Good day, ladies and gentlemen, and welcome to the Cavco Industries, Inc. Second Quarter Fiscal Year 2013 Earnings Call and Webcast. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, President and CEO, Mr. Joe Stegmayer. Please go ahead.

Thank you and good morning, folks. We'll begin today with Dan Urness, our Chief Financial Officer, will read the disclaimer information and give a brief financial report. I'll make a few comments, we'll take questions. Dan?

Good day, everyone. Before we begin today, we respectfully remind you that certain statements made on this call, either our remarks or our responses to questions may not be historical in nature and therefore are considered forward-looking. All statements and comments made today are made within the context of Safe Harbor rules. All forward-looking statements are subject to risks and uncertainties, many of which are beyond our control. Our actual results or performance may differ materially from anticipated results or performance. Cavco disclaims any obligation to update any forward-looking statements made on this call and investors should not place any reliance on them, nor complete information on the subject is included as part of our earnings release filed yesterday and is available on our website and from other sources. For our financial report this quarter, net sales for the second quarter of fiscal 2013 were $110 million compared to $130 million during the same quarter last year, a decrease of 15%. Net sales were lower for various reasons, including 229 fewer home sales. The company sold 1,918 homes during the second fiscal quarter, down 10.7% from 2,147 homes in the prior year quarter. In addition, the average sales price per home this quarter was 7.5% lower at $51,566 versus $55,746 in last year's second quarter from market demand skewed toward lower price point homes and competitive pricing pressures. Adversely impacting the number of homes sold was a larger proportion of internally financed wholesale sales, up 50% this quarter versus the second quarter last year, resulting in delayed recognition of the related revenue. The company also modestly expanded the internalization of factory sales to company-owned stores, which also defers revenue recognition until the home sales process to the consumer is complete. As for our financial services segment, net sales this quarter…

Okay. Thank you, Dan. We were, of course, not pleased with the decline in sales, but the big -- several things to keep in mind, as Dan mentioned, average selling price is somewhat lower, which is part of the continuing trend we're seeing in housing in general. People buying lower price point product. But those numbers will shift somewhat from month-to-month and quarter-to-quarter, depending on product mix that happens to fall. So I don't read a lot into the lower average selling price. I think that's going to gradually be moving up somewhat, but it's got to be -- it's going to remain that our primary products will be in the entry-level price points or in the modest price point product for the time being. Another thing to consider, is, as Dan mentioned, the inventory financing. This gets a little confusing, especially for people just starting to look at Cavco. We made a decision about 2 years ago to provide wholesale financing to our distribution base if they needed it. And this was a result of a number of finance companies exiting the industry, especially finance companies that have floor plan inventory for retailers, much like car dealers and boat dealers and electronics retail stores do. Our retailers do not typically own the inventory, they finance it, and they set it up for display purposes. And then as they eventually sell those display homes, it'll pay off the floor plan. Because a number of companies left the industry, including The Associates, Amburgy and a number of other banks that were specially lending to this industry, we stepped in and said we would provide that same financing to our lenders -- to our distributors rather. And in doing so, it certainly has enabled us to gain, we believe, some competitive advantage…

[Operator Instructions] Our first question comes from Greg Cole with Sidoti & Company.

Just with the, I guess, the channels that, I guess, pushed the revenue recognition back, is there anything, I guess, major causing that? Are you seeing the dealers increasing their inventory pretty substantially? Just, can you give me a little color on that?

Sure, Greg. It's not generally that dealers are increasing inventories substantially. It's, in some cases that we have acquired a new distribution, new dealers that are stocking homes, but most of the case we're shifting is sometimes new, the new dealers I mentioned and/or projects. So if the dealer or distributor community operator has a larger order, that they're floor plan financing, let's say they have a, an order for 10 or 20 homes, we finance that, that can swing these numbers at any given quarter. And in fact, in this past quarter, we had several projects we worked on in concert with our distribution base, where they were buying multiple quantities of homes, and they were financing through our floor plan and we were not able to count those as revenues. So I don't think it's any major trend one way or the other, we do gain some shelf space and we -- increasingly we think our potential for market share gains, because as you gain shelf space among retailers, when consumers do start to visit those stores to look at display homes, if you have more homes than your competition, obviously the likelihood is that you have a better chance of selling 1 of your homes to that consumer. And we feel very good about that, that we feel we've made good progress on increasing shelf space among our distribution base and, at adding what we call new points of distribution. So that's a part of the answer to your question. But largely, these fluctuations at any given quarter are more who is buying the homes, is it a customer who is using our floor plan? If customer's buying homes that's not using our floor plan, obviously, we'll have less impact. In this particular quarter, we had more of the -- more of our demand was coming, it so happened, from customers who were using floor plan.

Okay. And I guess with this financing, do you only lend for your homes or can you lend, so if a community within an area that you're not as strong in, whom was buying more purchasing homes from someone else? Do you lend to that, as well? Or is it just for your homes?

The latter. It's just for our homes. So we will only finance Fleetwood Homes, Palm Harbor Homes, Nationwide Homes and our Cavco Homes. We would not -- we would not finance competition. But keep in mind now, we have pretty wide distribution in most states, most markets in the country. So there is an opportunity for us to convince that retailer to carry one of our product lines. It's a challenge to, obviously to convince them to switch or to add our product line. But as I say, we have been having some success in doing that.

Okay. And then, with the margins on these, is it -- I mean, do you get a larger margin when they go through these channels from the factory-built housing?

