Cavco Industries - Q4 2023

Transcript

Operator (participant)

Thank you for standing by, welcome to the Cavco Industries fourth quarter fiscal year 2023 earnings call and webcast. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press *11 on your telephone. To remove yourself from the queue, simply press *11 again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Mr. Mark Fusler, Corporate Controller and Investor Relations. Please go ahead, sir.

Mark Fusler (Corporate Controller and Investor Relations)

Good day, and thank you for joining us for Cavco Industries' fourth quarter and fiscal year 2023 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 Digby, 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 ten K and ten Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, May nineteenth, 2023. Cavco undertakes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

Bill Boor (President and CEO)

Thanks, Mark. Welcome and thank you for joining us today to review our results for the fourth quarter of 2023. This quarter saw the full impact of the economic pressures and retail inventory issues we've been experiencing through the latter months of calendar 2022 and into this year. Our volumes were down 10% year-over-year. Revenue dropped approximately 6% or $29 million, and pre-tax profit was down about 15%. It's clearly been a challenging operating environment. On the positive side, we have seen improvement in order rates with net orders up meaningfully compared to the last two quarters. In fact, on the same plant basis, net orders were about double what we saw in Q3.

We spoke last quarter about watching orders as we entered the seasonally stronger selling season, and it's a good sign that we also saw that order rate improve throughout the fourth quarter. While average selling price is off sequentially, pricing has held up well despite the drop in industry shipments. Overall, our average selling price was down about 6% sequentially. However, the majority of that decline was mix-driven as opposed to price reduction. A very important component of our business model and something we focus on in downturns is keeping our cost structure as variable as possible so we can maintain profit and cash flow at lower volumes. This is something that can be seen in this quarter's results. Factory build gross margins remained high at 24.4%, essentially flat year-over-year despite the negative impact of Solitaire purchase accounting.

Certainly, this was helped by pricing and commodity cost improvement compared to last year. However, it's also due to outstanding cost management in our plants as they transition to reduced schedules. Despite same plant production rates being off 24% from the peak last summer, gross margins have held. On a comparable basis, excluding one-time items in Solitaire, SG&A was lower than last year's quarter. Our leaders have adjusted quickly and very well, and we're demonstrating the focus on cost and efficiency we consider to be key to our success. The bottom line is that in a challenging demand environment, we posted operating income of $54.3 million in similar free cash flow generation. I'm very proud of these results that demonstrate the expertise, resilience, and nimbleness of our operating teams.

Regarding market conditions, it's difficult to generalize across the system in an environment like this. I'll try. For some time, we've been facing a retail inventory issue that has kept wholesale orders below actual industry retail sales. We're nearing the end of that issue and getting closer to a 1-to-1 ratio of home buyer demand and manufacturer orders. I've commented before that this issue will not go away suddenly. My comment here is not to say that every local area and dealer has gotten to their target inventory. However, in general, this issue is largely behind us. That's a positive for order rates going forward. As I've kept in touch with both independent retailers and our own stores, there's a lot of optimism. Retailers are seeing healthy traffic. Quotes have remained at a high level, frankly higher than we saw over the previous 2 years.

We watch quotes as a leading indicator of future deposits. The traffic and quote data support the view that to the extent interest rates and macroeconomic factors allow, the fundamental need for our homes is building positive pressure for future order improvement. We've seen in the total housing industry that new home sales are starting to improve, further indicating that buyers are adjusting to the interest rate changes. In many cases, adjusting their expectations of the home they can afford. Supporting this view after several years of product mix shifting toward multi-section homes, we're now seeing that trend reverse towards single section homes. As Allison will cover in more detail, this quarter we completed the Solitaire acquisition and continued share repurchases while maintaining a strong cash balance. Our capital allocation approach remains unchanged by the current order environment.

I wanna express my sincere appreciation to all the folks at Solitaire and within Cavco who have worked on various aspects of the integration. It's hard work, and they've made really great progress. I've spoken in the past about the very real benefit of rounding out product offerings both in the Solitaire and Cavco-owned stores. Our retail team has moved quickly, and this is well underway. We're also focused on product updates and product development, particularly aimed at lower price point homes. Through a lot of hard work, everything is moving forward with a very good combination. Let me switch gears. Last quarter, I talked about the milestone achieved in January when we went live with cavcohomes.com, our new customer-facing digital home marketplace.

