Cavco Industries, Inc. (CVCO) Q2 2022 Earnings Report, Transcript and Summary

00:05 Good day and thank you for standing by. Welcome to the Second Quarter Fiscal Year Twenty Twenty Two Cavco Industries Earnings Conference Call. [Operator Instructions]. 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.

00:37 Good day and thank you for joining us for Cavco Industries Second Quarter Fiscal Year Twenty Twenty Two Earnings Conference Call. During the 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. 00:55 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 Nineteen Ninety Five 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. 01:21 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. 01:35 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. 01:51 This conference call also contains time-sensitive information that is only accurate as of the date of this live broadcast, Friday, November fifth, twenty twenty one. Cavco undertakes no obligation to revise or update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date of this conference call, except as required by law. 02:12 Now I would like to turn the call over to our Bill Boor, President and Chief Executive Officer. Bill?

02:18 Thank you, Mark. Welcome, and thank you for joining us today to review our results for the second quarter of fiscal year twenty twenty two. We're very happy to report another record quarter for revenue and earnings. Revenues increased approximately thirty nine percent year-over-year, and diluted EPS was up nearly hundred and fifty percent. We also achieved a record housing gross margin of twenty four point one percent. This was partly due to average selling price continuing its upward trajectory with a thirteen percent sequential increase and partly due to the temporary while we saw in lumber and OSB pricing that flowed through our cost of good sales – goods sold during the quarter. Demand for our products remained strong and our backlogs continued to grow. 03:03 Excluding commodore backlogs were eight twenty eight million dollars and the acquisition added another two seventy nine million dollars, putting the total at one point one billion dollars. This represents about forty to forty two weeks of production. New Home supply has lagged for many years leading to a large housing deficit particularly for lower cost homes. 03:26 Demographics and low interest rates continue to underpin the strong demand we're experiencing. And is the cost of supply and labor input to increase. The efficiency advantages of factory-built housing relative to site built are increasing as well. This all results in a very positive and growing opportunity for our industry. By any measure, we're seeing continued strong demand and can sell every house we can make. 03:51 Regarding production, it won't surprise anyone on the call that supply issues have not led up and they're affecting nearly every material we use to build homes. Not much I can add to the information we're all hearing about availability of imports as well as domestically produced supplies. We have no ability to predict how long but expect the situation will persist for some time. Our teams continue to a great job managing through it and working to minimize significant impact this has had on production. 04:22 Labor difficulties also continue to negatively impact production. However, because of the holistic approach, we've been taking to address root cause with fundamental and lasting solutions, we're beginning to see signs of improvement staffing and retention. We've implemented increased wages and benefits, but equally is important. We are investing in recruiting onboarding and training processes. 04:46 Labor issues faced by nearly all manufacturers are complex and we're building systems in approaches that we believe will provide advantages long-term. That kind of fundamental systemic work is how we're building our team skills. In addition to this intense focus on labor solutions, our plant teams are continuing to simplify product offerings in order to increase volume for our customers. 05:10 Strategically, we push forward by taking action across the spectrum of our investment priorities. Our recent investment in Fort Worth is a great example of improving process flow to enable increased production. That investment as well on its way to improving throughput by approximately twenty percent. We're working to identify and pursue any opportunities to make similar investments across our network of plants. 05:36 With regard to our previously announced Glendale project, we have incurred permitting delays that have moved our start-up production to the second quarter of calendar year twenty twenty two. The good news is that we've now received the necessary permits and are executing on the build-out. This project will both nearly double our park model production in Arizona and free up a production line for incremental high capacity at our good year plant. 06:00 On the acquisition front, we closed on a Commodore transaction during the quarter, a little ahead of the planned third quarter timeline. After just a month and half since the closing integration is going well, we could not be happier about joining forces with the people at Commodore. 06:15 Beyond the geographic expansion and twenty five percent increase in capacity this deal brings, I remain as excited as ever about the manufacturing technologies and the best practices will be applying across the combined company. The challenges that are limited production have hidden the fact that our plants are improving their efficiencies. For example, our hours per floor produced have improved this year as our plants demonstrate their ability to drive through this period of understaffing and intermittent high-absenteeism, as we solve these issues and our supplies become more reliable, we're poised to see a new level of plant throughput. 06:53 So, strategically, we’ve not paused and we're looking forward to playing an increasing role in addressing the affordable housing issues that are facing perspective homebuyers. Today, we have our new CFO, Allison Aden with us on the call. She's been here for just a couple months now, we're very happy to have her onboard. With that, I'll turn it over to Allison to discuss the quarterly results in more detail.

