U.S. Markets open in 1 hr 40 mins

Edited Transcript of CVCO earnings conference call or presentation 24-May-19 5:00pm GMT

Q4 2019 Cavco Industries Inc Earnings Call

Phoenix Jun 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Cavco Industries Inc earnings conference call or presentation Friday, May 24, 2019 at 5:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Daniel Loren Urness

Cavco Industries, Inc. - Executive VP, CFO & Treasurer

* Joshua J. Barsetti

Cavco Industries, Inc. - Principal Financial Officer & CAO

* Mark Fusler

Cavco Industries, Inc. - Director of Financial Reporting

* William C. Boor

Cavco Industries, Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Alvaro Lacayo

G. Research, LLC - Research Analyst

* Daniel Joseph Moore

CJS Securities, Inc. - Director of Research

* Gregory William Palm

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the Cavco Industries Inc. Fourth Quarter Fiscal Year 2019 Earnings Webcast Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Mark Fusler, Director for Financial Reporting. Sir, you may begin.

--------------------------------------------------------------------------------

Mark Fusler, Cavco Industries, Inc. - Director of Financial Reporting [2]

--------------------------------------------------------------------------------

Thank you. And good afternoon, everybody, and thank you for joining us for Cavco Industries' Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. During this call, you'll 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'd like to remind you that 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 materially -- 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 received from the SEC, the risk of potential litigation or regulatory action arising from the SEC-related internal investigation and its findings; potential reputational damage that Cavco may suffer as a result of these matters under investigation; 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 certain geographic regions; loss of any of our executive officers; several government shutdowns; and extensive regulation regarding manufactured housing.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, May 24, 2019. 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'd like to turn the call over to Bill Boor, President and Chief Executive Officer. Bill?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, and welcome, everyone. Having started my role as CEO just over a month ago, I'm in a fairly unique position of reporting strong results for a period before I was even on the job. So I'll be speaking very proudly about Cavco's performance so everyone knows I had nothing to do with it, but let's get into it.

There is lot going on in the year-over-year comparisons, mostly due to unusual items last year that cloud the comparison. Dan will walk you through all of that. But when you do cut through it, we're in a period of solid demand and margin growth and the fundamentals that will drive manufactured housing are very encouraging.

Interest rates are attractive. There's an increasing attention being paid to the need for improved access to financing for buyers of manufactured homes, and while it's too early to assess the direct impact of those efforts, we're very encouraged, and we think they'll be a real positive for the industry.

Regulatory processes are being rethought and loosened where appropriate to take time and cost out of the process. And as important as all these specific finance and regulatory improvements are in their own right, they also indicate a general move toward recognizing the quality and value of manufactured homes.

And finally, there's no doubt that long-term demographics are driving household formations and the critical -- and there's no doubt about the critical need for affordable housing. So while we'll talk about short-term dynamics in the bigger picture, Cavco's very well positioned to play an important part in addressing the shortage of affordable housing in our country. On the topic of margin growth, our plants have done a very good job of increasing price to compensate for input cost increases. Recently many of those input costs have gone down and that's led to further margin improvement.

In some regions and product segments, order rates have dropped over the last several months. This has been differential by region. However, it would be a mistake to interpret those order rates as clear indicators of manufactured home demand, which we believe, remains very strong. As industry backlogs grew in previous periods, the retail channels ordered ahead of demand and that resulted in large inventories in the system. Where our factories have seen slowing orders, this has been driven by the inventory dynamic, which was then exacerbated by weather that severely hampered retailers' ability to set houses they had already sold. We believe these are short-term corrections and that underlying demand continues to be strong.

In regions where the business has been less exposed to high retailer inventories and persistent weather challenges, backlogs remained high and I think this supports the view that slowing HUD shipment data are primarily due to retailer inventories and the delivery backups and not an indication of end consumer demand. While down year-over-year, overall our average backlog remains strong. Comparing to last year's level is comparing to a period in which increasing demand coupled with disaster relief volume resulted in unusually inflated backlogs. Our system-wide backlog at the end of the quarter stood at a very healthy 7 weeks of production. And where plant backlogs are below ideal levels, we expect rates to pick up over the coming months. This view is supported by steady traffic and increasing deposits and conversion rates in our retail operations.

With that, I'll turn it over to Dan Urness to discuss the financial results.

