Cavco Industries - Q1 2024

Transcript

Operator (participant)

Good day, and welcome to the Cavco Industries Q1 fiscal year 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead.

Mark Fusler (Corporate Controller and Investor Relations)

Good day. Thank you for joining us for Cavco Industries Q1 fiscal year 2024 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, including statements of 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.

I encourage you to review Cavco's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, August 4th, 2023. 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. I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

Bill Boor (President and CEO)

Welcome, and thank you for joining us today to review our Q1 results. While the earnings release provides year-over-year comparisons, I'd like to focus primarily on the sequential movements, which I think are more relevant in understanding the current dynamics. From an operating and financial results perspective, this quarter was very consistent with Q4. Sequential volumes were essentially flat, up about 2%. Revenue was flat at $476 million, and pre-tax profit was up slightly from $59 million to $61 million. Our capacity utilization, as measured over all available days, remained consistent as well, at approximately 60%. Operationally, it's been a steady quarter at the reduced pace, with most of our plants remaining on a four-day schedule, and costs are being well managed, as indicated by the strong gross margins. The most notable change this quarter was a meaningful pickup in wholesale orders.

Backlogs edged lower from seven to eight weeks to five to six weeks, showing that production is still outpacing wholesale orders. However, the change was more modest than in the past few quarters, meaning the pace of orders did improve. Order rates were up year-over-year and up considerably over Q4. The pickup in orders is partly attributable to the improvement in retail inventories, which are now largely under control, and it's partly due to increased homebuyer activity. We need to see these trends continue in order to achieve balance with our reduced production rates, and then we'd be able to start ramping capacity utilization up from there. In our retail business and across our independent dealers and communities, there's a continued confidence in the underlying demand, and that's based on traffic, quotes, and overall buyer activity.

Interest rates and general economic confidence remain the questions for the near term. Given the positive order trend, we believe we've seen the bottom of wholesale orders, and we're looking to return to full production schedules as soon as the market support develops. I spoke about this last quarter, continue to think it's worth noting in these tougher operating times that our plants have done an outstanding job of managing margins despite reduced production rates. Factory-Built gross margins remained healthy at 24.8%. This was certainly helped by lumber and OSB pricing this quarter and by continued healthy selling prices. The business model is centered on the ability to keep controllable costs in our factories as variable as possible, our healthy profit and cash generation, despite a challenging order environment, is the result.

It's been a fast two quarters since we closed on the Solitaire deal. The work to combine the companies continues to go well. One area of focus has been on developing new models and updating the existing lineup with a focus on high-quality, lower-priced products in line with current market needs. We've spoken in the past about the opportunities to round out product offerings across the combined retail operations, and very good progress has been made there. As we continue to work off the purchased inventory, Solitaire's impact on our results will develop as expected. Overall, there have been no surprises, and we're very happy with the acquisition and the great people that have joined our Cavco family. With that, I'd like to turn it over to Allison to discuss the financial results in more detail.

Allison Aden (EVP and CFO)

Thank you, Bill. Net revenue for the period was $475.9 million down $112.4 million, or 19.1% compared to $588.3 million during the prior year's 1st fiscal quarter. Within the Factory-Built Housing segment, net revenue was $457.1 million, down $115.5 million, or 20.2%, from $572.6 million in the prior year quarter. This decrease was primarily due to a decline in base business homes sold and a decrease in average revenue per home sold, partially offset by the Solitaire Homes acquisition, which contributed $36.8 million in the quarter. The decrease in average revenue per home was primarily due to more single-wides in the mix and, to a lesser extent, product pricing decreases.

After utilization for Q1 of 2024 was approximately 60% when considering all available production days, but was nearly 70%, excluding scheduled downtime for market or weather, consistent with the Q4 of fiscal 2023. Financial Services segment net revenue increased 19.2% to $18.8 million from $15.7 million, primarily due to more insurance policies in force and higher premium rates. Consolidated gross profit in the first fiscal quarter as a percentage of net revenue was 24.8%, up 20 basis points from the 24.6% in the same period last year. In the Factory-Built Housing segment, the gross profit increased 40 basis points to 24.8% in Q1 of 2024, versus 24.4% in Q1 of 2023, driven primarily by lower material dollars per floor.

