(CVCO) 2022 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Third Quarter Fiscal Year 2022 Cavco Industries Earnings Call Webcast. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Mark Fusler, Director of Financial Reporting and Investor Relations. Please go ahead.

Good day, and thank you for joining us for Cavco Industries' Third Quarter Fiscal Year 2022 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 under the provisions of the Private Securities Litigation Reform Act of 1995, 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 the forward-looking statements.

This conference call also contains time-sensitive information that is only accurate as of the date of this live broadcast, Friday, February 4, 2022. 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?

Thank you, Mark. Welcome, and thank you, everyone, for joining us today to review our results for the third quarter of fiscal year 2022. We're very happy to report another record quarter for revenue and earnings. Revenues increased nearly 50% year-over-year and diluted EPS was $8.57 compared to $2.12 in the year ago quarter.

EPS included a large positive impact from nonrecurring tax credits, which Allison and Paul will explain in more detail. It's really important to recognize that even excluding that impact, EPS was up about 150% due to outstanding results from our operations. This was a quarter that showed operational gains resulting from improvements set in motion over a long period of time, and we expect to continue that momentum.

Our plants achieved a higher production level and we reached capacity utilization of approximately 80% this quarter. This is in line with our pre-pandemic utilization, and it was accomplished despite persistent labor challenges and supply inefficiencies. The improved throughput is a result of the focused effort across all of our plants to simplify their product offerings, and it's also the result of work underway for some time to improve staffing and retention.

The combination of a more stable and higher skilled team and a rationalized product offering is paying off. Our backlog remained consistent with last quarter at $1.1 billion. This represents 36 to 38 weeks of production. You might recall that this is down a few weeks from last quarter, which is purely a function of our higher production rate.

The takeaway is that the backlog remains large with continuing strong orders and improving production to meet those orders. On a related point, strong backlogs exist across the industry. So we're not seeing any pressure on wholesale pricing.

While our consolidated average selling price is down slightly compared to Q2, this is the result of a number of factors, including the mix of retail and wholesale sales and the addition of Commodore. So on a same plant basis, both volume and pricing continued to improve upward during the quarter.

I'd like to come back to labor. It would be difficult to say one way or another whether the general availability of labor has really improved at this point. If it has, it's been a modest improvement. However, we have made significant progress, which has directly enabled the operating improvements I've already commented on.

While still below target levels, we've been able to increase plant staffing. The improvement we're now seeing is a result of long-term efforts in recruiting, onboarding, learning and development, investment in the workplace and improved pay and benefits.

It's been a very holistic approach that started before the labor disruption over the last 18 to 24 months. Continued progress in staffing and retention will enable even higher levels of productivity. We expect to continue the recent momentum we've seen in our people strategies.

Demand for our products remain strong. As we've discussed for some time, demographic housing drivers and the large housing deficit buildup over the past 10 to 15 years provide a very positive demand outlook. These drivers apply particularly to manufactured housing due to the intensifying need for affordable homes. Of course, short-term economic factors impact the industry. However, when you consider the extraordinarily strong demand we've been experiencing for a number of quarters despite significant home price increases and lengthy backlogs, it really reinforces the growing housing shortfall that exists and the need for what we do.

With regard to some of our larger growth investments, we remain on the same schedule previously communicated for starting up the new Glendale, Arizona facility, which will be in the second quarter of this calendar year. To remind folks, Glendale will double our park model capacity while freeing up a line at our Goodyear facility for additional HUD production.

We're now one full quarter into the Commodore acquisition and we're very happy with how everything is going. The hardest work comes after a deal closes when transition activities require a lot from everyone involved. And this has certainly been the case over the last quarter.

I want to express sincere appreciation to all the folks at Commodore and within Cavco, who have worked so hard on various aspects of integration. They accomplished a lot in the transition while at the same time staying very focused on the work of getting homes to customers.

Commodore's contribution to our volume has been right in line with our expectations this quarter and their margins are improving as they work off lower-priced homes in their backlog.

And with that, I'll turn it over to Allison to discuss the quarterly results in more detail.

Thank you, Bill. We're pleased to report that Cavco achieved record-breaking net revenue and net income results for the third quarter of fiscal 2022. Net revenues for the period were $431.7 million, up 49.5% compared to $288.8 million during the prior year's third fiscal quarter.