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [4]

--------------------------------------------------------------------------------

Thanks, Bill. Net revenue for the fourth fiscal quarter was $241 million, and that's down 0.6% compared to $243 Willie during the fourth quarter of fiscal year of 2018. Within the factory-built housing segment, reported net revenue decreased approximately $3 million, to $225 million in this year's quarter from $228 million in the prior year quarter. Factory-built housing segment net revenue last year included homes produced per FEMA, and $14.8 million from early internal floor plan loan payoffs, which did not repeat in this year's quarter. The floor plan loan payoffs added home count and revenue to last year's reported results, even though the physical shipment of the majority of those homes occurred in even earlier quarters.

On a comparable basis, we estimate in-period non-FEMA shipments were up mid-single digits. Current quarter net revenue includes $6.2 million of subcontracted passthrough services on retail home sales, the result of the accounting requirements implemented this year.

Moving on to the gross profit. Consolidated gross profit in the fourth fiscal quarter as a percentage of net revenue was 23.1%, up from 22.4% in the same period last year. During the period, the company experienced higher gross profit margins, mainly from higher home prices, coupled with declining home production material input costs.

Consolidated gross profit margins were further helped by improved earnings in the financial services segment, as there was no major weather events and lower claims volume overall in our insurance subsidiary.

Selling, general and administrative expenses in the fiscal 2019 fourth quarter as a percentage of net revenue, was 13.1% compared to 11.7% during the same quarter last year. The increase was mainly from $2.1 million in amortization of premiums related to additional D&O insurance that was purchased last quarter, and $800,000 in expenses related to the internal investigation and responses to SEC increase.

Other income net was $2.3 million this quarter compared to $5.9 million in the prior year quarter. The current quarter includes $700,000 in unrealized gains on corporate investments that are now required to be reported on the income statement. The prior year included $4.5 million in realized gains on the sale of corporate-held equity investments.

The effective income tax rate was 23.4% for the fourth fiscal quarter compared to 27.9% in the same quarter of the prior year. The lower rate is the result of the Tax Act having full effect this fiscal year and only partial effect in last year's fiscal period.

Net income for the fourth quarter of fiscal 2019 was $20 million compared to net income of $22.1 million reported in the same quarter at the prior year. Net income per diluted share this quarter was $2.17 versus $2.40 in last year's fourth quarter.

Comparing the March 30, 2019 balance sheet to March 31, 2018, the cash balance was $187.4 million, slightly higher than $186.8 million a year earlier. The current year included large cash outlays of $19.4 million from the repurchase of the 2005 securitized bonds in January, and $15.3 million from the purchase of additional D&O insurance during the year. These cash outlays were mainly offset by changes in working capital and net income.

Inventories increased as our company-owned retail system ended this year with higher inventories than last year. Total commercial loans receivable increased from additional borrowings under the loan programs offered. The prior year balance was reduced by early payoffs received on several programs, significantly deflating last year's balance.

Securitized financings and other declined from the repurchase of the '05 securitized bonds. This repurchase resulted in a retirement of the related liability on our balance sheet. And lastly, stockholders equity was approximately $530 million as of March 30, 2019, up approximately $73 million from the March 31, 2018 balance. Bill, that completes the financial report.

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [5]

--------------------------------------------------------------------------------

Thank you, Dan. While there's a lot of attention on the MH side, I do want to acknowledge the strong contribution by our financial services segment. Our insurance company delivered very strong results this quarter and year, as did our mortgage lending business, and these are both very strategic parts of the company that have done an outstanding job of being disciplined in their approach to risk and delivering meaningful results to our bottom line.

I've had a long association with Cavco that dates back to before it was spun off as a public company in 2003, and over the last 10 years, I've had the privilege of serving on the Board of Directors. I have seen the company grow from 3 plants to 20. With the Palm Harbor acquisition, we gained the mortgage and insurance companies as well as an outstanding and very well-run retail organization. And throughout this evolution, the company has been clear in its philosophy of decentralization and cost efficiency, and those have been tenets of our success.

Our focus going forward will be to continue those philosophies while exploiting the advantages of our natural -- our national footprint. And where we see opportunities, we'll invest in financial services because we believe we have a role to play in improving industry access to financing. And we'll stay alert for acquisition opportunities that further strengthen the company's ability to serve our dealers and community partners and contribute to the solution to the country's affordable housing shortage. That's meaningful work, and I'm very excited to be part of Cavco's management team.

