Ladies and gentlemen, thank you for standing by, and welcome to the Cavco Industries, Inc. third quarter fiscal year 2020 earnings webcast conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference to your speaker today, Mark Fusler, Director of Financial Reporting and Investor Relations. Please go ahead, sir.

Good afternoon and thank you for joining us for Cavco Industries third quarter fiscal year 2020 earnings conference call. During the call, you will be hearing from Bill Boor, President and Chief Executive Officer; Dan Urness, Executive Vice President and Chief Financial Officer; and Josh Barsetti, Chief Accounting Officer. Before we begin, we would 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 and operational efficiencies. 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. Some factors that may affect the company's results include, but are not limited to, the risk of litigation or regulatory action arising from the subpoenas we receive from the SEC, potential reputational damage that Cavco may suffer as a result of matters under inquiry, adverse industry conditions, our involvement in vertically integrated lines of business, including manufactured housing consumer finance, commercial finance and insurance, market forces and housing demand fluctuations, our business and operations being concentrated in specific geographic regions, loss of any of our executive officers, federal government shutdowns and extensive regulation affecting manufactured housing. This conference call also contains time-sensitive information that is only accurate as of the date of this live broadcast, Friday, January 31, 2020. Cavco undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. Now, I would like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

Thank you and welcome everyone. The message this quarter is one of continuing consumer demand and strong results from our operations. We’re doing a great job focusing on quality, service, and profitability. Very good demand stemming from the strong economy and well-documented demographic drivers continue to leave us optimistic about the industry as a whole and our prospects going forward. The big picture for the industry will continue to be driven by over eight years of under-building, particularly under-supply of affordable units as well as by pent-up household formation demand. The long term need for affordable housing is real and growing and our efforts are aimed at being part of the solution. December’s industry MH shipment data is not yet in, but looking at the second half of the calendar 2019, basically July through November, industry shipments were up nearly 4%. So, while the full-year shipments will be deceiving because of the first half retail inventory reduction, the year-over-year comparisons are starting to clear up and show growth and demand. We have seen that in our wholesale sales, and we have seen that in our retail operations where traffic is up year-over-year. In last quarter's call, we commented that we are expecting backlogs and demand to carry us through the winter, into the spring selling season. Three months later, our backlog has held up well at six weeks and it's enabled us to grow shipments. Turning to financial services. Our teams had another outstanding quarter. In insurance, there weren't any major weather events impacting our policy areas. However, this shouldn't overshadow how well our team at Standard Casualty is balancing growth and risk diversification. To consider the results are solely driven by weather doesn't do justice to the great job they have been doing through time. Similarly, the lending operation…

Happy to do so. Thanks Bill. Good day, everyone. Net revenue for the third fiscal quarter of 2020 was $273.7 million, up 17.1% compared to $233.7 million during the prior year's third fiscal quarter. The majority of the increase was within the factory-built housing segment where net revenue grew approximately 17% to $257 million from $220 million in the prior year quarter. The improvement was from organic sales growth and the inclusion of a full quarter of Destiny Homes operations as the acquisition occurred in August 2019. Housing unit sales volume increased approximately 12% overall while approximately 5% of the improvement was from home price increases, which included a modest product mix shift towards multisection home sales. Financial services segment net revenue increased 24% to $16.6 million from greater unrealized gains on investments in insurance subsidiary's portfolio, higher home sales loan volume, and more insurance policies in force compared to the prior year. These increases were partially offset by declines in interest income from the continued loan portfolio runoff. Consolidated gross profit as a percentage of net revenue was 21.9%, up 90 basis points from the same period last year. The higher gross margin percent was mainly from improved earnings in our financial services segment as the prior year period included a large hailstorm event in Phoenix. While smaller storms did occur this quarter in Dallas and Phoenix, there were no significant weather-related events. The factory-built housing gross margin percentage was 19.0%, up slightly from 18.9% during the same quarter last year. Selling, general, and administrative expenses in the fiscal 2020 third quarter as a percentage of net revenue was 13.5% compared to 13.2% during the same quarter last year. The increase was primarily from $2.1 million in amortization of premiums related to D&O insurance as the policies were purchased…

Thanks, Dan. Comparing the December 28, 2019 balance sheet to March 30, 2019. The cash balance was nearly $217 million, up from $187.4 million nine months earlier. The increase is from net income and changes in working capital, repurchase of securitized debt and cash paid for the Destiny Homes acquisition. Prepaid and other assets increased mainly from a land exchange that occurred last quarter. Property, plant and equipment, goodwill and other intangible balances increased from the Destiny Homes purchase. Certain balance sheet line items were affected by the new lease accounting standard, which was implemented at the beginning of this fiscal year. As a reminder, this accounting standard requires that all leases be recorded on the balance sheet. The current portion of securitized financings and others declined from the repurchase of securitized debt that occurred in August 2019. Lastly, stockholders' equity was approximately $596 million as of December 28, 2019, up approximately $66 million from the March 30, 2019 balance. Bill, that completes the financial report.

