I really do want to clarify. We had a quarter here where orders moved up considerably. In the Southeast, they were more like flat. So we're not seeing a big downturn. And I think the context and why I pointed it out is that we have also had this direction on a plant-by-plant basis to increase production where we think we've got the backlog to do it.

And so my point really was more about that direction. And I don't know how it's going to play out yet. But what I was trying to point out is we might have -- we were going to have to look plant by plant in that area because its order rates have lagged other regions recently, and our backlogs in that area have dropped given the increase in production. And so it's one that we might have to pull back a little bit on some of those production increases. I'm honestly not predicting that. I'm saying that these regions are moving differently. And if there's one place that we're keeping a close eye on it to see if our backlogs hold with order rates in the next couple of quarters so that we can maintain the increased production level, it would be the Southeast. So it hasn't been a downturn. It's been a flat spot in a country where other regions are moving up pretty nicely.

Okay. That's helpful. What are you seeing from the community channel and some of the bigger buyers there? Any change relative to kind of what you're seeing in the dealer channel?

Yes, I don't think anything noteworthy. I mean once we got through the inventory problem that we talked at length about for a long period of time, and that kind of -- we declared that dead last December, I think. Once we got through that, they've kind of taken their place with more of a historical proportion of overall industry shipments from what we can tell. They've been about 30% or call it, 1/3, and that's if you include builders and developers along with communities. And there's some normal bouncing around those numbers, but I feel like they're kind of in that position right now.

Okay. In terms of -- I want to maybe spend a minute on gross margin as well. And maybe you can just comment on input costs and what kind of -- I don't know if you're able to quantify kind of what impact tariffs had, whether it was on steel specifically or whether it was some of the components that you bring in. But was that meaningful at all? Are you able to quantify kind of what impact you saw? And mostly, this is just in light of kind of much higher production rates on a year-over-year basis, but factory margins that were -- they're relatively flat. So I'm just kind of trying to tie those out.

Yes, understood. Thanks for the question. Because many of the tariffs have been delayed, plus there's a time line before costs hit our COGS, the full effect of tariffs didn't hit our results in Q1. We estimate that the total impact in Q1 was about $700,000 of additional expense, and that would have hit our cost of goods. And if the current -- for a perspective point, if the currently proposed tariffs take effect, I'd say this will certainly increase in future quarters. So nothing significant this quarter, but we really focus on it.

And in general, input costs, as you mentioned in total, it's key components for us that affect the margin are the cost of our commodities that we primarily use, which is lumber and OSB. And while the movements of these commodities, they really can be volatile. We have been -- recent quarters have been benefiting from a pretty low and stable lumber and OSB price. But there's always a possibility of there being a price increase ahead. And the way that we can all watch that is we watch the indices for these commodities for lumber and for OSB. And any changes that we see rolling through those prices, we'll go through our COGS in about 60 to 90 days later. So taking all those factors into account kind of on the cost side of the equation for the margins.

Got it. And then maybe just last one, shifting gears again, just to the regulatory environment. Can you provide maybe any update? I know there was a recent bill that was introduced about chassis removal. So maybe you can just give us some insight in what that potentially could mean and just the overall process of putting that into a law, if that's the case.

The Senate Committee passed a bill or moved a bill forward this past week, and I think that's what you're referring to. And I'll tell you what was really encouraging about it, they had -- and I might be off by 1 or 2, but they had about 8 subsections under that housing bill. And one of them was literally titled manufactured housing. And so one takeaway that I took at a high level from that was just we are in the discussion. We -- people are focusing on manufactured housing as an important part of the solution to the affordable housing issues that we face and the supply issues we face. So that was a high level.

As you said, the chassis removal from the federal definition was in there. And so I feel really good about that. That's something we've talked in the past. It will take some work and some time. But if we can get that out of the definition, I think it's going to open up a lot of innovation for our industry, and that will kind of allow us to do things like penetrate more into urban settings as an example. So that's a big plus. There was some stuff in there about kind of trying to continue to encourage local municipalities and states to work on zoning. Those statements in the bill were more general and weren't all that specific to manufactured housing. But directionally, you always like to see that because I think Congress understands that's a real barrier to improving the supply of homes and housing units.

You weren't really asking us if I -- and this is probably a longer conversation for another day. If I had a disappointment when I read it and talked to folks about it, it's that Congress is trying to provide some support and funding for community preservation and community development in general, but they tend to be a little bit discriminatory in the ownership of those communities. And so they're very focused on this idea of resident-owned communities. In the right situation, that can be a good solution. Sometimes they aren't everything that the name kind of implies and sometimes they're really not working out well. And so the fact that Congress continued in this bill to kind of leave the very successful for-profit community ownership model out was a little bit concerning.

So probably giving you more than you want. I feel like in total, it's a very good step forward. It reflects a lot of the lobbying we've done in D.C. to try to get manufactured housing more part of the conversation. I feel like we're really having some success with it. So I do bet that's more than you're asking for, Greg, but did I leave anything out?

No. It was more the better. I appreciate the color.

Our next question comes from Jay McCanless with Wedbush.

So I guess I want to stick on the gross margin for a minute because to hear that volumes up, pricing is up on singles and doubles and OSBs at multi-decade lows, just really surprised that the gross margin was flat year-over-year. Can you walk us through what drove that? And are you all thinking -- and if it was sales mix or geographic mix, is the same type of pattern developing for the second quarter?