And with that actually, I think it's time to turn it over for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question comes from the line of Daniel Moore with CJS Securities.

--------------------------------------------------------------------------------

Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [2]

--------------------------------------------------------------------------------

Bill, maybe just start with -- at the retail level. Can you elaborate a little bit on what you're seeing in terms of traffic post quarter over the last month, 1.5 months? And in terms of order rates and kind of relative to where we were in the fourth quarter at this stage?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Yes. Just generally, I guess, I'm making a general comment. You know a lot of our retail operations are focused in areas that people have had some concern about our overall order rates. But what we've seen -- when the plants are looking at the order rates that they're receiving from retailers, they're really only seeing part of the picture and it's influenced by all these inventory concerns that have been discussed pretty broadly. But when you look at it from the retailers' perspective, and just in a general sense, we're seeing good traffic, definitely comparable to last year. And we have seen both deposits and conversions up from last year. So I just think while the data is less available to folks generally, including us on an industry level, that's really a closer indicator of true consumer demand, which is what I was referencing.

--------------------------------------------------------------------------------

Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [4]

--------------------------------------------------------------------------------

Very helpful. And switching gears a little bit, maybe Dan. In terms of gross margin, certainly better than we had expected, is it possible to bucket a little bit? You're up 200 basis points sequentially. How much was price? How much was mix? How much was declining raw materials? And how sustainable is that type of margin level?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [5]

--------------------------------------------------------------------------------

Sure. Happy to, Dan. So yes, we're pleased with our gross margin results, and we have taken initiatives over the past several quarters to make sure that our pricing is appropriate, not only given cost, but given the marketplace and given the products that we're building in the mix. So we think that we're getting the benefit of that work, and we're going to continue that work, and we expect that we'll continue to do well in that area.

And materials, as we mentioned, we're declining, in general, this last several months. So this quarter, we certainly got the benefit of that. Lumber and lumber-related products in particular had lower prices than in past quarters. And so reaching 30-month lows in some cases.

So while that's good for our margin, we can't predict and we don't expect to necessarily predict what those prices will be doing going forward. So we'll have to continue that. But we plan for that, and unless we have significant swings back and forth like we've seen in the past, we think that we will be priced accordingly and report good margins going forward.

The materials is one component, labor is another, though, and I think that labor is one that is continuing to give us pressure, and we'll have to continue to make sure we monitor that cost as well.

--------------------------------------------------------------------------------

Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [6]

--------------------------------------------------------------------------------

Got it. And then financial services obviously helped out as far as margin's concerned. Just so far, quarter-to-date, in Q1, what have you seen in terms of claims and trends in financial services piece?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [7]

--------------------------------------------------------------------------------

So the quarter was quite good for financial services, the March quarter that we just reported. And that was a good contributor to our gross margin as well. And that'll be one that we'll watch as we continue through this June quarter because this is the period of time where you tend to see more weather activity in some of our key areas, Texas mainly, where you have spring storm season. And we'll continue to monitor that and watch it, but that'll be the thing that will, and has in the past, caused us certain amount of unpredictability on the margin from the financial services sector.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

And our next question comes from the line of Greg Palm with Craig-Hallum.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [9]

--------------------------------------------------------------------------------

Congrats on the really good results. And Bill, welcome aboard, I guess, officially.

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [11]

--------------------------------------------------------------------------------

So maybe just to start, I was hoping we could talk a little bit about results by channel. Really looking for commentary on sales, whether that's through the company-owned stores, the independents and the communities.

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [12]

--------------------------------------------------------------------------------

Can you comment to community strengths?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [13]

--------------------------------------------------------------------------------

Sure. So we feel -- I think, there's strength overall. We're seeing that, Greg, in general, the community business has been good. We serve national and local community businesses. And there is strong demographic factors still at work, and certainly in our favor, especially in the retiree group in the Southern states and in the sunshine areas. And that probably has a fair bit to do with the fact that those areas, for the industry, have been going very well from a geographic standpoint. Bill mentioned -- referenced regarding demand on the retail side and the street side with our core business per families. And we're expecting that, that will continue to play through and all the underlying core economic factors are lining up well for us. So we feel pretty good about things overall.