As expected, Solitaire purchase accounting adjustments on acquired inventory continue to have a 40 basis point negative impact on our gross margins this quarter. Under accounting rules, the inventory acquired upon purchase is recorded at fair value, which approximates the sales price. Therefore, when acquired inventory is sold, no operating income is recognized. We anticipate seeing the same impact for the next 2 quarters. Gross margin as a percentage of revenue in financial services decreased to 24% in Q1 of 2024, from 32.6% in Q1 of 2023, resulting from higher insurance claim expenses from increased weather events, which included a very long period of daily storm activity in Texas. Selling, general and administrative expenses were $61.7 million, compared to $66.1 million during the same quarter last year.

The decrease in these expenses is primarily due to lower third-party support costs and lower incentive compensation costs, partially offset by the addition of Solitaire Homes SG&A costs. Interest income for the Q1 was $4.6 million, up 251% from the prior year quarter. The increase is primarily due to higher interest rates on greater investment cash balances and increased lending under our commercial loan programs. Other income net, this quarter was $0.1 million, compared to $0.4 million of expense in the prior year quarter. This increase is primarily driven by unrealized gains on equity securities held in the current year, compared to losses in the prior year. Pre-tax profit was down $18.6 million, or 23.5% to $60.7 million, compared to $79.3 million for the prior year period.

The effective income tax rate was 23.5% for the first fiscal quarter, compared to 24.7% in the same period last year. In the prior year period, Energy Star credits had expired and had not yet been fully extended. Therefore, the current period tax rate is more indicative of our future rate. Net income attributable to Cavco shareholders was down $13.2 million, or 22.1%, to $46.4 million, compared to $59.6 million in the Q1 of the prior fiscal year. Fully diluted earnings this quarter was $5.29 per share, versus $6.63 per share in last year's Q1. Before we discuss the balance sheet, I'd like to take a minute to talk about capital allocations.

As announced with our press release, the company's board of directors approved a new $100 million stock repurchase program that may be used to purchase our outstanding common stock. This increases the total availability to $135.7 million. This includes the remaining amount under the program previously announced last year. With that, we will continue to responsibly deploy capital in keeping with our strategic priorities. Our capital priorities remain land improvement, further acquisitions, and ongoing evaluation of the opportunity in our lending operations. We will continue to utilize buybacks as a tool to responsibly manage our balance sheet. Now I'll turn it over to Paul to discuss the balance sheet.

Paul Bigbee (Chief Accounting Officer)

Thank you, Allison. When we compare the July 1st, 2023 balance sheet to April 1st, 2023, the cash balance was $352.2 million up $80.8 million, or 29.8%, from $271.4 million at the end of the prior fiscal year. The increase is primarily due to net income adjusted for non-cash items such as depreciation and stock compensation expense and other working capital adjustments, including inventory, which decreased $9.2 million from lower raw materials at our factories and finished goods at our retail locations. Cash also increased due to the sale of consumer loans greater than originated, partially offset by commercial loan originations exceeding payments received. Prepaid and other assets are down from lower prepaid taxes and the normal amortization of prepaid expenses. Property, plant and equipment net is down from the sale of equipment acquired with Solitaire Homes.

Lastly, stockholders' equity exceeded $1 billion, up $47 million from $976.3 million at the end of the prior fiscal year. This completes the financial review. Now I'll turn it back to Bill.

Bill Boor (President and CEO)

Thanks, Paul. Our results this quarter highlight the ability of our organization to manage costs and generate cash even when conditions are challenging. Everyone at Cavco is ready for what we view as an inevitable return of demand, so we can help more families get the homes they need. With that, Abigail, let's turn it over and open up the line for questions.

Operator (participant)

Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment for our first question. Our first question comes from Daniel Moore with CJS Securities. Your line is open.