07:16 Thank you, Bill. We're pleased to report the Cavco achieved record breaking net revenue results for the second fiscal quarter of twenty twenty two. Net revenues for the period were three hundred and fifty nine point five million dollars, thirty point four percent higher than the two fifty eight million dollars posted for the same quarter last year and up eight point eight percent sequentially over the first quarter of fiscal twenty twenty two. 07:42 Within the factory-built housing segment, net revenue increased forty two percent to three forty two million dollars compared to two forty one million dollars in the prior year quarter. This increase was primarily due to a thirty five point three percent uplift in average revenue per home sold driven by product pricing increases to pass through rising material costs as well as product mix shift to more multi sections homes. In Q2 of fiscal twenty twenty two, unit sold also increased five percent from the same period a year ago. 08:18 Included in the Q2 revenue results, with one week of activity for Commodore homes of four point four million dollars increases in home production levels continue to be somewhat muted as we face hiring challenges, unpredictable factory employee absenteeism and supply chain disruption. 08:37 Active utilization for Q2 twenty twenty two was consistent with the Q1 twenty twenty two utilization rate of seventy five percent but was higher than the Q2 twenty twenty one utilization rate of seventy percent. Financial Services segment net revenue increased two point six percent to seventeen point five million dollars from seventeen million dollars, primarily due to higher home loan sales volume, servicing income and insurance policies in force compared to the prior year. 9:10 In addition, the year-over-year increases in revenue for the quarter, we also expanded our profit margin percentage. Q2 twenty twenty two consolidated gross profit as a percentage of net revenue was twenty five percent up from twenty point eight percent in the same period last year, four hundred and twenty basis point improvement. Increase is mainly the result of the factory-built housing segment increasing to twenty point one percent in Q2 twenty twenty two versus nineteen point two percent in Q2 twenty twenty one. 09:48 Most factories have been implementing product price increases at a rate greater than input cost increase resulting in higher total gross margin dollars per home, while also expanding the gross margin percentage. Although lumber and other lumber related product market prices have declined, with those benefits now being realized in cost of sales. These decreases have been mostly offset by other product price increases on many other input costs. 10:18 The gross margin from Commodore was not accretive in the period as inventory was written up the fair value through the application of purchase accounting as required by GAAP, resulting in no margin on the associated sales. We expect the remaining inventory at fair value to sell through towards the later half of the third quarter. 10:39 Gross margin as a percentage of revenue and financial services increased to forty point seven percent in Q2 twenty twenty two from forty three point four percent in Q2 twenty twenty one and fewer weather related events in the current period, partially offset by unrealized losses on marketable equity securities compared to unrealized gain in the prior year period. Selling, general and administrative expenses in the second quarter of fiscal twenty twenty two were forty five point four million dollars or twelve point six percent of net revenue compared to thirty five point five million dollars or thirteen point seven percent of net revenue during the same quarter last year. Increase is due to Commodore acquisition bill costs was higher incentive and commission wages on higher earnings that were partially offset the additional D&O Insurance premium amortization of two point one million dollars in the prior year quarter. 11:40 Other income this quarter was four point seven million dollars compared to one point seven million dollars in the prior year period. This increase was primarily driven by a one-time three point three million dollars gain on the consolidation of a non-marketable equity investment that was increased from a fifty percent ownership level up to a seventy percent ownership level. 12:03 Pre-tax profit was up one hundred and fifty point two percent this quarter and forty nine million dollars from nineteen point six million dollars from the prior year. The effective income tax rate was twenty three point one percent for the second fiscal quarter, compared to twenty three point two percent in the same period last year. 12:23 New this quarter is a line item for net income that is attributable to the remaining thirty percent noncontrolling interest in a non-marketable equity investment that we do not own. After deducting from that component, net income attributable to capital shareholders was up one hundred and fifty percent to thirty seven point six million dollars compared to net income of fifteen million dollars in the same quarter of the prior year. Net income per diluted share this quarter was four point zero six dollars versus one point six two dollars in last year's second quarter. Now, I'll turn it over to Paul to discuss the balance sheet.