So if we go through -- we look at the throughput for the quarter, to your point, we did see an uplift that allowed us to leverage some of our factory overhead. As we talked about, we did absorb some additional costs due to tariffs. And also our margins are dependent quite a lot on quarter over prior year quarter for pricing. So there were some very positives in our gross profit and gross margins for the quarter. And then also touching on Financial Services, we did see an uptick from prior year.

Okay. So it's more just geographic mix? And also, are you seeing that in the second quarter kind of that same thing developing?

I think it's probably a little too early to comment on the second quarter. I'd say the one thing that we do have -- obviously, we're staying extremely close to would be the unfolding tariff situation. We do -- as we've shared before, we do have -- we do purchase many lighting, electrical and plumbing components and windows and doors. And those are primarily sourced from China. So that will be where our focus is as the tariffs continue to unfold.

Okay. And then I know that there's been a couple of price increases announced for roofing. Has that started to impact Cavco's income statement yet?

Nothing that we can really comment on at this point, nothing significant.

Okay. And then if we could just talk about Chattel mortgage, where are rates right now? And I guess the other question is, are you guys seeing and what the site builders have talked about where people just aren't as confident maybe as they were this time last year? And maybe talk about that and then also where rates stand at this point?

Yes, I'll start with the rates, Jay. So it's actually been really consistent since we last reported our fiscal year-end. So it's still in that 8% to 9% range.

Yes. I think the indicators of confidence are kind of almost week-to-week, if not day-to-day. It's been kind of in this mode, in my opinion, for quite -- well, several quarters, right? I mean people are trying to read the macroeconomics. And certainly, there's a bit of uncertainty on the side of the potential buyer. We see that -- I think we see that more in closing rates, but we've seen traffic does move up and down a bit, but it moves in a pretty tight band or it's been moving in a pretty tight band. Closing rates, I think, are the better indicator at any point in time about whether people are willing to pull the trigger because there's a lot of people that are out there that need homes and they're generating the traffic numbers. It's whether they feel confident and are able to pull the trigger on actually making a deposit and falling through on the purchase that I think it gets hurt when the confidence goes down.

So I don't mean to wander around your question. I think it's -- man, it's changing all the time, and that's the uncertainty we've been talking about. This quarter, orders showed a pretty big uptick. So that shows that either over the period of that quarter, there was a little more confidence or it shows that, that pent-up demand for housing is powering through that concern. Hard to tell, but we feel like we had a nice uptick this time. We're going to continue leaning into it, and we got to be ready to adjust. It's hard to be more predictive than that.

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

A nice job on the quarter. I'd like to ask another question on the tariffs. So I guess, just $700,000 of impact in the COGS from tariffs. Is the expectation still about 5% to 8% of the materials might be the impact from tariffs?

Yes. And let me just help by putting those -- that into dollars to make it straightforward. So we would estimate that the overall impact that we could reach, and again, tariffs literally are kind of unfolding day-to-day as we're all seeing it, but we could reach between $2 million and $5.5 million a quarter if the current tariffs are fully implemented. So just hopefully, that helps provide some...

Got it. Okay. Yes, that is helpful. Okay. So I guess the $2 million -- and again, the material is half of the COGS, right?

Yes, they do.

So the $2 million, I guess, would be something like -- during the quarter, it would have been like a 1% increase to overall COGS from tariffs, which seems a little bit lower, I guess, than you're expecting last quarter.

That's true. I mean, I'd say specifically, again, $700,000 was the amount of the impact of increased cost of goods from Q1 from tariffs. If you think about the tariffs, they seem to be moving quite a bit. But obviously, I think when you -- when one listens to the rhetoric out there, there's an indication that they will go up at some rate. And certainly, if we compare the way we think about it now versus, say, just a quarter ago, the tariffs would be coming in a slower or delayed and a little bit more choppy. So I think that's what we stay very close to.

And if we take a step back, the $2 million probably per quarter -- the $2 million per quarter would be on the lower end and perhaps as we progress through time and yet it's an unfolding situation, it could reach up to about $5.5 million. And I would say that if we had to think about it as far as where is the majority of that coming from, it's likely to be coming from the lighting, electrical and plumbing components, which are part of all of our units and those we source out of China.

Okay. That's really helpful color. I wanted to ask with -- through CountryPlace, Bill, do you guys have any read on -- or even through CountryPlace and/or just through those that are buying at your captive retail of the household income over time of people that are purchasing or maybe even quarter-to-quarter that could give some insight into mix shifts. So for example, if maybe this quarter, you had more higher household income at retail or through CountryPlace, that would suggest maybe some people mix shifting from an existing home or buying a new home to a manufactured home. Is that something you guys have insight into?

Yes. Obviously, when you're originating, you know all that information. So it exists. It's not something that we've tracked very closely at a macro level. So it's an interesting thought and something we'll think about. But I don't have any statistics for you right now on that.

Okay. And then yes, of course, I think that would be pretty interesting. Allison, you kind of talked from a capital deployment perspective, one of the initiatives you're looking into is assessing some opportunities within the lending operations. Could you maybe provide a little bit more color into what that opportunity might be?

Yes. I mean, strategically, we look at our CountryPlace, which is our mortgage origination component of our organization to be able to provide expanded consumer-based lending programs. So we continue to look at that. And as part of that growth would probably be a combination of somewhere strategically to have an ability to deliver into a forward flow agreement. We have a commitment that we would not carry consumer-based loans on our balance sheet, nor have we. So if we embark on that type of a longer-term strategy, our balance sheet would still very much stay an OEM balance sheet. But this would give us an opportunity to serve a wider base of consumers to help them be able to obtain affordable housing.

