As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Mark Fusler, Corporate Controller and Investor Relations. Please go ahead, sir.
Good day, and thank you for joining us for Cavco Industries' fourth quarter and fiscal year 2026 earnings conference call. During this 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. Before we begin, we'd like to remind you that the comments made during this conference call by management may contain forward-looking statements. Forward-looking statements include statements about our future and expected business and financial performance and are not promises or guarantees of future performance. They are 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.
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. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our investor relations website and at sec.gov. This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Friday, May 22nd, 2026. 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. Now I'd like to turn the call over to Bill Boor, President, Chief Executive Officer. Bill?
Welcome, and thank you for joining us today to review our fourth quarter results for fiscal 2026. I want to take a few minutes to talk about the fiscal year, and then we'll get into the fourth quarter discussion. The headline is that in a year in which total industry HUD shipments were down slightly, we hit an all-time high of 20,842 homes shipped. Operating income was up 14%, excluding a $10 million non-cash write-off last year. In the broader picture, our peak-to-peak ability to deliver homes is up significantly due to the continuous improvement in our plants, the major plant modernization projects we've completed in recent years, and the acquisition of American Homestar. As I'll touch on in a moment, this time last year, our backlogs were declining going into Q1, while this year they're increasing.
In fiscal 2026, we also continued a multi-year strategy to transform how we go to market. We build on our unified branding under the Cavco name by rolling out our nationwide product line framework in Q4, which makes it much easier for potential buyers to shop our homes and for our dealer partners to help those customers find the homes that best fit their needs. We believe these advancements that began several years ago with a redesign of digital marketing have significantly improved our position and will contribute to market share growth in an industry we also expect to be growing in the coming years. Turning to the quarter, sequential revenue was down 5% and operating income was down 6%. However, both were up compared to last year by 8% and 33% respectively. Again, last year's quarter had a $10 million intangible write-down.
Excluding that, this year, the quarter operating profit was up about 6% year-over-year. While Q4 weather is expected to be challenging across the northern U.S., this quarter got off to a slow start with unusual weather across the southern states. We lost production days and market time in January and early February. Our capacity utilization for the quarter was approximately 70%, and our production pace was generally in balance with orders through most of the quarter. We then saw a large pickup in wholesale orders in March, which expanded backlogs late in the quarter. The order pickup was big enough that we finished the quarter with almost 25% more floors in the backlog than when we started it. We finished with five to seven weeks of backlog, which again, was growing as we closed out the quarter. Average selling price was down about 2% sequentially.
If we break that apart, our company-owned retail sales were healthy but down from a very strong 3rd quarter. This decrease in the percentage of our integrated sales, coupled with a mix shift towards single-section homes, accounted for the sequential ASP drop. Product pricing was essentially flat. We feel good about what we're seeing with retail traffic, wholesale orders, and backlog growth. The combination of these three positive signals gives us the opportunity to push some production where lower backlogs had been holding our plants back. Touching on American Homestar, we're through a lot of the operational integration, with most of the work ahead focused on systems integration. As we reported last quarter, our internal view of tangible cost synergies had increased from our deal assumptions and was in excess of $10 million annually. That view still holds, and in Q4, we were already very close to that pace.
We still see more opportunity ahead to exceed $10 million, mostly in SG&A and additional purchasing savings. In financial services, both the lending and insurance operations contributed to another strong quarter. We reached a new agreement with a purchaser of home-only loans that allowed us to ramp up originations and sell some loans off the balance sheet. The investor agreement will enable us to continue ramping loan originations and sales going forward. In insurance, we had continued strong results from a combination of underwriting changes we've talked about in previous quarters and continued favorable claims experience. Shifting back to manufacturing, I want to touch on the press release we issued Wednesday evening announcing that we broke ground on a new plant in the fourth quarter. This decision is part of an overall Southwest operations strategy to create growth and optionality in the region.
It will be a high-capacity, state-of-the-art plant here in the Phoenix area with one line initially and the infrastructure in place for a second line in the future. We have been very consistent in our strong conviction about the growing role of factory-built housing in meeting the supply needs of the nation and in our capital allocation approach. We're confident this is a solid investment that will enable us to expand our selling area in the Southwest. We're expecting the Cavco El Mirage plant to be operational in mid-calendar year 2027. Strong cash generated by operations enabled us to deploy over $360 million in the fiscal year. We continued our share repurchases during the quarter with another $30 million used to buy back company stock. For the year, we completed $160 million of share repurchases.
