Cavco Industries Inc

NASDAQ:CVCO

Earnings Call Transcript 2024-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Fourth Quarter Fiscal Year 2024 Cavco Industry Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.I'd now like to hand the conference over to your first speaker today, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead.

[Mark Fusler, executive]

Good day, and thank you for joining us for Cavco Industry's fourth quarter and fiscal year 2024 earnings conference call. During this call, you'll be hearing from Bill Boor, President and Chief Executive Officer; Allison Aden, Executive Vice President and Chief Financial Officer; and Paul Bigbee, Chief Accounting Officer.Before we begin, we'd like to remind you that comments made during this conference call by management may contain forward-looking statements, including statements of expectations or assumptions about Cavco's financial and operational performance, revenues, earnings per share, cash flow or use, cost savings, operational efficiencies, current or future volatility in the credit markets, or future market conditions. All forward-looking statements involve risks and uncertainties which could affect Cavco's actual results and could cause its actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Cavco.I encourage you to review Cavco's filings with the Securities and Exchange Commission, including, without limitation, the company's most recent forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in any 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 24, 2024. Cavco undertakes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law.Now I'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

[William Boor, executive]

Thanks, Mark. Welcome and thank you for joining us today to review our fourth quarter results. The fourth quarter was the transition quarter we were looking for. Coming out of the holidays, we had a number of plants on 4-day schedules, 4-day-a-week production schedules, and several took extended holiday shutdowns in January due to low backlogs at the time. Those initial lost production days at the beginning of the quarter drove our essentially flat sequential wholesale shipments. During the quarter, though, order rates strengthened, and almost all of our plants have now worked their way back to 5-day schedules and begun increasing their daily production rates.We saw the first quarter-to-quarter backlog increase since the downturn began, which is what we were looking for to indicate that buyers are continuing to return to the market. We had hoped this would be facilitated by declining mortgage rates, but as you know, that didn't happen. Still, buyers are returning because they need homes, they're adjusting to the higher rates, and they're adjusting their expectations around the home they can afford.On the same-plant basis, orders continued their sequential improvement for the sixth straight quarter. It hasn't been dramatic, but it has been consistently improving despite the lack of rate relief noted earlier. Within the context of what I've said here, our capacity utilization for the quarter was consistent with the last Q at approximately 60%. However, given the downtime earlier in the quarter, the takeaway is that we left the quarter at a higher utilization than we started. Regarding the backlog improvement, we ended the quarter with $191 million, up from $160 million in Q3. Pricing in the backlog was basically flat, so this represents a unit backlog improvement of roughly 20%. At quarter end, we had about 7 to 8 weeks in the backlog.Despite a small reduction in average selling price, we were able to maintain gross margin in the housing segment at 22.4%, which was flat compared to the gross margin last quarter. I know there's continuing interest in understanding the status of community orders. We've discussed this for several quarters, having said that we expected to take a few quarters into calendar 2024 to really see meaningful improvement. Community orders are still lagging. Every community has its own story, so improvement will happen over a period of time. Our expectation remains that community orders will improve this calendar year as inventory levels come down.The order strength we've seen thus far has primarily come from retail dealers, so the order boost from communities is still ahead. Commenting on the fiscal year, our teams across operations, including retail and financial services, really showed their ability to react quickly and effectively to market dynamics. Despite the slowdown, we've maintained healthy margins, profitability, and cash flows. Now, as we increase schedules, our operators are ramping production rates in an effort to keep backlogs in check. This is the nature of the industry, and the ability to adapt quickly is being shown throughout our operations.I want to take a few minutes to comment on the year we just completed and some of the really important accomplishments. Our stated objective, as the market got hit with rapid interest rate increases, was not only to effectively manage the cycle, but to stay focused on our priorities so we would come out of the downcycle stronger and even more prepared to supply homes to deserving families. First and foremost, our plants continued an impressive improvement in our safety results. This fiscal year, our total recordable injury rate was reduced 37%. This continues a multi-year trend of significant improvement, and in calendar 2023, we experienced a 35% lower incident rate compared to the industry benchmark.We also grew our retail footprint by adding 15 stores in the fiscal year after growing 19 stores in fiscal year '23. This growth is in support of our plant distribution needs, and our current system stands at 79 retail locations. We announced the first nationally available HUD-approved line of duplex homes. Interest in our Anthem series has exceeded expectations, and we anticipate orders for this new answer to the affordable housing crisis to grow in the coming quarters.We also continued development and rollout of our digital marketing platform across our family of brands with very strong contacts and lead generation. We completed the integration of the Solitaire acquisition, which closed in late fiscal year '23. This included efforts to optimize product offerings across the combined retail system, as well as refreshing the Solitaire product offering. The full impact of this acquisition will show in the improving markets.We advanced our people strategy with continued improvements in leadership and development, pay and benefits, career processes, and workplace improvements. This work is resulting in higher skills, reduced turnover, and improved job satisfaction, and it creates the foundation for our long-term success. A critically important part of that people strategy is training and development. After outstanding start only a few years ago, Cavco was recognized this past year as one of the top training organizations in the world through The Training Magazine's APEX Award.We purchased $110 million of our stock while maintaining a very strong balance sheet capable of supporting our continued growth investments. With all these improvements, steady increases in orders, and a return to normal community orders still ahead of us, we're looking forward to producing more quality affordable homes in the quarters and years ahead.With that, I'd like to turn it over to Allison to discuss the financial results in more detail.