Yes. I'd like to -- I mean, let me just reiterate that, and I'm not saying anything different. I mean our model is to originate and sell, right? We don't want to carry consumer loans on our balance sheet. We retain the servicing rates, and so we get an annuity stream in that sense. That's our base model. Over the last couple of years, the traditional investors have really kind of dramatically reduce the amount of loans they're buying. And so that left us with a decision to make. And we have been willing to, and we've put some new loans on our balance sheet. We do that in a way where we know that we're still underwriting to the standards that an outside investor would buy those loans.

And so our game plan really is let's not stop the machine, let's keep supporting the operations as an originator to a point with the intent that in different times and maybe through finding more consistent investors, we'll be able to clean those loans off the balance sheet and get back to the base model again. We haven't committed very much money in the scheme of our balance sheet to that, but it is something we just highlight for folks that strategically, we'll do that from time to time. We'll take some on our balance sheet with the intent that when the day comes, they're very sellable loans.

Got it. That's helpful. Yes, I think in a lower rate environment, those loans would be an attractive opportunity for an investor for you to get those off the balance sheet. But it makes sense. It sounds like you're willing to continue to underwrite those just to keep the machine moving from a financing availability perspective.

Last one from me -- yes, go ahead.

This is a side note extending on that. It's interesting when you do find an investor that wants to start buying those loans, they often -- the moment they make that decision, they say, what do you got for me right now? And so having a few on the balance sheet doesn't hurt when you're trying to develop those relationships.

Right. Makes sense. Last one on the Financial Services. It sounds like a lot of the initiatives that you talked about over the last couple of years in terms of making improvements to your underwriting criteria and pricing and some of those nuances are coming to fruition with kind of a 40-ish percent gross margin. If I look historically, you're kind of in the -- even like 50% to 55%-ish range. So is there any reason why the gross margin for Financial Services shouldn't at least remain around current levels, if not continue to grow a little bit higher toward maybe 50%-ish, something around there?

Yes, it's very choppy, right? I mean it's the insurance business, not to minimize the financial or the lending business component of that. But when you're in the insurance business, quarter-to-quarter, it can be choppy. But yes, I don't see any structural reasons why we shouldn't be able to maintain pretty much historic margins with that business. So yes, I appreciate the question because it is hard for you all to keep your bearings with us in Financial Services when quarter-to-quarter, we can see pretty dramatic changes. What I've said in the past, and I still believe is that these businesses give us a solid return on invested capital, and they are complementary to our core business. So we're committed to them.

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

1 or 2 more. But obviously, if you look at your shipments, you look at HUD code, MH data, it's clear that MH, at least over the last couple of quarters, and particularly this quarter is diverging in a more material way from traditional site-built growth rates. So is that -- do you think, Bill, that's more a normalization of the builder developer channel coming back? Or do you see that occurring kind of across all of your key customer bases, REITs, traditional retail, et cetera?

And you're talking about -- I think I'm with you, you're talking about how HUDs what we have good data on. You're talking about how HUD code shipments have changed through the recent year or 2 compared to how site built has changed?

Yes. And obviously, 15% growth in your shipments is another data point there as well relative to flat to down traditional cycle.

We've moved relative to HUD. Yes, you're right. I mean, yes, it's always hard to know what point in time to index off of, but we have been looking at that pretty closely. And to your point, over the last, call it, 1.5 years that was one of the points I looked at, HUD has dramatically outperformed. I track a lot of times new home sales, thinking we're shipping is kind of put in service pretty quickly and the new home sale is similar, put in service pretty quickly. And HUD has really outperformed site built during that period. I think at the highest level, there's probably a lot of factors to that. I think one is I've tried to point out in a lot of investor discussions that -- while we're driven by some of the same macro effects, like interest rates, the cycle for manufactured housing and homes and site built can diverge.

If you think back to 1.5 years ago or so, we were held back by an inventory in our retail channels after the run-up in interest rates. Conversely, I think site builders were kind of getting a tailwind from the fact that people had low interest rates and previously owned homes weren't on the market in inventory. So they were kind of making hay at a time that we were pulled back from a wholesale perspective. I think that's reversed right now. I think right now, we've got the inventory out of the way and affordability is coming to the forefront as it has been and should be for, in my opinion, for the foreseeable future.

And we're serving a different price point for sure. They can't touch what I would consider first homebuyer price levels. So I think it's a real shift. And if the macro economy supports it, I think that, that relative share of new housing units, if you want to think about it that way, should really go in favor of manufactured housing, too, and I won't belabor this point because if you pick different time periods, the discussion would be different. We've certainly done pretty well relative to the index of HUD code shipments that are reported on a national basis.

I think that a lot of that is due to some things we've worked hard over the last couple of years to put in place. I've mentioned them before, but we've got what I think is a very effective national sales group in the wholesale business that our competitors had previously, and we didn't have, and I think they've been making a big impact. We've done a ton in digital marketing, and we followed that up with the branding that we talked about last quarter to try to make the customer experience better. So I really feel like we've done a lot to position ourselves better and better on a competitive basis within manufactured housing. And I'd like to think that's showing itself in some of that movement of us compared to the industry shipments.

Very helpful. My last long-winded question today, I promise. But just I missed the American HomeStar conference call. So you're expanding what is already a strong presence in Texas. Obviously, Texas has always been a big important market for MH, but a little choppier of late. So what are you seeing or hearing from retailers, community developers in that market and your expectations for growth in that market, not next quarter, but over the next 2 to 4 years?