13:01 Thanks, Allison. So, comparing the October second twenty twenty one balance sheet, April third, twenty twenty one. The cash balance was two hundred and twenty four point three million dollars down ninety eight million dollars from three hundred and twenty point three million six months earlier. The decrease is primarily due to the acquisition of Commodore homes, repurchases of common stock and higher inventory purchases. These uses of cash were partially offset by net income excluding the impact of non-cash items, changes in working capital, primarily related to higher accrued expenses and other current liability balances and the sale of consumer loans greater than the loan originations. 13:44 And then in general across the board, we had increases in accounts receivable, commercial loans receivable, inventories, property plant equipment, good deal – goodwill and intangibles, accounts payable and accrued liabilities due to the acquisitions during the period. Consumer loans receivable decrease related to principal collections on loans health investment that were previously securitized. 14:10 Prepaid and other assets were lower as the other assets recorded for delinquent loans sold to Ginnie Mae have decreased to the lower programs forbearance rates, where we are not obligated to repurchase these loans accounting guidance requires us to record an asset liability for the potential of a repurchase at reporting period. 14:30 Accrued expenses and other current liability balances increased in addition to acquisition balances as a result of higher wage accruals from the deferral of payroll tax payments under the CARES Act and higher volume rebate accruals and customer deposits received as a result of the greater order rates. Redeemable noncontrolling interest is a new line item that represents the value of the noncontrolling shareholders interest due to the consolidation of nonmarketable equity investment previously discussed. 15:01 Lastly, stockholders equity was approximately seven hundred and thirty three point one million dollars as of October two, up forty nine point five million dollars from six hundred and eighty three point six million dollars as of April third twenty twenty one. 15:16 And with that, Bill is completes the financial report.

15:20 Thank you, Paul. Victor, let's turn it over for questions.

15:24 [Operator Instructions] Our first question comes from the line of Daniel Moore from CJS Securities. You may begin.

15:46 Thank you, Bill, Allison, and Paul. Good morning or good afternoon depending on where you are, and thanks for taking questions. Let me start with gross margin, obviously very strong in the quarter, even given the raw material and other supply chain headwinds. Just talk about sustainability of that level as we look out into Q3 and Q4. Do you expect any pullback or is that twenty five percent type level sustainable for the next few quarters anyway?

16:14 I'll take a quick stab and others here may want to add to what I'll say. We did kind of catch the temporary drop in lumber and OSB during the quarter. So, while prices increased and I think with long backlogs, there's every reason expect that prices will hold. The cost of goods sold had a temporary dip in lumber and OSB. So, we're already seeing that come up. So, the cost size is really low that we can't predict very well. 16:46 Maybe it will turn again in our favor. But that's the thing that I think you really have to look at in the coming quarters. If you're going to try to predict what the gross margins will be. And you guys have anything to add to that? So, a little bit hard to predict though and I think we've explained in the past how the costs have about a thirty to sixty day lag in hitting our costs of goods sold. So, if you follow those key commodity inputs, you can kind of get a sense for where their impact will lie in the P&L.

17:19 So really…

17:20 That's not a good price, [Indiscernible] in our P&L in the first two in really August and September fully.

17:29 Helpful. Okay. Understood. And then what are your expectations for production levels as we look out Q3 and into Q4, given typical seasonality and some of the northern geographies as well as lingering supply chain challenges?