We don't get a larger margin on the home in selling it if they retail -- if they wholesale finance it with us. The wholesale financing business itself is a profitable business for us, but the home price doesn't change. The dealer doesn't pay more or less for the home because they finance it with us. The financing transaction is a separate issue that they can choose to take advantage of or not. Some dealers will have their own source of financing, their local bank, some of them, in less often cases might have their own money, they put it into their inventory. But it's usually, they have an alternative source of financing if they don't use ours.

Okay. And then just with Hurricane Sandy coming through, do you have any idea if you're going to be able to benefit from this?

We haven't heard a lot of reports yet. But unfortunately, there may be some people who are displaced from their homes in certain areas, obviously too near coastal areas, and we do serve a lot of those markets. So it's possible, but we have not had any reports as yet as to the impact. In past situations, we have, for various disasters, whether it's floods or hurricanes or fires, we have had some business as a result of those issues.

[Operator Instructions] Our next question comes from Howard Flinker of Flinker & Company.

I went back and I posted the balance sheet from 09/30/11 so I can compare it seasonally against 09/30/12. Do I calculate right that you have about 2 months of inventory? Your inventories are down year-to-year about $3 million, but your sales and cost of goods are down substantially more.

Well, keep in mind the inventory now includes our new home display inventory and our company-owned stores.

Right.

So Dan could probably make some comparisons, that year-to-year that you're looking at. But that too, will fluctuate somewhat. But our inventories at the factory levels remain fairly consistent quarter-to-quarter and year-to-year. They don't vary very much because we don't maintain finished goods inventory at the factory unless, at any given month some -- or quarter there might happen to be some homes that couldn't get shipped, maybe because of weather issues or something like that. But basically the plants maintain all the raw materials and work in process, and as their production increase, of course, those numbers will increase somewhat. But those will be -- those would be fairly static.

So are those homes in the retail stores committed? Or they are displayed and have to be sold? Are they [indiscernible]?

Both. Both can happen, Howie. In other words, the inventories can go up at retail because they have homes in the pipeline that they're waiting to fund. They're sold, but they're not what we call funded. And then the display inventory is again fairly static. In other words, the store might have 6 or 7 homes, and that's going to be a fairly constant number. So if the inventory should not fluctuate much, unless we open up new stores, which could happen from time to time. But that's -- the inventory's not going to fluctuate much based on display home inventory.

What does "waiting to fund" mean?

It just means that, that, that the retail store has sold it to consumer, a homebuyer --

Let's say I bought a house. Okay.

Yes, you bought the house and you have your property, and the home is getting set up, but the mortgage company's not going to pay us off, not going to be the retailer off until their consumer, their borrower can occupy the home. So the home gets set up, let's say the home -- the modules are joined together, the plumbing, the electrical's hooked up, and then the consumer, they get a certificate of occupancy, and when that happens, generally, then the loan can fund. So until the loan funds, the lender does not pay us off.

But in most cases, I assume not all, but in most cases it's been approved.

Oh, yes. No, in every case, the lender has approved that borrower for the loan. We're virtually assured of getting funded on the deal, we never put a home out, we never put -- install a home on a customer's land unless we are sure of getting funded.

And is your securitized financing any part of the loan to keep the example the same, the loan to me or that's different? I bought the house, so is security -- securitized financings -- am I one of those borrowers from you, or is that something different?

No, that borrower -- that lender to you would be somebody different. In other words -- well it could be our CountryPlace mortgage company, where we do, do consumer loans, but if we loan up money to a customer to buy home, we then tell -- we then turn around packages of those and sell them to FHA or to Ginnie Mae or Fannie, and so we don't hold the loans on our balance sheet. But yes, we do originate loans for our consumers.

In that case, are these securitized financings, dealer financings or still something different? The $76 million?

The securitized financings are directly related to the securitization loan portfolio that's on the asset side of the balance sheet. Those are tied together, and those numbers are from securitizations that were done back in '05 and '07.

So that's the consumer loans receivable, the $97 million?

That's right. And so you'll see those continue to drop as they have in the quarters that we've owned them since a year ago.

Wouldn't you want -- wouldn't you hope that they rise, as the market price continues to rise?

Those portfolios are set and established and amortizing off. So if we were to make new loan originations, as Joe states, those go on the government's balance sheet.

Oh, I see. So these are recently -- basically acquired from Palm Harbor or Fleetwood?

These are acquired from the Palm Harbor in the transaction. These portfolios existed. There were actually sold to investors in 2005 and 2007, 2 different portfolios. So the only way we have another portfolio is if the asset-backed securitization market improves to the point where we could package loans and sell them to -- in the public markets as opposed to the government sponsored market, which could happen again. Now obviously -- in fact there are some indications that securitization markets are gradually improving, but we haven't seen it yet.

I'm sure as people crawl out of their caves they'll become a little more comfortable with borrowing and lending, both.

It's interesting that those portfolios have performed quite well for the investors. There's 2 securitizations that Palm Harbor did prior to acquisition. So someday, yes, we expect that, that market will open up again.

But what are the failure rates, just as a matter of curiosity?

I don't think we can quote them off hand. We'll have to come back to you on that. They're publicly disclosed on Bloomberg and so forth, investors get reports on those. We wouldn't have is off hand, we could talk to you about it off-line.

Okay, no, I'm just curious, as you said, they're that good, it's kind of encouraging. And I was wondering how good.

I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Joe Stegmayer for any closing remarks.

Okay. Thank you, Allie [ph], thank you, everyone, for joining. If you have any follow-ups, feel free to give us a call. Take care, and have a good day.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.