Yes. I think my answers have been long-winded, not your questions. But Texas, everyone knows how big of a market that is for manufactured housing, and we do have a pretty good presence there. And in the call and otherwise, I've talked about you got some deals where you are going into new geographies or trying to round out your geographic presence. And you've got others like this one where you're just going to get stronger where you are. And I'm really excited about it from that perspective. We have a lot of confidence in Texas over any strategic time frame.

So really don't do these kind of deals, worried too much about what's going on right now. And what's going on right now in Texas isn't bad. They've been growing. So we're going to have a lot of opportunities for value creation in that deal through cost benefits as well as product and retail optimization. So we're really excited about it. I'm not sure if I'm really hitting hard on your question, and I'm happy to take another shot, Dan, but that's a stab at it.

No, that's helpful. Right now, the market is holding up pretty well, and you see continued growth. That's what I was getting at. I appreciate it very much.

Our next question comes from Ian Lapey with Gabelli Funds.

Bill and team, congratulations on a great quarter. I just had one quick one. The $9 million in CapEx for the quarter, was that driven by the brand realignment? And then would you expect CapEx to return to the more -- the level of more like $4 million to $5 million of the last -- per quarter for the last couple of years?

Yes. Thanks for the question, Ian. The $9 million was not driven by the brand realignment. In fact, really the only meaningful material impact you guys should see from that, I think, was the last quarter when we reported the noncash $10 million charge that was related to writing off some intangible value. But going forward, we shouldn't really have a meaningful impact to the P&L from that shift.

I want to take a stab and then Allison and others can build on to this. The $9 million is a good story because what we've been doing is investing in our plants. And we've had a string of very successful smaller investments in our plants. I say small in the scheme of the company, but they add up. And we've done a number of plant modernizations that have been very successful, and that's what's driving that non-acquisition capital expense to go up a little bit. So I'd ask you to feel good about that. We're making some pretty high-return investments in our plants, and we're growing our capacity.

Does that -- do you have something to add to that?

Yes. That's obviously a very good characterization. So it will -- our cap spend will be a little bit lumpy within a pretty tight band, and it will move quarter-to-quarter based on the upgrades and expansion for efficiencies in the plant, in our internal plants. But there's nothing in that particular number for the quarter that would signal an upward trend of any type.

And it's not like a pent-up sustaining capital that's coming due or anything like that. Our plants are in pretty good shape.

Our next question comes from Jay McCanless with Wedbush.

I was just looking at last quarter's transcript, and I think the one thing we haven't talked about is the price competition that you all were seeing last quarter. And just wondering if that's reemerged either what you saw in the first quarter? Or are you seeing any signs of your competitors being a little more aggressive on price in the second quarter to try and drive some volume?

I would generally say no. If there's -- if you kind of had a dial on this, there's more -- this is kind of my feel based on the monthly detailed conversations we have with every one of our plants. There is more of an upward bias that I'm hearing in the local markets than downward. And I will say that for this quarter, and I only want to emphasize that because these things can shift on your right. We're not calling a trend after one data point. For this quarter that we saw this pretty nice increase in both single section and multi-section homes. That was pretty much across the board regionally. So we really don't have hotspots where we're seeing an undue amount of price competition right now.

And our next question comes from Jesse Lederman with Zelman & Associates.

Real quick, I just want to give you kudos for the SG&A. It looks like as a percent of revenue, it's among the lowest levels since maybe fiscal '23. Just wanted to kind of understand if that kind of expense management on the SG&A line is kind of a conscious decision or if there has been expenses over time that you've been able to pull out of that line. Anything -- any color you can give there would be great.

Sure. With regards to SG&A overarchingly, our approach to our business model has always been to maintain a good part of that SG&A to be variable. And so the largest component there that moves with volume as an increase is sales commission and variable compensation. We do very carefully watch the fixed cost. So it's -- the SG&A in general leverages quite a lot as we increase the top line. So our approach has been consistent. We also are continually in putting -- instituting processes and procedures that add to our shared services so that when we continue to grow both organically and inorganically, the shared services and the back office can serve the field at a lower per unit cost. So it's more of a continuation of our commitment to maintain a very low fixed cost component for SG&A.

Yes. We definitely want to see what we saw. I mean, get that leverage on the fixed costs as we grow. So I appreciate you raising the question.

Yes, of course. So the fixed costs really you're talking about are the kind of shared services back-office type stuff, right?

That's correct.

There are no further questions. I'd like to turn the call back over to Bill Boor, President and CEO, for closing remarks.

Thank you. We're nearly at the top of the hour. A lot of good discussion. I appreciate the interest. I really want to acknowledge the execution across our organization that enabled these results this quarter. Over the last several quarters, we underwent a major ERP upgrade, which is always stressful and full of challenges. We rebranded our plants and aligned our product branding in ways that enable the customer experience to improve and enable us to give better lead generation for our retail partners, and we executed a thorough due diligence process and ultimately reached agreement to purchase American HomeStar. So with all this change happening in the organization and despite the ongoing uncertainty in the economy, our operations really delivered the results we've had the pleasure to discuss today.

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

This does conclude the program. You may now disconnect. Good day.

Good day, and thank you for standing by. Welcome to the Cavco Industries Planned Acquisition of the American Homestar Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead.