The Commodore Homes acquisition contributed $73.1 million of this increase. Sequentially from the second quarter of 2022, net revenues increased by 20.1% with Commodore's first full quarter results being the main driver for the increase.

Within the factory-built housing segment, net revenues increased 52.7% to $413.6 million from $270.8 million in the prior year quarter. The increase was primarily due to the full quarter of Commodore's operation and a 24.4% increase in average revenue per home sold.

The increase in average revenue per home sold was driven by product pricing increases and a mix shift to more multi-section homes. The total units sold increased by 22.8% to 4,424, up from 3,603 units in Q3 of 2021. Our factory utilization increased from 75% last quarter to 80% in Q3 of 2022, the highest level since the pandemic.

This improvement in utilization is a result of an increase in factory labor headcount coupled with a reduction in production hours per module. Our field operations continue to be successful in overcoming hiring challenges, unpredictable employee absenteeism and building material supply disruptions.

Financial services segment net revenue increased 0.6% to $18.1 million from $18 million due, both, to a higher number of insurance policies and higher home loan sales compared to the prior period. In addition to year-over-year increases in revenue for the quarter, we also expanded our gross margin percentage.

Consolidated gross profit in the third fiscal quarter as a percentage of net revenue was 26.7%, up from 20.5% in the same period last year driven largely by the factory-built housing segment. The gross margin for the factory-built housing segment increased to 25.2% in Q3 of 2022 versus 17.4% in Q3 of 2021.

This was driven by pricing, operational improvements and declines in lumber prices experienced last summer that continued to flow through cost of sales in the quarter. As Bill explained, though our average selling price on a consolidated basis was down slightly compared to quarter 2 of 2022, we still generated a 110 basis point improvement.

The acquisition of Commodore negatively impacted gross margin percentages from purchase accounting-related items as no gross profit was recognized on the sale of homes from inventories that were acquired in the transaction. As required by GAAP, these assets were written up to fair value on the acquisition date.

All acquired inventory has now been realized in net sales and future periods will not be impacted. Additionally, we continue to work through sales of homes that were in Commodore's backlog that were price protected and therefore, had lower gross margins. We are working our way through these homes and gross margins improved as we progressed through the quarter.

Gross margins as a percentage of revenue in financial services decreased to 61.2% in Q3 of 2022 from 68% in Q3 of 2021 due to higher weather-related events and lower realized and unrealized gains on marketable equity securities in the current period.

Selling, general and administrative expenses in the third quarter of fiscal 2022 were $60.3 million or 14% of net revenue compared to $35.4 million or 12.3% of net revenue during the same quarter last year. The increase is due to $8.7 million from the addition of Commodore Homes, costs associated with third-party consultants to review the nonrecurring energy tax credits and greater incentive and commission wages on improved earnings.

Net other income this quarter was $4.3 million compared to $2.2 million in the prior year quarter. This increase is primarily driven by a $1.5 million higher unrealized gain on marketable equity securities and higher interest income earned on our commercial loan balances.

Pretax profit was up 127.4% this quarter to $58.9 million from $24.9 million from the prior year period. The effective income tax rate was a benefit of 35.1% for the third fiscal quarter compared to an expense of 23.9% in the same period last year.

Our Q3 2022 income tax included a nonrecurring benefit of $34.4 million for tax credits related to the sale of energy-efficient homes. Excluding this onetime item, our tax expense as a percentage of pretax income would have been 23.3% consistent with prior period levels.

Let me take a minute to expand on the nonrecurring $34.4 million tax benefit recorded this period. Under the Internal Revenue Code Section 45L, the company qualified for credits related to the sale of certain energy-efficient homes between fiscal year 2018 and the third quarter of fiscal 2022. These credits are available for manufactured homes that meet specific energy-efficient levels as established under the Federal Energy Policy Act of 2005, which was extended in the Consolidated Appropriations Act through the end of calendar year 2021.

The company enlisted a third-party qualified expert to examine the information on our manufactured homes sold and determined which units qualified for energy-efficient tax credits under the program. This federal program ended on December 31, 2021. And as such, the company will not benefit from these tax credits in fiscal 2023 unless the program is extended or modified by future legislation.

In total, after considering the net tax credits and associated expenses, diluted net income per share for the 3 months ended January 1, 2022, was favorably impacted by $3.23 per share. Cash related to these credits will be received in the form of lower estimated tax payments of approximately $14.2 million for this year's tax return.