[Allison Aden, executive]

Thank you, Bill. Net revenue for the fourth fiscal quarter of 2024 was $420.1 million, down $56.3 million, or 11.8%, compared to $476.4 million during the prior year period. Sequentially, net revenues decreased $26.7 million, driven by a reduction in both units sold and, to a lesser extent, average selling prices partially offset by higher revenues in financial services. Within the factory-built housing segment, fourth quarter revenue was $398.5 million, down $57.6 million, or 12.6%, from $456.1 million in the prior year quarter. The decrease was primarily due to a reduction in homes sold.Sequentially, for the factory-built housing segment, net revenues compared to the prior quarter was down $28.4 million, or 6.7%, from $426.9 million. The decrease was due to a reduction in homes sold and lower average selling price per home. Factory utilization for Q4 of 2024 was approximately 60% when considering all available days for production, but was nearly 70% excluding scheduled downtime for local market conditions. This utilization level was consistent with the past 4 quarters.For the financial services segment, net revenue increased 6.4% to $21.6 million in Q4 of 2024 from $20.3 million in the prior year period. This increase was primarily due to more insurance policies in force and higher insurance premiums as recent rate increases become realized, partially offset by fewer loan sales. Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 23.6%, down 170 basis points from 25.3% in the same period last year.In the factory-built housing segment, the gross profit declined 200 basis points to 22.4% in Q4 of 2024 versus 24.4% in Q4 of 2023 driven by lower average selling prices and volume, partially offset by lower input costs. Gross profit as a percentage of revenue in financial services decreased slightly to 45% in Q4 of 2024 from 45.7% in Q4 of 2023. Selling, general, and administrative expenses in the fourth quarter of fiscal 2024 were $61.4 million, or 14.6% of net revenue, compared to $66.4 million, or 13.9% of net revenue during the same quarter last year. The decrease in SG&A expense was due to costs in the prior year that did not recur in 2024, including costs for third-party tax consultants, Solitaire acquisition costs, lower costs for the litigation between an indemnified former officer and the SEC, and lower compensation on reduced earnings.Speaking of the SEC litigation with the former officer, in May 2024, the SEC settled all outstanding claims against their former CFO, closing all pending matters. Interest income for the fourth quarter was 5.3 million, up 35.6% from the prior year quarter. The increase over the prior year is primarily due to higher interest rate on larger cash balances. Pre-tax profit was 26.7% this quarter, to $42.9 million from $58.6 million for the prior year period. The effective income tax rate was 21% for the fourth fiscal quarter, compared to 19.1% in the same period last year. Net income to Cavco stockholders was $33.9 million, compared to net income of $47.3 million in the same quarter of the prior year. Diluted earnings per share this quarter was $4.03 versus $5.39 per share in last year's fourth quarter.Now I'll turn it over to Paul to discuss the balance sheet.

