Cavco Industries Stock

Cavco Industries, Inc. designs and produces factory-built homes primarily distributed through a network of independent and company-owned retailers, planned community operators and residential developers. The company is one of the largest producers of manufactured homes in the United States, based on reported wholesale shipments.

The company’s products are marketed under a variety of brand names including Cavco, Fleetwood, Palm Harbor, Nationwide, Fairmont, Friendship, Chariot Eagle, Destiny, Commodore, Colony, Pennwest, R-Anell, Manorwood, MidCountry and Solitaire. The company is also a leading producer of park model RVs, vacation cabins and factory-built commercial structures. The company’s finance subsi diary, CountryPlace Acceptance Corp. (CountryPlace), is an approved Federal National Mortgage Association (FNMA or Fannie Mae) and Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) seller/servicer, and a Government National Mortgage Association (GNMA or Ginnie Mae) mortgage-backed securities issuer that offers conforming mortgages, non-conforming mortgages and home-only loans to purchasers of factory-built homes. The company’s insurance subsidiary, Standard Casualty Company (Standard Casualty), provides property and casualty insurance primarily to owners of manufactured homes.

The company constructs homes using an assembly-line process in which each module or floor section is completed in stages. This assembly-line process is designed to be flexible in order to accommodate customer requested customizations. The company’s operations include 29 homebuilding production lines located throughout the United States and two production lines in Mexico. The company distributes its homes through a large network of independent distribution points in 48 states and Canada and 64 Company-owned U.S. retail stores, of which 50 are located in Texas.

On January 3, 2023, the company completed the acquisition of Solitaire, Inc. and other related entities (collectively Solitaire Homes). This transaction added four manufacturing lines, including the two in Mexico, and 22 retail locations.

CountryPlace originates and services single-family, conforming and non-confirming residential mortgages and home-only loans for itself and others. CountryPlace is authorized by the U.S. Department of Housing and Urban Development (HUD) to directly endorse Federal Housing Administration (FHA) Title I and Title II mortgage insurance, is an approved lender with the U.S. Department of Veteran Affairs (VA) and the U.S. Department of Agriculture (USDA) under its Single Family Housing Guaranteed Loan Program, is approved by GNMA to issue GNMA-insured mortgage-backed securities and is authorized to sell mortgages to, and service mortgages for, FNMA and FHLMC. A conforming mortgage or loan is one that conforms to the guidelines of a Government-Sponsored Enterprise (GSE), such as Fannie Mae, Freddie Mac or a government agency, such as FHA; a non-conforming mortgage or loan does not conform to these guidelines.

Standard Casualty specializes in homeowner property and casualty insurance products for the manufactured housing industry and holds insurance licenses in multiple states, primarily serving the Texas, Arizona, New Mexico and Nevada markets. In addition to writing direct policies, Standard Casualty assumes and cedes reinsurance in the ordinary course of business.

Business Strategies

The company’s operations are generally managed on a decentralized basis with oversight from the home office. This decentralization enables the company’s operators the flexibility to adapt to local market demand, be more customer focused and has the autonomy to make swift decisions, while still being held accountable for operational and financial performance.

The company’s marketing efforts are focused on providing manufactured homes that are customizable and appeal to a wide range of home buyers, on a regional basis, in the markets it serves. The primary demographics for its products are entry-level and move-up buyers and persons aged 55 and older. The company also markets and sells to manufactured housing community owners, subdivision developers and second home or vacation home buyers.

The company focuses on developing and maintaining the resources necessary to meet its customer's desire for varied and unique specifications in an efficient factory production environment. This enables the company to attract distributors and consumers who desire the flexibility the custom home building process provides but who also seek the value and affordability created by building a home on a factory production line.

The company builds homes of superior quality, offer innovative designs and floor plans, demonstrate exceptional value, provide the engineering and technical resources to enable custom home building and focus on responsive and efficient customer service after the sale.

Products

A majority of the company’s products are constructed in accordance with the National Manufactured Home Construction and Safety Standards promulgated by HUD (HUD code). The company also builds park model RVs, constructed to standards approved by the American National Standards Institute, a private, non-profit organization that administers and coordinates a voluntary standardization and conformity program. Park model RVs are less than 400 square feet in size, primarily used as vacation dwellings and seasonal living, and placed in planned communities, recreational home parks and resorts. The company also produces a wide variety of modular homes, which include single and multi-section ranch, split-level and Cape Cod style homes, as well as two- and three-story homes, multi-family units and commercial modular structures, including apartment buildings, condominiums, hotels, workforce housing, schools and housing for U.S. military troops (e.g., barracks). Commercial buildings are constructed in the same facilities that the residential homes are built using similar assembly line processes and techniques. These commercial projects are generally engineered to the purchaser's specifications. The buildings are transported to the customer's site in the same manner as residential homes and are often set by crane and finished at the site.