Cash refunds related to previous periods are expected to be received through fiscal year 2024 as we amend the associated tax returns.

Net income attributable to Cavco shareholders was up 303.1% to $79.4 million compared to net income of $19.7 million in the same quarter of the prior year.

Net income per diluted share this quarter was $8.57 per share versus $2.12 per share in Q3 of 2021.

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

Thanks, Allison. So I'm going to highlight some of the changes on the balance sheet from January 1, 2022, compared to April 3, 2021. The cash balance was $267.3 million, down $55 million from $322.3 million 9 months earlier. The decrease was primarily due to cash used for the acquisition of Commodore, repurchases of common stock and higher inventory purchases.

These decreases were partially offset by net income reduced for noncash items, changes in working capital and sales and collections on consumer loans. The number of accounts increased as a result of Commodore, including accounts receivable, commercial loans receivable, inventories, property, plant and equipment, goodwill and intangibles, accounts payable and accrued expenses.

Consumer loans receivable decreased from principal collections on loans held for investment and is now up in cash. Prepaid and other assets increased from the income tax receivable related to the 45L energy-efficient tax credits Allison just discussed.

Crude expenses and other current liability balances increased from deferred payroll tax payments under the CARES Act and higher volume rebates and customer deposits received due to greater order rates.

And last, stockholders' equity was $806.2 million as compared to January 1, I'm sorry -- so it was $806 million from -- up $122.6 million from $683.6 million 9 months previously.

Thank you, Paul. Catherine, let's turn it over for questions.

Our first question comes from Daniel Moore with CJS Securities.

Start with Commodore. I think you said it contributed $73 million, if I heard that right, in the quarter. How many units did they ship? Just trying to get a sense of what the organic shipment growth looked like?

We're not going to go down the path of separating out Commodore's shipments. But like I said in my comments, they were pretty well in line with what we expected. And we talked in the acquisition that they add about 25% to our overall capacity and shipment expectations.

Okay. Maybe, obviously, demand and backlog remain exceptionally strong. Just elaborate on, I think you described a moderate decline in order rates. Is that just normal seasonality from your perspective? Or are we slowing beyond that? Any comments or color there would be great.

I don't know where we said a moderate decline, to be honest, Dan. Yes, the order rates continue to be very strong. And there's some -- I guess, I feel like after a period of about 12 months from mid-'20 to mid-'21, which the order rates were just unbelievably high, we've kind of gotten back to where we're seeing a seasonal shape to the order rates, but they're still above 2019 levels, which were strong.

So -- we're still -- demand does not seem to be a problem. And in fact, we're still in a mode where we talk about backlogs and we talk about industry shipments and things, but we're still in a mode where we're turning away business at this point. So demand is holding up really well.

That's helpful. Talk about gross margin a little bit, there's some moving parts in there. How much of a benefit would you say you experienced during the quarter from timing of raw material lumber purchases? And how much did selling -- conversely, how much did selling Commodore's price-protected homes impact backlog -- in backlog impact margin in the quarter? Just trying to get a sense of what a really normalized gross margin would look like.

Yes. Thank you, Dan. The lower lumber prices from late last summer, they continued to flow through our third quarter cost of goods sold. And the backlog is still supporting strong prices for our homes. Costs essentially of every input, including labor, are increasing and the commodities remain volatile and kind of unpredictable in the near term.

I think if we take a step back at just a high level and try to quantify what the impact in the quarter was from Commodore to the [write-up], it's fair to say it was about 50 basis points.

Okay. No, that's very helpful. And -- go ahead.

Yes, specifically related to the accounting issue.

Right. Is that runoff in fiscal Q4 or we have another quarter or so to go.

No, we were able to -- as we shared with you last quarter, this quarter, we did, in fact, run through that.

Perfect. And then just one more from me. We are at 80% capacity utilization, obviously, doing a great job despite some lingering headwinds of getting more through the plant. How do we think about unit growth sequentially into fiscal Q4 and maybe the first couple of quarters, do we expect to see some modest pickup sequentially. Can we get a few more homes through just in terms of production capacity and utilization? Any comments would be helpful.

Yes, I feel really good about where we're heading. I remember the last several quarters, we've pointed out to folks on these calls that when -- I still am comparing a lot of things back to prepandemic because they're good, solid comparisons to be made there.