I won't repeat all the aspects involved in this game-changing improvement in how we support our dealers and our prospective home buyers, but I do wanna give a sense of our progress. Early traffic and lead generation has been strong and is expected to continue growing. We've been very happy with the reaction of our retailers. Particularly our smaller retailers have been enthusiastic about having an easy-to-use website they can update with prices, photos, and videos. All retailers are benefiting from the additional exposure and leads being funneled to them for follow-up. With the site now in place and fully functional, we will be continuing the process of adding more Cavco brands and expanding the suite of customization options to support our retailers and home buyers. 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 $476.4 million, down 5.8% or $29.1 million compared to $505.5 million during the prior year's fourth fiscal quarter. Within the factory built and housing segment, net revenue was $456.1 million, down 6.6% or $32.2 million from $488.3 million in the prior year quarter. The decrease was primarily due to a decline in base business units, partially offset by a 4.4% increase in average revenue per home sold and $28 million from the Solitaire acquisition.

Financial services segment net revenue increased 18.4% to $20.3 million from $17.2 million, primarily due to more insurance policies in force and higher premium rates, partially offset by lower interest income earned on the acquired consumer loan portfolio that continues to amortize. Consolidated gross profit as a percent of net revenue was 25.3%, down 30 basis points from the 25.6% in the same period last year. In the factory build housing segment, the gross profit decreased slightly to 24.4% in Q4 2023 versus 24.5% in Q4 of 2022, primarily due to Solitaire purchase accounting adjustments on acquired inventory. Under accounting rules, the inventory acquired is recorded at fair value, which approximates the sales price. Therefore, when acquired inventory is sold, no revenue is recognized.

This reduced the factory build and consolidated gross margin percentages by 40 basis points in the fourth quarter. Gross margin as a percent of revenue in financial services decreased to 45.7% in Q4 of 2023 from 58.5% in Q4 of 2022 as a result of weather events in Texas and in Arizona. Selling, general, and administrative expenses were $66.4 million or 13.9% of net revenue, compared to $59.7 million or 11.8% of net revenue during the same quarter last year. The increase is primarily due to higher expenses incurred in leveraging third-party consultants assisting with the energy tax credit projects, higher legal costs, specifically related to an indemnified former officer and his ongoing SEC litigation costs, deal costs related to Solitaire, and the addition of Solitaire SG&A costs in Q4 of 2023.

Interest income for the fourth quarter was $3.9 million, up 212% from the prior year quarter. The increase is primarily due to higher interest rates on our invested cash balances and increased lending under our commercial loan program. Net other income this quarter was $0.7 million compared to negative $2.5 million of expense in the prior year quarter. This increase is primarily driven by gains on corporate equity securities in the current year compared to losses incurred in the prior year. Pre-tax profit was down 14.6% this quarter to $58.6 million from $68.6 million for the prior year period. The effective income tax rate was 19.1% for the fourth fiscal quarter compared to 22.1% in the same period last year.

The lower rate was a result of tax credits related to the sale of energy-efficient homes available under the Internal Revenue Code Section 45L in the current quarter. Net income attributable to Cavco shareholders was $47.3 million compared to net income of $53.6 million in the same quarter of the prior year. Diluted earnings per share this quarter was $5.39 per share versus $5.80 per share in last year's fourth quarter. Before we discuss the balance sheet, I'd like to highlight that we continue to execute on our capital allocation priorities with the recently closed acquisition of Solitaire Homes and share repurchases of $30 million in the fourth quarter.

The purchase of Solitaire Homes utilized approximately $106 million in net cash, leaving us with over $270 million of cash subsequent to the purchase. We will continue to appropriately deploy this capital in keeping with our strategic priorities. I'll turn it over to Paul to discuss the balance sheet.

