Cavco Industries Inc

NASDAQ:CVCO

Earnings Call Transcript 2021-Q2

[Operator]

[00:00:02] Ladies and gentlemen, thank you for standing by and welcome to the second quarter fiscal year. Twenty twenty one tobacco industry's earnings call at this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session to ask a question. During the session, you will need to press star one on your telephone. Please be advised today's conference is being recorded. If you require any further assistance, please. Press Star zero will now hand the conference over to your speaker, my director of Financial Reporting and Investor Relations. Please go ahead.

[Mark Fusler]

[00:00:36] Good day and thank you for joining us for Capital Industry, second quarter fiscal year. Twenty twenty one earnings conference call. During this call, you'll be hearing from Bilboa President and Chief Executive Officer Paul Bigbee, Chief Accounting Officer and myself. Before we leave again, we'd like to remind you that the comments made during this conference call by management may contain forward looking statements under the provisions of the Private Securities Litigation Reform Act of 1995, including the statements of expectations or assumptions about Cascos, financial and operational performance revenues, earnings per share, cash flow or used 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 capital as actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by or on behalf of Pepco. I encourage you to review Cafcass filings with the Securities and Exchange Commission, including without limitation, the company's most recent forms 10K and Thank You, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward looking statements. Some factors that may affect the company as a result include but are not limited to the impact of local or national emergencies, including the covid-19 pandemic and such impacts from state and federal regulatory action that restricts our ability to operate our business in the ordinary course and impacts on customer demand and the availability of financing for our products, our supply chain, and the availability of raw materials for the manufacture of our products, the ability of labor and the health and safety of our workforce, our liquidity and access to the capital markets.

[00:02:24] The risk of litigation or regulatory action, potential reputational damage that Capcom may suffer as a result of matters under inquiry, adverse industry conditions, our involvement in vertically integrated lines of business, including manufactured housing, consumer finance, commercial finance and insurance market forces and housing demand fluctuations, our business and operations being concentrated in certain geographic regions, loss of any of our executive officers, additional federal government shutdowns, and the regulations affecting manufactured housing. This conference call also contains time sensitive information that is accurate as of the date of this broadcast, Friday, October 30th, Twenty twenty have to undertake no obligation to revise or update any forward looking statement by the original Aurel 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 Bilboa President and Chief Executive Officer Joe.

[Bill Boor, President and Chief Executive Officer]

[00:03:24] Thanks, Mark. Welcome, everyone, and thank you for joining us to review our results for the second quarter. The people of CatCo continue to adjust to constantly changing dynamics with our clear objective of upgrading all of our businesses to the extent we can do so safely. It's been humbling to be part of and to see the commitment, and it hasn't been easy in any regard. I really want to begin today's call by acknowledging our people. We need to keep driving forward to serve our customers. Our folks are making smart decisions. And in light of the circumstances, I'm very proud of our performance. In late March, I don't believe anybody could have foreseen where we are today, expect everyone on the call has been watching demand indicators and understands that the general homebuilding industry is seeing extraordinary fire activity. But we've been talking for a long time about the fundamental drivers, such as years of vulnerability to household formations enabled by very low interest rates, the pent up demand is being proven despite the pandemic. Looking at recent major industry shipment data could be misinterpreted as a demand indicator with the seasonally adjusted annual rate below last year's shipments over. The shipments reflect what the industry has been able to supply. We have a backlog that is growing one hundred and sixty four million dollars since last quarter and stands at approximately twenty one to twenty two weeks. Based on our current production rates, we believe every producer is experiencing backlogs that are at unhealthy levels. The backlog increases from a combination of very high order rates and continuing production challenges due to labor and supply issues.

[00:05:04] To provide some perspective, even if we were producing at the same rate as last year, orders have been so strong that we would still have a 19 to 20 week backlog. We know that we need to produce more over the growth in our backlog has been primarily the result of extraordinarily high order rates this quarter, home order rates were nearly 65 percent higher than a year ago. Turning to the cost side, it's been widely reported that lumber prices increased dramatically since hitting was this past April, moving to extreme highs by the end of September. As an example, the southern Yellow Pine Indicator price rose approximately one hundred and eighty percent in that period. The lumber prices have since come off as high as the magnitude of these changes have resulted in the need to quickly adjust pricing on our homes. Gross margins may continue to be squeezed in the near term as those price increases work through the backlog. There are proactive approach in addressing pricing should allow us to maintain gross margins over time. Production labor challenges continued through the second quarter, absenteeism has affected our productivity, and while there has been some improvement, hiring still remains limited. To address these issues, our plants are making adjustments to hiring practices and wage rates, as well as implementing other programs to attract, retain and develop production employees. And manufacturing, our focus continues to be taking action to increase productivity. In our retail operations, we continue to perform very well. What we're seeing in our own retail stores is a level of traffic that is following a typical seasonal pattern with some slowing going into the fall.

