Cavco Industries Inc

NASDAQ:CVCO

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for standing by and welcome to the Cavco Industries Fourth Quarter Fiscal Year 2023 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder today’s program is being recorded.

And now I would 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 Industry's 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 Bigbee, Chief Accounting Officer.

Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements, including the statements of expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets or future market conditions.

All forward-looking statements involve risks and uncertainties, which could affect Cavco's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Cavco.

I encourage you to review Cavco's filings with the Securities and Exchange Commission, including without limitation, the company's most recent Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

This conference call also contains time sensitive information that is accurate only as of the date of this live broadcast, Friday, May 19, 2023. Cavco undertakes no obligation to revise or update any forward-looking statements, whether written or oral to reflect events or circumstances after the date of this conference call, except as required by law.

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

[Bill Boor, President and Chief Executive Officer]

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%. So 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 a 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 improved throughout the fourth quarter. And while average selling prices 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 built 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, and 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 are 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 and 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, but 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 1:1 ratio of home buyer demand and manufacturer orders. I've commented before that this issue will not go away suddenly and 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 and 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 two 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 the interest rate changes and 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 reversed 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. So our capital allocation approach remains unchanged by current order environment. I want to 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. So through a lot of hard work, everything is moving forward with a very good company.

Let me switch gears. Last quarter, I talked about the milestone achieved in January and we went live with cavcohomes.com, our new consumer facing digital home marketplace. I won't repeat all the aspects involved in this game changing improvement and how we support our dealers and our prospective homebuyers. But I do want to 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. And 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 homebuyers.

With that, I'd like to turn it over to Allison to discuss the financial results in more detail.

[Allison Aden]

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 housing segment, net revenue was $466.1 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 and 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 incomes 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 built housing segment, the gross profit decreased slightly to 24.4% in Q4 of 2023 versus 24.5% in Q4 of 2022, primarily due to Solitaire purchase accounting adjustments on the acquired inventory. Under accounting rules, the inventory acquired is recorded at fair value, which approximates the sales price. Therefore when acquired inventory sold, no revenue is recognized. This reduced the factory built and consolidated gross profit percentages by 40 basis points in the fourth quarter.

Gross margins 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 and leveraging third-party consultants assisting with energy tax credit projects, higher legal costs, specifically related to an indemnified former officer and his ongoing SEC litigation costs.

Built 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 percent in the prior year quarter. 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 rates 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 a $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.

Now I'll turn it over to Paul to discuss the balance sheet.

[Paul Bigbee, Chief Accounting Officer]

Thanks, Allison. Comparing the April 1, 2023 balance sheet April 2, 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 and 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. Inventory's increase 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 set up 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 Chief Executive Officer]

Thanks, Paul. As Allison and Paul explained, our balance sheet remains very healthy and 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 at manufactured housing as a cyclical business. However, these cycles are within the broader context of an increasing need for our homes.

With a strong balance sheet of proven ability to adjust as needed and against the backdrop of 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.

With that Jonathan, please open the line for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Daniel Moore from CJS Securities. Your question please.

[Daniel Moore, CJS Securities]

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

[Bill Boor, President and Chief Executive Officer]

Yes, we’ve pulled back on production as I indicated with the decline in production rate and yes, certainly as the order rates are coming in now, I think we're, kind of, in a balance. In fact, 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, so it's differential, but I'd say across the whole system, we're in the seasonally stronger period of time as well. So I'm feeling pretty good about the balance we have right now.

[Daniel Moore, CJS Securities]

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

[Bill Boor, President and Chief Executive Officer]

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

[Daniel Moore, CJS Securities]

Very helpful. May be difficult to answer, but you produced -- let me get the number real quick here, including Solitaire 4,477 homes in the quarter. Any sense for what the underlying retail demand that -- for your businesses and factories look like. Obviously, we were still in a destock period of inventories. So wonder if you have any sense for that.

[Bill Boor, President and Chief Executive Officer]

I'm not sure how to answer that, I think it's kind of similar to your first question right about where is the balance? Is that right? I mean, I guess, yes, I don't think I can give you anything with any precision. What I can tell you is that 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. And consistent with my comments, you looked at the -- if you dissect the quarter a little bit, we left the quarter at a much higher order rate than we entered it. So again, I feel like we're -- we've done a good job of pulling back production rate, keeping costs variable. And 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, CJS Securities]

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

[Allison Aden]

I think you agree on, you know, think about gross margin and consistent with what we've talked about before and we've got to think about, kind of, three areas. In pricing, I think we touched on that 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 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 that in a couple of quarters. But long-term Solitaire will perform up to large manufacturing gross margin and ASP rates.

