Good day, ladies and gentlemen, and welcome to the Cavco Industries Fourth Quarter Fiscal Year 2014 Earnings Call and Webcast. [Operator Instructions] I would now like to introduce your host for this conference call, Mr. Joseph Stegmayer, Chairman and CEO. You may begin, sir.

Thank you, Kevin. Welcome, everyone. We'll begin with Dan Urness, our Chief Financial Officer, reading the disclosure and providing the financial review. I'll come back and make a few comments, and we'll be happy to take your questions. Dan?

Good day, everyone. Before we begin, 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 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 all obligation to update any forward-looking statements made on this call, and investors should not place any reliance on them. More complete information on this subject is included as part of our earnings release filed yesterday and is available on our website and from other sources. And now for our financial review. Net revenue for the fourth quarter of fiscal 2014 was $131.2 million, up 20.6% compared to net revenue of $108.8 million during the fourth quarter of fiscal year 2013. Net revenue for the full fiscal year was $533.3 million, up 17.9% compared to net revenue of $452.3 million last year. The quarter and annual net revenue improvements are mainly from increased home sales activity. Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 21.8%, which closely approximates 22.1% from last year's fourth quarter. For the full fiscal year, gross profit as a percentage of net revenue was 22.4%, up 1.2% from 22.2% in fiscal year 2013. The increase is from the incremental construction leverage on higher sales activity. Home sales increased 13.6% to 9,537 homes sold during fiscal year '14 compared to 8,398 homes sold last year. Selling, general and administrative expenses in the fiscal 2014 fourth quarter as a percentage of net revenue was 16.3% compared to 17.4% during the…

Thank you, Dan. Total industry shipments of manufactured homes for the January through March period, Cavco's fourth quarter, were 13,576 homes. That's 6% above the comparable period in 2013. This quarter began with a 3% increase in January, followed by a 6% improvement in February and a 9% increase in March. As with many other industries and businesses, the manufactured housing industry shipments were hampered by the severe winter weather in many parts of the country. Those of you who have followed this industry may know that home shipments have been 60,000 units or below for each of the past 5 years, the worst shipment levels in the industry's history. In 2013, the industry realized a 10% increase in shipments from the prior year. While welcome, a repeat of this growth rate in 2014 would still be a small number of units in the overall housing market.

[Operator Instructions]

No, no, Kevin, I'm not done. Okay, I'll let you know. So why can we be optimistic in an environment that has been quite tough for our industry? How could we be positive about the future for Cavco? A couple of reasons are, we'll go through them and take your questions on them. First of all, we build homes that are not likely to go out of style. They are, in fact, systems-built homes are in greater demand than they've been ever before. And I think the trend in that score will continue because the advantage of building home in a factory, less waste of raw material, better use of labor, better quality control. For the past 20-year period, including these most recent 5 years I just referenced, the average annual number of manufactured homes built is 183,000 units. So clearly, there's been greater demand during more stable times in the U.S. economy. The entry-level homebuyer has not been a driver in the overall housing market in recent years. Several housing analysts predict this will change during the next couple of years. The entry-level or first-time homebuyer is a major market segment for factory-built homes. Household formations are at an all-time low, significantly below the Harvard Joint Center for Housing Studies forecast. Yet, the demographic data suggest that there's pent-up demand. Job growth has been slower than we need, but progress has been made toward recovering jobs lost during the downturn. As the number of nonfarm employees increases, there should be an increase in household formation. The number of shared households has risen considerably since 2007 to unprecedented levels, as tough economic conditions force many people to move in with family members. But we think that this is not a sustainable living strategy. Job growth for the millennials, those under…

[Operator Instructions] Our first question comes from Daniel Moore with CJS Securities.

Looks like revenue per manufactured home jumped up a bit in Q4 relative to the trend over the last few quarters. Wondering if there was anything in terms of mix or perhaps regional mix that might explain that and what your expectations are for pricing and average revenue going forward?

Thanks, Dan, for the question. And it's not uncommon for that average price to move around a bit. In fact, if you look over the last 9 quarters, the average has been about $50,000. But the reality is that because of our mix and the variety of the product we build, combined with the special multi-unit projects and the seasonalities, that, that average sale price has fluctuated up to 10% on both sides of that average. So I think we can only outline that we expect normal fluctuation in that range at least. And that it's a mixture of wholesale and retail prices, which further makes it difficult. So we can't read too much into the quarterly fluctuations in that average.