And the comments the last several quarters when we've talked were around how we're getting our volumes up even though we had dramatically less production employee hours. So the fact that we've now gotten back to 80% and we're still challenged with labor and we're still challenged with supply inefficiencies, that gives me confidence that we ought to be able to keep pushing production. And I think the momentum is there right now. So I get a little bit ahead of myself here, but I'm going to say I think we should be able to keep climbing up.

Our next question comes from Greg Palm with Craig-Hallum.

Congrats on the good results, everyone. I'm curious, maybe if I can start with Commodore, any initial thoughts on synergy capture there?

Yes. I mean we didn't overblow or put it too much out there about synergies to begin with. We do believe there are some. We think that -- in my opinion, they come in 2 big forms that are more operational than cost oriented. One is the opportunity to kind of optimize our customer, I guess, and we've talked about this with other transactions in the past.

I remember Destiny; this was something we talked at length. Being able to work with dealers and customers that they brought to the company with and get more of our products into those chains and vice versa is always an opportunity.

The other thing we've talked quite a bit about is operational improvements. Commodore has done some things with manufactured technologies that I've talked about quite a bit before. And after being kind of together here for a couple months, I feel really excited about the opportunity to -- we'll bring some best practices and thoughts to their operations, but certainly, it's going to go both directions and Commodore can really bring a lot to our broader system around technologies that improve quality, improve safety and reduce kind of the labor content going into the production process.

So those are the things that we're most focused on. I think from a cost perspective and overhead, we could talk about those kinds of things. But for right now, similar to the transactions we've done in the past, we're just looking to stabilize things and figure out where we go long term. We're not pushing for any synergies of that nature.

Got it. And the factory utilization number, was that driven at all by inclusion of Commodore? If I recall, they had a pretty big utilization number, I think you had mentioned when you acquired it.

Yes. Interestingly, they're kind of right at the rest of the system. I would say it's no effect up or down. They're right in that 80% range as well.

Got it. Okay. I mean, given that, what are your sort of thoughts on and really the appetite for new plant openings? So you got the park model plant coming online here soon, a new HUD line. What about sort of greenfield in? Can you remind us, I don't know if you have any -- if you still have an idle facility outside of that, but what are your sort of thoughts on increasing capacity outside the existing footprint?

Yes. I think the industry, frankly, needs more capacity. So we're constantly looking at how we can participate. And that Glendale is a big move in that direction. We've got a couple things that we're working through to try to figure those things out. We have one production line at our Plant City, Florida plant that many years ago was idled. To call it a production line probably is a little bit of an overstatement. It's a building that used to produce manufactured housing, but it would be a project to bring it back up. But we're evaluating that currently.

And not to belabor this or sound like this means that we won't be doing those kinds of projects. The near-term concerns about adding capacity from a physical perspective you could get up pretty rapidly. The concerns are staffing and supplies. And so that's the only thing that really gives you any pause when you dig into those kinds of opportunities.

So we're working on things. I think, as I said in my comments, there will be ebbs and flows due to near-term economic factors. I don't think we're of the mind that this is no longer a cyclical industry to a point, but the underlying demand is fantastic and the drivers of the underlying demand. So we're pretty confident from a demand perspective when we're thinking about those kind of project decisions.

I guess that maybe dovetails into my last question about demand. I mean do you have a sense -- I feel like I've asked this question before, but where the demand is the strongest, either by channel, by demographic? What are you seeing out there in terms of buyers?

Yes. Well there are a couple of different dimensions to it that are interesting. I mean the -- from a channel perspective, and you guys know the history, there was a period of time when -- well, before the pandemic, most of the growth in this industry was coming from community business. They're about 1/3 or 30% or so of the total end point for manufactured housing, but before the pandemic, that's where the growth was coming as we steadily were building back up as an industry.

And as you guys know, I mean, pandemic hit and for a period of time, that business -- that channel almost stopped. They held orders and kind of took a wait-and-see attitude and dealers really picked up. It's been quite a few quarters now where I don't think you could really separate the demand from either of those channels. They're both looking for more homes than were being able to produce. So both channels are really strong.

From a demographic or from a market perspective, I think it is pretty interesting to think about what's gone on when prices have shot up so much, but manufactured housing's advantage relative to site build grows in a cost inflationary market, as we've talked. Most of what I think we're seeing right now in the industry is that interface between the upper end of what manufactured housing does and the price points that site builders just can't hit anymore.