We also invested $173 million to acquire American Homestar and an additional $35 million to expand and modernize our existing plants. We finished the year with a healthy unrestricted cash balance of $237 million. Finally, I want to comment briefly on the legislation passed by the House this week by a 396 to 13 vote. The prominence of American housing in the bill demonstrates the bipartisan awareness of the critical role our homes need to play in resolving the housing supply crisis. Various parts of the bill enable product innovation, reduce regulatory confusion, improve consumer and commercial funding availability, and encourage zoning improvement.
I feel I've had a front-row seat to watch this work develop over the last several years. I want to acknowledge our industry association leaders at MHI, who worked over a long period of time, first to increase awareness of our solutions in D.C., then ensure the legislation itself protected and enhanced the industry's ability to make more homes. As you'd expect, there were potential traps in the process. The folks at MHI were masterful working through it all. It's expected that this bill will be approved by the Senate. The White House has already issued a statement of support. The benefits will take time to fully develop, they are real, and they will be impactful. Now I'll turn it over to Allison to give more details on the financial results.
Thank you, Bill. Net revenue for the fourth fiscal quarter of 2026 was $550.1 million, up 8.2% compared to $508.4 million during the prior year period. Sequentially, net revenues decreased $30.9 million, driven by a decrease in both units sold and average revenue per home sold. Within the factory-built housing segment, net revenue was $528 million, up $40.2 million or 8.2% from $487.9 million in the prior year quarter. The increase was primarily due to the addition of American Homestar and the 7.8% in legacy average revenue per home sold, partially offset by an 8.9% decrease in legacy home units sold. The increase in legacy average revenue per home was primarily due to a higher proportion of homes sold through our company-owned stores, product pricing increases, and more multi-wides in the mix.
Financial services segment net revenue was $22.1 million, up $1.6 million or 7.7% from $20.5 million in the prior year quarter. An increase was due to greater loan sales after securing a long-term investor agreement and, to a lesser extent, the addition of American Homestar Financial Services. Consolidated gross margins in the fourth fiscal quarter as a percentage of net revenue was 23.1%, up from 22.8% in the same period last year. In the factory-built housing segment, the gross profit was 21.2% in Q4 of 2026, down from 22.3% in Q4 of 2025. The reduction is due to higher costs per unit sold. Financial services gross margin as a percentage of revenue increased to 69.4% in Q4 of 2026 from 36.8% in Q4 of 2025. This increase is primarily due to the growing impact of rate increases and underwriting changes on policies in addition to higher loan sales.
Selling, general, and administrative expenses in the fourth quarter were $75.6 million, or 13.7% of net revenue, compared to $77.5 million, or 15.2% of net revenue during the same quarter last year. The decrease in these expenses was primarily due to the $10 million write-off of trade name values as part of the rebranding project in the prior year, partially offset by the addition of American Homestar. Interest income for the fourth quarter was $3.2 million, down from $4.5 million in the prior quarter, resulting from lower cash balances after the purchase of American Homestar. Pre-tax profit was up 27.1% this quarter to $54.6 million from $42.9 million for the prior period. The effective income tax rate was 22.2% for the fourth fiscal quarter, compared to 15.4% in the same period of the prior year.
The increase in the effective tax rate was primarily driven by lower tax credits and reduced stock-based compensation benefit related to the prior year quarter. As a reminder, we've benefited from Energy Star tax credit program. The IRS code has eliminated these credits effective June 30th, 2026, and as a result, we will not benefit from these credits in the future. Net income was $42.5 million, compared to $36.3 million in the same quarter of the prior year, and diluted earnings per share this quarter was $5.42 versus $4.47 in last year's fourth quarter. Before we discuss the balance sheet, I'd like to take a minute to talk about capital allocation. During the quarter, we repurchased $30 million of common shares under our board-authorized share repurchase program.
In addition, the board of directors recently extended the authorization by an additional $150 million, reflecting confidence in our strong cash generation, leaving approximately $218 million under authorization for future repurchases. Our capital deployment will continue to align with our strategic priorities, which include enhancing our plant facilities, purchasing additional acquisitions, and consistently assessing opportunities within our lending operation. Share buybacks will serve as a mechanism to prudently manage our balance sheet after considering these initiatives. Now I'll turn it over to Paul to discuss the balance sheet.