Thank you, Josh. Jewel, I think will just go ahead and turn it right over for questions.

[Operator Instructions]. Our first question comes from Dan Moore with CJS Securities. Your line is now open.

Hi. This is Stefanos Crist, calling for Dan. So first, can we maybe just talk about the underlying demand trends, traffic at the dealer levels, and your expectations for backlog going into Q4?

Yes. I can talk generally about what we see. I mean, we have talked in the past that the big question everyone's trying to always keep up here on the pulse of is the end consumer, the end homebuyer demand, and we don't talk about specific numbers but we do look pretty closely at our Palm Harbor villages operation for an indication. Now they not national, but they cover a pretty big and important region, and as I mentioned in my opening comments, we watch those year-over-year trends, traffic is up and deposits are strong and conversions are strong. So, it kind of just supports the whole thesis that while wholesale shipments are something we all track as well, when you are really trying to keep a finger on the pulse of consumer demand, all the indications we have are pretty positive.

Thanks guys. And that's it for me. I will jump back in queue.

Okay. Thanks.

Thank you. [Operator Instructions]. Our next question comes from Greg Palm with Craig-Hallum Capital. Your line is now open.

Great. Thanks for taking the questions and congrats on the good results there.

Thanks Greg.

Thank you.

I guess, maybe just to start with a house-keeping item, can you break out what your organic growth rate was in the quarter, and maybe your overall unit contribution from Destiny, if you have that handy?

We don't break it out separately, Greg, but we had pretty growth this quarter as we mentioned in our opening statements. And I would break it down roughly that a third was related to Destiny, and then another third related to organic shipment growth, and then the final third related to the higher prices.

Okay. So, you are talking about a third of the revenue increase in the quarter, that's what you are talking about a third, , a third, a third?

Yes. That's right. We had a 17% increase, and I am just breaking it down roughly a third, a third, a third. That's right.

Perfect. That's helpful. In terms of the uptick in financial services revenue growth this year, and it really accelerated this past quarter, Dan, you talked a little bit about it. But anything to note there in terms of a change of strategy? It's really been interesting to see how that's accelerated through the year.

Yes. You bet. I will just mention one thing there, and it's actually in our press release. But we have, part of the increase is a pretty big spread in just how we have to record unrealized gains and losses on equity investments. So, we had a $300,000 unrealized gain in the equity investments in the portfolio in that insurance company while this quarter last year, it was $900,000 loss. So that's $1.2 million of the increase, and then in addition to that, of course we had the growth in loans that are being made, loan activity is up. And then we also have a larger portfolio, larger book of business in our insurance business and revenue growth from that area as well.

Okay. That makes sense. And then just sticking on the financing side of things here, it sounds like a few of your competitors [to at least] [ph] CountryPlace have announced some new programs really aiming at lower FICO scores. So, I wanted to get your opinion on how that might improve overall accessibility to financing industrywide and whether that's something that you expect to follow suit with CountryPlace as well?

Yes. And we definitely have noted some of those programs that are coming out and we are encouraged by it. I think lending has been a constraint. It's pretty well discussed in the industry. So, no one wants to see the industry get over its skis on anything like that, but I think we are far from that at this point. So, we think it's a good development. And as far as CountryPlace Mortgage, I guess all I can really say is, we are constantly kind of evaluating and looking at where we should focus our origination efforts. That's an ongoing process in the company, and we see some opportunities there. So, we are going to kind of continue doing what we always do, look for opportunities in our origination strategy and pursue them. So, the loosening up, if you want to say that of lending programs, I think, is right now at a very healthy pace. It's not something to be concerned of, it's good.

Got it. Okay. Do you have an opinion or maybe, I don't want to say a target but just sort of an own assumption of maybe what the industry growth rate might be calendar year 2020 versus calendar year 2019 wholesale shipments? You gave a lot of color on sort of first half 2019, second half, and related growth rates. So, I am just curious if you have assumptions sort of built-in or not?

We don't really have a pinned down projection or assumption. We kind of tend to shy away from doing that and getting too obsessed about trying to predict it. But I do think that, without diving too much in the weeds, I think about this a lot and maybe it's time to just let it go into history. But 2019 might be looked at as kind of a flat-type year, but you have got to always remember that there are a lot of sales that were pulled from 2019 forward into 2018. So that was really what I was trying to get out in my comments that once the dust has cleared on that inventory, the retail inventory situation which we are tired of talking about, once that dust is cleared and you are really looking year-over-year on more comparable months and quarters, there is a lot of reason to see that right now the industry is growing in kind of low-to-mid single digits and we don't see that changing.

And how do you view the inventory situation out there? I mean, has it cleared entirely? Has it cleared in most regions? I mean, how is sort of the level of inventory either at your own stores or from the independents, in your opinion?

I would venture to say, it's largely cleared. I think that issue is behind us.

Perfect. All right. I will leave it there. Thanks for the time.

Thanks Greg.

Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Bill Boor for any closing remarks.

Okay. It's not a lie. I really appreciate people's interests. We are always available to continue the discussion. Thanks a lot for joining us today and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.