Paul Bigbee (Chief Accounting Officer)

Thanks, Allison. Comparing the April first 2023 balance sheet to April second 2022, our cash balance was $271.4 million, up $27.2 million from the end of the prior fiscal year. The increase is due to net income adjusted for non-cash items and changes in working capital, partially offset by the acquisition of Solitaire Homes, common stock buybacks, and purchases of property plant equipment, primarily related to the purchase and development of our Hamlet, North Carolina, facility and continued development of our Glendale, Arizona, facility. Investments, including short term, are down primarily due to the return of capital from a joint venture and sale of corporate marketable equity securities. Inventories increased from the Solitaire acquisition, offset by declines in raw materials and home sales at our retail locations.

Prepaid and other assets are higher, resulting from prepaid taxes associated with higher taxable income in the current year and timing of estimated payments. Property, plant, and equipment is up primarily due to the Solitaire acquisition and the purchase of our facility in Hamlet, North Carolina, and the development of our Glendale, Arizona, facility, as previously discussed. Accrued expenses and other current liabilities increased from higher rebates payable, more setup, freight, and foundation work, and higher warranty reserves. Lastly, stockholders' equity was approximately $976.3 million as of April 1, 2023, up $145.8 million, from $830.5 million as of April 2, 2022. This completes the financial report, and now I'll turn it back to Bill.

Bill Boor (President and CEO)

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

Operator (participant)

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

Daniel Moore (Partner and Director of Research)

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

Bill Boor (President and CEO)

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

Daniel Moore (Partner and Director of Research)

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

Bill Boor (President and CEO)

Yeah, that's where I think we're trending. You know, everything's subject to a shaky and economic environment, but we're feeling pretty optimistic. As I said, I, you know, take a little bit from everything you're picking up. We were at an industry event a couple weeks ago, and I'll tell you the tone was very positive there as I talked to retailers. You know, getting the inventory behind us is a big deal. We talked about that, suddenly it kind of disappears from the conversation when it's no longer an issue. Even that 1-to-1 ratio creates a pickup in manufacturing orders that I think will be really helpful.

Daniel Moore (Partner and Director of Research)

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

Bill Boor (President and CEO)

I'm not sure how to answer that. I think it's kind of similar to your first question, right? About where there's a balance.

Daniel Moore (Partner and Director of Research)

Mm-hmm.

Bill Boor (President and CEO)

Is that right? I mean, I guess, yeah, I don't think I can give you anything with any precision. What I can tell you is that, you know, as we You might remember in the last quarter, we said, "Hey, the thing to watch is whether orders pick up as we get into the stronger selling season." Consistent with my comments, you know, you look at the if you dissect the quarter a little bit, we left the quarter at a much higher order rate than we entered it. Again, I feel like we've done a good job of pulling back production rate, keeping costs variable. Now with the optimism we're seeing in retailer activity and the subsiding of the inventory issue, I think we're in pretty good shape.

I'm not sure I can give you anything more than that.

Daniel Moore (Partner and Director of Research)

No, that's helpful. Now that we're through Solitaire and the purchase accounting, how should we think about gross margins, at least in the factory-built housing portion of your business over the next 1 to 2 quarters, say, relative to Q4?

Allison Aden (EVP and CFO)

I think as we, you know, think about gross margins and consistent with what we've talked about before, we've got to think about kind of 3 areas. In pricing, I think we touched on that, you know, we're holding our own. Still seeing some pressure, but certainly holding our own. From a cost perspective of raw materials, you know, the commodity is still somewhat consistent, and, you know, slightly offset by non-commodity items. With regards to the Solitaire, the 40 basis points for the purchase accounting, we do expect that as we anticipated when we made the purchase to continue for another couple of quarters. Long term, Solitaire will perform up to our manufacturing gross margin and ASP rates.

Bill Boor (President and CEO)

Yeah. It's important to point on that.

Daniel Moore (Partner and Director of Research)

Mm-hmm.

Bill Boor (President and CEO)

On a new home sale out of Solitaire, there's no negative margin impact. It's just getting through these zero margin homes from purchase accounting. That'll take us a little while, as Allison said.

Daniel Moore (Partner and Director of Research)

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

Allison Aden (EVP and CFO)

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

Daniel Moore (Partner and Director of Research)

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

Bill Boor (President and CEO)

Yeah. Didn't talk about that this week.

Daniel Moore (Partner and Director of Research)

Yeah.