[Bill Boor, President and Chief Executive Officer]

Yes, it's important point on that. The new home sale out of South, there's no negative margin impact, it’s just getting through these zero margin homes from purchase accounting and that will take us a little while as Allison said.

[Daniel Moore, CJS Securities]

Very helpful. That is going to dovetail into my next question, which is just in terms of Solitaire, do you expect it to begin to contribute positively to pretax income this quarter? Or might that take a little bit longer? And what's the glide path to getting to your average margins factory built housing margins?

[Allison Aden]

I would 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 that's broken that has just come online during the purchase and we will see that ramp up that will help add and be accretive.

[Daniel Moore, CJS Securities]

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

[Bill Boor, President and Chief Executive Officer]

Yes. We’re going to talk about that. Yes, go ahead, Mark.

[Mark Fusler, Corporate Controller and Investor Relations]

Yes. So kind of on a just full operating days available, we're just about at 60%. As Bill mentioned we did have those scheduled down days on the four-day work weeks or just about 70% considering those.

[Daniel Moore, CJS Securities]

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

[Bill Boor, President and Chief Executive Officer]

And 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 a question, because we know how much everyone's doing their homework for any significant purchase online. So 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 of years from now. So I kind of believe that they're happening today that they're starting with that online experience. So we think it's right at the core of how homes are going to 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've said in my comments and I didn't want to be too long winded in them, but 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 that they're going to be so much more effective and our relationship with them is that much deeper. And then as we continue there, we've gotten good results in the early days on visitors and conversions, conversions meaning visitor, who actually asked for more information or it's a button and calls with dealer that site provides for them. So we're seeing good early numbers on that. That's all about is kind of funneling targeted leads to those dealerships.

So I know I'm talking a little bit in concepts, but I think -- I think this is the starting point for the vast majority of home sales for us. Possibly now, but definitely as time progresses. So as far as targets, I don't know what to say except most.

[Daniel Moore, CJS Securities]

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

[Bill Boor, President and Chief Executive Officer]

Alright. Thanks, Dan.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Greg Palm from Craig-Hallum. Your question please?

[Greg Palm, Craig-Hallum]

Yes. 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 order rates ended the quarter at a much higher rate in the beginning. Any way you can sort of quantify that? And 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 Chief Executive Officer]

Yes, I'm just looking at some data to see what I can frame for you. I can tell you, I mean, one thing talk in net, and I'm not saying this is the biggest driver. But one thing, when I talk about order rates, I'm talking about net of cancellations. Cancellations have basically fallen back down to not being an important part of the conversation. So part of that, to be fair, is because we -- our backlogs in many places are very short. So folks place an order, it's going to go into production. So not taking too much credit for the cancellation reduction is kind of natural. But we're talking about net orders.

And just I bought it or looking at some data, March was on a same plant basis was well higher than we've seen in nearly a year. And you're asking me about numbers in April, I'll just tell you that directionally, our net orders on the 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. And also, 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, Craig-Hallum]

Yes. And that's interesting. And I 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 quoting has 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 the inventory levels were just a little bit higher and it took a little bit longer to work through, because I think everybody is trying to get a sense for why at least industry production data was so weak and not just calendar Q1, but March specifically. I know that there is some, sort of, a lag involved, but maybe you can just tie that back out to the production if you're able to?

[Bill Boor, President and Chief Executive Officer]

Yes. I mean, you're hitting all the points, so that I can make to be honest. I mean you do have -- we've had the inventory thing. So that's the -- an order of home that leaves the retail lot is not getting replaced, because the retailer wants to get inventory down. So that does not turn into an order when you got an inventory problem. And I commented that I feel like that discussion is about ready to be over, and then I mean that's one big factor.

And then when we look at traffic and close traffic has actually been, in my view, pretty healthy throughout, right? And 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, but the traffic has consistently been there.

The order strength over the last several months -- I'm sorry, not orders, the close strength over the last several months, I view as a positive indicator, but that's really a couple of months leading indicator to the extent it's correlated the orders, because it takes people time to make their decisions. And -- 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, but it won't result in the correlation between quotes and true order is not quick. It can be a couple of months. So I'm not bothered by the fact that we're seeing those positive indicators, but we're not -- but we haven't seen the pickup in wholesale orders. I think it's very explainable by those factors. And I think it's common.