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [14]

--------------------------------------------------------------------------------

I don't think our retail is necessarily different as far as what they're seeing compared to independent dealers. And in significant parts of the country, I feel like I'm beating it to death, but the inventory issue is real. But we do think that's going to ease up over the next couple months, and we expect the order rates for the factories will pick back up again given the demand that we're seeing on the consumer side. Community has been a real strength, though, without a doubt.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [15]

--------------------------------------------------------------------------------

Yes. Okay. That's good color. What's your thought on, I guess, overall industry demand, maybe the potential growth rate either on a units or floor basis for this calendar year? Do you have any opinion on that?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [16]

--------------------------------------------------------------------------------

Well, I think that notwithstanding this tough start to the year, just from a straight comp standpoint, I think that the year probably should end up pretty good, probably positive. We don't have a prediction necessarily, but we'll see how things play out. It's -- from a comparable standpoint, we've got 3 months reported now behind us that are not good. But I think if you take out the FEMA from last year, it already looks a little better. Now that's an estimate, but I think if you take out FEMA, we're only down single digits as an industry versus double digits. And then you look at the rest of the 9 months for the year and things that we've described, if they play out reasonably well, it'll -- should swing the other way and be positive for the year.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [17]

--------------------------------------------------------------------------------

Yes. That's a good point. Bill, you talked about -- I think you mentioned something along the lines of increasing access to financing programs. Anything specifically that Cavco is looking to do? Or are those comments more sort of broad general industry wise?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [18]

--------------------------------------------------------------------------------

Yes. We're trying to stay connected to it. I think our mortgage business does a good job kind of seeking where the opportunities are. I guess my reference was to some of the programs everyone's been talking about, the MH Advantage and MH Choice programs from the GSEs. Some support to try to get Chattel--, a secondary market for Chattel lending going. It's really -- we're trying to keep a close eye on that stuff. I would tell you it's too early to really point at tangible impacts, but that's not pessimism at all. I think we're optimistic those things are going to be helpful.

On the MH Advantage and MH Choice programs, we're hearing -- and this is what we really all should expect -- we're hearing about retailers kind of shifting gears to show product that fits those programs and salespeople in the retail channels getting trained on the new opportunities they have to sell homes, and that's really what's going to get the wheel rolling there. So we haven't seen a lot of actual lending activity yet. There has been some but it's the very start. And I think it's going to be directionally a really big positive for the industry going forward. So early to tell but we're keeping an eye on it. It'll be interesting to talk about in the coming quarters.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [19]

--------------------------------------------------------------------------------

Specifically, as it relates to those new programs, MH Advantage and ChoiceHome, are you looking at maybe partnering with developers or some of those folks for subdivisions in terms of that opportunity to start placing that product in? Or what's your kind of bold case scenario for that program looking out a couple of years?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [20]

--------------------------------------------------------------------------------

Yes, we're certainly at that, Greg. This is Dan. And it's an interesting question because that home style that is required from a specification standpoint, is well suited for developers. And so yes, we're certainly talking to developers, working with them on larger unit plans that they have. And we'll look forward to opportunities, hopefully, to participate in those ventures. And also on the one-off basis just on a -- from a street retailer's standpoint as well. So yes, both those channels, we think, are good and we're going to be working our -- working both of them.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [21]

--------------------------------------------------------------------------------

All right. Bill, looking forward to working with you more closely going forward.

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [22]

--------------------------------------------------------------------------------

Thank you. And as well.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

And our next question comes from the line of Alvaro Lacayo with G. Research.

--------------------------------------------------------------------------------

Alvaro Lacayo, G. Research, LLC - Research Analyst [24]

--------------------------------------------------------------------------------

Just one quick question. If you can repeat the backlog numbers because I just missed it when you mentioned them. And then secondly, on the cost inflation, specifically to material inputs. Lumber was down, but presumably other things might have been up, down and different things. But can you maybe give us a number or magnitude in terms of percentage of how much you actually saved year-on-year from that angle?

--------------------------------------------------------------------------------

Joshua J. Barsetti, Cavco Industries, Inc. - Principal Financial Officer & CAO [25]

--------------------------------------------------------------------------------

So Alvaro, this is Josh, I'll take the first question there. Our backlog at the end of March was $129 million, and that compares to $179 million as of last year's March. And so it's down, but as Bill mentioned, it's around 7, 7.5 weeks of production and working down to a more ideal level from our perspective.