[Paul Bigbee, executive]

Thank you, Allison. Comparing the March 30, 2024, balance sheet to April 1, 2023, the cash balance was $352.7 million, up $81.3 million, or 30%, from $271.4 million at the end of the prior fiscal year. The increase is primarily due to net income adjusted for noncash items such as depreciation, stock compensation expense, and gain on sale of loans and investments of $11 million. Working capital adjustments providing approximately $55.7 million of cash related to inventory and accounts receivable decreases, and consumer and commercial loan activity with payments received and the sale of loans greater than the use of cash for originating loans. These increases were partially offset by paydowns in accounts payable and accrued liabilities, the acquisition of Kentucky Dream Homes for $17.9 million, net PP&E purchases of $17.4 million, and share repurchases of $109.3 million.Restricted cash and related other current liability increased from cash collected on service loans in our financial services segment. Prepaid and other assets was lower due to reduction in delinquent Ginnie Mae loans, partially offset by higher prepaid insurance. The remaining change is due to normal amortization of prepaid. Property, plant, and equipment is down primarily due to current year purchases, more than offset by depreciation and the sale of unutilized equipment acquired with Solitaire.Accrued expenses and other current liabilities are down from lower accrued bonuses, customer deposits and, as mentioned above, reduction in delinquent Ginnie Mae loans. Lastly, stockholders' equity exceeded $1 billion, up $57.1 million from $976.3 million as of April 1, 2023.With that, I'll turn it back to Bill.

[William Boor, executive]

Thank you, Paul. I can't let the moment pass without a comment about the SEC situation and closure of that issue. As Allison mentioned, our former CFO and the SEC reached a settlement that was recently made public. I've been here since the start of this situation, initially as an Independent Director and then in my current role. I'm very proud that this company has continued to operate with excellence and grow in many important ways during this time. I can't count how many times I've told investors how much I look forward to the day when I can report that this issue is behind us, and today is that day. To those investors who have stuck with us throughout, on behalf of everyone at Cavco, thank you very much for your continued confidence in us.With that, Marvin, please go ahead and open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Greg Palm of Craig-Hallum.

[Greg Palm, analyst]

I wanted to start with a little bit of color on what you're seeing in the community channel. Correct me if I'm wrong, but it didn't sound like there was much change in expectations, but curious if you can at least comment on visibility levels relative to last quarter. Maybe we'll start there.

[William Boor, executive]

It is kind of more of the same on that. Even over the last several quarters, we hate to speculate here, as you know, but we were still looking well into calendar 2024 before we thought that we'd really start seeing community orders ramp up significantly. And so, we're still not to that point. And it's been more of the same. I think they're working through it. Even though the orders aren't here yet, I'm confident in my discussions that inventories are coming down. And so, we still feel the same as we have for a while that we should see improvement this calendar year.

[Greg Palm, analyst]

Yes. Makes sense. And I know you're cognizant of it, but you don't provide any guidance, but can you at least give a little bit of color around production rates where it was, where it is today, is there any sense on an increase in production rates, for instance, this quarter versus last?

[William Boor, executive]

Yes. We tried to characterize this quarter as we see it -- this past quarter, which is that it's been one of transition. Our shipment numbers were really heavily influenced by the lost production days that I mentioned at the beginning of the quarter. And as I said in my comments, we talk about a utilization of 60%. But if you think about that lost time at the beginning, that means we finished the quarter at a higher pace. So, we're starting to -- as I indicated, schedules are getting back. It's not only schedules, but it's also run rates that the plants are managing, trying to ramp back up and stay in line with market demand, in some cases, so the backlogs don't actually get away from us.So I think we're clearly in a better position now than we were at the beginning of the calendar year, than we were for most all of last year. We've seen that steady improvement in wholesale orders. And I do think -- I'm repeating myself here a little bit. But I do think that's noteworthy, given that we haven't really seen interest rate relief. So, if you have a view that interest rates have some potential for going down a little bit in the coming quarters, and if you agree with our view that community orders are a bit of a tailwind, then I think we're heading to some better times, notwithstanding some significant economic shock.

[Greg Palm, analyst]

Yes, that, makes sense. A couple for Allison, first on SG&A, it was down a little bit sequentially. Was that mostly just on lower revenue in the variable portion? And I guess more importantly, how do you guys feel about SG&A going forward in terms of an absolute level?

[Allison Aden, executive]

Yes. As I mentioned in the call, when you compare it to the prior year, obviously, we're down for some nonrecurring costs, and quarter to quarter, you saw the reduction now that we have no SEC-related indemnified cost of former officer. I think that as we look at costs now, and as we go forward, we've talked about that the SG&A is a high-variable cost component to that. So, we're looking at a pretty steady state right now, and of course, as the top line grows, we'll see our variable compensation flow through SG&A. So, still, as I said, it stays pretty consistent to the level of the top line, and still a high component that's variable.