I really think we're taking a meaningful increased share in that kind of zone. And conversely, affordability at the lower end is worse, right? So folks that a couple years ago could have afforded a single modular home kind of at the lower price points, they're priced out. And that demand still exists, and hopefully, we'll be able to find ways to get those people in homes too.

But it's been a shift more to the upper end of what manufactured housing does. And I think you've seen that in continuing shift to more multi-section homes relative to single family. So that's really the movement that I've seen in the industry over the last several quarters.

Yes, that's helpful. And last one for me. I mean everybody in the industry is facing the same capacity issues that you're kind of talking about and the need to increase production rates. When you talk about turning down orders, where are those orders coming from? And more importantly, where are they going?

If everybody in the industry is sort of in the same spot, my guess or assumption is that there's even more pent-up demand out there that we don't even really know that's not really even showing up in the numbers and the orders in the backlog. Is that right or not necessarily?

I think you're absolutely right. I mean the -- yes, I think the industry shipments, and we've been talking this for quite a while too, industry shipments don't reflect demand by any means and orders probably -- well, we believe orders really understate true underlying demand.

So when we talk about turning away orders, it's really a couple things mainly. Dealers that we haven't worked with are looking for homes, and they're coming to us saying, can I place some orders and we're just basically saying we're not taking on new points of distribution.

So that's a form of turning down orders. And the other is really there's a lot of demand in the community, the REITs and the community operators for projects, many homes in an order, and we're just telling them we can't take that on given our backlogs. So yes, I think the conclusion -- I'm very comfortable with the conclusion that backlogs and shipment that are not reflective of total demand right now.

(Operator Instructions) Our next question comes from Jay McCanless with Wedbush Securities.

So my first question on Commodore, if that was a 50 basis point drag this quarter, should we expect that to turn around and be a tailwind going forward and maybe even a little bit more? I can't remember if you guys had broken out what Commodore's gross margins looked like versus legacy Cavco.

Yes, we haven't broken it out specifically, but to focus on the write-up of the inventory that we assumed at the time of the acquisition of 50 basis points, we would see that having been gone through this quarter, it would not be there as a drag in the coming quarter.

Also, as we've taken a step back, we've also mentioned the fact that their backlog that we inherited during the acquisition also was price protected. So as we work through that lower margin, we would expect to see over time and that backlog being worked down to 0, they're lifting up their margins to be comparable to our [overall team] network margins.

I want to make sure it's really clear that the 50 basis points is specific to that purchase accounting need to write up their inventory at acquisition. That was just isolating that piece. Their overall impact on our margins was a bit larger than that because of the backlog pricing issue. So I'm not sure if that's clear or not, but I want to make sure it was.

Yes, it is. Thank you, Bill.

And I'd echo Allison's comments, too, that we've got backlog to work through, but our expectation is that Commodore plants will be on par as far as profitability with the rest of our system. That's the goal.

Okay. I guess the next question on that and just -- because looking at the gross margin you did in 2Q was 24% without Commodore and then you have a little bit of a drag. And I'd love it if you guys could break out the benefit of lumber if you have that in the third quarter.

But it just looks like moving up to this mid-20s gross margin is the natural path over the next few quarters. Would you -- what do you guys think about that?

So we don't -- we won't be breaking out the specific impact of lumber. But I think that as we've seen from the last several quarters, it's kind of -- it's hard to speculate. From a margin perspective, I mean the really -- the good news is that backlog will still provide the ability to price in cost increases and our plants have shown that we've done a good job of that.

But we don't really expect to see any relief on the variety of materials and supplies that go into our homes. And we've seen, as we all have, a recent uptick in the number of commodities. So the main wildcard does remain lumber and OSB cost.

Right. Any chance you guys could give us the average backlog price or what you think the average price for this quarter that you're about to deliver? Just trying to figure out what the balance on price is between Commodore and Cavco's product.

Sure. Say again what you're looking for, Jay?

Just -- if you have just the average price for what's in backlog now or if you have an idea of what the average price that you think you're going to be able to deliver this quarter would be? Just still trying to figure out the difference between Commodore's price and Cavco's price.

I mean we've done a rough number on it in our model, but if you guys would be willing to share some of that, that would be helpful as well.