Good day. Thank you for joining us for Cavco Industries' announcement of the planned acquisition of American Homestar. During the 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 expected business and financial performance and are not promises or guarantees of future performance.

There are expectations or assumptions about the expected benefits of the acquisition of American Homestar, Cavco's financial and operational performance, cost savings operational efficiencies 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.

Forward-looking statements are subject to known and unknown risks and uncertainties many of which may be beyond the company's control. A number of important factors could cause actual events and results to differ materially from those contained in or implied by the forward-looking statements including, but not limited to, the risk that the proposed acquisition may not be completed in a timely manner or at all, the failure to satisfy any of the conditions required to close the transaction including the receipt of certain regulatory approvals, the occurrence of any event change or circumstances that could give rise to the termination of the transaction agreement.

The effect of the announcement of the proposed transaction on the company's business relationships, operating results and business generally; unexpected costs, charges or expenses resulting from the proposed transaction and other risks described in the risk factors set forth in our filings with the SEC, including the most recent annual report, which is also available on our Investor Relations website or at sec.gov.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Wednesday, July 16, 2025. 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.

To accompany this webcast, we have prepared a presentation, which you can view and control yourself within the webcast portal. These slides will not be synchronized with our discussion. In addition, it can be accessed via our website at investor.cavco.com under the Investor Relations Presentation section on the main page.

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

Thanks, Mark. Welcome, everyone, and thank you for joining us today to discuss our planned acquisition of American Homestar. This acquisition is another major step in our capital allocation and growth strategy. The opportunity to join forces with the quality organization like American Homestar doesn't come along every day and we're very happy to have reached agreement on this deal.

As Mark said, I will be referring to slides that are available online. And if you have access to those and I want to turn to Slide 3. This provides an overview of American Homestar. American Homestar operates 2 manufacturing plants, both are in the greater Dallas-Fort Worth area. They are highly integrated with 19 company-owned retail centers about 57% of their production is sold through their company stores.

Their shipments to communities, builders and developers closely mirror the industry ratio at about 30%. And the balance of their production goes to independent retailers to round out their operations, Homestar also originates a small number of land home mortgage loans. And lastly, they operate an insurance agency selling third-party insurer policies.

Across these operations, they have approximately 800 employees and over the last 12 months through May, they sold 1,676 homes. Regarding the transaction, we're estimating the total uses of cash to be $184 million, which will be completely funded from cash on hand, and we expect the deal to close early in our third fiscal quarter.

If you can go to the next slide, the market area, American Homestar's operations are concentrated throughout Texas with a few sales centers in Oklahoma and Louisiana. Their Lancaster plant focuses on HUD code homes, and the Fort Worth plant also does mostly HUD code units with some modular home production as well. Fort Worth also produces the company's innovative smart cottage line of homes. Smart cottages are generally smaller footprint homes with high-end designs and heavy, highly energy-efficient construction.

So to characterize that Lancaster leans in on higher volume, while Fort Worth covers a broad mix with some impressive innovative products. In the next slide, I'll talk a little bit about kind of the fit that we see with this deal. The addition of American Homestar clearly deepens Cavco's presence in one of the most important manufactured housing markets.

Currently, Cavco has 4 plants and 46 retail centers in Texas. American Homestar's approach to managing both integrated and independent retailer is just a really good match with our operations. Their products fit well and we'll have the opportunity to optimize the product mix across the combined retail footprint, filling out the offerings of each store with Cavco's broadened product lineup.

In other words, we'll be able to fill out their store offerings with current Cavco plant products and vice versa, and that will strengthen our retail position throughout the region. In addition to the retail product optimization opportunities, we expect to achieve cost savings by leveraging Cavco's in place shared services. We also expect to be able to deliver purchasing synergies, reducing the Homestar plant materials costs.

And as we've seen in prior manufacturing acquisitions, we expect to have plant efficiency and throughput opportunities through implementation of best practices. Again, the deal will be funded by cash on hand and will be accretive to earnings and cash flow. More generally, we at Cavco are very focused and driven to increase our impact by expanding our affordable housing solutions. And joining with American Homestar gives us added scale and capabilities toward that objective.

On the last slide, I'd like to just step back and finish on a bigger picture related to our allocation of capital. We looked at our use of capital over the last 4 years because that roughly covers the period of our share repurchases. Over the period, we've generated $800 million of cash flow from operations. We've reinvested about $100 million organically in our plant network. This has included our new plant in Hamlet, North Carolina as well as a number of high-return plant modernization plant projects, which have all improved safety, quality and production capacity.

Cumulatively, through these direct investments, we've meaningfully increased the overall production capacity of our existing system. We've also successfully found value-creating acquisitions, primarily the purchases of Commodore Homes in fiscal 2022, Solitaire Homes in fiscal '23 and now American Homestar.

Upon completion of the American Homestar transaction, we will have invested approximately $435 million in these major acquisitions. And we've repurchased over $420 million of our stock using this important tool to responsibly manage the balance sheet. Through these buybacks, we retired 15.5% of the shares outstanding.

So with that, Victor, I'd like to turn it over to questions.

[Operator Instructions] Our first question will come from the line of Dan Moore from CJS Securities.

This is Will on for Dan. Can you elaborate on the expected cost synergies and how long you expect it will take to achieve them?

Yes, we'll be developing that, and we're not going to get too much into quantifying, I would say that on this transaction, they are pretty substantial relative to the size of the deal. Some of them will come relatively quickly. We do think there's an opportunity in due diligence, we look at purchase of materials, and we do think there's an opportunity with our pricing on our materials at Cavco that we should be able to get pretty quick synergies by reducing their cost of materials. So that will come pretty quickly.