[00:06:49] The traffic remain strong and still higher than last year's levels. Conversion rates, the percent of traffic opportunities converted into sales remain significantly higher than a year ago. And financial services are lending has been relatively stable, interest rates for mortgages and mortgages and home only loans are at historic lows, making financing much more affordable for most homebuyers. As previously discussed, the home only lending environment has been increasingly competitive since early in the pandemic. We're still pursuing a longer term strategy of increasing our home only originations, the pace of that strategy in the near term is affected by our measured underwriting standards and an aggressive, low rate competitive environment. Our insurance operation is doing a great job with what they control, new policy sales and renewals. During the quarter, we experienced an unusually high number of weather events, none of which were catastrophic, but cumulatively they represented a high claims cost. The United States experienced a record number of named storm landfalls this year 11. Four of those directly affected Texas normally were affected by a named storm only about once every two years. I remind people that for comparison, this quarter, a year ago, claims costs were very low due to unusually favorable weather. Overall, we've generated a significant amount of cash from operations since the beginning of the fiscal year. Paul and Mark are going to provide specifics in a few minutes. As we've said in the past, we're continually evaluating capital priorities in light of our growing cash balance. When it hit, I think it was understandable that we adopted a wait and see approach regarding cash two quarters later has demonstrated our ability to remain profitable and generate significant cash from operations despite the disruption.

[00:08:49] There's no doubt that uncertainty. Uncertainty remains high regarding interest rates, consumer demand, the general economy and other factors that impact damage demand. However, our board of directors is determined that it makes sense to authorize a new one hundred million dollar stock buyback program. In light of those uncertainties, we are not putting a specific timeline in place. However, this is an important tool we now have, along with other opportunities to deploy capital for us to manage our cash reserves at appropriate levels. It's very important to make clear that our decision to put this buyback authorization in place does not change our view about investment in our businesses for organic growth or in acquisitions. We're comfortable that the buyback does not impede other opportunities. Again, it was a good quarter in light of the challenges of the day, with all of our operations staying flexible and focused, focusing on the fundamentals. We know we have a lot of work ahead to meet the demand of buyers who are in need of quality, affordable, manufactured homes. As noted in a recent 8-K, our CFO, Dan, has decided to go on leave to deal with the wells notice he received from the FCC for those who have not heard from them previously. I want to introduce Paul Bigbee, our Chief Accounting Officer. Paul is doing an outstanding job stepping up. He and Mark Foster will be reviewing the financial results. With that, I'll turn it over to Paul.

[Paul Bigbee, Chief Accounting Officer]

[00:10:18] Thanks, Bill. Today, I'm going to cover the company's financial results and then turn it over to Mark to go through the balance sheet. I'll start with consolidated net revenue. And for the second fiscal quarter of Twenty twenty one, we were at two hundred fifty eight million, which was down four percent compared to two hundred sixty eight point seven million during the prior year. Second fiscal quarter, we look at the pieces. The first I'll go through as a factory built housing segment where net revenues decreased four point six percent to two hundred and forty one million from two hundred fifty two point seven million in the prior quarter. This reduction was primarily due to a nine percent decline in unit sold. Home production declined from. Primarily operational challenges presented by covid-19, we had high production, employee absenteeism, we were complying with health guidelines and also had some disruption and production. And a unit of sales, however, were partially offset by five point two percent increase in average revenue for homes sold primarily from product pricing increases. Also, call out a few comparables in the. Current quarter, we had an additional month of net revenue from Destinee home for acquisition compared to last year's prior quarter as the transaction occurred in August twenty nineteen and the prior year quarter included revenue from Lexington Homes, which is close in June twenty twenty. In the financial services segment, net revenue increased by six point three percent to 17 million from sixteen point eight million, mainly as a result of 700000 unrealized gains on equity investments and then insurance subsidiaries portfolio compared to two hundred thousand in the prior year period.

[00:12:07] In addition, there were higher home loan sales and more insurance policies in force compared to the prior year, these increases were partially offset by declines in interest income from the formerly securitized loan portfolios that continue to amortize as expected. Consolidated gross profit in the second fiscal quarter of a percent in net revenue was twenty point eight percent, down from twenty one point eight percent in the same period last year. Decline here was primarily the result of three point three million in higher weather related claims compared to the same period in the prior year. If you recall, we had two hurricanes in July and Laura in August that made landfall on or near the Texas coast. In the factory built housing segment, margins were consistent between periods with lower sales and production inefficiencies caused by covid-19 pandemic and increases in material costs were partially offset from decreases in labor costs driven by declines in overtime hours given the high absenteeism levels. Selling general and administrative expenses, the fiscal twenty twenty one second quarter as a percentage of net revenue was thirteen point seven percent, compared to thirteen point four during the same quarter last year.