Bill Boor (President and CEO)

You have that, Mark?

Mark Fusler (Corporate Controller and Investor Relations)

Yeah. Kind of on a just full operating days available, we're just about at 60%. Bill mentioned we did have those scheduled down days on the 4-day work week, we're just about 70% considering those.

Daniel Moore (Partner and Director of Research)

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

Bill Boor (President and CEO)

Dan, I don't know if I have a numeric target, but I'd put it in a bigger context than even what you're posing the question because, you know, we know how much everyone's doing their homework for any significant purchase online. I think it's really kind of central to our strategy. I would not be surprised if the vast majority of home sales a couple years from now, I kind of would believe that they're happening today, that they're starting with that online experience. We think it's right at the core of how homes are gonna be marketed, and we also think that it's a huge benefit to us in our relationship with dealers because we're really supporting the dealers.

As I said in my comments, and I didn't want to be too long-winded in them, but, you know, for many small dealers, their eyes are lighting up when our folks talk to them and say, "Hey, it would be very easy for you to have a microsite that markets your dealership with all of our automated data behind it, and you can add photos, and you can add information." So they're going to be so much more effective, and our relationship with them is that much deeper. As we continue to, you know, we've gotten good results in the early days on visitors and conversions. Conversions meaning, you know, a visitor who actually asks for more information, or hits a button and calls the dealer that the site provides for them. So we're seeing good early numbers on that.

What that's all about is kind of funneling targeted leads to those dealerships. I know I'm talking a little bit in concepts, but I think this is the starting point for the vast majority of home sales for us possibly now, but definitely as time progresses. As far as targets, I don't know what to say except most.

Daniel Moore (Partner and Director of Research)

No, that is helpful. Appreciate it. I may jump back with a follow-up or 2. Thank you.

Bill Boor (President and CEO)

All right. Thanks, Dan.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Greg Palm from Craig-Hallum. Your question, please.

Greg Palm (Senior Research Analyst)

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

Bill Boor (President and CEO)

I'm just looking at some data to see what I can frame for you. I can tell you, I mean, one thing, talking net, I'm not saying this is the biggest driver, one thing when I talk about order rates, I'm talking about a net of cancellations. Cancellations have basically fallen back down to not being an important part of the conversation. Part of that, to be fair, is because we, you know, our backlogs in many places are very short. If folks place an order, it's gonna go into production. I'm not taking too much credit for the cancellation reduction. It's kind of natural. We're talking about net orders and just eyeballing it or looking at some data, March was on a same plant basis, was well higher than we've seen in nearly a year.

You're asking me about numbers in April. I'll just tell you that directionally, our net orders on a same plant basis are up over March. Some of that's seasonal, but the significance of the pickup is, I think, bigger than seasonal, in my opinion. Also, you know, being able to say we got a really good seasonal pickup in wholesale orders while inventories are reducing is a pretty large statement, I believe.

Greg Palm (Senior Research Analyst)

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

Bill Boor (President and CEO)

Yeah.

Greg Palm (Senior Research Analyst)

You can just tie that back out to the production if you're able to.

Bill Boor (President and CEO)

Yeah, I mean, you're hitting all the points that I can make, to be honest. I mean, we've had the inventory thing, so that's the, you know, an order of a home that leaves the retail lot is not getting replaced because the retailer wants to get inventory down. That does not turn into an order when you've got an inventory problem. I commented that I feel like that discussion's about ready to be over. That, I mean, that's one big factor. When we look at traffic and close, traffic has actually been, in my view, pretty healthy throughout, right? I've always said that what I think that indicates is the underlying need. There are people out there trying to figure out, can I afford a home? My family needs a home.

They're trying to do that work, and they were just kind of put on their heels by the interest rate increases on top of dramatic increases for our products. The traffic has consistently been there. The order strength over the last several months, or I'm sorry, not orders, the close strength over the last several months I view as a positive indicator. That's really a couple month leading indicator to the extent it's correlated to orders because it takes people time to make the decisions. You know, so it's easy to be talking to a number of retailers and ask for quotes. It indicates a high level of activity of shopping, trying to figure out how to make the purchase. It won't result in, you know, the correlation between quotes and a true order is not quick.