The company produces residential homes in a variety of floor plans. Most of these homes are single-story and generally range in size from approximately 500 to 3,300 square feet but may be larger in the case of multi-level modular homes.

Each home typically contains a living room, dining area, kitchen, one to five bedrooms and one or more bathrooms, is equipped with central heat and hot water systems, kitchen appliances, floor coverings and window treatments. Upgrades can include fireplaces, central air conditioning, tile roofs, high ceilings, skylights, hardwood floors, custom cabinetry, granite countertops and eco-friendly elements. The company also offers a variety of structural, decorative and energy efficient customizations to meet the home buyer's specifications.

With manufacturing facilities strategically positioned across the United States and Mexico, the company utilizes local market research to design homes to meet the demands of its customers. The company has the ability to react and modify floor plans and designs to consumers' specific needs. By offering a full range of homes from entry-level models to large custom homes and with the ability to engineer designs in-house, the company can accommodate a wide spectrum of customer requests.

The company regularly introduces new floor plans and options to appeal to changing trends in different regions of the country. The company has developed engineering systems that, through the use of computer-aided technology, permit customization of homes and assist with product development and enhancement. The company works with a variety of partners to meet the expanding range of housing needs, including home buyer's private land, planned neighborhoods, recreational or resort properties and workforce accommodations for agriculture and industry.

The company employs a concerted effort to identify niche market opportunities where its diverse product lines and custom building capabilities provide it with a competitive advantage. The company focuses on building quality, energy efficient homes for the modern home buyer. The company’s green building initiatives involve the creation of an energy efficient envelope, including higher utilization of renewable materials and provide lower utility costs. The company also builds homes designed to use alternative energy sources, such as solar.

Factory-built Housing segment

Manufacturing Operations: The company operates a total of 31 homebuilding production lines in Millersburg and Woodburn, Oregon; Riverside, California; Nampa, Idaho; Phoenix, Glendale and Goodyear, Arizona; Deming, New Mexico; Duncan, Oklahoma; Austin, Fort Worth, Seguin and Waco, Texas; Ojinaga, Mexico; Montevideo, Minnesota; Dorchester, Wisconsin; Nappanee and Goshen, Indiana; Lafayette, Tennessee; Douglas and Moultrie, Georgia; Shippenville and Emlenton, Pennsylvania; Martinsville and Rocky Mount, Virginia; Cherryville, North Carolina; and Ocala and Plant City, Florida. These manufacturing facilities range from approximately 79,000 to 341,000 square feet of floor space. The production schedules for the company’s manufacturing facilities are based on wholesale orders received from independent and Company-owned retailers, planned community operators and residential developers.

Distribution: The company sold 19,376 factory-built homes in fiscal year 2023, through company-owned and independent distribution channels.

The company owns company-owned retail stores, located in Oregon, Arizona, Nevada, New Mexico, Texas, Indiana, Oklahoma, Florida and New York. The company-owned retail stores are located in Texas. Company-owned retail stores are generally located on main roads or highways with high visibility, each having a sales office, which is generally a factory-built structure, and a variety of model homes of various sizes, floor plans, features and prices.

The company internally finances home inventories at Company-owned retail stores. The company provides comprehensive sales and product training, either physically or virtually, to independent retail sales associates, including providing opportunities to visit its manufacturing facilities to discuss and view new product designs as they are developed.

Warranties: The company provides the retail home buyer a one-year limited warranty covering defects in material or workmanship in home structure, plumbing and electrical systems. Nonstructural components of a cosmetic nature are generally warranted for 120 days from the date of delivery, except in specific cases where state laws require longer warranty terms.

Financial Services segment

Finance: The company provides a source of retail home buyer financing on competitive terms through its subsidiary, CountryPlace. The company offers conforming and non-conforming mortgages and home-only loans to purchasers of numerous brands of factory-built homes sold by Company-owned retail stores and certain independent distributors, builders, communities and developers. The company is authorized to directly endorse FHA Title I and Title II mortgage insurance, are an approved lender with the VA and the USDA under its Single Family Housing Guaranteed Loan Program, are approved to issue GNMA-insured mortgage-backed securities and are authorized to sell mortgages to, and service mortgages for, Fannie Mae and Freddie Mac. Most loans originated by the company are sold to investors, and it provides various loan servicing functions for non-affiliated entities under contract.

The company’s loan contracts are secured by factory-built homes located in 28 states, with the largest concentrations in Texas, Florida, New Mexico and Oklahoma.

The company continues to assist customers in need by servicing existing loans and insurance policies and complying with state and federal regulations regarding loan forbearance, home foreclosures and policy cancellations.