[00:13:27] This increase was primarily due to additional compensation related costs and other corporate related expenses on a lower revenue base offset by decreases in legal expenses. Also wanted to call out in the second quarter of twenty twenty one was severely impacted as the company received her thousand dollar insurance recoveries of prior legal expenses related to the FCC inquiry, resulting in a net benefit of three hundred thousand compared to last year's quarter eight hundred thousand dollar cost, other income and this quarter with one point seven million compared to five point two million in last year's second quarter. This decline was primarily due to a three point four dollars million gain that was recorded on the sale of idle land in the prior year. Quarter, effective income tax rate remained fairly stable twenty three point two percent for the second quarter, compared to twenty three point four percent in the same period last year. Then come came in at fifteen point one million and twenty seven point eight percent, compared to net income of twenty point nine million in the same quarter of the prior year. Net income per diluted share this quarter was a dollar sixty two versus two dollars and twenty five cents in the last. Last year, second quarter. Now let's turn it over to Mark to cover the balance sheet.

[Mark Fusler]

[00:14:47] I'll be covering the changes in the September 26 Twenty twenty balance sheet compared to the March 28 twenty twenty. The cash balance was three hundred and twelve point two million, up from two hundred forty one point eight million six months earlier, increase is primarily due to five areas, net income offset by other non-cash item changes in working capital, including higher customer deposits received as a result of higher order rates, deferral of certain payroll taxes under the CARE Act, collections on outstanding accounts receivable and consumer loans, principal balances and lower net commercial lending activity. The current portion of consumer loans increased from a greater number of loans classified as held for sale, which are expected to be sold in the near term due to the timing of such sale. Prepaid and other assets as higher from the assets recorded in regards to the loan repurchase option for delinquent loans that have been sold to Ginnie Mae. While we are not obligated to repurchase these loans, accounting guidance requires us to record an asset and liability for the potential of a repurchase balance increased from the additional loans and forbearance. Long term consumer loans receivable decreased from principal collection of loans held for investment that were previously securitized. Accounts payable and accrued expenses and other current liabilities increased from greater payments received on consumer loans to be remitted to third parties, higher customer deposits which have grown with factory backlogs, as well as the delinquent long repurchase options discussed above. Lastly, stockholder's equity was approximately six hundred forty one point two million as of September, twenty six Twenty twenty, up approximately thirty three point six million from March. Twenty eight Twenty twenty balance. And that completes the financial report. Thank you, Mark Sedney, let's turn it over for questions.

[Operator]

[00:16:40] Ladies and gentlemen, if you have a question at this time, please press the star and the number one key on your touchtone telephone to remove yourself from the queue through press accounts. Our first question comes from Daniel Moore with C.J. Security Council.

[Daniel Moore, CJS Securities]

[00:16:57] Good afternoon, gentlemen. Thank you for taking the questions. Maybe starting with just capacity utilization. You said 65 percent, I believe, during the quarter, up to 75. It's up to 70 percent by the end. How quickly can you ramp up to 75 percent and ultimately closer to 80 percent? And what kind of key challenges to doing so?

[Bill Boor, President and Chief Executive Officer]

[00:17:21] At a speed, I mean, that's what we're all focused on. I can tell you that the speed is partly going to be dependent on how things continue. I mean, you know, just to give you a feel like in a given plant, we might be going along pretty well with low absenteeism. And then if that area sees an upsurge in, for example, covid cases, suddenly our absenteeism spikes and it hurts our utilization. So, as you guys know, we're not passed covid and we're seeing kind of a bit of a moving target on where this case is, such as one example. The other thing that we don't control and it's hard to have a crystal ball on is supply, which is really affecting us. So that's hard to say how quickly if all that stuff suddenly smoothed out, I think we would move up pretty quickly to 80 percent. We've been able to run that way consistently in the past, but it's just kind of a battle at every plant. So try to get there right now. You know, those are the main factors, some of what affected our our utilization, you know, a contributor that people may not be thinking about, for example, as we had days down for the Oregon fires. So we've had those kind of things happen as well that have contributed to the utilization challenges that are not covered, related.

[Daniel Moore, CJS Securities]

[00:18:39] Absolutely. In terms of the supply chain issues, do you see an end in sight? You know, not this quarter, obviously, or this month, but is that a six month, three month phenomenon, six month phenomenon? covid obviously a different, more difficult crystal ball. But just wondering if you see some of those supply chain constraints working themselves out over a couple of quarters.