Very helpful. And then looking at the segments, financial services, up a little bit, relatively flat year-over-year. Can you talk about the outlook there, your expectations? And are rising interest rates having a little bit of an impact on that segment of your business?

The rising interest rates had an impact in housing overall, and I think this industry was no different, although it was very modest. So those businesses in our financial services segment continue to perform well, continue to be solid contributors. And we expect that, that will continue going forward.

And Dan, I would add to Dan's comment that, historically speaking, our industry has not been as affected by rising interest rates as the general housing market, and particularly the site-built housing market. Because our price points are lower, the impact of rising rates does not have quite as much of an impact on the consumer's payment and to say some of this industry has had some of its better years when interest rates were relatively higher.

Very helpful, and one last one. I'll jump back in queue. Joe, by our calculations, manufactured housing has started to regain some of that lost share over the last several years that it had lost in the prior 10. Is that a trend that you see continuing? What are -- or do you expect it to sort of level off with these details? I know it's sort of a crystal ball-type question, but what are you seeing in the outlook over the next couple of years?

Right. And Dan, for the benefit of others, I'll just mention that I think what you're referring to is the manufactured home shipments as a share of all new single-family homes sold perhaps and -- or sometimes people compare it to housing starts. In either case, you're right. We've been improving a little bit from the past couple of years as an industry. And we do think that will continue. If you look historically over a 20-year period, our industry has typically had a 20% share. Or certainly in the high-teens as a percent of all new single-family homes sold. And in recent years, we've been in the 10% to, most recently, 12% sort of shares. So we do think we have an opportunity to regain a larger share of the housing market. And in fact, as the housing market increases, we'll have the multiplier effect of larger volume at the same time. Did that answer your question?

It does, indeed. Yes.

Our next question comes from Brendan Lynch with Sidoti.

My first question's on your volume growth. You had about 13% volume growth during fiscal '14. I was wondering if you could just give us some color on what subsection of buyer are you seeing the most strength in, whether it's first-time buyers or retirees or some other subgroup?

Yes, that's a good point. And I think we're going to have to answer that it's pretty much across the board because we're not seeing it necessarily in any one segment. I think we are seeing a fair number of first-time and move-up buyers. But having said that, I could automatically add that the 55-plus market is improving. Although the 55-plus market has been fairly soft the last couple of years, particularly in the winter seasons when they're typically out looking to buy, we're starting to see that improve somewhat. Most of the 55-plus market buyers have been reluctant to make a purchase decision. They've been renting oftentimes in planned age-qualified communities in the Sun Belt areas, but they have not chosen to buy. And we're starting to see that turn a little bit, which will be a good sign for us. But again, I think in terms of demand, it's been a wide range of markets. And I think as Dan pointed out in the average selling price, that's why that will fluctuate somewhat. We see some project work for workforce housing. We see multifamily in addition to our traditional residential single-family business. So it's been kind of a basket of a lot of different niche markets we've been serving. I don't think we can reference any one that's been particularly accounted for our revenue growth.

It's certainly helpful and a broad-based recovery is constructive for the business. You touched on this a little bit, but maybe you could just give us a bit more detail along the same line in terms of your product offering and where you're seeing growth in terms of HUD code homes or park models or modular units or commercial structures, if there's any section or subsection of your product line that is seeing greater growth than others.

Sure. And I think the statistics are fairly clear on that one in that the HUD growth has been somewhat higher, of course, by no means robust, but has been somewhat better than the growth in modular home shipments. So modular homes tend to be at a higher price point than HUD code homes. That could be one reason for that. Modular homes are also quite -- or more popular, I would say, and more prevalent in the Midwest, the Northeast, the Mid-Atlantic states than they are out in the Southwest, for example, and in states like South Central states like Texas. So -- and those particular states have been slower to recover, at least from a housing standpoint, if not the general economy, than some of the states in the South Central market. So -- and I think Cavco's performance kind of mirrors that improvement. We've seen some improvement in our modular sales, but it has not been as good as HUD code improvement. Park model industry is a very small niche, as you know. There's not many park models built in the entire country. Cavco is the leader in that field. And we did see an improvement this year. But it's not something that has a major impact on our overall, our revenue growth. Commercial business, the multifamily that I mentioned, that has had some impact. We've seen more projects in workforce housing, particularly with respect to the petroleum industry. But we've also seen it in the mining industry and some other areas. So -- and we've seen multifamily just for traditional investors building multifamily homes for rental. So that's been a help to us. It's kind of augmented the lack of improvement in our traditional markets.