[Greg Palm, Craig-Hallum]

Yes. And I just wanted to be sure I heard you right. You talked about, at least I think some plants move into a five-day work schedule. Are any of them at five-days today? Or how many are going to five-days? I mean, I assume that alone would mean 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 Chief Executive Officer]

Yes. Our plants have been kind of changing schedules based on their unique circumstances. And my comment was generally that as we talk to our plants, which we stay in very close contact with them, they're on their own situation. I would say the majority had reduced the four-day schedules in the last couple of months. And 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 find back the five. So I don't have a number to tell you out of our entire plant system who is on the verge of going back to five. It's just the conversation has shifted in that direction, which is a positive.

[Greg Palm, Craig-Hallum]

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 basically witnessed this quarter? And to be clear, any change in ASP from Solitaire or was it pretty consistent?

[Bill Boor, President and Chief Executive Officer]

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

[Greg Palm, Craig-Hallum]

Solitaire's impact on overall selling prices, correct.

[Bill Boor, President and Chief Executive Officer]

Yes, I don't -- I think we looked at that and they weren't a meaningful plus or negative to the average selling price across the company. And you can actually watch from our -- the data that we provide, because we give both units and floors. So 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. And I don't necessarily think that's a bad thing. I think that's indicative of the affordability issues that people are facing.

So people are kind of lowering their expectations. They're moving down in the house, they might have been able to afford in previous periods. And they're starting to get off their heels and try to make those decisions and place orders. So I've talked in the past, we can track the average selling price, it’s obviously an important piece. But in my opinion, and when we looked at the data at an operating level, we price our products.

I said this before, I don't know if you completely get what I'm saying, but we price our products, so that our time in our factory is at a consistent profitability, whether we're making a single module home or a multi-section. So 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, Craig-Hallum]

Okay. Alright, I think, I’ll leave it there for now. Appreciate all the insights, thanks.

[Bill Boor, President and Chief Executive Officer]

Thank you.

[Operator]

Thank you. [Operator Instructions] And our next question comes from the line of Jay McCanless from Wedbush. Your question, please.

[Jay McCanless, Wedbush]

Yes. 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?

[Mark Fusler, Corporate Controller and Investor Relations]

Yes, sure, Jay. I can do that. So right now, our chattel rates are running just a little bit over 9%. So they're going to be between 9% and 9.75%. So that's up roughly from about 7.5% a year ago.

[Jay McCanless, Wedbush]

Great. And then -- so Bill, just to drill down some more, because I was intrigued by your comments around more single section, there isn't going to be a profitability drop off any more if you're building more singles versus multi. Is that what you're trying to get across?

[Bill Boor, President and Chief Executive Officer]

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. And so you've got a lot of complexity in this discussion, because you're going to have challenging to make single edge, you can have easier to make double edge, some products flow through the plant easier than others. But in general, 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, Wedbush]

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 Chief Executive Officer]

Yes, 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. And I was initially really puzzled by, when I took the opportunity to talk to a few of them. And initially, I was struggling with the answer, but they convinced me. The comments I got basically summarized where we would be ordering more homes right now if we could get them permitted and set in the field.

So they have been very clear that their issue is placement of the homes, not the need for the homes. But it has been an issue, because we can use the orders, of course. But they have -- 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, Wedbush]

Got it. And then just to kind of clarify, because it seems like at the beginning, you talked about how we're through the worst of the destocking. But then when you were talking about the retail channel, you said some dealers, I think, are still hesitant to replace homes. I guess, where -- 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 Chief Executive Officer]

Yes, I'm not sure what I said that picking up there. I -- my comment, I think, was intended to say there are probably dealers out there that are still saying my inventory is too high. But in general, when you look at it across the system, it's really -- in my opinion, it's gotten to the point where it's not really a factor at this point on the 1:1 ratio. So 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 -- and I have thought about talk to folks about this floor plan availability. I have not seen or heard that to be a constraint really. We've talked before, dealers are destocking for good business reasons. They're managing their turn rates. They don't -- their cost of funds on floor planning has gone up. So they're trying to get their inventory down on their own. But I have not noted any dramatic forcing function coming from the floor plan lenders.

[Jay McCanless, Wedbush]

Okay. Right, I think I had that -- that’s all my questions. Thank you, again.

[Bill Boor, President and Chief Executive Officer]

Thanks, Jay.

[Operator]

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 Chief Executive Officer]

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 and everyone at Cavco is ready for the inevitable return of demand, so that we can help more families get the homes they need.

So 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]

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