[Bill Boor, President and Chief Executive Officer]

[00:19:02] Yeah, I certainly would hope over a couple of quarters in talking, we've had, you know, it's been almost across the board. It's hard to even zero in on one piece of the supply that we need. But we have had different suppliers tell us that they expect to be challenged well into the first calendar quarter. So, you know, it's going to take some time and hopefully early in the calendar year we'll be feeling a little bit better than we do right now. But that's really speculative.

[Daniel Moore, CJS Securities]

[00:19:32] is 70 percent capacity utilization, a decent base rate to utilize for this current quarter, at least for the time being.

[Bill Boor, President and Chief Executive Officer]

[00:19:42] You know, we've been bouncing right now at sixty five to seven or eight, the last two quarters, including the first one, it was so disruptive. So that's kind of in the process the last six months.

[Daniel Moore, CJS Securities]

[00:19:54] Ok, in terms of margins, gross margin, lower by 100 pips, but you called out the insurance claims, obviously, you know, with input costs rising more significantly toward the back half of this past quarter, how do we think about gross margins in Q3 and Q4, maybe relative to Q2 as a baseline?

[Bill Boor, President and Chief Executive Officer]

[00:20:18] Yeah, well, people that follow things like, you know, lumber's one of the biggest contributors, our cost structure and people who follow just a public indicator pricing on that know that, as I said, this thing's really shot up. I don't know if I can say unprecedented, but incredibly quickly, from April through September, one thing I cited was Southern. I think it was buying up about one hundred and eighty percent. They have come off of their highs because lumber prices and equally important, lumber has become more available. We were worried about running out and we can talk about price, but running out was a concern as well. So there's an example where right now, you know, a big contributor, our cost has started to come off. It's very high peak, still high, but pointed in a better direction for us.

[00:21:09] If that kind of a trend continues, I think we're going to see a dynamic we've seen in the past. We're going to see margins compress. Well, prices well, costs are going up before we can get prices to the backlog and then potentially that can all reverse and we get a quarter where margins are bigger because prices have taken hold and costs are down.

[00:21:33] So that's a typical pattern. I don't know for sure the timing of how that will play out. But as I commented in my remarks, I think over a period of a few quarters, we feel like we'll be able to manage to kind of solid typical margins.

[Daniel Moore, CJS Securities]

[00:21:50] That's helpful. AFPs grew up with that that mix or largely passed through of rising raw material costs or both. And what do you expect for Aspies year over year, kind of over the next quarter to.

[Bill Boor, President and Chief Executive Officer]

[00:22:07] Yeah, I mean, we really are pushing price increases to the point that it's been very difficult for dealers and customers. I think we're all very we're sensitive to that. But it's been a really volatile market. It's more about price increases than it is about makeshifts in this quarter. So, you know, we expect to be able to for the short term. I think it's fair to say we should be able to hold that price increase. But we haven't it hasn't been driven as much by makeshifts that another set another way.

[Daniel Moore, CJS Securities]

[00:22:41] You probably didn't get the full benefit of that in this past quarter, given the timing. Is that fair?

[Bill Boor, President and Chief Executive Officer]

[00:22:46] That's fair. I mean, we still have a backlog now, this this price increase and you may have heard this from other folks you talked to, this price increase has been, as I said, particularly hard for dealers and customers because it was so rapid. They were successive. And where we typically as an industry protect existing orders, particularly retail sales or sale orders, or there's a home buyer on the other end that even got kind of loose end in these price increases. So we have to wait for some of it to get through the backlog of the other parts of the price increase. So pretty quickly, it's a bit of a negotiation at the grassroots, but I don't think all of it has gotten through in the numbers that you're seeing now.

[Daniel Moore, CJS Securities]

[00:23:32] Got it. And one or two more, I'll jump out. Financial services. Are you seeing weather events that that drove claims in fiscal Q2 continue into Q3 so far?

[Bill Boor, President and Chief Executive Officer]

[00:23:44] I really have no idea. I mean, we are through kind of the quarters that are typically the toughest from a cost perspective. So we're entering quarters that generally tend to be milder. But it was as I said, it was pretty unprecedented for the number of storms that hit the US and we got our share of them. Now, as I said, none of them, from a claims perspective, being sensitive. None of them were what we call catastrophic. Just so there were just headed up.

[Daniel Moore, CJS Securities]

[00:24:14] Perfect. Lastly, the D.A. insurance amortization, two point one million. I think it's scheduled to burn off after this past quarter to expect that full amount to come off the PNL. Are there any offsets that would prevent that from kind of flowing to the bottom line?