Daniel Moore (Partner and Director of Research)

Sorry about that. It was muted. Thank you, Bill, Allison, Paul. Good morning. Thanks for taking the time and the questions. Maybe, and Bill, very helpful, you know, colors in terms of the cadence of orders and demand. Maybe if you can delineate across end markets, starting with retail, then the REIT channel and community developers, you know, what's the cadence of order look like, you know, throughout the quarter and, and thus far into fiscal Q2?

Bill Boor (President and CEO)

You're just looking for kind of relative differences between those?

Daniel Moore (Partner and Director of Research)

Yeah, exactly.

Bill Boor (President and CEO)

I understand.

Daniel Moore (Partner and Director of Research)

Exactly. And, and, and, you know, and the rate of improvement and whether that's continued thus far, in the current quarter.

Bill Boor (President and CEO)

Yeah, it has continued. I mean, I think we talked last time about, order levels and the fact that they left the Q4, you know, basically, not confuse the time periods. March was stronger than January, right? As you would expect seasonally, but it was good to see it, and that's what we kind of reported on last quarter. That strength kind of continued to carry through, and as I said, we had a pretty nice sequential increase in order rates, this quarter. To take it deeper, because I think this is part of your question, that a lot of that strength, I think, is really coming from the, the dealers, the independent stores and our, our obviously Cavco-owned stores. We've talked about the inventory problem, and last quarter, we said that we really thought that was going to...

You know, it's not like it immediately is an on/off switch, but that was gonna largely be behind us sometime during this Q1. I think that's the case from a total inventory perspective. Right away, you kind of get the lift of starting to get to one-to-one orders, right? They sell a house, and they need to order another, another home from the factory. That's kind of played out as we expected it to when we talked last quarter. A lot of the, the uplift in order rates has really come from the dealers. The communities are lagging a little bit, and it's, it's interesting to think about. I think they're, they're dealing with their own form of an inventory problem.

We've talked this in the past, and I think it's hard to generalize across the thousands of communities that are out there, but I think, I think the community inventory problem takes two forms. Some communities have set houses, they're ready to be occupied, and they've seen a slowdown in filling those homes, so they're not going to be ordering. Then we're ordering as fast. It's not an either/or, but they're going to be kind of on the slower side of wholesale orders. Then other communities, and we've talked this, they have unset homes. They have inventory of homes they previously ordered and that were largely delivered, that they haven't been able to get set in place due to permitting and crew problems, set up crews.

If they could set more quickly, they feel they do have the demand, but they're not able to get the homes ready to be occupied. I don't mean to complicate this, but I think we've got a little of all that going on in the community side. The total effect is that while retail orders are on the upswing, community orders are lagging a bit. You know, we've talked to folks, both our people talking to the communities and also at a higher level with some of our large REITs, and best estimates we've heard are that this issue will start to ease up by the end of the calendar year, and we'll expect to see community orders improve, which will be upside from the pace of ordering we've seen now. That's all...

You know, every time I talk about that, looking forward, I always feel like I've got to say, that's all assuming macroeconomic factors kind of allow that, right? There's, you know, we've seen what happens when there's kind of a shock or big upswing in interest rates and things slow down. Macro factors permitting, I think the communities will pick up yet this calendar year. That was a mouthful, Dan. Did I, did I cover the bases?

Daniel Moore (Partner and Director of Research)

Without a doubt. No, I, I found that, that was extremely helpful. In fact, maybe just delineate a little bit further between communities and REITs, any difference or delta between those, the, the factors that you just described there, and, you know, what they're saying about their likely plans as we look to the balance of the year and next year?

Bill Boor (President and CEO)

Yeah, I'm not sure what you're asking for delineation on. I was kind of talking through collectively the REITs and therefore the community operators.

Daniel Moore (Partner and Director of Research)

That's fine. We kind of finish that offline, maybe talk about.

Bill Boor (President and CEO)

Okay.

Daniel Moore (Partner and Director of Research)

as you mentioned, the, you know, in order to start to see an uptick in factory utilization, you need to see orders continue to build, I believe I heard that correctly. What are your expectations for shipments, as well as ASPs directionally, you know, for fiscal Q2? Should we accept expect shipments to be basically flattish from here, a little, you know, maybe a little bit of pullback? What are your thoughts?