Thank you, Allison. In the quarter, cash and restricted cash increased $15.1 million, bringing our balance to $257.6 million. Operating cash flow provided $67.4 million, consisting of $50.2 million in net income and non-cash adjustments and $17.2 million from working capital. Investing activities used $22.6 million, primarily for plant capital expenditures, while financing activities used $30 million, driven by share repurchases. When we compare the March 28, 2026 balance sheet to March 29, 2025, several of the balances increased from the addition of American Homestar, including inventories, property, plant, and equipment, goodwill and intangibles, accrued liabilities, and deferred income taxes. The decrease in short-term consumer loans receivable is due to the increase in loan sales after securing a long-term agreement to sell loans to a third-party investor. Long-term investments increased from more fixed income and equity holdings at the insurance subsidiary.
Legacy accrued expenses and other current liabilities increased from higher customer deposits and volume rebate and warranty accruals, which were partially offset by lower insurance loss reserves. Treasury stock increased through the stock buybacks executed in the period. With that, I'll turn it back to Bill.
Good. Thank you, Paul. I want to take a minute before going to Q&A to talk about operating excellence. In manufacturing, that shows itself in volume, certainly. A great indicator of the quality of an operation is its safety culture and results. Our recordable injury rate has improved each of the last five years. Over that period, we reduced our injury rate 65%, and while we started above the industry benchmark, we've been well below it each of the last four years. Again, I bring this up partly because, in addition to investors, our employees sometimes tune into these calls, and I really want to acknowledge the focus they've brought to this priority and their important accomplishments. I also bring it up for the external audience to understand that these types of safety improvements are indicative of the focus we have on executing the fundamentals with excellence.
I'm as proud of these safety results as anything else we've accomplished over the past several years. I could cite examples of operational process improvement across all our operations, from retail's intense focus on training to the work that insurance has done to rethink their operation that's led to significantly improved results to the work in CountryPlace to source new investors and improve our customer-facing systems. Periodically, I think it's important to highlight examples like these that say something about the real improvement over extended periods of time that can be overlooked in our quarterly cadence. These are examples of that intense focus on day in and day out process execution and how that leads to the outcome of improving business results over time. Jonathan, I guess with that, why don't we go ahead and open it up for questions?
Certainly. Our first question for today comes from the line of Daniel Moore from CJS Securities. Your question please.
Yes. Bill, Allison, Paul, good afternoon. I should say good morning. Thanks for the color and thanks for taking the questions.
Yeah.
Hi, Dan.
Maybe just talk about the sequential improvement we saw in March, whether that held true into April and thus far in May in terms of traffic, order rate, sequentially, where are you seeing the most improvement from a geographic perspective and where there may be some areas that are still a little bit sluggish?
Yeah, I'll take an initial stab at that. It really was a quarter where we always talked in the third quarter call about being anxious to see how the spring selling season shapes up. January and February, I wouldn't necessarily say they were slow, but they weren't showing a significant pickup, and then it just kind of came in March. We felt that was a real positive. It was a significant jump up. To be honest, it occurred across the board in every region. Some of the stronger results, but this is all relative. It was pretty noticeable literally in every region that we track. Some of the strongest results, if you differentiate, were in the Northwest, the Southwest, and Texas. Again, I wouldn't take anything away from the significant uptick that we saw in the other regions.
Dan, I know I didn't address all your questions. Can you remind me of your other question?
Yeah, just into April and thus far in May, whether you're seeing steady from March, continued improvement across those markets, what are we seeing sequentially?
As you guys know, we don't like to get too far into forward or into the current quarter, but this quarter, the earnings announcement comes kind of late, so it's fair to give a little bit of an indication of how this quarter's shaping up. I'll continue on that discussion that April orders rates stayed up at that, relatively in that March level. I guess one of the best indicators of continued strength is that I'm looking at our backlog weeks in all of our regions, and each one of those showed an improvement in backlog through April. We did see it. It wasn't just a blip. We did see it pick up. May, we're still in the middle of. I can tell you, we talk about the spring selling season in retail, which is kind of the lead, right?
You get a sale in retail, and that causes a wholesale order that eventually gets built. Retail typically hitting into May, you'll see a little bit of a slowdown as people are focused on other things. I haven't really looked that closely at how May's going to come out in total, and I haven't sensed that we feel like something really died off from the pace that we're seeing in March and April. All seem to be pretty positive indicators. I'm going to temper those comments as I think I always should, and you guys know this. It's still an uncertain environment out there, but what we saw in March and April in orders and backlog growth were pretty encouraging.