[Greg Palm, analyst]

Okay. And then my last one was just more of a clarification. Was there any purchase accounting impact on gross margin associated with the Solitaire acquisition in this past quarter, or are we past that at this point?

[Allison Aden, executive]

I'd say largely we're past that. It was a small amount.

[William Boor, executive]

We're still selling that inventory off, but it's pretty insignificant at this point, Greg.

[Operator]

[Operator Instructions] Our next question comes from the line of Jay McCanless of Wedbush.

[James McCanless, analyst]

So, the first question I had was shipments being down 12% in the quarter versus the industry being up nearly 15%. Can you talk about what's going on there and what the plan is to maybe catch up and be back in line with the industry over the next couple of quarters?

[William Boor, executive]

Yes, Jay, I think this is a really important question because I think there's noise in what people see at a headline level. First point I want to make is that if you really dissect the industry shipments, and you can do this with publicly-available HUD shipment data, if you really dissect it and look at it on a regional basis, even though the industry was up, I think -- I'm talking year over year for this discussion, even though the industry was up about 15%, yes, I think it was 14.7%, Mark. When you look at it regionally, the range of increases and decreases is more than you might expect. And just to give you a feel, the East South Central, which includes Tennessee, Alabama, Kentucky, Mississippi, just looking at the numbers here, that was up 50%. You contrast that to an area like East North Central, Illinois, Michigan, Ohio, which was down 31%. So, I'm belaboring the point, but if you dissect that, you really have to look at how any given manufacturer lines up with their exposure to those regions to get a clear picture of whether they "stayed with market" or not.Now, setting that aside, to really understand the answer to your question, the other thing I'd say, and I'm, again, working year-over-year numbers, you need to look at both shipments and backlog changes. And when you do, you really get a clearer picture of what underlying demand and a more normalized view of share is. So, let's talk about last year. Let's remember where we were in the industry last year. The context behind our shipments then, we shipped just roughly 4,500 units. And during that quarter, our backlog dropped $180 million. So, if you remember, we were in a really declining backlog environment. So, roughly 40% of our volume that quarter represented backlog depletion.Now, this quarter was the opposite. We shipped about 3,900 -- a little over 3,900 units, but our backlog grew $30 million. So, we shipped below the new order level. Why? Because, again, at the beginning, we lost days due to a lack of backlog in certain plants. So, that explains our year-over-year comparison in the context of underlying demand. It's clearly stronger now. But the remaining question is why didn't the overall HUD market show the same trends, right?We don't have visibility into industry backlogs, but if you just divided our shipments last year by HUD shipments, it would have suggested a 21% market share. Frankly, that's higher than our share of capacity. That's higher than our market share over time. So, the only thing that I can conclude from that is that while we had the backlog and were still shipping at a relatively high rate and depleting that backlog, others in the industry presumably didn't have the same backlog. They had already hit a point where they had to start pulling back. So, we outshipped the industry in that period of time.So, I hope this isn't too lengthy. I think it's a really critical thing because I think it'd be easy to misunderstand the shipment comparison. So, what's the point? When you look at both shipment and backlog changes, you really get a more normalized view of underlying market share and underlying demand. And despite the shipment numbers, our underlying demand is significantly greater now than it was a year ago. So, now that plants -- going forward, this was a quarter with some transition. And I'm going to keep saying that because, again, you had a company like us that had to take some downtime at the beginning but then was getting back to higher schedules at the end.So, once the industry reestablishes a workable backlog, you're going to see the dynamics settle out, and you're going to see people reflecting more consistent, if you want to call it market share-type ratios. So, I hope that wasn't too much, and I'm happy to answer questions, but at face value, if people look at the year-over-year shipment numbers, I know that in my opinion, you could really get off track just looking at those headlines. So, Jay, I threw a lot at you. Come back at me with questions, if any of that didn't make sense.

[James McCanless, analyst]

No, it makes sense. I guess the next one I had, if you look at the rapid rise in the number of retail stores, is there anything we need to be cognizant of from a GAAP accounting perspective in terms of those internal sales versus external sales? Maybe some of those shipments are getting, not hung up, but maybe not recognized yet until those are sold at retail.