There are some cost synergies that will happen very quickly. I mean you can imagine that some of the folks at the leadership level of American Homestar, we'll take this opportunity to move on. So we'll get some pretty significant initial cost synergies. And over time, we'll work through the benefits of the shared service leveraging. So some will come pretty quickly and some I would say could develop over a period of, I would say, a year or so.

We'll have some offsetting upfront integration costs and expenses. Just as we work through systems integration and other aspects of integration. So I'm going a little bit beyond your question, but I think at a high level, I would think about it being relatively a wash in the remainder of 2025 when we'll run them for approximately 2 quarters. And then a lot of the integration synergies will be kicking in and most of the big integration costs will be behind us. So we'll kind of be hitting that full steam in fiscal '26.

That's super helpful. And then can you quantify...

I was going to -- I was going to add 1 more thought. Sorry for the long pause. But in addition to all these kind of pretty tangible things. I really do think that on deals like this, and we've seen this in the past, on deals like this, some of the product optimization opportunities and the best practice sharing and improvements to efficiency and throughput those are, frankly, the big ones, but they're harder to track, they're harder to put your finger on. And while I don't think they take forever. They take a little bit of time to get in place. So I just wanted to round out with that color.

Can you quantify the company's ASPs and factory-built gross margin and overall gross margins?

Yes, I can give you some feel for that because 1 thing you might notice even looking at the revenue numbers is that if you imply an ASP, it's not entirely that clean, but if you imply an ASP, it's relatively high. The reason for that is that, as I said, they're pretty highly integrated with retail. And so because they're putting 60% of their manufactured homes through their company-owned stores, their ASP is -- has a lot more retail pricing in it than ours.

They're around 60%. Cavco, I think we've told in the past was somewhere around 20%, plus or minus. So that kind of explains why you might look and see an implied high average selling price. When we look at the products and we look at it, cleaning out that retail effects on both gross margin and average selling price, I can tell you that when we look at their wholesale gross margin, it's very similar to ours. So these assets really don't have a standout difference other than that high degree of integration, which can drive some of the high-level numbers. Do you guys have anything to add to that?

I think just to add to it also as we've done with the last couple of acquisitions, when we do purchase accounting on some of the inventory just for a brief period of time, call it, 2 to 3 quarters, you will see slightly lower, say, call it 20 to 50 basis points of the total consolidation and then that comes back up to the gross margin to be comparable to the companies, similar to acquisitions, we did at Commodore and Solitaire.

[Operator Instructions] Our next question comes from the line of Greg Palm from Craig-Hallum.

Yes. Congrats on the acquisition news. And I guess just starting off, it might be helpful, if you can provide any color on just kind of the background of the deal in terms of how long they've been in the acquisition pipeline? Was there any sort of pros that was run? And maybe just why now, why? What was the sort of the rationale for the timing now?

Yes. This is a deal like a number of deals that we've talked about in the past that it's driven by when the owners are ready to sell, frankly. And I feel good that we were on the short list of folks that Buck Teeter and his team wanted to talk to. It did take us a bit of time to reach agreement. And I can't really speak and probably wouldn't if I could speak to what other discussions they had over time. But we had a very good productive process working one-on-one with them.

So from our perspective and what we know about the deal process, it was a one-on-one relationship for quite a while, trying to make this deal happen. These things, Greg, we've talked about it in the past. These things happen when -- when the seller is ready to sell their company. And I think that's kind of the story of this one, but I kind of don't want to put words in the Teeter's mouth on that.

No, that's fair. That makes sense. Can -- I know you mentioned a little bit -- talked a little bit through the cost synergies, and you kind of hinted at some revenue synergies as well. But can you maybe expand on -- on that. And I guess where I'm going with this is, like, for example, are there certain product lines, maybe types of homes that they don't produce that you can put through their own retail network and just sort of vice versa and thinking about distribution networks. Just talk to us a little bit about what you see in terms of revenue synergy potential here?

Yes. That's -- I mean, that's the 1 that I kind of waived that in the comments that we've had on previous deals, too. I remember in Solitaire, it was a big discussion. They have retail, we have retail as we add additional manufacturing plants to the combined system, which is what's going on here, you find that products being produced by the manufacturing plants are complementary.

And so the ability to take a Cav -- an existing Cavco store, for example, the availability to make -- to be able to more completely fill out all the price points and all the types of products that, that retail center wants to sell with Cavco produced products is a big opportunity. And that goes both directions. We should be able to bring to them complementary products into their retail system.

So it's a very hard 1 to quantify. We've been to learn through primarily through the Solitaire deal. We didn't have as much of that dynamic in the Commodore deal, which was really going into a new geography. But in the Solitaire deal, we definitely saw that product optimization opportunities. So I'm not sure what else to tell you, Greg, I'd be happy to answer a follow-up question if I'm not getting to the point, but we do think that that's a significant benefit of this kind of a deal.

Yes. Okay. And just in terms of the purchase price and kind of the inherent valuation multiple, it's definitely higher than sort of your other 2 most recent. So I'm just wondering -- is that a function of more retail network? Is that a function of maybe more potential synergies? I don't know, maybe the market is just moving towards higher multiples lately? Just maybe you can expand upon that a little bit.