Bill Boor (President and CEO)

Yeah, we kind of stay away from guiding because I think it's still subject to changes in the market. I'd kind of shy away from making a prediction about it. My comment was, as you picked up, it was that, you know, it's not only the level of backlog that matters, it's the direction of backlog, and we haven't turned that around yet. We saw another bit of drop in backlog this time. It was much, much smaller drop to the pace of that drop's improving. I guess I'm being very repetitive here, but that pace was improving because the orders were up. Our production level was pretty, pretty steady the last two quarters. We just need that trend to continue.

I think it's on the right trajectory, where we'll see backlogs first stabilize, which will be great, and then hopefully start to build with our four-day schedule. Again, hopefully return to a level that supports us starting to take plants on a local basis back up to full schedule. I'm not trying to make a prediction as much as just saying that's, those are the trends that we're gonna keep an eye on, and we're gonna be looking forward to that time we get our utilization back up.

Daniel Moore (Partner and Director of Research)

Understood.

Bill Boor (President and CEO)

You asked about pricing as well, Dan.

Daniel Moore (Partner and Director of Research)

Yep.

Bill Boor (President and CEO)

You asked about pricing as well, and that's very related, right? If the supply and demand balance supports, I think the industry's shown good discipline in holding prices as well as it has. All we need is for those backlogs to stabilize and start turning direction, and then that would support prices. If something happens to disrupt demand, then I think it, it's a real risk, as it always is in this industry.

Daniel Moore (Partner and Director of Research)

Understood. helpful. I will jump back with a couple of follow-ups, but turn it over. Thank you.

Bill Boor (President and CEO)

Thanks, Dan.

Operator (participant)

One moment for our next question. Our next question comes from Greg Palm with Craig-Hallum. Your line is open.

Greg Palm (Senior Research Analyst)

Hey, thanks for taking the questions. Maybe starting off on following up on, on a couple of, Dan's. Can you maybe quantify exactly kind of what you're seeing in terms of order rates, whether that's a sequential or year-over-year basis? Then just specifically, what are you, what are you seeing in July? Are you seeing, you know, sort of same magnitude of what you were seeing in, in the quarter? Are you seeing, you know, better? Are you seeing worse? Then maybe just kind of remind us what kind of normal seasonality is in terms of, you know, order rates on a, on a normal year?

Bill Boor (President and CEO)

Yeah, I can take a stab and then ask the other folks to correct if I get this off on anything. I'm looking at some data here. I'll give you the numbers. We haven't historically done this, on a same plant basis, which basically what's not included in these numbers is a Solitaire acquisition. On a same plant basis, we're up about 25% year-over-year on orders, and quarter-to-quarter, we were up about 65%. Pretty big jumps. Last year, I think, I think I'm right about this, last year, we were in a period now where we were starting to see cancellations and the orders drop off. You know, I really think it's more instructive to focus on sequential, but there's the data on both.

Greg, could you remind me the second part of your question?

Greg Palm (Senior Research Analyst)

Yeah. What are you seeing in July, specifically in terms of order rates? I mean, anything that's-

Bill Boor (President and CEO)

Yeah.

Greg Palm (Senior Research Analyst)

-maybe-

Bill Boor (President and CEO)

Seasonality

Greg Palm (Senior Research Analyst)

Different relative to the, to the quarter? I guess if you can just remind us kind of what normal seasonality is on, you know, for, for a typical year in terms of orders.

Bill Boor (President and CEO)

Yeah, the you know, I wouldn't note anything different in July, kind of the continuation coming off the last quarter information I just shared, so, nothing of note there. Seasonality is interesting. We've looked at this, and, you know, you kind of if you take the year, this is gonna be way too simplistic, but I think if you looked at the year, kind of late March timeframe through October, that tends to be considerably higher, and then things drop off after October seasonally, when you get into November, December, and the early part of the calendar year, as far as the seasonality.

I'll tell you, the seasonal shifts in some years where you've got a lot of, lot of bigger things going on, like we have, like the interest rate adjustments and the macroeconomic drivers kind of shifting on folks as far as confidence, the seasonal aspect can sometimes get dwarfed by that. We should. You know, we're not hitting a period where we'd expect things to drop off seasonally. We should be in, from that perspective, be in a good zone through October, at least.