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [26]

--------------------------------------------------------------------------------

And Alvaro, this is Dan. I'll just also respond to your question about materials. And yes, lumber is certainly being a large component in our home, so that's one we pay attention to. And when it swings upward or down substantially, it can have an impact. I don't have a percentage for you, but we certainly wanted to highlight that it's meaningful.

And the other costs of materials that go into our homes just weren't as dynamic but they were not up enough to create a material offset to the lower lumber and lumber-related product prices. So in general, we got the benefit and that probably is something that we'll -- well, I guess I would say, we've continued see it through this point. In other words, the bulk of the quarter that we're through now, we've also seen that benefit. We'll see how the rest of the quarter works out, but we really can't predict what any material prices will be beyond that for the last half of calendar 2019.

The impacts of tariffs. We haven't seen a substantial impact there. And if we do see those kick in and impact some of the non-commodity related prices of our materials, it'll have an impact certainly, so we may have to adjust accordingly from a product pricing standpoint. Of course, we have to look at the market and see what the market will bear there as well, but we're paying close attention to that dynamic.

--------------------------------------------------------------------------------

Alvaro Lacayo, G. Research, LLC - Research Analyst [27]

--------------------------------------------------------------------------------

Okay. Got It. And then can you remind me the gross profit differential between the financial services business and the core manufacturing business? And when was the last time that you took price? I mean have you taken some recently? Or when would you begin to lap pricing in terms of what's already been announced?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [28]

--------------------------------------------------------------------------------

So we, on this report, have not broken out -- just to answer your question, we have not broken out the margins between our 2 segments. Obviously we want to present a consolidated picture here, but both margins were strong. We've talked about the financial services being strong as well and good contributors because, a, the businesses are doing well as expected, but also we had some good fortune of some very calm weather in the areas that our policies reside. So that piece will be forthcoming and outlined pretty well on our 10-K. So we'll have some good explanations and layout of our segment result reporting in that area. And then with respect to the impact of -- tell me the other part of your question, I just want to make sure I don't go sideways on you.

--------------------------------------------------------------------------------

Alvaro Lacayo, G. Research, LLC - Research Analyst [29]

--------------------------------------------------------------------------------

Just pricing. I want to get an understanding of when was the last time that you've taken pricing? And when do begin to lap some of these price increases?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [30]

--------------------------------------------------------------------------------

That's right. So it's something that we're always managing really. And I couldn't say that we have a good comparison that we ever report on that in that regard. Because it's regional, it's more than just materials, it's also a regional issue, and it's certainly a product mix issue. But I would -- I guess, the way I would best clarify that for you is that we had, we think, a pretty good 3- or 4-quarter period now where we've had our pricing properly designed with respect to the market dynamics as well as the input costs. The 4 quarters prior to that, I think we were trying to play catch-up. And that's certainly the largest part of the period where prices were escalating so rapidly. So I hope that helps.

--------------------------------------------------------------------------------

Alvaro Lacayo, G. Research, LLC - Research Analyst [31]

--------------------------------------------------------------------------------

It does. So I guess, just price mix. I mean, how do see that going forward versus -- but you had very strong price mix for the last 4 quarters, like you said. How does that evolve going forward? I mean, does that continue to be a big part of the top line driver for Cavco?

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [32]

--------------------------------------------------------------------------------

The demand generally is for slightly larger and more amenitized homes. We're seeing that in a general way. More homes with tape and texture, more homes with added features and even larger square footages. So that bodes for more price. And when we have the more amenities and large square footage, often we can bring margins up as well. So we think that, that is the trend. There's good demand in that mid- to high-price-point product right now.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

(Operator Instructions) And our next question is a follow-up from the line of Daniel Moore with CJS Securities.