Yes. Maybe where I'll start is kind of reiterate our process. I mean when we look at a deal, it's all about business planning. We model out and fill out a business plan and it's a lot of cash flow valuation and what return we can -- we think we can achieve on a deal at different price points. So we're not -- we're not applying a standard multiple to deals. We then kind of look at the multiple alongside that, just to make sure we feel comfortable with where we're at.

In this deal, I think there's 2 things that I would point out that it causes us to feel like it's fairly priced for both parties. 1 is we commented on their trailing 12 months results. We didn't give normalized, normalized is a very hard concept to nail down. However, we feel that the trailing 12 months would be below their through-the-cycle, even if they weren't selling to us, we think the last 12 months were a little bit below average for them because I think the industry has been in that mode.

So if you make one mental adjustment to more normalized, that brings the multiple down a bit and then as you said, and we've been saying this deal has significant synergy opportunities. And by the time you start to apply some of that in a business plan, the multiple, again, seems very fair to both parties.

Got it. Okay. Well, I'm going to leave it there. Congrats again it seems like it will be a great fit.

Thanks. Appreciate it.

[Operator Instructions] Our next question will come from the line of Jay McCanless from Wedbush.

The first 1 I had. If you think about what's more important here, is it more important to get an expansion in the store base? Or do one or both of these plants bring something to your Texas operations that you don't currently have?

Yes. We -- it's an interesting question because you're phrasing probably in a good way, a more important because we like both, right, in this deal. The fact that they're so highly integrated, the retail is really part of the operation. So it's not like -- we don't think of it as we went out and bought 19 stores, and we separately went out and bought 2 plants. This is a highly integrated and well-run business that fits together.

We always start -- at least I do, my mentality, always starts with manufacturing. I think they've got good plants and they make some good products. We were impressed by the innovation, which we think is important. And we also think that we can help those plants. I mean I think we can bring some things that will improve the performance of those plants, not that they're not run well now.

So for me, the manufacturing really drives the train and the retail to us is a critical component because it fits so well together and make sure that we have the access to the market that we need to be successful with the manufacturing. So that's the way I'd put it. Is that kind of address what you're asking, Jay?

Yes, absolutely. Thanks, Bill. The second question I had is I think you said they just do land homes with their financial services now. So there's not going to be much change in terms of like loans receivable, notes receivable to consumers that you guys are going to be adding to the balance sheet. Am I understanding that correctly?

Yes. In the scheme of their operations, their lending business is relatively small, and they're 100% or they basically originate the sell. So they've got some relationships with some investors just like we've explained our business in the past, so they're originating to sell.

They sell their land home deals, which is all that they've been doing of late. They sell those land-based deals to the third parties they don't stay on the balance sheet very long. And they also sell them with the servicing rates. So for completeness, it's important to know that they have that plus they have the insurance agency. But in relative scale to the business, it's a relatively small part of the deal.

Understood. And then lastly on...

We do think we'll get some benefits. I mean the loans that they're doing, like I said, they sell them with the servicing rates. We sell our loans, retaining the servicing rates. So there are some there's some opportunities, and we're happy to have what they do.

Got it. Okay. And then the last 1 I had kudos for the slide 6, I thought that was a great way to kind of tell the story about how much you guys have been spending on share buyback as well as on acquisitions. I guess are you going to be precluded from buying back stock until this deal is closed? And then after that, are you thinking about getting back on the normal cadence that Cavco had before? How are you thinking about that post deal?

Yes. I mean, we're very careful about blackout periods. But as this deal becomes public, we won't be precluded in that -- from that perspective. So we'll continue to look at the opportunities and continue to use buybacks as we have is a way to kind of just keep the balance sheet cheat in check.

So I don't -- this has been a main theme, since we started the buybacks that we've said we don't see -- we aren't making a trade-off between buying back stock and doing strategic moves like this. So I think this deal just kind of proves that point. We'll still have a healthy balance sheet, and we'll still use buybacks going forward to manage that in a responsible way.

[Operator Instructions] Our next question will come from the line of Jesse Lederman from Zelman & Associates.

Congrats on a good deal. It's always nice to hear from you. Question on the expansion in Texas and increasing the concentration there. Curious if the company average capacity utilization was in the 70% to 75% range. I'm curious what like the Texas and Dunkin' facilities were like? Were those higher? And so you felt the need to go out and increase exposure there? Or just a little curious on how demand has been and what the capacity utilization has been in the existing plants?

Yes. It really didn't enter into our thinking to think about the current state of the region. To be honest, it was kind of a long-term fit decision. So we really haven't been looking at, for example, current capacity utilization in Texas as a part of the decision-making. Over time, I think that stuff settles out, and we have a very long-term positive view about the industry in general. Obviously, when we're doing deals like this. But also about the important Texas market. It's a deep one.

And we think the opportunity to go to increase our position there was one, we really wanted to pursue. So Texas trying to be careful because we've got an earnings call in a few weeks, Jesse we will be updating you on what's going on in the market. But I will say that I don't think Texas has been noticeably different from a capacity utilization perspective than other regions in the country at this time.

Yes. Sorry, go ahead. Was there something else you wanted to add?

That's fine. That's it.

Okay. Yes, I was just curious if you were seeing stronger demand there and tighter capacity and felt the need to go out and grow that in the near term or if it was a longer-term idea. So thanks for the color on that. And I'd love to get your thoughts. It sounds like you were really pleased with the kind of interplay and relationship between the retail business and their manufacturing business, given they're closer to 60% through their captive retail.