[Bill Boor, President and Chief Executive Officer]

[00:24:30] Now, after a lot of quarters of telling you which quarter it was going to end, the amortizations should be over.

[Daniel Moore, CJS Securities]

[00:24:36] Perfect. I'll jump back with any follow ups.

[Bill Boor, President and Chief Executive Officer]

[00:24:38] Thank you for the color inkstand.

[Operator]

[00:24:42] Thank you. And the next question comes from Greg POME with Craig-Hallum. Your line is open.

[Greg Palm, Craig-Hallum Capital Group LLC]

[00:24:48] I have one. Thanks for taking the questions here. I mean, maybe to start off, can you just comment a little bit on on the cadence of orders throughout the quarter? You know, what you've seen thus far in October and you know, anything that was, you know, sort of outsized performance from a geography standpoint or even a specific channel?

[Bill Boor, President and Chief Executive Officer]

[00:25:10] But they'll probably hesitate a little bit on this quarter because this month, because we're not commenting on it, but the orders were high consistently. I mean, they really have been. It hasn't been. You know, when we look at year over year court order rates, it hasn't been jumping around, it's been consistently higher than last year. Geographically, we've commented in the past and might be a question people are thinking about there. We've come in in the past about community business and where the community's really very quickly when the pandemic hit, put their orders on hold. We've seen that come back generally, geographically. And just to give you more color in the southwest, we've seen it come back a little stronger. They both have taken orders that were on hold off of hold and want delivery of them and they've resumed picking up orders. So that's been pretty encouraging.

[00:26:11] And backlogs like this, it's just adding to the challenge, I guess, ahead of us. And then and in Florida, I guess I'd comment that the community side really probably hasn't been quite as strong as I just commented about. The Southwest and Florida seems to be, particularly with the larger community operators. It seems to be a little bit more of a wait and see as far as what the. Probably what the Snowbird season looks like and and whether they need to really be stocking homes at this point. So those are some geographic differences, I guess. But generally, when we talk about the strength of the M.H. orders, it's across our geographies. We don't have an area that really has lagged their.

[Greg Palm, Craig-Hallum Capital Group LLC]

[00:26:58] And you know what gives you confidence that this is not some sort of short term pent up demand versus something that got, you know, legs to it, I don't know if you can comment on maybe one of the biggest reasons you think you're seeing the strength, whether it's, you know, finance or related, whether it's this migration trend from, you know, urban or rural. What's what are your general thoughts there?

[Bill Boor, President and Chief Executive Officer]

[00:27:22] And you're asking for speculation. I'll give you a little bit of personal speculation, but I'll label it that way. I believe we've been talking a long time about if you just look at supply and demand of homes over really the last decade, it's been lacking. The supply has been lacking, household formations. And and I believe in that. And I think that in particular is it's lack at the lower end and the more affordable segments, because as even the traditional home builders have been stretched to supply the market, they've moved to higher price homes. So we've been talking about a pent up demand that we really believe in. And it's much more than just a near-term cyclical event. And I believe that that's what we're seeing. And I believe it's obviously very much I mean, we can never forget how much that's facilitated by the low interest rates that we're seeing now. If interest rates hadn't been incredibly low through this period, I think we would have a very different scenario that the pent up demand is there. It's got to be met at some point. And it seems to be coming out right now with the low interest rates despite the pandemic.

[00:28:35] I'd been a little bit more, I guess, hesitant on kind of predicting or or pointing at trends driven by the pandemic. Doesn't mean I'm right. But I think what we're seeing is way too big to really think that those are significant drivers of what we're seeing. I think it's more of a complete it's it's a it's a demand has been built up for years. But that gives me I mean, given my view about that, it gives me some confidence. This is something that is going to persist. It probably will have some micro cycles as we go forward because of the economy and interest rates. But, you know, we've got a great opportunity here, I think, as an industry to catch up with building.

[Greg Palm, Craig-Hallum Capital Group LLC]

[00:29:26] Yeah, it makes sense. I mean, if if that's the general thought process and in light of all of these labor challenges that we've been talking about, I mean, does that change how you might be thinking about investments in your own manufacturing facilities and anything you're looking at, you know, non labor base to maybe try to increase production rates?

[Bill Boor, President and Chief Executive Officer]

[00:29:47] Yeah, I mean, we're looking we're always looking at just general market opportunities, people have asked about green building in the past. When we're having labor challenges like we are, I think there's a little bit of putting first things first as far as trying to get our capacity utilization up. But we're looking at all of those kinds of things. And and I also have spoken in the past. I think there are entirely new market opportunities available to factories, though, housing outside of our traditional markets that we're looking at. And we would love to be able to break through with some investment. And so we're trying to trying to get the opportunity to invest behind these these demand drivers that I spoke about.