Super helpful. As that ties into production, sounded like in your prepared remarks, that gave you confidence to pick up production rates a bit as we move into fiscal Q1. I just want to make sure I'm hearing that correctly and whether or not you expect to see some level of increase in shipments sequentially?
Yeah.
Q1 versus Q4.
Yeah. As you guys know, when we talk about backlog in aggregate, it's kind of the average of a system that has a lot of plants in different markets in different stages of the cycle. We've been in that mode for quite a while, where we've had some plants that have had plenty of backlog for quite a while, and so they've been running at a pretty high level. We've had other plants across the country that have had to hold it back a little bit because of low backlogs. With this across-the-board improvement in backlogs in general, I think it does give us the ability for some of those plants that have been riding the brake a little bit to let it go. Yeah, I do expect us to increase. We're not in business to see our backlogs to get to extraordinarily high levels.
We like the range that they're in now in total, and we want to be producing at that level of orders.
Really helpful. Maybe one more, and I'll jump back in queue. Can you talk about what you're expecting or seeing from 232 tariffs, and then just more generally, expectations for gross margins, particularly in factory-built housing over fiscal Q1 and the next quarter or two relative to the 21.2% I think we did in fiscal Q4?
Yeah. Thanks for that. Gives us a chance really to talk about the impact of tariffs, which we, consistent with our comments last quarter, we know is having an upward impact on our COGS. It's really difficult to precisely estimate the amount of the impact. I would say that the impact this quarter is very much consistent with last quarter. Really the reason for the challenges is simply the supplier's ability to pass through tariffs is tightly tied to the function of the level of demand for their products. If the demand for lumber or steel starts to heat up, we're likely going to see a more fulsome impact from tariffs. If we just think about how that relates into margins, as we've said in the past, it's difficult to project forward on margins.
Indeed, a key component that does impact our margins is the cost of these commodities. Primarily, that's lumber, that's OSB. For the last several quarters, we've been benefiting from pretty low, and I'd call it stable lumber and OSB prices. Recently, we have seen lumber started to tick up. As we all watch the indexes for both lumber and OSB commodities, where really we can expect any changes that we do see to roll through our COGS, cost of goods, about 60 days later. I think the important development is that we're expecting a pretty negative impact from steel producers who are starting to really announce price increases and stringent allocation limitations. Just as a balancing factor, right? Our margins are also dependent upon pricing. It's been a good fact pattern to see overall product price somewhat stabilized during the last two quarters.
We aren't in a position really at this point to really call that a trend as it certainly varies, as we've talked about, pricing can vary by geographical location. Just to tie in some of Bill's comments on Financial Services. Our margins also depend on the activity in our Financial Services segment and most notably our insurance division. We certainly have seen strong Financial Services margins in the recent quarters that have helped lift our consolidated gross margins. Just kind of summarizing that, we certainly do acknowledge that the higher material input costs are expected and will pressure our margins. We're going to continue to stay very focused on maintaining our low fixed cost and being able to flex our variable cost with the increase in production. Hopefully that helps a bit.
Thank you, Allison. I'll jump back with any follow-ups. Appreciate it.
Thank you.
Thank you. Our next question comes from the line of Greg Palm from Craig-Hallum. Your question, please.
Yes. Thanks for taking the questions. I wanted to go back and maybe go over the demand environment a little bit more spring seasonality-wise. Usually you see some improvement. I guess I'm curious, was it better than you expected? Can you just help maybe characterize what you saw in March and April versus what you'd normally see in a call it a normal year?
Yeah, I think, when we look at it just on the wholesale side, I think January is usually the slow month coming out of the holidays. Nothing surprising there. We did get nailed across the South. No one likes to talk about weather in these calls in any context, but we lost production in some plants, and no one was out buying homes for a little while in kind of the late January, early February timeframe. Living through that, it wasn't surprising to see orders at the level they were. In a way, and I'm not sure this is the right characterization. In a way, I feel like we got a pretty good spring. It just showed up really late in the order numbers.
Seeing March increase the way it did, it just looked to me like a little bit of a delayed spring, but a pretty solid one. Like I said a minute ago, it kind of all starts in retail, and when retail starts selling homes, they start placing orders. With that stuff happening late in the quarter, that's why for us, you saw more of a backlog increase than necessarily a shipped volume increase. Greg, I think to kind of be more concise than that wordy answer, I would say that we felt pretty good about it by the time the quarter ended and as we flowed into April.