[William Boor, executive]

There's a little bit of that, and I could have added that to my long, complicated explanation, but I felt like that was a little bit of a fringe issue for us. We certainly are more integrated, if you just look at retail sales compared to our wholesale shipments. So that does create some changes, like you mentioned. They're moment in time changes and over time they'll work themselves through. And of course, it also changes things like average selling price, which is a combination of retail and wholesale price for us. But I think you're right. I just don't think it was a main event that we would have highlighted.

[James McCanless, analyst]

That's good to hear. And then I guess with the rise that we saw in mortgage rates in April and then a little bit of pullback in May, would it be safe to say that demand, and I think based on the way you answered some of the other questions that this is the case, but has the demand that you saw exiting 4Q continued into 1Q '25?

[William Boor, executive]

Yes, we're definitely -- if you take that snapshot in time at the end of the quarter, transitioning into our first fiscal quarter, it was definitely up. And I think that -- I apologize for repeating myself. I just think that's noteworthy because we didn't get the rate improvement, right? And it's splitting hairs because it was pretty mild, but rates ended the quarter, the fourth fiscal quarter, a little bit higher than they entered it. So, to have that demand come through, part of it is spring selling season, but to have that underlying demand come through without a boost in interest rate improvement, I think, is really noteworthy.

[James McCanless, analyst]

Yes, it is. And then when I think about inputs to gross margin, sounds like you're going to get a little bit of boost from potentially increased volume. But what about some of the other inputs, labor, OSB, some of those, I know there was some noise on OSB earlier in the year. So any color or commentary you can give us on gross margin and directionally how you're feeling about that as we move into the next quarter?

[Allison Aden, executive]

So essentially, we've seen lumber and OSB somewhat level off, but we continue to stay obviously close to that component of our gross margin as we move forward. But there's been just a little bit of volatility, so it is a little hard to predict.

[James McCanless, analyst]

Okay. And then the next question I had, just maybe could you talk about where chattel rates are now maybe versus last year at this time?

[Mark Fusler, executive]

Yes, sure, Jay. So, right now they're still at that low 9% range, so a range of 9% to 9.4%. And then if we look at towards last year, looks like they were in the high 8% range.

[Operator]

Our next question comes from a line of Daniel Moore of CJS Securities.

[Dan Moore, analyst]

Obviously, we covered a lot of them. I guess, first off, maybe just talk about ASPs. Are you seeing the trade down to lower priced, maybe lower optioned homes continue? And what's your expectations for the direction of ASPs versus what we saw in Q4 for the next couple of quarters?

[William Boor, executive]

Yes. It's been almost surprisingly consistent story over the last couple quarters. I always first think about the same house selling out in the market. And across the entire landscape, I'd say we continue to see really pretty minor leakage of pricing. And I'm always trying to put a context because it has been through our fourth quarter just a very slow reduction and still at a pretty high level. But as far as trade down, I think, we definitely have seen the mix shift to singles, which we looked at and say, well, some of that's probably people trading down. I mentioned in my comments that I think buyers are coming to terms with the home they can afford. It doesn't mean for everyone that you've got to go from a multisection to a single section. It might just mean a reduction in options or different floor plan. But the trend is towards single, I think, and it's not been dramatic. But that trend indicates what you're mentioning, Dan, that people are moving down.We always talk about this in a couple different parts of the market. At the intersection with a lower price, they're not low price, but lower price site-built home, we absolutely -- you've heard me say it before, we absolutely know because of our own retail and our connection to our independent retailers, we know there are people that are considering and then many are buying higher price manufactured homes rather than their site-built options at this point. But yes, they're moving down a little bit, even within the manufactured housing scope. I think that's how they've been adjusting to interest rates and the impact on the monthly cost.

[Dan Moore, analyst]

Okay. And I appreciate the color on the community and community developers and where we are and the expectation of an uptick later in the year. But [Technical Difficulty] that as a static group, maybe just talk about dialogs, conversations, efforts you're having at expanding or increasing penetration to that obviously large category, even if orders are still a little quiet at the moment.

[William Boor, executive]

Yes. No, you don't stop your efforts to stay close to those folks. And I think we, as a company, see an opportunity really to continue to deepen relationships there and, frankly, get more business out of that group. It's really tightly connected to something we changed a couple of years ago in our company. We had previously had all of our plants with their own sales teams, which we still have, and they're the ones closest to where the rubber hits the road. But then we added a national sales team in manufacturing and a component of the national sales team was a group that we're still continuing to build out focused on communities. And when I talk about communities, I've said this before, when we say communities, historically, we've always included builder developers and land lease community operators in that whole category. So we definitely upped our game as far as approaching that segment. And not only do we look forward to that segment coming back to the market, but we're looking forward to penetrating a little bit better ourselves.