17:46 Yeah. I mean that second part is kind of the key. I think we are getting – showing a little bit of progress on stabilizing and growing workforce. We've been under stack for quite a while, but you hit on the key, which is supplies are the question mark and we don’t really, I don't think we're any different from anyone else and saying we don't see that just suddenly clearing up. So, that's really a governor on how we will be able to go with production. 18:15 Seasonality, I think with the backlogs we're seeing – we have raised at the moment, it shouldn't be a big impact to what we produce.

18:25 Even in the Northeast Midwest of those locales, still kind of produce straight through it, if you have enough raw materials?

18:35 I think generally, I mean, we'll see some impact but in the scheme of our total company production, it shouldn't be a huge factor.

18:42 Perfect. And then I really appreciate the comments regarding improvements in throughput, hours per floor. And I know question is a little theoretical, but if supply chain were not an issue, how many more homes either in numbers or percentages, do you think you could produce across the portfolio including Commodore?

19:03 Yeah, we feel really good about what the plants have demonstrated during a number of quarters now where they've really been short-handed both general staffing, a number of folks on the payroll as well as absenteeism, which is hard to predict. And we made a comment last quarter, I will kind of reinforce that we're looking back in a lot of our internal comparisons two years ago because it was pre-COVID and more of a stable grounding point for some analysis. And this quarter, we made a few more floors in the quarter, production wise than we did in a similar quarter two years ago. And we did that with over ten percent less production hours. So, it gives us some optimism as we continue to get on top of labor that we should be able to, so really kind of blow past pre-COVID levels of production. I'm not giving you the number you'd like to have, because I don't know if I'll predict it, but we're looking try to hold those efficiency gains as we staff up and we should be able to get, we are existing on a plant-by-plant basis, same plant basis, we should be able to exceed where we were before COVID. And you will remember too that even you go back to twenty nineteen, we're in a pretty strong demand markets, so we are generally making everything we could make.

20:32 Understood. I appreciate that. And then given the initiatives some of the expansions etcetera, do you have a target of how fast you can grow capacity again, excluding supply chain challenges. But how fast, do you think annualize, you should be able to sort of grow that capacity operating efficiencies, Greenfields, et cetera. Thanks again.

20:58 Yes. Now, I appreciate the question. I apologize that we don't really have a target because of the supply, I mean we're so focused on kind of optimizing what we're doing from while managing the supply constraint. And at the same time getting everything we can control internally focused on being ready to make as much as possible as supply limitations ease up. But with that, I got to just be honest with you and say it's inside the company with that supply dynamic. It's very hard for us to say hypothetically, what's our target over the next several quarters from production. It's just a real challenge every day. So, it's just kind of a peek inside or mindset right now. But we do think we're doing all the things that are positioning us to not beat as much as the supply will allow us will be maximizing production.

21:52 I will jump back in queue with a couple of follow ups. Thank you.

21:56 Thanks, Dan.

21:59 And our next question will come from the line of Greg Palm from Craig Hallum. You may begin?

22:04 Yes, thanks. Congrats on the when we get results here. So, maybe just starting on demand environment, just kind of curious if you can walk us through what you're seeing by channel, and you think that you're starting to see some more material I guess, share gains versus site-built, whether that’s would be consumers that are now sort of culminated into your space versus traditional home.

22:38 Yes, demand channel by channel, I couldn't even differentiate it because it's strong across the board. We can't make enough. Frankly, we can't thank you many of our customers happy right now. They all like to have more homes. So, they're all very strong. And then the second, Gregory, what your second part of your question?

23:00 Yeah. Just – I'm just kind of curious if you're seeing more share gains from the site built?