[Greg Palm, Craig-Hallum Capital Group LLC]

[00:30:30] Ok, last one on the buyback, obviously, you know, phenomenal free cash flow generation. So cash continues to build. But anything specific that drove the decision to, you know, the authorization, I mean, pretty briefly here from 10 million all the way up to one hundred. I mean, did you buy back stock under the previous program, previous program, which is in place for a long time?

[Bill Boor, President and Chief Executive Officer]

[00:30:53] I I'm looking at more of that 2008. All right. It was not not utilized and didn't really comment too much about that. But, you know, as far as the decision we made here, to put one hundred million into the buyback program, as I said, it gives it gives us another tool to try to manage our cash balance. You know, I know that investors have been pointing at it for quite a while appropriately. And and we have one more tool to to start managing it through appropriate level. So that's about it. We talked quite a lot about it. We've been asked in past calls and I've had the uncomfortable situation of saying, believe me, we're we're thinking about it. And now we finally have something tangible that we hopefully will be able to go out and execute against.

[Greg Palm, Craig-Hallum Capital Group LLC]

[00:31:43] Ok, great. All I'll leave it there. Best of luck going forward.

[Bill Boor, President and Chief Executive Officer]

[00:31:47] Thanks.

[Operator]

[00:31:47] Thank you. And our next question comes from the line of Jay McCanless with Wedbush. The line is now open.

[Jay McCanless, Wedbush Securities]

[00:31:59] Hey, everyone, thanks for taking my questions. I guess the first one, could you talk about what you all are seeing for four channel rates right now? And are you seeing anything from a lending perspective, whether it's taking a lower down payment, a little bit of widening on credit terms, anything that concerns you there?

[Bill Boor, President and Chief Executive Officer]

[00:32:21] I don't know that I mean it, man, whether things get too aggressive, I guess is in the eye of the beholder, and I'm not sure I have a strong enough view to say that I have concerns about what we're seeing out there as far as race. We're seeing historic low rates for not only traditional mortgages, manufactured housing, mortgages, but also home only loans. Home ownership is not typically correlated to mortgage rates. Know, I think I'm in the zone to say it's typically run in a seven and a half to eight percent. And what we're seeing right now is more in the mid fives. So it came down pretty aggressively since the pandemic. And it's very interesting to see how lenders have have moved in trying to lower those rates and being more aggressive. Whether that's whether that's overheated or not, I don't know that I have a strong view about that. Obviously, there's a big demand and that that kind of interest rate is helping bring that demand forward and creating some of the backlog challenges we have.

[Jay McCanless, Wedbush Securities]

[00:33:29] Yeah, I'd say so from the dealer perspective, if you all started to have any type of cancelations or I know you said there was some push back to the most recent price increase, but are all starting to lose some orders because it's just such a long backlog or a long delivery time at this point.

[Bill Boor, President and Chief Executive Officer]

[00:33:49] You know, I think the dynamic about losing orders every essentially every manufacturer has a huge backlog right now.

[00:33:56] So there probably is some shuffling. You know, anecdotally, we've talked to folks and understood that, you know, a customer gets frustrated with the length of the backlog and maybe either doesn't buy or or acts out and says, I'm going somewhere else and they probably are going to get a similar backlog. So I think, you know, in my in my mind, it's kind of probably just a shuffling of the chairs. I don't think that we're losing anything because we're not standing out as the ones with the high backlog. So I don't you know, I don't think we're really losing anything. And as far as pushback, I guess.

[00:34:36] I wouldn't necessarily characterizes push back, it's just very hard on a deal or one when manufacturers are increasing one after another increase, the manufacturers would make an increase thinking that on it get us where we need to be. And costs kept going up and they turned Rousso. Jeez, we need to do another one that's real hard on a distributor dealer. And so what what takes place after that is, you know, a lot of working together, sitting down and looking actually at specific deals and deciding which ones the wholesaler agrees we should price protect. So there's a lot of work going on, really, if the ground floor to try to try to work through it with the dealers. But it's been a difficult dynamic for sure. I don't think we've lost anything because I think that dynamic I think I'm safe to say that dynamics going on with all manufacturers and no one's really sitting there with an empty backload ready to jump inside and get your house a lot quicker.

[Jay McCanless, Wedbush Securities]

[00:35:39] And then the last one I had and apologize for putting words in my mouth, Bill, but I think you said when when it comes to.

[00:35:49] The homes that you all are taking orders for now, people are maybe going a little more upscale, a little bit bigger footprint, more options inside the home, if I heard that correctly, because that along with the price increases, you are talking about results in a meaningful step, function higher and where your average prices are at this point.