--------------------------------------------------------------------------------

Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [34]

--------------------------------------------------------------------------------

Bill, you alluded to this, but maybe just a little bit more specificity in terms of capital allocation, which -- is your first priority still to continue to look to expand the consumer lending side? Beyond that, what are your -- some priorities? And do you see additional opportunities to take out some of the securitized debt?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [35]

--------------------------------------------------------------------------------

Yes. I'll actually comment, then I'll hand it to Dan on securitized debt because that's up and coming. But yes, certainly -- we're looking and evaluating how much balance sheet to use on the financing areas, as you said. The other thing, as I get around, and it's early, but I've tried to get out and spend some time in our plants and operations. We feel like we do a really good job. We're efficient operators, but at the same time, our GMs are pretty clear that they feel that they have more opportunities to improve efficiency. So we'll invest in that. I'm expecting we'll put capital into our plants, going forward, to try to make sure that we're continuously improving in that regard. And the other thing is acquisition opportunities, we're always interested in continuing to look at acquisitions. The company has had a great success with that and that won't change. But Dan, you might want to comment on the securitizations.

--------------------------------------------------------------------------------

Daniel Loren Urness, Cavco Industries, Inc. - Executive VP, CFO & Treasurer [36]

--------------------------------------------------------------------------------

Yes. The securitized bonds, just as a reminder, back in January, we paid down part of the obligation in connection with an option that we had to do so and that was about a $19 million decrease in our debt utilization of cash. And just as a note, we have mentioned before and I wanted to reaffirm that we plan to do the same thing in Q -- I guess, the September quarter. So that quarter, we expect another $20 million decrease in our securitized bonds on our balance sheet, and that's another use of cash coming up.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

And our next question is a follow-up question from the line of Greg Palm with Craig-Hallum.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [38]

--------------------------------------------------------------------------------

Just a few follow-ups for me as well. Did you comment at all or are you willing to comment on the ongoing SEC investigation and whether there is any update on its time line or thing there?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [39]

--------------------------------------------------------------------------------

We didn't, and we are willing to. But we don't really have a lot of news. I know there's -- everyone in this room is as anxious for a resolution on that as you all are. But as we've previously disclosed, we've -- the independent investigation that the audit committee started late last calendar year was concluded. And at this point, we're really just trying to support the SEC's process, and we don't control the timing of that. And unfortunately, there's really not any news at this point to share with you. That's what we know. We shared all of the information from the independent investigation with them and we'll do what we can to support their process and hopefully, we'll get a resolution pretty quickly.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [40]

--------------------------------------------------------------------------------

And presumably you're not looking to at least disclose the results from that internal investigation, at least at this point?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [41]

--------------------------------------------------------------------------------

Yes, we really aren't in a position to do that. I mean, again, it’s an SEC process and it wouldn't be appropriate for us to do so.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [42]

--------------------------------------------------------------------------------

Okay. Fair enough. At least in terms of the cost structure and all the costs associated with the ongoing investigation, I mean, can you at least let us know whether you think the cost structure is at a point where at least we're not looking at increasing the costs in the near term related to that?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [43]

--------------------------------------------------------------------------------

Take that, Josh?

--------------------------------------------------------------------------------

Joshua J. Barsetti, Cavco Industries, Inc. - Principal Financial Officer & CAO [44]

--------------------------------------------------------------------------------

Yes. So Greg, just as a reminder for the other folks on the call, during the quarter and going forward for a few quarters here, we're going to have some D&O costs related to that, $2.1 million a quarter. This last quarter, we had about $800,000 in SEC-related expenses. And so with the internal investigation being completed, that was a large part of it. Going forward, we can't predict specifically what's going to come out of the SEC component of this, but for the most part, I think we're probably in a pretty good place in terms of expenses related to the investigation based on what we know now.

--------------------------------------------------------------------------------

Gregory William Palm, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [45]

--------------------------------------------------------------------------------

Okay. That's helpful. And then last one, Dan, I think you mentioned something about tariffs and I was just curious. Do you have a proportion of your sort of build materials that is at least related to the tariffs, the 10% to 25%?

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [46]

--------------------------------------------------------------------------------

We do. I mean, we isolate and we identified internally what would be impacted and how we have to be thinking about that. It's plumbing, it's cabinetry, it's other various components in the business that go into the home. And we're watching those closely. We've already had some increase and we've taken that in. But I think if we go to this next level of tariffs, that'll become more meaningful, and we'd be looking at having to pass that through.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

And ladies and gentlemen, this concludes today's Q&A session. I would now like to turn the call back over to Bill Boor for any closing remarks.

--------------------------------------------------------------------------------

William C. Boor, Cavco Industries, Inc. - President, CEO & Director [48]

--------------------------------------------------------------------------------

Okay. Nothing really to add here. I appreciate everybody being on the call. Thank you.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.