23:05 Yeah, I think you can look at I mean, you can look at how the manufactured in housing industry shipments have compared to new home sales and they kind of bottomed them out. I think I'm worried about this. They kind of bottomed out during the pandemic at around ten percent and now we're up kind of in the mid-teens and partly of that's a statement of the challenges site builders are having. But we've seen him over quarter to quarter, the share increased pretty dramatically and that's due to a lot of things. We do believe that there's that interface we talked about a lot between what manufactured housing does as far as price points and what site builders do. 23:51 At this point, I tried to make in my prepared remarks about as supply – as input costs, including labor go up. It's a challenge for us, but we're more efficient with those inputs. And so, they're moving farther and farther away from being able to supply kind of the upper end of what we traditionally do. So, I really do think that we're capturing some of that space that they just can't hit at this point and people are buying manufacturer housing more and more. So, I think we're taking some share in that regard. The subside is if you flip over to the folks that are just trying to get into a house at the lower end, that’s what we do. That's where the story is kind of tough. Because with price increases like they've been, a lot of people are getting priced out at that lower end. 24:44 But yes, I do think that it's clear the manufactured housing and we are taking some share away from site built right now. And the other thing I'll always bring out great is that and I know this point doesn't need to be safe, but I always feel that need to say it. When you look at our industry shipments, it has for a while represented what we can make not what demand is. So, if our industry could make more, we'd be even higher share of new homes at this point.

25:15 Yes, it’s a good point as well. Looking at backlog if my math is right. So, excluding Commodore, you're up a little bit sequentially, but a lot less so than your other publicly traded peers. So curious if you are being more selective in terms of order intake based on capacity levels or if there's anything else to call out there?

25:42 Yeah, I do think ours has been strong kind of a really good question because I know people are trying to think is there some differentiation across the industry about order pace. What I'll try to explain here is that, during – backlog, the orders we count in backlog compared to our total orders has some judgment in it and we want to manage our backlog to be as conservative as we think is reasonable, meaning as we all know, we're out many months in lead time and so when we get orders that are for really far out in some cases on a plant by plant basis, we'll make the decision to their good orders, but we'll make the decision not to include them in our backlog as we look at it internally and as we reported it to you all. And long winded way of saying that during this quarter, we actually took a considerable number of orders and said, hey let's they're so far out, let's takes them out of our backlog number for now, it doesn't mean they're not good orders, doesn't mean we won't make them, but it's a bit of conservatism in case. The market does change on us. So, kind of a little bit apologetically, we report this backlog and yet there is some judgment in it and this quarter, we made a correction that makes it look like it grew a little bit less than if we hadn't made that correction. So, hope that explains it a bit and we might have some follow-up questions on that for us.

27:19 Yeah. I definitely do. That's interesting. DO you care to quantify exactly how much that amount might be?

27:28 I'm Looking because I don't have the number at the top of my head. Yes, I don't think we, I don't think we have a quantification for you right now. It was a meaningful amount that we took out and that's not really helpful. But I guess I would say that I think you should, my answer would be that our backlogs on, if we hadn't made that correction, we're very much in line with the industry.

27:53 And do you not view those? I mean, it sounds like those are real orders, but what’s the hesitancy of not putting them in the backlog. I'm just a little bit confused why you want to include them. If you do in fact, think the real orders?

28:11 Yes, I understand, there are real orders, we plan to make it's a assessment we make to make sure that what we're looking at in the backlog is, I guess a quality backlog that it really wouldn't change if the industry didn't see a little bit of a pullback. So, we all know that orders can manage and we're not expecting that, we're not predicting a pullback in the industry, but we're constantly evaluating the backlog to make sure that what we're looking at, we feel like is a really conservative high quality backlog.

28:44 Interesting. Okay. That makes sense. If I could just spend a couple of minutes on Commodore. I think there were some commentary on purchase accounting and the gross margin impact in the current quarter. Can you quantify what that was to the consolidated and what kind of impact do you expect in the current quarter as well?

29:06 Yes. I mean basically, given the timing of the closing date, we had five business days of Commodore operations, which was about four point four million dollars in revenue, which we had mentioned. During an acquisition like this, you basically required apply purchase accounting and as you know wide up the inventory to the fair value, which negated any profitability in this quarter, but we do expect to sell through the inventory that we purchased kind of midway through this quarter, so through the third quarter, so we'd start seeing their margins uplift levels that we had shared with you historically.