I don't think there's anything specific that we would want to share at this point between the differentiation and the pricing between the overarching network and Cavco carved out since the 2 are beginning to integrate very much.

Our backlog, excluding Commodore, I think you can think of as all priced to current market. So it's a matter of them continuing to work through their lower price backlog, which has happened. I mean as I think Allison said in her comments, their margin -- they left the quarter with higher margins than they went into it with because they are working down that lower-priced stuff. But we're not going to be able to just specifically separate their pricing from the rest of the system at this point.

Got it. And then your competitor a couple days ago had some very favorable comments about chattel rates staying low as well as some new money potentially coming into the manufactured housing space. I'm assuming for both chattel and land home deals. Would love to get an update what you guys are seeing on that front? And also just maybe an idea of where chattel rates are now and what you guys are seeing.

Yes. Well, I'd generally agree with what Mark said. Chattel rates have stayed very stable since they kind of took a big drop. I'm trying to think of the timing, it's probably been 1.5 years ago already, time flies. But they're kind of in the high 4%s to low 5%s -- low to mid-5% rate. And that really hasn't moved up over the last month or 2. It's been very stable.

So the -- while it's essentially a different market, right, we always say chattel rates are really not correlated to mortgage rates. They're much more stable. If you compare that to land home rates at this point, I can't imagine it's ever been close to this tight. Then there's another discussion kind of about the premium of manufactured housing land home loans compared to site build or what the GSEs call single-family non-MH loans. And I think that's been pretty stable, too. That's kind of been about a 50 basis point range, that premium for an MH product.

So chattel is very stable. MH land home is kind of just moving right up as mortgage rates are at this point. Was there more to your question? I might have missed something there.

Yes. No, no. I mean that was it. I mean -- and then I'll ask you the same follow-up that I asked, Mark. I thought it was very interesting that the FHFA projected the duty to serve submissions from the GSEs. Would love to hear what you guys are hearing, if anything, from the GSEs right now and could an expanded duty to serve be something that might help the manufactured housing industry?

Yes, we'd love to see it. Frankly, we -- and I'm not saying this with any bitterness, we just haven't seen a lot come out of the duty to serve over time. And again, I don't mean that in an overly negative or accusatory way, it's just kind of the fact. And yet Capital is very interested in the MH lending space.

So we're seeing really good interest from the investors we sell loans to. And it really hasn't been an issue. If people are qualified, they're able to get good loans at this point in time. But the GSEs really aren't driving much there.

Our next question comes from DeForest Hinman with Walthausen & Co.

On the gross margin commentary, the 50 basis points, just so we're clear, is that the consolidated gross margin? Or is that the segment gross margin for MH?

You're right. That's on the consolidated gross margin.

Okay. And furthering the discussion on the credit side, the mortgage side, do you have any insights in terms of credit quality on the inbound from FICO score? Any color you can provide there? Is the demand coming from quality customers that are going to be able to pay longer term?

Yes. I mean we've generally -- in our lending business, I think this was even disclosed in our filings, we generally are working in what I would consider higher FICO scores, and we've continued to see strength in applications there. So I really don't think we've seen any real shift that would cause you to think that the industry is lending to -- is skewing more to lower credit applications at this point.

DeForest, the lending industry has been I think, very disciplined. And I guess that makes sense, too, when you're in an industry that's really supply constrained. There's really no need, and we haven't seen chasing credit down.

No, it's very helpful. I mean I'm glad you provided lots of color on this call because I think over the last couple weeks, there's been this overhang on the whole space around rising rates and demand is going to fall off the table, and I think it's becoming more clear to everyone that that's not the case and there seems to be a, I don't know how if you want to use the word fundamental change in demand, and I'm glad you're spending time discussing this.

But -- and to further that discussion, you talked about units being turned away, you've mentioned the communities and the REIT space. But I mean, is there anything you can share with us in terms of just how big that opportunity might be? And I'm not even thinking about the next year, I'm thinking further than that because I'm sure you've done some analysis and you looked at some of these park customers that have done business with you, and they've made some disclosures publicly and maybe sometimes not publicly, but the parks have a certain amount of acreage.

You can kind of do some math in terms of units per acre and you look at some of the returns at some of these parks the public REITs are making from a return perspective and their availability of capital. It's very attractive to build out these communities. So any color you could provide? Do you have anything there that says, "Look, these guys need 50,000 units, 100,000 units over the next 5 years."