[Bill Boor, President and Chief Executive Officer]

[00:36:12] And thanks for giving me the chance to correct something if I came across that way, because I didn't intend to say that, I'm trying to think what I said, I, I know at one point in the Q&A here, I talked about traditional site builders when they are. Kind of stretched for capacity, they tend to go up and build more expensive homes, leaving the lower price levels and it even more in deficit as far as supply. I wondering if that's what you're picking up on, but I didn't mean to imply that we were seeing a big move of customers going to higher end right now or or even from an options perspective going up. It's been fairly stable from my perspective.

[Jay McCanless, Wedbush Securities]

[00:36:56] Thank you for clarifying that.

[Bill Boor, President and Chief Executive Officer]

[00:36:58] But yes, because I didn't mean to leave a wrong impression there.

[Jay McCanless, Wedbush Securities]

[00:37:02] It may have been may have been my bad hearing. So thank you guys for all that. Oh, but one other question I had. Does it make sense to restart Lexington or think about keeping it open just to give you another shot at it, working through the backlog?

[Bill Boor, President and Chief Executive Officer]

[00:37:20] Well, we'll keep looking at that, but right now, that's not something that we're looking at. You know, we made a decision. I still think it was probably the right decision just from where that plant was positioned in the market and the specific struggles we have in trying to identify the right product niche for it. So that's not something that we're actively looking at.

[00:37:40] But I get definitely get the point when you've got these kind of backlogs. So we'll keep our eyes open on all those kind of choices.

[Operator]

[00:37:52] Thank you, and your next question comes from the Forest and Men with Walt Housman Co. Your line is open.

[Unidentified Analyst]

[00:38:02] Hi, thanks for taking the questions. Can you just give us a little bit more color as it relates to the response the company's taking on the labor side? You alluded to some things in the prepared remarks, but any additional color there would be helpful in terms of how can we address the labor issues facing?

[Bill Boor, President and Chief Executive Officer]

[00:38:20] Yeah, I mean, it's certainly not a one one thing approach, you know, one of the challenges we're having is, is hiring and we've done a lot to try to improve basically the recruiting effort. You know, we've over the last year, we've filled up a bit more of a human resources infrastructure in the company. And I think that's paying dividends for us now because those folks are working very closely with our individual plants to improve their recruiting efforts. And, you know, it's sometimes it's trial and error. We definitely have had some spots of success where we've seen plants take a different approach to recruiting and it's paid off. So that's underway.

[00:39:08] There's been a considerable amount of work on wage rates, and that's not generally just as simple as saying we're going to increase the base wage. Usually it's a plants thinking through, you know, how to how much will be in base wage and how much would be an incentive compensation and what the drivers the incentive for.

[00:39:27] But the net effect is, you know, several of our plants are making significant moves on their wage rates. And I think that's necessary. And I think it's smart moves in our system. And this is a philosophical thing, and we're standing by it because I really think it's the way to operate in our system. I get plenty of input from people like me will comment.

[00:39:52] We're talking, you know, at a minimum, you know, I'm in conversation and operating interviews with the GMs every month. But our are these are really the ones that are managing that system. And but ultimately, we believe that the local general managers have the best perspective and what they need to do in these kinds of areas. But I can report that generally our plans for our increasing wage rates and structuring good ways. So I think that'll have an impact on retention.

[00:40:23] And over time, we've we've tried to do things to also improve the workplace, all that stuff. You know, I think all of that is smart. It's it's generally midterm type things as far as the payoff off right now. Right now, the need is urgent, as we all understand. So it's just been heightened attention to those sorts of efforts that will pay off for us. But it's been frustrating.

[Unidentified Analyst]

[00:40:51] Does it make sense to run overtime at the facilities or try to get the team, the teammates, the crews to work an extra day of the week? Or are the plants running five or six or seven days a week? Can you just give us color in terms of any of those initiatives or potential opportunities?

[Bill Boor, President and Chief Executive Officer]

[00:41:10] That's a really good question. And again, that typically our plants do run overtime even in much lower backlog environments like this. And they'll often they'll run on Saturdays here and there not is a scheduled approach, but it's not atypical at all for a plant to run a couple Saturdays a month. And we continue to do that. But think about the dynamic. When your absenteeism is high, the people that are showing up to work, you kind of have to be a little bit careful about how hard you work that group trying to make up for the production so that the folks in our plants really have a balancing act to do their driving hard to get that extra house out. But if they drive too hard with your time in the Saturday work, we're just going to compound our our labor problems by basically burning people out. So we actually saw our labor costs go down a little bit. Our production production worker costs go down a little bit, partly because we had days that we're not producing and the plant, partly because of absenteeism, but partly because we just can't work the folks who are showing up so hard that we exacerbate our problem. So it's a real fine line, but we definitely do what you're talking about as far as looking at opportunities to work overtime to get the incremental house up.