But you mentioned you guys are still around 20%. So are there plans to drive that 20% higher? Obviously, it will move higher because of mix as you integrate the transaction. But as you think ahead, is that a strategy you'd like to continue to pursue is to grow the captive retail share?

I wouldn't say that that's specifically a strategy. I mean, here, we had a business that we kind of -- and we would look at this on any acquisition we do. You kind of have to look at, okay, how secure is the distribution of the products that are being manufactured. And here, they were already set up with a very highly integrated system. So they had the solution to that question, right? They had the answer to that question.

Frankly, and I don't have the number off the top of my head, but we are more highly integrated in Texas than we are in other parts of the country. Before this transaction, we had roughly -- I'll probably be off by 1 or 2 because it changes but roughly 80 sales centers across the country. But I believe I mentioned that, I believe, 49 (sic) [ 46 ] of them I think that number is right, 49 (sic) [ 46 ] of them are in Texas. So we're more integrated in Texas as they are.

But again, the big question to us is just if we're going to grow and have manufacturing, how comfortable are we with the distribution and the access to market and they had the answer to that with their integrated approach.

That's helpful. So you're pretty agnostic still to the distribution, whether it's through captive or independent. It's just that this deal and maybe in the Texas market specifically, it might make sense or be positioned more for captive, but in terms of the genesis of this deal, it wasn't particularly -- let particularly about let's grow the captive. It was just these pieces fit so well together and what they're already doing, and we can add gasoline to the fire?

That's right. I mean, again, Jay asked an interesting question the prioritization or the biggest driver. And it's kind of our mentality that at the core we're a manufacturer, and they've got a really well-run, very impressive retail business that make sure that what they can make, they can get to market. So it's just -- it starts with manufacturing for us.

And if you went to any geography in the country, we wouldn't necessarily have a target for retail. We just want to make sure that whether it's dealing with independents, which we are happy to do and enjoy those relationships or whether it's putting our own stores in place, we just want access and security of access to the market.

Right. Okay. That makes a lot of sense. Last 1 for me. You talk about maybe the underappreciated nature of the efficiency and the throughput opportunity as you integrate the 2 businesses and implementation of best practices, et cetera. I'd love to hear you just maybe give a couple of examples just so we can have a better idea of what some of those strategies might be that would translate to synergies there?

Yes. And 1 thing I'll say, I'm going to give you an example that we've talked in the past, it's not always 1 direction, right? Sometimes we buy a company, and it's almost a certainty that will be the case here where previous Cavco learns from the new additions to Cavco.

I give you the best example we have of that is when we bought Commodore, they came with some, what I would call, manufacturing technologies that we've been deploying across our system in those plant modernization projects that I talked about. And we've created tremendous value in the previous Cavco plants by leveraging the best practices and technologies that came to us with that acquisition.

So those synergies are very hard to pin down. They come over time. Sometimes, it's as simple as just a different way to think about how to run the operation, but often it comes with a little bit of investment. They're high-return investments when they're investment-oriented. So we haven't pinned that down, but we do believe, just by visiting the plants and seeing them that there's going to be a lot of opportunity for interplay between how they approach manufacturing and how we do and we'll be better for it.

[Operator Instructions] We actually have a follow-up from the line of Jay McCanless from Wedbush.

Just wanted to ask this since you talked about, Bill, maybe the results that you guys have put out there for American Homestar, maybe they were a little soft this year relative to historical I guess, is that partly due to some of the price competition you guys talked about on the last conference call? And if so, are you still seeing that price competition and where is that price competition mainly focused?

Yes. Again, I don't want to -- and you'll appreciate this, I know you're not fishing for it. I don't want to get too much into what we might cover in the earnings call, since we're so close to that and we're pretty far since the last earnings call.

No, my comment wasn't that they're underperforming. My comment was more general from an industry perspective. that I don't think the last 12 months across the industry really reflects the earnings potential of good companies operating within the industry. So their last 12 months wasn't underperforming. It was performing relatively in line with how the whole industry is doing. I just think there's a lot of upside from that.

But kind of -- just -- and I guess I will give this piece of data. Their shipments over that -- well over the last fiscal year for them. Their shipments over that period were roughly 70% of what they shipped 2 years ago, when that industry was really hot. So there's considerable upside in these plants, plus I can say that they've done some good investing in the plants recently. So that's really what I was alluding to, Jay, is more of the opportunity for upside, and I didn't mean to imply underperformance.

I'm not showing any further questions at this time. I would now like to turn the call back over to Bill Boor, President and CEO, for closing remarks.

Thank you. And I do want to make a couple of comments before we sign off. I really want to thank Buck Teeter, Dwayne Teeter and the entire Homestar team. And it did take some time to reach this agreement. And I think it was time well spent to arrive at deal that's beneficial to the stakeholders of both companies. And through that process, you really get to know each other pretty well.

In my respect for the Teeters and their entire team only grew through our discussions over the past months. And I became more and more convinced that this deal makes a lot of sense, not only from an asset combination perspective, but also from a cultural perspective.

Buck built this company over 54 years and he grew it. You saw it through really devastating industry downturns and in the end, what survived as a well-run and really deeply committed organization. So I can only imagine the emotions through a deal process like this and ultimately, the decision to sell the company you built over so many years. But we at Cavco are humbled and extremely appreciative that they decided Cavco is the right fit.

We're really looking forward to the years ahead with the American Homestar team. So with that, we'll sign off. We really appreciate everyone's time and interest today. And we look forward to updating you on the quarter in a few weeks. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.