[Dan Moore, analyst]

And then you touched on this, Bill, in prepared remarks, but as orders have improved, would you prefer to let backlogs continue to build as we look out into fiscal [indiscernible] (34:52) or do you expect to ramp production in line with order rates from what we saw exiting the quarter?

[William Boor, executive]

Yes, I remember, I haven't heard this discussion too much in the last little bit, but I remember in years gone by, the questions always revolved around what would be the ideal backlog. And my answer was always, if you could lock one in, and it wouldn't change. You'd want it to be probably around 6 weeks. Gives you time to plan your production, and it gives you a quick delivery for the customer, which is an advantage of factory-built housing.Now we're actually a touch above that and it's increasing. But really, instead of thinking about it as an entire system, to answer your question more directly, each one of our plants is in a little bit different situation. We have some that I think they really got to work hard to keep the backlogs from getting away from, meaning getting too long. And we've got others that are under that 7 to 8 week range that are still open to build up to a more comfortable level. So, the theme today is transition, right? We've got the gambit as far as plants that are in a little bit different position, but generally, they're all seeing the opportunity to increase production. If we can help it, we want to deliver homes. We don't want to see backlogs go anywhere near what we've seen in the past couple of years. And 7 to 8 weeks on average is a pretty nice spot.

[Dan Moore, analyst]

Great. I'm going to ask 1 or 2 more quickly that were asked, but I'm not sure if I have perfect clarity on the answer, so forgive me. But traffic and order rates at retail, how are they trending thus far in April and May? Have they picked up from where you left off at the end of fiscal Q1, given we're into a little bit seasonally stronger period?

[William Boor, executive]

Yes, I think you did pick up my comment. So, I kind of tried to shy away from giving too much of an update in quarter, but there was a trajectory in the fourth quarter. Nothing's changed that trajectory. It's on an upward path. And I've commented even through the downturn that traffic in retail has been pretty encouraging. People didn't stop coming to retail stores. They were just puzzling over how to make the purchase happen. One of the things we've certainly noticed recently is that even though traffic is already at a healthy rate and improving, we're getting a higher conversion rate. And that's really what's changed. It's the conversion rate, more than a huge uptick in the number of people that are visiting or calling. It's been a positive trend.

[Dan Moore, analyst]

Okay, really helpful. And then last for me is we touched on the components of gross margin, with utilization certainly improving as we exit the quarter and on that trajectory. Is there any reason gross margins wouldn't be up a little bit? Is that a bottom for the near-term? Or are we just staying away from that?

[Allison Aden, executive]

Yes, I would say that, as we've talked about before, on the gross margins, it is fairly hard to predict. And you're right, despite a small reduction that we had in ASP this quarter, we were able to maintain the gross margin for the housing segment at 22.4%. So, we continue to stay close to the price and pressure on price, and we continue to stay focused on watching the commodity pricing and really managing our variable costs. So you see a lot of consistency in both the utilization in the ASP and in our ability to keep our costs on the variable cost structure. And that's resulted in fairly consistent margins over the last 3 quarters.

[Dan Moore, analyst]

And congrats on putting the investigation fully to bed. I'm sure that was a long road. And the efforts are appreciated, as is the transparency.

[Operator]

Our next question comes from the line of Michael Chapman of Aviance Capital Partners.

[Michael Chapman, analyst]

I guess everybody's focused on the shorter term. I guess a question more about the longer-term corporate strategy around retail and captive finance. You mentioned conversion rates are going up and that's helping. And I would assume internally, conversion rates are something that you would like to see increase. Obviously, you did mention of buydowns of interest rates to help that. When you're thinking out 3 to 5 years, is the retail buildout what helps you get closer to the customer and increase conversion rates? And is there a need to have a bigger captive finance component so that you can be even more adept at converting the customers at the end? And any thoughts around how you think that plays out for you guys over the next couple of years, I'd really appreciate it.