Greg Palm (Senior Research Analyst)

Yeah. Okay. In terms of the commentary on the community orders, and, and, and more, more or less on the, on the, on the timing, how's your visibility? I think what you said was, you know, expect to see, you know, some orders, you know, I don't know if it was by year-end or towards the end of the year, but can you give us maybe a, a little bit finer point on, on when you think? I know your crystal ball's.

Bill Boor (President and CEO)

Yes

Greg Palm (Senior Research Analyst)

not perfect, but just based on all the information we know today.

Bill Boor (President and CEO)

Yeah. Well, thanks for acknowledging it's not perfect because I was feeling that way as you were asking the question. Yeah, I think my only statement is that just about everyone we talk to internally and externally kind of feels like this is something that'll be worked through in the next couple quarters. That's why I didn't really pinpoint it. I don't know. You know, these things don't happen... I always say that they don't happen like in one off switch. Hopefully we'll be able to see this ease during the period. Even in talking to, you know, our big REIT customers, they're kind of feeling like, "Hey, by the end of the year, we should be, quote, back to normal," meaning this, as I'm defining it, an inventory problem that they have is kind of worked through.

It's a little bit analogous to what we went through with the dealers, and, the communities just seem to be on a little different time schedule. I can't pinpoint it by months.

Greg Palm (Senior Research Analyst)

Yeah. But just to be clear, does that mean they order in advance, so they're ready to start taking more units by the end of the year? Or is your, your expectation that they start sort of ordering the units and then, you know, it's another, you know, handful of weeks or months until they actually take delivery and set them up?

Bill Boor (President and CEO)

Yeah, it's kind of fine-tuning. You know, we do expect that we'll see, you know, if we have an expectation, we do expect that we'll see orders in that timeframe. Keep in mind, our backlogs are pretty short. You know, all of our customers know that orders turn into shipments pretty quick when backlogs are this short. They won't be ordering with an assumption that that means for delivery far in the future. It should be really. You know, when we have this short of a backlog, which is a good thing in this regard, you know, it should be pretty, pretty just in time. You know, they make an order, we're putting it into production and getting it to them.

Anyway, long-winded way of saying, I think the answer to your question is, yeah, we're hoping that we'll have communities strengthening to support the order trends we're seeing from street dealers right now.

Greg Palm (Senior Research Analyst)

Understood. Last question around margins. I think you mentioned, you know, increased claims in the Financial Services. Do you have sort of any visibility on whether, you know, that might impact this quarter as well, or do you feel like that was just sort of a, a one quarter kind of thing?

Bill Boor (President and CEO)

Yeah. You know, it's weather. Everything that our insurance company is doing to run their business, they feel real good about. You know, their costs are right. They're getting appropriate, premium increases, which are, that's a whole process to get states to approve premium increases, and it takes a little time for the premium increases to kick in. You know, that business is operating as we expect it to. They just had high claims. In my view, you know, the, we had a number of storms, none of which were catastrophic, so they didn't get into the reinsurance levels. On the kind of near-term outlook, there's no reason to think that correlates necessarily to a continuation of storm events for the rest of the year.

It's kind of just from a planning perspective, you know, that past quarter is kind of isolated, and we're looking forward to the insurance company. You know, over time, they've done real well for us economically as far as getting a good return and making profits, but a little bit of the nature of the game that periodically you get hit with a rash of storms. Not sure if that was a clear answer. Going forward, I don't see that there's any reason to expect a continuation.

Greg Palm (Senior Research Analyst)

Yeah. Yeah. Okay, sounds good. All right. Thanks for the questions.

Bill Boor (President and CEO)

Thanks, Greg.

Operator (participant)

As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our next question comes from Jay McCanless, McCanless with Wedbush. Your line is open.

Jay McCanless (Managing Director of Equity Research)

Morning, everyone. Thanks for taking my questions. Bill, congrats. Cavco's unit decline was about half of the 28%-29% decline we saw in industry shipments. I guess, could you talk about how flexible you've had to be on price to out-- to, to do better than the industry? Then also, on the flip side of that, now that we've seen lumber prices starting to work their way up, have you guys been tightening up on pricing, just in the eventuality that, that higher lumber prices are going to start to flow through?