Yep. Okay. That's fair color. You talked about geographic mix. What did you see across the community channel relative to what you saw or what you're seeing across retail right now?
I appreciate that because I didn't think to comment on it in the prepared remarks, it kind of ties back to discussions we had last quarter, right, Greg? Last quarter, we told folks that communities were down a little bit for us. I also tried to emphasize that when you look quarter-to-quarter at community volume, it can be bouncy even when nothing in particular is really going on that's noteworthy. To follow up that comment last quarter, this quarter we saw communities bounce back up. I think it helped just to confirm that Q3 wasn't a trend. There wasn't something wrong in the community channel, we saw it bounce back pretty healthily this past quarter. When you got flattish volume, what does that mean about the channels? Some of the offsetting drop was in the dealer channel this time.
That, again, we're kind of reporting the facts, but I wouldn't tell people that we note anything that's really necessarily wrong in the dealer channel. I think that those late orders, a lot of those were coming through that dealer channel. I think we'll just see this as kind of normal variation within the channels. Communities bounced back a bit. I expect retail will because they were the source of a lot of our orders.
Okay. Understood. Last one, you kind of alluded to the regulatory stuff, ROAD to Housing Act.
Yeah.
Help us understand the timeline of some of these perceived benefits that you might see, and I don't know if there's a way for you to kind of rank order what you're focused on the most, but just curious to get your thoughts there.
That's a good challenge to do that here on the fly. I think a lot has been talked about the permanent chassis removal. I'll tell you one thing about the permanent chassis, which I was happy to see. When we talked to dealers, our internal and external, I was actually a bit surprised when this chassis discussion started, how many of our retail folks were really kind of positive and excited about the prospect. We're in good shape. When you make a modular home, you're generally making it to have a removable chassis. Our factories that do modular kind of from an engineering and factory perspective are in a position to make HUD code homes without a chassis as soon as that law gets changed, the wording gets changed and the definition, and as I said before, as soon as states kind of conform to it.
It'll take a little bit of time, and excuse my cough. I think we'll probably be talking about it every quarter because it's interesting and it's a future opportunity, but it will kind of layer in over time, and I think it's going to be significant in the long term. The zoning, different things can happen at the federal, state, and local level as far as what can be done to help the supply of factory-built housing. The federal has gotten the message. When I talk to folks in D.C., they're very aware of the zoning challenges, but those decisions largely get made at the local level. This legislation has some aspects to it that talk about providing kind of carrots in the form of funding for municipalities that enable or take down zoning barriers. That's the battle we've been waging for years and years.
How much that takes root will be interesting to watch. I think we talked about it last quarter that some states are chiming in on this as well. We've got some legislation coming. It's already been passed in both Texas and Kentucky in particular, that kind of even the playing field, take away the discriminatory barriers to factory-built housing. I think that's a pretty prominent one that maybe will take a little longer just because I've learned not to be too optimistic about zoning solutions. I think we're pushing in the right direction. The primacy of HUD as our primary regulator, that's a little bit probably less about volume, although it will help keep bad regulations that cause the cost of our homes to go up.
It will keep that at bay, and we'll be able to work with HUD to improve the houses over time in ways that are cost-efficient. That's a little bit less about volume, I guess, but a really important aspect of the overall law. The other one I'd touch on, which I've always kind of harped on in D.C. whenever I get at anyone's ear, is they're pushing for FHA Title I financing, which is home-only financing to, I'll use the term modernize their programs. There's almost no loans done for home-only purchases through FHA programs, and that's just flat out not right. The law is pushing FHA to modernize things like their loan limits, eligibility, and things like that. That's real funding availability, cost of funding improvement for our customers, which is critical.
I'm not sure I really prioritized them, and I'm not sure if I gave a sense of timing. I think these things do take time, but I'm also very, I think they're huge improvements. I think they're things that over time are going to make a real difference.
All right. Appreciate those thoughts. Thanks.
As you're jumping off, one other thing I think I will touch on is people have heard a lot about the institutional investor ban, and a lot of that's around the build-to-rent or purchase-to-rent model that a lot of institutional investors have been doing. Probably a topic for separate discussion at some point if we wanted to sit around and just talk about opinions about whether that's useful or not. I'll stay out of that space. It was a real threat to, unwittingly, it was a real threat to the home or the community ownership model that's been so successful for manufactured housing over time, the land lease communities. As you can imagine, if they got defined as an institutional investor, they wouldn't be buying homes.