Great. If I could squeeze one more in. You've got about $8 in cash per share. Can you just go through some of the things that you'd be consider using the cash for? And particularly, interested in your appetite for expansion or acquisition into -- of competitors and entry into new markets.

Okay. The gradual improvement in our cash position is not new to us. We saw this through the early 2000s, and we accumulated our cash from our business operations. And we received that same kind of question back then. That is, what are we going to do with this accumulation of cash. And we said at that time, we'll look for opportunities to expand the business. We didn't see them right away. We couldn't find the right opportunities. But of course, we eventually did with the acquisitions of the assets of Fleetwood Homes and then subsequently Palm Harbor Homes and then subsequently our financial services businesses. I think the same could be said today. We'll continue to look at ways to expand. And probably, as I said in my comments, to expand upon the base of business we already have. So we'll look at expanding our manufacturing presence, expanding our financial services involvement in the industry. And we'll look at kind of related businesses, related product lines, for example, but that would be kind of secondary. In other words, we could look at more commercial kind of activities, small commercial buildings, which we do some now. We can look at related businesses, but I think we'll focus primarily on our core operations. Beyond that, we see over time that the board, I'm sure, will consider other uses of cash such as dividends and share buybacks. But we've learned not to be impatient with our allocation or application of our cash position, and that will be the case now. We'll be, I think, be very deliberate about how we employ that cash. And we won't let it, so to speak, burn a hole in our pocket. We'll wait for the right sorts of opportunities.

Our next question comes from Lloyd Khaner with Khaner Capital.

It's Lloyd Khaner. If you could just give us some basic insight into your CapEx spending, just to let us know, are you building new plants? Or is this for existing plants or existing assets?

I'll let Dan get into some of the specifics of how we spent the CapEx this past year. But generally speaking, most of ours is mild, modest expansions, you might say, of existing facilities, adding equipment. In some cases, adding some square footage. And then going forward, we'll continue to look at -- we have several idle plants, Lloyd, that we could start up as demand increases. It wouldn't take a lot of CapEx, but we probably have to equip some of those idle facilities a little bit better. And certainly, get some tools and vehicles and so forth to operate them. So we think that the CapEx needs will be fairly modest going forward. We do employ some capital in our lending operations. It's not obviously really CapEx, but it's a use of cash. And we've been doing that for several years, and that's proved to be beneficial. Dan, if you want to give any specific color on the CapEx, go ahead.

Sure. And Lloyd, our CapEx did come up this year compared to last year. We were this year at about $2.3 million, and we expect that in the coming years, it'll range from there up to possibly $3 million in the near out years. And a lot of that has been in the -- what we maybe call maintenance CapEx area, where we're improving our facilities, but not adding to them substantially. And that's with modest improvements in some facilities and some equipment going forward. That's the reason it might get a little bit larger as our production increases. And as it has increased, that's the reason that we've come up to the levels that we're at right now. And our depreciation rate comparatively is -- when we look at the depreciation run rate at about $2.6 million, it's right about at the same level that we have our capital expenditures running currently.

And Lloyd, I'm sorry, I would just add to that and point out that, that kind of just above depreciation or kind of maintenance CapEx as Dan says, is not because we have deferred needs. I think we have kept up very well with our equipment, and we'll continue to do so. It does mean, though, that we haven't been adding any significant brick-and-mortar to the operation at this point.

Our next question comes from Mike Daryl [ph] with Sidoti & Company [ph].

I just wanted to ask, with the industry downturn, we know the industry lost dealers, and I'm just wondering if you can comment on the state of the industry dealer base. And is there any chance of it growing as the housing environment improves? And do you view that as a necessary component for the industry recovery?