[Unidentified Analyst]

[00:42:36] Ok, that's very helpful. I appreciate the color separate topic of the share repurchase authorization. We have had the SCC inquiry. Are we restricted from making share repurchases while that inquiry is is outstanding in these wells notices or outstanding, or are we allowed to purchase stock at this point?

[Bill Boor, President and Chief Executive Officer]

[00:43:06] It's something that is the material inside information question, obviously, and so there very well may be times when we have to be under a black blackout and keep ourselves out of the market. Having said that, so so frankly, it could be a challenge at times, just as you're alluding to. Having said that, we have taken an approach of trying to be as transparent to the market with what we disclose as possible around the FCC matter. So, you know, they're going to be times when the market knows as much as we know. And those points sometimes taking a conservative approach to inside information will hopefully be able to be in the market. So it'll be interesting to see how that plays out. But we didn't we wouldn't have done the authorization if we thought we were going to be precluded from doing it.

[Unidentified Analyst]

[00:44:00] Well, I was just I know I would just want the insight, because, you know, the board meets at certain times and in some instances it could be an indication that the S.E.C. inquiry may be nearing a close. And if there is a blackout and we've already taken the steps and put that in our toolkit and we're prepared to use it appropriately.

[Bill Boor, President and Chief Executive Officer]

[00:44:27] Yeah, I'm on the board. Gave poor management authorization. So the board's not going to be directly managing when we're able to purchase. So we'll be able to do that, you know, obviously as we go forward. Yes. Like I said, we'll be happy to be very cautious about it, but we wouldn't have authorized or asked the board to authorize it if we didn't think there'd be opportunities.

[Unidentified Analyst]

[00:44:53] Ok, and then final question on the repurchase authorization, can you just help us understand the philosophy around that? Is the goal to offset dilution? Is the goal to reduce the outstanding share count? Is the goal to be opportunistic from a pricing or valuation perspective? Or should we think about it as a gradual run off of this authorization over some period of time?

[Bill Boor, President and Chief Executive Officer]

[00:45:25] The pace of executions is yet to be seen. The goal in my mind is pretty clearly balance sheet management. You know, that's that's the priority. We've got a cash balance that, you know, we needed another way to manage that cash balance. And this is that added tool, as I said.

[Unidentified Analyst]

[00:45:47] Ok, thank you.

[Bill Boor, President and Chief Executive Officer]

[00:45:47] Thanks a lot.

[Operator]

[00:45:52] Thank you and once again, star one to ask a question. Our next question comes from Daniel Moore with T.J. Securities. Your line is open.

[Daniel Moore, CJS Securities]

[00:46:02] Sorry about that stuff. You know, I was going to ask, but I think you covered it built to the extent that you could, but, you know, is there any level, high level of color you can provide on beyond the press release recently on whether or not we're closer to putting the FCC investigation as it relates to Cavaco, at least to rest?

[Bill Boor, President and Chief Executive Officer]

[00:46:22] Yeah, appreciate the question. I mean, we had the say, they just went out and everything was late September. I remember the day, actually, but and really there's not an update since then. And that's the way this is going to go. It's been that way for a while. These things will come in fits and spurts. We'll do our best to be transparent to the extent we can extent it's appropriate, but not much to update from that he can.

[Daniel Moore, CJS Securities]

[00:46:50] Ok, thank you again, Mr..

[Operator]

[00:46:55] Thank you, and I'm not showing any further questions at this time, I'd like to turn the call back to your speakers.

[Bill Boor, President and Chief Executive Officer]

[00:47:02] Ok, well, just to wrap up, I mean, it goes without saying that these are strange times we're operating in, but our team has continued to plow forward to meet the needs of our customers. And I'm very proud of the commitment being demonstrated every day by the folks that make up Pafko. Without a doubt, quarter ago, we were relieved that we were seeing demand for our products and services. And when the pandemic first hit, it was a big question mark, whether things would kind of go to zero. And and last quarter when we talked to you, we were kind of about our backlog was I think it was around seven weeks.

[00:47:36] It was kind of just healthy, maybe a little long. But we're relieved to be seeing the demand. And now in manufacturing or retail, we're challenged to keep up with a challenge to provide enough homes with orders that would exceed production under any circumstances. So continues to change. We know what we have to do. And with that, I really want to thank you for all your interest in Tasco. I hope each of you and your families are staying healthy and safe. And we'll wrap up the call.

[00:48:03] Thanks.

[Operator]

[00:48:05] Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect everyone. Have a good day.