So just so people can really understand how you guys are framing the demand because you are obviously making positive comments, but any facts or figures you could give to the shareholder community would be very appreciated to just understand just how you're looking at things?

Yes, I don't know if we have a big number projection over a certain number of years. I guess what we, most immediately, see is just the interaction with our customers. And as I said earlier, they -- it's not a comfortable position to be as a manufacturer to not be able to come close to filling the orders that they're asking us for.

So we certainly haven't seen any let up over a number of years in the community's interest in buying a large number of homes. And I know that it does get talked about about the availability of land and certainly zoning as it impacts us. But it doesn't feel like we're close to that being a constraint. And I know that's a very general answer to your question, DeForest. I wish I could give you something more specific.

But we see it being strong and we see it stand strong for a while from what we can tell now. I also want to come back because you did touch on it. And with rising interest rates, you kind of commented that -- I think your comments were that, that causes people to be really concerned about demand.

It impacts us. If interest rates go up, monthly payments go up, and that's the basis our customers buy on. The thing is, you got to weigh that off against let's just talk about loans first, weigh that off against the increased length of loans that we've talked about last quarter. That helps lower monthly payments. So that's been a positive move for people's affordability. And then you just look at the demographics, as I alluded to.

So it has to be the rising interest rates are a downward near-term pressure when they go up. But it affects manufactured housing, in my opinion, significantly less than it affects site builders because the affordability, the flow toward affordability comes right to us. And I think history shows that.

I think you've seen in rising interest rate environments, a muted impact on manufactured housing, not that there's no impact. And so we're going to keep our eyes on all these things. There's a lot of pressures upward and down. But man, if you look at the demographic drivers over time, it's -- I'm very confident about the ability to invest into that.

No, that's very helpful. That's a good -- very good color for everybody. And then just on the -- I think I know the answer, but I'll ask the question anyways. On the raw material front, can you just give us an update in terms of what's the -- what are the pain points in terms of products that you're dealing with? And are you seeing any improvement, staying the same or things getting worse with any of these given raw materials that you're struggling with?

Yes, it's a continuing and very challenging situation. And I've said before, I do feel like a broken record because it's across the board. We're actually on the phone with our operating guys this morning and just to rattle off from my notes, insulation, fasteners, electrical parts, we've had plants that have been told that they're months out from getting refrigerators, for example.

One of the interesting things that's really a hot button right now is overhead flex duct. So my point isn't so much these specific items, it's the fact that it's across the board. And I would say it's affecting us from an efficiency perspective, every bit today as it has been. The interesting dynamic now is that trucking, and this isn't news really, but trucking issues are a major part of the story, where sometimes we're ordering given supply and the supply is available, but the truck's late, significantly late. So logistics are a big part of the supply thing.

So I'm not -- I mean I feel like our guys have really managed it well. And it's been a drag on efficiency and yet we've been able to push our throughput back up. So I'm really confident in how we're approaching it. But every day, we feel like we're kind of a little bit on the edge about whether a given plant is going to be able to continue running and you never know which supply it is that's going to cause them to stop if they stop.

Overall, we've had some but minimal true shutdowns, but a lot of efficiency impact from this. Really hard to quantify.

Okay. And then just the last question on the energy tax credit. Can you just give us color there? I mean is this something we just were missing over the last, I don't know, 5 or 10 years, something that came up with an audit review. I mean, how were we not accruing for that previously?

Yes. Thanks for the question. It's a good one. We always evaluate and continue to evaluate opportunities for tax incentives and this opportunity was identified as part of our overarching continuous process to identify those. As you can appreciate, the complex -- and the IRS code are complex and we've been researching this credit for some time now.

And after a great deal of review and specifically consultation with a third-party expert and actually some of our homebuilding peers, we did determine that we were able to utilize this credit and move forward with what was a fairly lengthy process, as you can tell, balanced with the size of the credit to estimate the impact in the current period and under GAAP, you kind of have to take all of the periods into one fair swoop, which is what you see encapsulated in this quarter's earnings.

Okay. Perfect. And then last question on share repurchases. I know you had this kind of odd situation with this energy credit. Did that preclude us from buying stock at any point during the fourth quarter and if it did, should we be anticipating a higher level or accelerated pacing of share repurchases going forward?