Very excellent point. And it is -- it has been a challenge for the industry. We did, as you say, lose a lot of retail distribution points during this recession and downturn. And to your question, whether we'll see a return of those, I think the answer is yes, as demand improves. We're starting to see on a spotty kind of basis, some stores opening up again. We just opened a new dealer in the Houston, Texas market, for example, brand new store. So we're seeing some of that, not a lot of it. But the reason we think it will come back is that the barrier to entry for a retailer is not great. They do have to come up with inventory financing, which has been a challenge in recent years, but the other CapEx for a retailer is not significant. It's not tremendously prohibitive. They have to find land, which they generally lease, and set up an office, and then display homes, train some people. So there are some start-up expenses, but it's not a terribly capital-intensive business venture unlike even some other kind of retail operations or franchisee operations. So I think as they see the need for housing improve and the market improve, some experienced people will come back into the business or even more likely and probably more quickly, you'll see existing retailers expand their operations. So those that have 1 or 2 or 3 retail distribution points might expand that, just as they did collapse their footprint as times got tougher, they can move back and expand again. So you have many retailers who might have had 10 or 12 stores, they scale back as things got better, and they might be down to 1 or 2 or 3. They'll quickly expand back in markets where they see improvement or an opportunity. So you're right, it's an issue. If we don't see that improvement in distribution, that would be a challenge for us, but we think that we'll see that coincident with the improvement in housing in general.

And then I also wanted to ask about in terms of your initiatives for direct sales into housing communities. That seems important especially in light of the state of financing for manufactured homes. What are you seeing from communities that you deal with? Are they doing more replacement of older homes in communities in general? Maybe just give us a feel for what's happening at the community level and some of your initiatives there.

Sure. Yes, the community operators have been doing quite well in recent times. And they have been a good market for us, very good customers, ranging from very large size community operators to the smaller family-owned community. People might own 1 or 2 or several communities. And this has been a good market, but it's been, I guess, particularly improved because of their propensity in recent years to buy homes for rental. So that has really helped. I don't think their sales have been as strong as they would like or as we would like. I think it's kind of mirrored what's going on in the economy in general. But they have found that there's a great need for housing. And whether people are unable to qualify to buy a home and they choose to rent or as I mentioned earlier in my comments, the 55-plus who have the wherewithal and the good credit to buy a home, they have chosen not to because of the consumer confidence levels have been fairly well, at historical lows in recent times. So the community operators have taken a position that they would rent homes, in many cases, figure they would convert these renters to buyers once the renters got accustomed to living in their community and benefiting from all the features and safety and good lifestyle in those communities. And in fact, they have done so. They've converted a number of these renters to buyers. And I think more of that is going to go on. So yes, the community operators have been important to us. They've always been important to Cavco because Cavco being a Sun Belt-based company for 40-plus years, we've always served the community operators. And so we know how to do it very well. We know how to service those customers in high-density communities, and we know how to take care of community operators. So that improvement in community business has been a good extension of what we've traditionally done. And I think it's been a very important part of our business these last couple of years.

Okay. And just one more, if I can. On the financing side of the business, I'm just wondering, has Dodd-Frank impacted how you operate CountryPlace? And what changes are you hoping for in terms of that legislation and where do those industry initiatives stand in terms of that legislation?

Right, big complicated area there. Dodd-Frank, and particularly the SAFE Act have had impact on our industry, I think, certainly since January, when some of the rules -- new rules went into place. The problem they really didn't consider as they were promulgating some of the rules, they didn't consider the impact on manufactured homes. I think it was just kind of overlooked or ignored, probably not intentionally. But what we're trying to do as an industry now is introduce and promote legislation that would correct some of the unintended consequences of the Dodd-Frank rules and allow somewhat higher interest rates to be charged for manufactured home loans than are presently allowed before they're considered high-cost mortgages. And this is needed -- I guess, I got to be careful I give too much detail here and take too much time -- but this is needed because the cost of originating and servicing a $250,000 site-built mortgage loan and a $25,000 loan that might be in the manufactured home industry, in terms of real dollars, are the same. And the cost of servicing the loan, originating it, providing 1099 information, all those things is the same. And yet obviously, the interest income generated on that $25,000 loan is not nearly what it is on a larger balance loan. And so, of course, lenders to manufactured homebuyers at lower mortgage balances need to get a somewhat higher interest rate to make up for that difference. And that's what we're trying to get fixed. We've had pretty good success recently. And the House Bill 1779 has 110 House members on both sides of the aisle supporting and cosponsoring this legislation and its companion bill has been introduced in the Senate. So we're hopeful that we'll make some progress. We've been working on it…

Next question comes from Wyatt Carr with Monarch Bay Securities.