Again, giving a lot of credit to MHI, we got an exemption, a clear exemption from any institutional investor ban on the purchase of homes for manufactured housing, which is just gigantic. That averted a real mess. We wanted to throw that in as well because that's been really important here.
Thank you. Our next question comes from the line of Jesse Lederman from Zelman & Associates. Your question, please.
Hey, thanks for taking my questions. Bill, I'd love to talk a little bit more about the El Mirage project.
Yeah.
Obviously pretty groundbreaking, no pun intended, building some more capacity here. To start the call, you kind of talked about the peak-to-peak capacity relative to entering the year is already a bit higher. Like layering that in, plus you're at 70% capacity nationally now. Why do you feel like adding new capacity and adding a new factory is a good use of funds, and what are the demand assumptions that support needing the additional capacity in that area?
Yeah. It's a very fair and good question, Jesse. I'll start by saying this, in my opinion, we look at investments, whether they're plant modernization projects or acquisitions or something as significant as a new plant like this. We look at them with a lot of scrutiny. We're very focused on whether we believe we can get an appropriate return for the risk and making sure that we're investing above the cost of capital. You'll have to take it on faith, but you can rest assured that we believe this is a return project. We don't make a project decision like this that won't start up for over another year and will be a very long-lived asset. It'll be in the system for decades. We don't make that based on how we're feeling about this quarter or what the last year looked like as far as demand.
I'll say this because I think it's the best summary, but I don't mean to imply it's this simple. We made this decision because there's a $4 million-$6 million housing unit deficit in the country, and we think factory-built housing is a solution. If this industry gets to whatever full capacity is because we start to unleash that demand, this industry won't have enough capacity to meet that opportunity and that need. I think we're going to need greenfield capacity, and I'm clearly thinking longer term than this quarterly call. It was with that strategic conviction that we took this on. It's going to give us some optionality in the region. We look at it not on a single plant with blinders. We look at it in perspective to the other plants we've got in the region, and we look at our market opportunities.
Frankly, in Arizona, historically, if you look through time, we've limited our selling area because we didn't want to generate long-term dealer relationships in farther away markets, like up into Colorado and places like that, if we couldn't continue to supply those folks when the market was strong. We've kind of self-limited a little bit in the Southwest over time. One of the opportunities this is going to open up for us is to actually push into some new geographies with some distribution. I hope that helps give kind of a flavor at least how we're thinking about it. I understand, and I think it's a very fair question about how do you pull the trigger on new capacity when you've been under full capacity for a while. Again, my most simple answer is 4 million-6 million unit housing deficit.
Yeah. That's a great response, Bill. I appreciate that. It's a long-term decision that you made, and it's helpful to understand that even in the near term, you think there's some demand in areas around the region where you're already operating that can be unlocked.
Yep.
Not sure if these next couple are for you or Allison, but kind of want to understand, one, the investment in the facility overall, if you're willing to share. Two, how the margin drag on the P&L kind of as you're ramping up the facility to capacity, how we should think about the timing of that, maybe in calendar 2027 and beyond, kind of what that looks like and how to think through that.
Yeah. Let's address the margin because as we bring on an additional 1 line consistently, we will ramp that line up. It's going to be 1 line of multiple lines that we have. We obviously would scale the plant in total, right? We would scale the direct labor, we would scale the support. I wouldn't anticipate that bringing on additional capacity in our network in the way that we're able to monitor it very closely with KPIs would create any kind of a noticeable drag. Obviously, there'll be a ramp-up period, as there always is in plants. We're so skilled at doing this and focusing on just the core manufacturing key indicators and metrics that we'll do it in a measured fashion. It's something that we've done before. It's something that we've proven we can do.
We're actually pretty excited about it and have plenty of time to plan for it as it comes online in a very methodical manner.
I think that's a good point. I was going to say maybe not to scale, but I'm not even sure that's true. Over the last several years, they weren't complete greenfields, but Glendale was a completely new plant. Why I say it wasn't a complete greenfield, we bought a building that the walls were up, but it had never been used for any other purpose, and we found it and saw that we could use it for park models. We essentially added greenfield at Glendale a few years ago. Similarly, the Hamlet deal, which was kind of half acquisition, half greenfield, we bought a plant that was being used to make volumetric. Like the multi-unit, five-story hotel apartment type construction. We bought that and retooled it. In a way, that was bringing new volume into the manufactured housing single-family industry.