It can be a couple months. I'm not bothered by the fact that we're seeing those positive indicators, but we haven't seen the pickup in wholesale orders. I think it's very explainable by those factors, and I think it's coming.

Greg Palm (Senior Research Analyst)

Yeah. I just wanted to be sure I heard you right. You talked about, you know, at least I think some plants move into a 5-day work schedule. Are any of them at 5 days today, or how many are going to 5 days? I mean, I assume that alone would mean, you know, all else equal, higher rates of production going forward versus what we've seen, but maybe you can just confirm that.

Bill Boor (President and CEO)

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

Greg Palm (Senior Research Analyst)

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

Bill Boor (President and CEO)

You're saying Solitaire period to period or Solitaire's impact on our average selling price?

Greg Palm (Senior Research Analyst)

Solitaire's impact on overall selling price, correct?

Bill Boor (President and CEO)

Yeah, I don't think we looked at that, and they weren't a meaningful plus or negative to the average selling price across the company. Yeah, you can actually watch from our, the data that we provide because we give both units and floors. You can kind of do the algebra and figure out that we had a pretty significant move toward single wide sales from the multi-section. I don't necessarily think that's a bad thing. I think that's indicative of the affordability issues that people are facing. People are kind of lowering their expectations. They're moving down in the house they might have been able to afford in previous periods. They're, you know, they're starting to get off their heels and try to make those decisions and place orders.

I've talked in the past, we can track the average selling price. It's obviously an important piece. In my opinion, and when we look at the data at an operating level, we price our products, I've said this before, and I don't know if people completely get what I'm saying, but we price our products so that, you know, our time and our factory is at a consistent profitability, whether we're making a single module home or a multi-section. I don't view it as a profit issue to see that mix shift, but it certainly can have an impact on average selling price.

Greg Palm (Senior Research Analyst)

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

Bill Boor (President and CEO)

Thank you.

Operator (participant)

Thank you. As a reminder, if you have a question, please press star one one. One moment for our next question. Our next question comes from the line of Jay McCamless from Wedbush. Your question, please.

Jay McCanless (Equity Research Analyst)

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

Bill Boor (President and CEO)

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

Jay McCanless (Equity Research Analyst)

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

Bill Boor (President and CEO)

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

Jay McCanless (Equity Research Analyst)

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

Bill Boor (President and CEO)

Yeah, that's a good catch, and I probably should have commented on it earlier. We actually have seen community operators drop off a bit recently in their wholesale orders. I was initially really puzzled by it. I took the opportunity to talk to a few of them. Initially, I was struggling with the answer, but they convinced me. The comments I got basically summarized were, "We would be ordering more homes right now if we could get them permitted and set in the field." They have been very clear that their issue is placement of the homes, not the need for the homes. It has been an issue because we could use the orders, of course.

Whereas they've been a source of strength in orders relative to dealers in past quarters, and we have seen a drop off more recently. I'm hoping that we'll figure out how to solve this permitting and set issue as an industry because it's a silly thing to be getting in the way of orders right now, in my opinion.

Jay McCanless (Equity Research Analyst)

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

Bill Boor (President and CEO)

I'm not sure what I said that, you were picking up there. My comment, I think, was intended to say, you know, there are probably dealers out there that are still saying my inventory is too high. In general, when you look at it across the system, it's really, you know, in my opinion, it's gotten to the point where it's not really a factor at this point on the 1-to-1 ratio. I was just kind of acknowledging that there's still some to be done, probably in isolated situations, but I think we're through it. I have not, you know, and I have thought about talking to folks about this floor plan availability. I have not seen or heard that to be a constraint, really. You know, as we've talked before, dealers are destocking for good business reasons.

They're managing their turn rates. Their cost of funds on floor planning has gone up, so they're trying to get their inventory down on their own. I have not noted any dramatic forcing function coming from the floor plan lenders.

Jay McCanless (Equity Research Analyst)

Okay. all right. That's all my questions. Thank you again.

Bill Boor (President and CEO)

Thanks, Jeff.

Operator (participant)

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.

Bill Boor (President and CEO)

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

Operator (participant)

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