A couple of questions. In the beginning remarks, you commented about the seasonal impact and the weather impacts, and I think it was 3% January, 6% February and 9% March. What do you see going forward as kind of a normalized, without the weather impact? I mean, sequentially, you were off a little bit from the December quarter. Would you attribute most of that to weather impact?

Well, we alluded to -- we, of course, have not traditionally made forecasts, but from an industry standpoint, I think most of the people involved or following this industry kind of expect a10% improvement in shipments for the calendar year 2014, and we don't disagree with that. We think that's probably a reasonable number. As I said, it's not expecting a lot. I mean, it's only 6,000 units in a much larger housing market. So we'd expect that to be a reasonable number. And I think it's -- that would imply, of course, we have to see some slight or somewhat greater improvement in the last 3 quarters of the year than we have seen in the first quarter. But that's not without precedent, as the winter quarter is typically a tough quarter. It was particularly tough this year with the unusual weather we had. So we do see that improving somewhat.

Okay. And I think you answered my next question, which was, total industry shipments, you said, were up 6%. And you're saying, you see it -- the industry is kind of looking for 10% this coming year, calendar year?

That's right. So for the next 3 quarters, we have to see some improvement above what we've been seeing to reach that 10% overall.

Okay, great. And then you also had mentioned, you have 50 company-owned stores. Is that count up year-over-year?

It's been basically static for the last year or 2.

Okay. And the independent retailers you have, you didn't give a number there, but the sales were -- at least the units were up pretty nicely. Is that due to a number of independent retailers? Or is that just each one is performing better?

Wyatt, it's really the latter. Generally, retailers are seeing improved volumes. Of course, they need it badly. I mean, they've been suffering for some time. So gradually, their unit volumes per store are improving, and we think should continue to improve.

Okay. And the last question I have is, on the consumer loans, sequentially, they were flat, and they've been rolling off. But do you see this kind of bottoming out? Or do you see this continuing to roll off?

Are you referring to our loans in our CountryPlace Mortgage subsidiary?

Yes, I believe so, the $78 million?

Okay, sure.

Yes, those loans are continuing to pay down. So those securitizations occurred in 2005 and then 2007, and those are the balances we see on the balance sheet. So you'll see that, that has dropped. There's 2 pieces on the balance sheet. One is current, and that's relatively flat, but that's just because that's what we expect to pay down in the next year. But if you look in the long term or noncurrent portion for assets, you'll see that, that's where the real decline shows in our balance sheets year after year. And the same with the securitized financings that are tied to those securitized loans. They are -- that's working its way down as well.

Okay, great. And my final, final is on CapEx, you spent a good portion of it in the fourth quarter. Do you see that, spending it over kind of evenly over the quarters? Or could there be some lumpiness there?

It'll be relatively even. It's ramped up just a little bit as our production has increased. And so you saw that a little more in the fourth quarter, but it will be fairly even throughout the year.

Our next question comes from Daniel Moore with CJS Securities.

Just wondering, you gave the trends for Q1 -- for Q4 of January, February and March, any sense of what April looked like?

Not yet. Of course, I want to -- I think you realize this, Dan, and I want to make sure everybody else on the call actually does. Those numbers I was quoting were industry shipments, not our company shipments. And the industry shipment number won't be out for another couple of weeks yet for the month of April. It generally lags about 45 days or so. And I really can't give you any indication. There's no way of knowing really, but I certainly expect that it would be better than last year's number. By how much, I don't know.

Okay. And just housekeeping, Dan, I can wait for the K, but do you have what cash flow from operations was in Q4 or for the full year?

Sure. For the full year, cash flow for the company was $25 million. And operations, you have to offset against the securitized debt or else it gets a little bit mixed up. So it's best to look at the overall cash flows for all the -- all the components of the cash flow statement. But it will be in the $25 million range for the year.

I'm not showing any further questions at this time. I'd like to turn the conference back over to our host.

Thank you, Kevin. Thank you all for joining. We will be in New York, in White Plains for a securities conference. As Dan just mentioned, CJS, in July 10, I believe. And we'll also be available here by phone for any of those of you who have any follow-up questions. We appreciate your support and look forward talking to you in a few months. Thank you.

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