We do have a couple examples in the last 4 or 5 years, where we've brought this stuff on, and I think we've been pretty successful. We're not betting all the time that the market's going to be flat out, make everything you can make. A lot of analysis, a lot of scenario planning, a lot of making sure that we were comfortable we could get an acceptable return and grow the market.
Absolutely. Thanks so much, guys. Appreciate the call here, as always.
Yeah. Thanks, Jesse.
Thank you. As a reminder, if you do have a question at this time, please press star one one on your telephone. Our next question is a follow-up from the line of Daniel Moore from CJS Securities. Your question, please.
Thanks again, Bill and Allison. Just one or two more. One of your Texas-based competitors recently cited pretty interesting incremental demand in that market for workforce housing, related to both the data center build-out as well as energy. I'm wondering what you're seeing, or expect to see as it relates to that in Texas, which is a considerable market for you.
Yeah. I don't have the benefit of exactly what they said, but I would probably echo the statements. We have seen some market opportunities, particularly around energy. Yeah, I made my comments earlier when asked about regions, that Texas was one of the areas that we have seen orders kind of pick up relative to even other healthy regions.
Helpful. One more, just anything you can expand on as it relates to the agreement with the new third-party lender. How should we think about that enhancing the trajectory or margin opportunity of Financial Services? Any specifics around, I assume there's quarterly or annual specified amounts of loans that you're supposed to generate. I don't know what you're willing to share there, but anything would be helpful. Thank you.
Yeah.
Sure, Dan. I'll take this. The forward flow agreement includes a minimum commitment of approximately $25 million of originated loans per quarter over a two-year period. If we talk about it from an economic standpoint, it's consistent with our existing gain on sale transactions. We're not really seeing a material change in our margin profile. I think strategically, we're looking at this more as increasing our lending capacity in a capital efficient manner, rather than really a margin expansion.
Yeah. I'll just kind of echo and follow onto those comments that, I believe over time we've talked with folks that in our capital allocation, we are willing within We're not talking about changing our balance sheet to be a lender, but we are willing at times when there's no buyers of our loans to use some of our balance sheet to originate loans and hold them on the balance sheet. We did a little bit of that. I think it got up, look around the table to confirm my number, into the mid to high 30s of loans that we have on our balance sheet. We did that with a belief that, one, at some point in time, we're going to find investors that are going to be interested in those loans.
Two, if we don't, we're originating good loans, and that's not a bad plan B. Our plan A is always to originate loans for other investors. I'll tell you, the folks at CountryPlace, these are not simple, short discussions to get these in place. They did a really good job working with this investor to develop a partnership, basically. That gives us the certainty now to increase our originations, and to Paul's point, be even more capital efficient because we'll originate loans, and we'll be selling them off. The pace of activity in CountryPlace will go up, but the balance sheet won't grow accordingly. This is kind of what we had planned and hoped for when we did some loans onto our own balance sheet over the last couple of years.
All right. Super helpful. Great. Appreciate the call.
Thank you. Our next question comes from the line of Ian Lapey from Gabelli Funds. Your question please.
Hi, good afternoon. Congratulations on a good quarter and year.
Thanks, Ian.
Oh, you're welcome. It's been about a year since the brand realignment. Can you just talk about how you think that's gone so far?
Man, I think it's gone really well. We should probably do a poll of independent dealers and even our internal salespeople, but, I think it has gone very well rebranding all of our plants under Cavco. It's created so much more opportunity for us to market kind of more across regions. Then, Ian, it's kind of this progression that, again, I could talk all day about, but this progression we've had of digital marketing to get everything under the same brand. Then we did this product line work this year, which we just kind of unveiled in Q4, which takes all the products that any one of our factories makes, and they can be based on their characteristics, put within one of these product lines.
It's really interesting, in my opinion, what we've done, and I'm excited about it, that we're not telling our plants to make different products. We expect our plants to make products that are good for their local market. Now we're putting an umbrella structure on, and so our marketing team can market on a broader base, a given product line, and we know our customers can then shop the product line that makes most sense for them and find homes in their area that fit within that product line.
The branding has been a critical part of getting to this point. I think the acceptance, one of the things you know you're going to have to manage through when you rebrand like that is, and I'll just use this as a glaring example, the independent dealers that we've had relationships with for decades have been used to selling whatever it is, Fleetwood Homes or Palm Harbor Homes. To them, that's their partnership, and we ask them to shift their mindset to selling Cavco Homes.