So this particular item did not preclude us from purchasing shares. The buyback still is a very important lever for us to be able to return excess cash to our shareholders. We were able to accomplish about $9 million in the quarter. And if you recall, we have about $100 million in the purchase authorization, and we've burned through about 1/3 of that. So we still view this as a very proactive way for us to deploy and return excess cash to the shareholders.

So is $10 million probably the right number? Or is it more or less?

We won't be guiding to a particular outcome. I think that if you look over the last couple of quarters, it probably gives an indication. It varies from quarter-to-quarter to pace -- depending on the information that the company, vis-à-vis the marketplace.

Our next question comes from Ethan Steinberg with SG Capital.

Great job on the execution. I was curious, the 50 basis points was just on the accounting for the acquisition. Can you give us a sense of how much drag there was from just working through their low-priced backlog?

I would say that working through their low price backlog was probably 2 to 3 percentage points in the quarter?

200 or 300 basis points?

Yes, that's correct.

So the total gross margin?

Yes, that's correct.

Okay. And can you give a sense of how much of that is left? It sounds like that's been worked down quite a bit.

Not a specific price point, but it's -- as we progress through the quarter, of course, it becomes less and less. And if you think about their average length of their backlog, that gives some indication of how we might think about the uplift in the coming quarters.

Their backlog is on a ratio basis to ours -- so it's not -- just to give you a feel for the backlog.

Yes. So when we're thinking about the 25% run rate a building or 26% and change blended, there's a lot of upward momentum to that sequentially from here based on those 2 factors, it seems like. Am I -- is that the right interpretation?

With regards to those 2 factors in isolation, that would be fair.

Yes, that's a lot of tailwind. And then, Bill, I also want to check, you implied that units, you still feel pretty good about growing units nicely from here, absent big surprises on operations?

I do. I mean, like I said, I mean, I always am a little nervous getting ahead of myself, but we've got momentum and we're driving it with kind of what I would consider fundamentals, and we've -- I think it's a huge accomplishment for our operations to get to 80%, while we still do have these labor and supply challenges.

I mean if we can get to 80% with these challenges by continuing to make progress on labor, which we're doing and with the hope that someday supplies will settle out, then you would -- it would be natural to think you ought to be able to go higher, right?

Yes. When do you think you're mostly done on the working down that low-priced product, maybe not 100% of it, but when do you think it's something that we don't -- that we don't need to see or measure that much anymore? Do you think that's done by the end of this quarter?

I think it's hard to pinpoint. I would say the end of the quarter would be a very aggressive projection, probably something that's more akin to or to the timing of the backlog that we have with them, which is similar to ours.

But the degree of pressure diminishes?

Yes.

Yes, that's correct.

Yes, if you think about it, you've got a backlog that's got a stratification of prices, it's not perfectly this way, but the homes we're making today are the oldest ones in the backlog, the lowest price. So the impact kind of will dwindle down over the next several quarters would be a way to think about it.

Yes, that makes sense. Last thing is just that it was helpful getting that color on the moving pieces on the average price based on what's in the backlog. Should the price still be going up sequentially generally from here or not?

We still -- I mean, I kind of always say this, that we're in an industry that has long backlogs, right? So we do talk about it quite a bit appropriately of being in relation to costs, but there's not much pulling price down for sure. So we manage price at a local plant basis or local -- like our local plants talking with us, but it's pretty much unique to their cost inputs and their market dynamics.

I made the comment in my remarks, during the third quarter, we still -- on a same plant basis, we're still seeing increasing prices. So there's still some room there potentially.

That's great. I thought -- one more thing. Was there any acquisition onetime-ish costs in SG&A or OpEx anywhere?

No, not this quarter.

Okay, all right, great job. Thank you.

And we have a follow-up from Daniel Moore with CJS Securities.

And Allison, if you gave this, forgive me, but what was the SG&A impact from the consultant fees during the quarter related to the tax benefit?

Yes. So it was a high-level expert that we used in a pretty protractive process that we went through. So the fees in total estimated to be right around $5.8 million.

And there are no other questions in the queue. I'd like to turn the call back to Bill Boor for closing remarks.

Yes, thanks, Catherine. We do feel like it was a really strong quarter from all the operational improvements that we talked about. Beyond what are clearly favorable market forces, we made great strides in many areas that ultimately led to operating improvement.

So we really appreciate everyone's interest, and we look forward to keeping you updated as we go forward. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.