[William Boor, executive]

Yes. Let me try to tackle it. You can tell me if I leave anything out. One thing I'd say about our strategy with retail in general or with distribution is that we are perfectly happy working with independent dealers in close relationships. We've got so many good relationships out there that have been going on for a long time. And we work with them. Even our digital marketing project that we've talked about over time, not project, but our work in digital marketing, a lot of that has been focused on actually giving tools to our independent dealers to help them get leads and help them have closer real-time information about our products and quicker response times.So, I've said this a number of times. When we think about company-owned retail, it's basically we will expand into company-owned retail when we look at one of our plants and have long-term concerns about access to market. If the solution is to greenfield or buy a retailer in that area and own it, we're more than happy to do it. But it's not really a driver to us to grow retail in its own right outside of that strategic reason. And again, that's because we're so comfortable with the independents. So I think we can get just as close to the customer with digital marketing and tight relationships with retailers if they're independent, frankly, as we can in store. Maybe that's a little bit of an overstatement, but I think it's generally true.On financing, we're always looking at this. We have talked for a number of years now when people talk to us about capital allocation that we've got a healthy balance sheet, and we're always looking at the balance of whether putting more capital allocation to our lending business makes sense. And why would it make sense? Well, on the commercial side, it would make sense if one of our dealers needed floorplan lending, and we thought we could provide it and that would strengthen our relationship. And so we've done that for a long time, and we'll continue to do it. And we'll expand it if that's what the market indicates is the best opportunity.And on the consumer side, our CountryPlace Mortgage has been doing consumer loans for, I think, 25 years. So it's the same story that we haven't traditionally levered that in a big way to do things like rate buy-downs to increase turns, but it's a tool we have. And so, we love our position both on commercial and consumer lending, and we're more than willing to lean in on that if that's what we think the opportunity is at any given point in the market. And I think we've got a machine on that side of the business that can really support our manufacturing business as well. So, really, let me know if I didn't touch on all aspects of your question. It was a good question.

[Michael Chapman, analyst]

Yes. No, that's helpful. This is looking like we're close to the bottom. Your gross margins are a lot better now than they were last couple downturns. And I think as the industry has consolidated, you guys have gotten better at what you do. But that gives you more flexibility. And then to your point, given how clean your balance sheet is, I would think that there's no need to run your gross margins up to '26, '27 if you can increase the velocity through your plants and actually get gross margins by just increasing the turns. And that's where I'm getting at is with that flexibility, what are the levers? And you mentioned it that you can pull to do that. You're tight with your independent dealer channel. And, obviously, you can do buydowns and other stuff like that. But I think from an investor standpoint, we're always looking at what's happening in the site-built homes. And they seem to be able to get pretty good conversion rates and bring in traffic. And the idea would be, what are the things that you can do to get onto a similar trajectory that those guys have been on? Because it seems like financial flexibility should allow you to try a bunch of different things. And so if you have or are planning, what those would be to allow you to increase the velocity would be helpful for us to know as investors.

[William Boor, executive]

Yes. And I guess I would tell you that the lending space is clearly an active space in our industry. And so, we'll try things sometimes on a smaller scale that probably never reach the radar screen. But it's all in testing and figuring out what we think the right decision at the time is. If we went back, and this isn't true for now, but it's more on the strategic question that you're asking. If we went back when the retailers were having big inventory challenges, frankly, I think it would have been a little bit foolish for us to think we could increase turns by, for example, doing a commercial lending program because the orders weren't out there to be had. You would have been throwing away money. Now we're in a different situation, but we're on an upswing. So, you have to decide, is the market giving us as much as we need so that we can keep backlogs in the right range in a given plant, or would it help to boost that a little bit. So those are the discussions that are always going on here. One thing I'm really happy about in the company is that the leaders of all those operations, our lending leader is in very close contact, frankly, weekly if not daily, with leaders in our MH site. And so I think the team has really come together in a way where they can optimize these kind of issues.

[Michael Chapman, analyst]

But is there ability to increase capital to the lending side to increase conversion rates? That's concurrent with what happens in the market. But is that something that you can do to increase the velocity through there by having more financing available, either floorplan or other, for you guys? Or is that like you mentioned, there's small things you can do, but they're under the radar that it doesn't make sense to throw big amounts of money at that because the cost benefit's not there. And so, strategically, there'll be changes on the margin, but nothing that is imminently noticeable from the outside.