For certain loans serviced for Ginnie Mae and Freddie Mac, and home-only loans serviced for certain other investors, the company must remit scheduled monthly principal and/or interest payments and principal curtailments regardless of whether monthly mortgage payments are collected from borrowers. Ginnie Mae permits cash obligations on loans in forbearance from COVID-19 to be offset by other incoming cash flows from loans, such as loan pre-payments. Through fiscal year 2023, monthly collections of principal and interest from borrowers have exceeded scheduled principal and interest payments owed to investors; however, mandatory extended forbearance under the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) and certain other regulations related to COVID-19 could negatively impact cash obligations in the future.

The company provides financing alternatives improves its responsiveness to the financing needs of prospective home buyers and presents opportunities for additional sources of loan origination and servicing revenues. The company has expanded its home-only lending programs in recent years, partially with the support of independent third-party financiers.

Insurance: Standard Casualty, located in Texas, specializes in homeowner property and casualty insurance products for the manufactured housing industry and holds insurance licenses in multiple states, primarily serving the Texas, Arizona, New Mexico and Nevada markets. In addition to writing direct policies, the company assumes and cedes reinsurance in the ordinary course of business. In Texas, policies are written through one affiliated managing general agent, which produces all premiums, and through local agents, most of which are manufactured home distributors. All business outside the state of Texas is written on a direct basis through local agents.

Company Provided Financing

Consumer Financing: Sales of factory-built homes are significantly affected by the availability and cost of consumer financing. There are three basic types of consumer financing in the factory-built housing industry: conforming mortgage loans that comply with the requirements of FHA, VA, USDA or GSEs; non-conforming mortgages for purchasers of the home and the land on which the home is placed; and personal property loans (often referred to as home-only or chattel loans) for consumers where the home is the sole collateral for the loan (generally HUD code homes).

The company works independently and with other industry participants to develop secondary market opportunities for manufactured home-only loans and non-conforming mortgage portfolios and expand lending availability in the industry. Additionally, the company continues to invest in community-based lending initiatives that provide home-only financing to residents of certain manufactured home communities. The company also develops and invests in home-only lending programs to grow sales of homes through traditional distribution points. Growing the company’s investment and participation in home-only lending may provide additional sales growth opportunities for its factory-built housing operations and reduce its exposure to the actions of independent lenders. The company also works independently and with industry trade associations to encourage favorable legislative and GSE action to address the financing needs of buyers of affordable homes.

Commercial Financing: Certain of the company’s wholesale factory-built housing sales to independent distributors are purchased through wholesale floor plan financing arrangements. Under a typical floor plan financing arrangement, an independent financial institution specializing in this line of business provides the distributor with a loan for the purchase price of the home and maintains a security interest in the home as collateral.

The company continues to make certain commercial loan programs available to members of its wholesale distribution chain. Under its commercial loan arrangements, the company provides funds for financed home purchases by distributors, community owners and developers. The company’s involvement in commercial loans helps to increase the availability of manufactured home financing to distributors, community owners and developers and provides additional opportunity for product exposure to potential home buyers. While these initiatives support its ongoing efforts to expand product distribution, they also expose the company to risks associated with the creditworthiness of this customer base and its inventory financing partners.

Seasonality

Demand for the company’s core new home products typically peaks each spring and summer before declining in the winter, consistent with the overall housing industry, although this pattern became distorted during the COVID-19 pandemic. Diversification among the company’s product lines and operations has partially offset the impact of any seasonal fluctuations. Additionally, demand patterns for park model RVs, cabins and homes used primarily for retirement or seasonal living partially offset general housing seasonality.

However, the company is subject to adverse effects from excessive policy claims. Purchasing reinsurance contracts mitigates the frequency and/or severity of losses incurred on insurance policies issued, such as in the case of a catastrophe that generates a large number of serious claims on multiple policies at the same time.

Competition

There are a number of other national manufacturers competing for a significant share of the manufactured housing market in the United States, including Clayton Homes, Inc. and Skyline Champion Corporation, which may possess greater financial, manufacturing, distribution and marketing resources than the company.

There are significant competitors to CountryPlace in the markets served. These competitors include national, regional and local banks, mortgage banks and independent finance companies such as 21st Mortgage Corporation, an affiliate of Clayton Homes, Inc. and Berkshire Hathaway, Inc.; Triad Financial Services, Inc.; and Cascade Financial Services.

The market for homeowners' insurance is highly competitive. Standard Casualty competes principally in property and casualty insurance for owners of manufactured homes with companies, such as National Lloyds and American Modern Insurance, which may be larger and offer broader types of insurance allowing them to be more aggressive in their underwriting standards.

Government Regulation

The company’s manufacturing facilities, and the plans and specifications of the HUD code manufactured homes they produce, have been approved by a HUD-certified inspection agency. Further, an independent HUD-certified third-party inspector regularly reviews the company’s manufactured homes for compliance with HUD regulations during construction. In the case of warranties subject to the Magnuson-Moss Warranty Act, the company is subject to a number of additional regulatory requirements.

History

Cavco Industries, Inc. was founded in 1965. The company, a Delaware corporation, was incorporated in 2003.