Bill Boor (President and CEO)

Yeah, I, I really don't think we've, I don't think we've maintained or gained any market share through pricing, through being more aggressive on pricing. I really don't believe that's the case. Just as we talk to all of our plants, we're in constant touch with them and have focus calls every month. You know, we go through them kind of sensing what's right to do in their market. For the most part, when they're kind of looking and talking to their own customers, the dealers, they, they feel like we're priced right with, you know, the other manufacturers. I think we, I'd like to think that we've got really good relationships with our dealers.

I think that pays off over time, and I'd attribute, you know, any strength there to, you know, us focusing on the independents and doing a good job for them. I don't think it comes from pricing. The question about lumber coming up, you know, we always talk about our gross margins in kind of an obvious way, that it's partly driven by those costs, and it's partly driven by price. I've also said that for the last couple of years now, I think the price we charge as an industry, but us as well for our homes, is a little bit disassociated with the cost. It's been driven by the supply and demand of our homes.

You know, I don't- I guess it's a way of saying, given where we are now, I'm not sure I believe that, we're going to necessarily be, kind of correlating price to any uptick in lumber and OSB prices, if that makes sense. We'll be kind of looking at it more from the standpoint of our competitive position and the supply and demand of homes in all those local markets.

Jay McCanless (Managing Director of Equity Research)

Sure. Makes sense. Could you talk about where chattel mortgage rates are now versus maybe last quarter and, and last year?

Mark Fusler (Corporate Controller and Investor Relations)

Yeah, Jay, this is Mark. I can take that one. They've been pretty consistent sequentially. Right now, they're still about 9.15% to about 9.4%.

Jay McCanless (Managing Director of Equity Research)

Sounds good. I guess the other question I had, just thinking again about capital allocation, the new authorization, could you maybe talk about whether you do more stock repurchase first, or does it make sense to expand on the floor plan side? Maybe just some, some general thoughts about that.

Allison Aden (EVP and CFO)

Sure, James, let me help with that. You know, I think if you take a step back, we've been very diligent since our first authorization, which was a couple of years ago, in using the repurchase authorizations, and we do have, you know, $35 million on our previous authorization, and the board just gave us another $100 million. We really use these, stock buybacks as a balance sheet management tool that remains available to us and something that we do plan to execute upon. You know, we recognize that this creates, maybe too much attention to when we are and aren't in the market in a given quarter, when we've had markets in the, quarters in the past when we didn't repurchase, and there's a variety of considerations.

I wouldn't read too much into the fact that we weren't in the market, except to say that, you know, we're not generally speculating on our stock price when we make these decisions. We're really managing the balance sheet and making sure we're conservative about possession of any non-public information. We still invest around our strategic priorities, you know, which are expansion of plant operations, and ongoing evaluation of opportunities and lending operations, that are, you know, right down the center of manufactured housing. Just take it as a whole, you know, it's just our continued focus on using stock buybacks as a responsible way to manage the balance sheet.

Jay McCanless (Managing Director of Equity Research)

Got it. Okay, thanks. That's all I had.

Operator (participant)

Thank you. That concludes the question and answer session. At this time, I would like to turn it back to Bill Boor, President and CEO, for closing remarks. Bill, please make sure your line is not muted.

Bill Boor (President and CEO)

Thank you. It was. Apologize for that. Despite our reduced production schedules and our, you know, our plants are still operating efficiently, and our retail organization continues to proactively drive lead generation and sales, and we're providing valuable tools to our retailers and prospective homebuyers with our digital marketing advances. All of this, combined with our strong balance sheet, puts us in a great position to take what the market offers at the moment and be ready to ramp up when the inevitable release of demand occurs. The housing affordability problem continues to worsen, and while near-term economic drivers can slow orders, the underlying need and demand is only increasing. With that, I want to thank you, as always, for your interest in Cavco, and we look forward to keeping you updated on our progress.

Operator (participant)

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