[William Boor, executive]

Yes, so what I was mentioning there is all part of your ear to the ground and trying to figure out what's going to be the best tradeoff at any given point in time. But to your question, can we allocate capital to it, sure. That's why we have such a strong balance sheet. So if we saw the need to go out with more lending on the commercial or the consumer side, we absolutely have the firepower to do it. From a company strategy perspective, our core business is a manufacturer, right? And we don't want our balance sheet to become a lending balance sheet. So we're also conscious of that and conscious of why people invest in us. We absolutely have the ability, if there was a competitive situation, to swing some capital over to the lending side and either act aggressively or protect our interests.

[Operator]

Our next question comes from the line of Jay McCanless of Wedbush.

[James McCanless, analyst]

The first one, what was the share repurchase authorization at the end of fiscal '24? How much did you have outstanding?

[Allison Aden, executive]

Yes, so outstanding at the end of 2024, we have $126.4 million remaining on the authorization.

[James McCanless, analyst]

$126.4 million?

[Allison Aden, executive]

Yes.

[William Boor, executive]

I was finishing up one, and then we remember the Board gave us an additional $100 million even as we were finishing up the last.

[James McCanless, analyst]

Got it. And still opportunistic on that, or how are you thinking about repurchase for this year?

[Allison Aden, executive]

We would stay consistent in our capital allocation strategy, and as we've touched on during the call, first and foremost, we like to put our dollars into our plant improvement, expansion of efficiency and effectiveness. Also, we stay active, as you've seen historically, in the M&A market. And then we really continue to, as Phil just mentioned, ongoing evaluation of opportunities in our lending operation. We really use the share repurchases as a balance, as a way to really responsibly balance out the cash that we have and responsibly manage the balance sheet. You've seen historically, when we're in the market, and sometimes we'll deviate from quarter to quarter just based on activity that we're seeing in the marketplace, and also [ upending ] opportunities in some of our M&A pipelines.

[James McCanless, analyst]

And so then going back to the industry shipments in the first quarter of calendar '24. Who is taking volume at this point? Is it the larger manufacturers? I guess, who do you guys think was driving that plus 15% for the quarter?

[William Boor, executive]

Jay, it goes back to my longwinded answer that I think the regions are really what you'd have to dig into. I think it was more a regional story than it was 1 manufacturer taking. And a quarter isn't a long time for variations in those kind of numbers. So if I would give you any trend, we touched on one of the other questions, the products that are moving the best are the lower price points. So, you've got regional differences and then a general movement toward lower price point homes. So, any plant that is positioned in a region that had good growth and was positioned at lower price points was in the sweet spot for that limited period of time. But I don't think you're seeing material shifts in market share, just based on the data that you were looking at.

[James McCanless, analyst]

And then the last one I was going to ask. It sounds like there still is a little bit of pricing pressure out there. And the same question as before, is that something that you're seeing the larger players, everyone trying to compete for price? Or is this more smaller, more regional players where you're having to be more aggressive on your pricing to be competitive?

[William Boor, executive]

Yes. Well, I think 1 reason why we haven't seen bigger reductions in price in this downturn is that we really haven't seen anyone get into financial distress. Everyone still presumably got pretty good gross margins and coming off some pretty strong earnings years. So, people haven't been desperate in a sense of financial distress. We haven't had that activity, but the pricing reductions that we've seen are very episodic and very location oriented. Whether it's big players or small, I don't think I could generalize about that. And it's been modest. It really has. We see the order trends that we've talked a lot about on this call. And I think that takes some of the motivation out of even that small amount of leakage away.

[James McCanless, analyst]

Okay. Well, so to paraphrase, and please fix or change this if I need to. But it sounds like the industry in general is behaving pretty well on price, but everyone is having to figure out ways to find affordability for their customers. Is that the right way to think about it?

[William Boor, executive]

Sure. And a lot of that is in the retail store trying to get them to the right product, right?

[Operator]

Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Bill Boor, President and CEO, for closing remarks.

[William Boor, executive]

I know we're running short on time, and I appreciate everyone's interest in a good discussion. There's no doubt we look back on fiscal '24 as a down year. But I wanted to share one reflection that I had when I was looking over our results. Despite the down market resulting in our plant system running at a significantly reduced pace all year long, not only was this the third-highest net income year in our history, it more than doubled the income from 3 years ago, which was a record at the time. So, I think just putting it in perspective, we've come a long way and with expectations of improving conditions in front of us, I really feel like we're in a great position to deliver more homes than ever before. So, thank you all, as always, for your interest in Cavco. And we look forward to keeping you updated on our progress.

[Operator]

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