It took some conversation, but I think people have gotten it. They've seen the value in it, and I believe that most of those folks, if not the vast majority of those folks, in my opinion, get it now, and they're happy with the change.
Okay, great. On the CountryPlace investor agreement, are these only your homes? Are they only at your retailers? Are they at independent retailers?
Yeah.
Oh, sorry.
Go ahead. No, go ahead. I interrupted you.
The other part was, is the investor ultimately planning to securitize these, or do you know?
Yeah, they are not solely for Cavco-produced homes. CountryPlace, like most lenders, I think, in the business, CountryPlace will lend on various manufacturers. Their relationship is really more with the dealer or the community operator to give another opportunity, another option for the lender or for the source of the loan for their customers. It's not exclusive to Cavco. We do at times, and we've done this particularly within our owned retail, we do at times do special programs focused on Cavco homes, but they'll lend to any manufacturer.
The buyer of these loans is not solely getting loans on Cavco homes. As far as their plans, probably out of my zone to comment and speculate. I mean, the source of some of this money, and we've seen this over time in the lending business, the source is really insurance company money that they're managing. My understanding, my expectation is they're going to portfolio those loans for the most part. I guess you could envision a scenario where a buyer of manufactured homes gets enough that they want to do a securitization. At our pace that we're talking about, $25 million a month or a quarter?
Quarter.
A quarter. You need to get up to, call it, $200 million of a portfolio to have an efficient securitization. It's certainly not a near-term plan that they would be securitized, in my opinion.
Okay.
In my opinion.
Yeah. Last one. What are you expecting for CapEx this fiscal year? I don't think you said how much the new plant would cost. I imagine that'll be a big chunk of the CapEx this year.
Yeah. We're not going to go down into any plant-specific information, including the capital on the project. Your question, and you can correct me if I'm wrong, your question might be around sustaining capital, or do you want to know more broadly our estimate, including projects?
Yeah. I think CapEx was $35 million in this fiscal year.
Maybe.
I'm curious as to.
Maybe the way.
Next year.
Maybe the way for us to handle that, and you guys might have the numbers specifically, is separate sustaining from plant modernization investments.
Yeah, I think the way that we have thought of it before, and you're right around the $35 million. I usually gauge a capital investment when you look at the all-in depreciation rate. Because we're in a growth scenario, we're investing about $10 million in addition to what's being depreciated off every year. That gets to your $35 million number. As Bill mentioned, the amount that we're investing in El Mirage, we're not going to comment on specifically, but clearly, it is right down the fairway of our strategic capital allocation.
We're investing in our plants and in our organic growth. I think the good news here is that we continue to find investment opportunities for our cash that have a pretty strong IRR hurdle.
Yeah. Just to put an exclamation point on that. One of the things we look at in a new investment, including El Mirage, and it's not how we make it, we don't make the decision this simplistically, but we look at the capital spending per capacity unit as just a check. El Mirage is kind of right in the zone where we've done acquisitions and plant modernizations and other projects. It's kind of a nice verification that we're feeling right about the return. I think dividing, and you might have basically said this, I think dividing the $35, it includes both sustaining capital and plant modernization, which we've been doing a good bit of the last several years.
It could.
I'm trying to make sure I understand. I guess your comment is that our depreciation is about our sustaining capital.
Right. Plus some amount for growth, as you would expect in our kind of where we are in our business model.
Okay.
$35 clearly isn't sustaining capital.
Right.
Projects in as well.
Yeah. Okay, great. Thank you very much.
Thanks, Ian.
Thank you. This does conclude the question- and- answer session of today's program. I'd like to hand the program back to Bill Boor for any further remarks.
All right. Thanks, Jonathan. I'll just say a word or two here. As every CEO probably in every earnings call the last couple of years has said, uncertainty still feels like it's pretty high. With our macro backdrop, we need to be focused on reacting quickly to changing conditions rather than locking in on any prediction, and that's kind of how we run the business. Even in the near term, we've got to be ready to turn and go a different direction. I think that nimbleness is where our teams have really excelled over time.
Against that continuing uncertainty, for the moment, it's nice to see orders up and backlogs that allow us to lean in on throughput. We're intent on setting more shipment records in the future. I started off by talking about hitting an all-time high for a fiscal year. Hopefully we'll have many more records in the future in that regard. That means we're making a bigger dent in the country's unmet need for quality, affordable homes. I really want to thank everyone for joining us and for your interest in Cavco, and we'll look forward to keeping you updated.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.