29:48 Okay. And it sounded like there was also some one-time acquisition related costs that my guess was included in OpEx. Can you quantify how much that was, assuming it was sort of one-time in nature? And I guess trying to figure out if there's any lingering items we need to think about in the current quarter as well?

30:11 Yes right. Absolutely. And SG&A, there would have been two point one million dollars’ worth the deal costs associated with Commodore, which is essentially the large body of the cost associated with the deal.

30:26 Great. all right. Allison, thanks for the help.

30:32 And our next question will come from the of Jay McCanless from Wedbush. You may begin.

30:39 Thanks. Good afternoon, everyone. So, I got three questions for you. The first one in the original Commodore announcement. Cavco indicated, the Commodore delivered three thousand seven hundred homes in the twelve months ended March thirty one, I guess, did Commodore have the same jump in the backlog post, post the initial COVID surge like Cavco and Sky did and if so, what is Commodore’s quarterly run rate on home sales now, assuming that they're having to work through a larger backlog, right and production headwinds like legacy Cavco?

31:19 Yes. We looked, it’s the quarter increase and it was very consistent with other increases, ours and others. So, their backlog growth is very much in line with other numbers you guys are looking at. And from a run rate perspective, they're basically pretty close to where they were pre-COVID, the thirty seven hundred – they're a little bit off the three seven hundred because of some staffing challenges right now, but they're very much in line with where they were pre on their run rate.

31:54 Okay. Since they are in the Northeast, is there any seasonality we need to think about and how that three thousand seven hundred or below three thousand seven hundred falls out during the calendar year?

32:09 Yeah. I think I had mentioned earlier that for ours, I think when you spread it over our entire company, it's not that significant. But, yeah, there are plants that are in the north least will have some seasonality. They do have the big backlogs right now, so they'll be running [Indiscernible] they can. Try to work those backlogs down, but sure a little bit of production seasonality there.

32:29 Okay. And then in terms of the Commodore average price, I think it was roughly seventy thousand based on that same release. Is that still the case or have they had a large step up in price from when the press release came out?

32:47 Yeah, it's been increasing. I mean, their current prices a bit higher than that their average selling price both from increases that they made in line with rest the industry and also not to deliver the point, but we've mentioned a few times in the previous discussions that they pursued different pricing policy and so they protected price and the backlog more than us and others in the industry and so, they're also getting an average selling price lift from working off that price protected backlog.

33:20 So where are they sitting seventy five, eighty K on average now? Or where they shaking out?

33:26 They are in the upper seventies.

33:29 Okay. Okay. And then I guess just on the mix for Cavco this quarter, you said there were more multi section homes in there, but is that price that we saw this quarter, is that a good number to use for the next couple of quarters based on what's sitting in backlog?

33:50 As we think about the price and the effect of price increases and the effect of the mix, predominantly the increase in price – the increase in ASP was due to pricing with some uplift coming from mix, but probably more minor as we look forward, our factories, they continue to review pricing. But I think that we were successful in second quarter of really having all of the factories now put in place increases to cover material cost, uplift, so I would currently without any large changes to material costs that need to be passed. We consider those somewhat consistent going into the third quarter, but maybe some drift upward from any shifts to more multi section homes.

34:45 Okay. Okay. That's great. Thanks for taking my questions.

34:48 Thank you.

34:50 [Operator Instructions] Our next question will be from Daniel Moore from CJS Securities. You may begin.

35:00 Thanks again. Maybe one macro and one micro. The macro, earlier this week, we heard one of your competitors talk about the duration of land home, MH loans materially improving going from the kind of low toward the more on par with stick built in the kind of thirty year range, as well as new lenders coming into the MH financing arena. Are those trends consistent with what you're seeing and just how significant is that from your perspective?

35:31 Yeah. Absolutely consistent. We are the comments as well, and we just kind of echo them. Extending the duration or the term on both land home and shadow lending is a big deal for affordability and it really kind of helps offset the price increases and modest, but kind of threaten rate increases. So, we're seeing exactly the same thing and I think it's solid lending. We're still seeing appropriate underwriting standards. I don't have any concerns in that regard, but these extensions really make a difference for people that generally buy on a monthly basis.

36:12 Got it. And you've talked about this in past a little bit earlier, but if you could elaborate on the opportunity to streamline products across facilities to share manufacturing techniques between Cavco and Commodore and I don't know if there's an ability to quantify the potential uplift or benefit, but maybe any more detail on that. As we look at over the next year or two would be helpful?

36:41 Yes. On product simplification, I mean, when demands like this and when our customers really are more, they're more interested in getting the incremental homes and they are in customization and specialized product. We're deep end really focusing on product simplification. In some cases, with long backlogs, you've already got a lot of orders that kind of broaden your product. And mix you've got to work through. So, the benefits kind of come over time, but we're very focused on product simplification. It's a big deal for getting more throughput. So, we'll see gains continue from that perspective and it plays an apart and Dan and what I talked about earlier as far as getting more homes per employee hour produced, some of that is very much attributable product simplification. So, we're getting those gains. Yeah. On the Commodore, it's just the idea flow has started already. We've got together, we had companywide wide general managers meeting a few weeks ago that was just really created a lot of excitement and optimism for me and the information flow of best practices in both directions was meaningful. And just thinking about the things that Commodore brings to us. We've talked in the past, I think it was when we announced the acquisition. We talked about some of the really good work they do around manufacturing technologies on the floor that increased cycle times and reduce labor intensity. 38:22 They're not easy games. There are things you have to really lay the groundwork for I've said before, if they're very dependent on having really solid engineering systems because that's the backbone that allows you to do some of what they're doing. But we're going to be able to reapply that stuff across our previous nineteen plants. And their things like CNC routers and CNC cutting machines to make that process more efficient. They do some great work with laser projection that reduces errors on when you have to make cuts, for example, or when passing floorboards for example, and there is – there is – there is a really, if they don't sound significant. They really are and Commodore has been all over that kind of stuff. So, we're only have for a little over a month right now, but I think the attitudes and openness on both sides are encouraging and I really think that we're going to be able to add value in both directions pretty significantly over time.

39:26 Great. And then I'll take a crack but earlier this week you filed the motion to dismiss the SEC's most recent action. Any comments there or thoughts around timing or when this might be kind of fully finally put the rest?

39:40 Take a crack, I thought we might actually get through a call without that.

39:45 I saved this to the end.

39:49 Yeah. Pretty serious subject obviously, and, yeah, I think when we got to – when we talked to folks about the SEC complaint being filed, in an odd way, I would kind of express that, hey, it's a step toward resolution, and I continue to feel that way, but what we filed earlier this week was really a very legally focused motion to dismiss. And what I mean by that is, we're not in litigation where we're arguing what the SEC proposed in their complaint as far as the facts of what happened, but we believe that there are some legal issues with their complaint. And so our first step is what we filed this week to just challenge that and have a motion to dismiss. So, it's another step in the process. We hope that that would be a successful step. But we're ready to go to litigation if that's where we end up and we feel pretty confident in our position once that happens if it does. So it still continues to be very difficult to project when it'll be resolved. But I think we can all tell that we're getting closer and closer to that date.

41:03 All right. Thanks, Bill and Allison welcome and look forward to speaking with you at our conference coming up shortly and appreciate the color as again.

41:11 Thanks again.

41:12 Thank you very much.

41:14 Thank you. And I'm not showing any further questions in the queue at this moment.

41:20 Okay. Well, again, very happy to report on our record results in the quarter and also on the progress we continue to make on our strategic actions. So, we look forward to keeping everyone updated and certainly, thank you for your interesting Cavco.

41:36 And this will conclude today's conference call. Thank you for participating. You may now disconnect. Have a great day.