Good day, ladies and gentlemen, and welcome to the Cavco Industries, Inc. First Quarter Fiscal Year 2016 Earnings Call Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Joseph Stegmayer, President. Sir, you may begin.

Thank you, Vince, and welcome, everyone. I am actually in Indiana at our newly acquired Fairmont Homes operation today. Dan Urness joins me from Phoenix, our Chief Financial Officer. And I'll let Dan begin. He'll give a report on the numbers. And I'll make a few comments and we'll take your questions. Dan?

Mr. Urness, you're in the main conference.

Thank you, Vince.

Okay. Go ahead, Dan.

Good day, everyone. Before we begin, we respectfully remind you that certain statements made on this call, either our remarks or on our responses to questions, may not be historical in nature and, therefore, are considered forward-looking. All statements and comments today are made within the context of Safe Harbor rules. All forward-looking statements are subject to risks and uncertainties, many of which are beyond our control. Our actual results or performance may differ materially from anticipated results or performance. Cavco disclaims any obligation to update or revise any forward-looking statements made on this call, and investors should not place any reliance on them. More complete information on this subject is included as part of our earnings release filed yesterday and is available on our website and from other sources. For our financial report, during this first quarter of fiscal year 2016, Cavco successfully completed the purchases of 2 factory-built housing companies, Chariot Eagle and Fairmont Homes. Since these acquisitions occurred during the quarter, our Q1 '16 financial statements are inclusive of the assets purchased, liabilities assumed and the results of operations since the respective purchase dates. Chariot Eagle was purchased on the first day of the quarter and Fairmont Homes was purchased in the second month of the quarter. For the first quarter of fiscal 2016, net revenue was $161.7 million, up approximately 16.2% compared to $139.2 million during the first quarter of fiscal year 2015. The increase was mainly from home sales activity of the newly acquired operations and higher sales volume from core or existing operations during the quarter. Consolidated gross profit in the first fiscal quarter as a percentage of net revenue was 19.7%, down from 22.8% in last year's first fiscal quarter. The decline was largely from our manufactured home insurance subsidiary's high claims volume…

Okay. Thank you, Dan. I would add to Dan's comments that, obviously, we're disappointed, but nothing we could do about the weather in Texas. The National Oceanic and Atmospheric Administration reported that in Texas alone had its wettest second quarter in the first 6 months of the year for the 121 years it's been recording data. So a tremendous catastrophic event for Texas and we have a large amount of insurance within that state, and it did have the impact it did. But I would point out and reiterate again what Dan touched on is that this business, since acquisition, has been a good performer for us. This is kind of a onetime event. It happens in the insurance business. We do carry reinsurance. We could carry more reinsurance, obviously, and we look at that from time to time to reduce our risk but, obviously, that would come at some cost and also reduce our ongoing profitability in that subsidiary. So it's a balance that we look at regularly and we'll continue to look at it. We will apply for rate increases, as I'm sure most insurance companies will do in that state having taken these losses. And if they're approved, that would obviously help us in ensuing years. But again I emphasize, a onetime event. This is a good business. We intend to stay in it and return to more robust performance in the periods ahead. We will -- we do expect this operation to be profitable for the full year despite the fact that it had this disappointing first quarter. With respect to our business overall, we're quite pleased with the way things are going. The acquisitions -- as I mentioned, I'm here at Fairmont in Indiana, the transition is going smoothly. We have a fair amount of…

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

Joe, clearly, the incremental claims had an impact on margin and financial services. But the overall dollar impact was -- based on your tone, I would have thought it would have been much greater. It was still profitable in the quarter. Can you tell us what was the magnitude of the insurance claims in the quarter as compared to maybe fiscal Q1 last year? And do you expect any residual impact on margins as we look out to Q2 and beyond?

Well, it was significant. And of course, the reason that the financial services line of business is -- still shows profitability is that our mortgage company's doing quite well. We combined both the mortgage company and the insurance company in the financial services segment. However, our insurance company did perform quite poorly, I guess the best way to describe it in the first quarter based on these claims. It was fortunately -- the mortgage company somewhat camouflages that. We don't intend to break the 2 out. We don't intend to start doing that now. We've set a precedent in the way we recorded and reported this in the past. All I can tell you I think, Dan, is that the insurance losses were significant, somewhat mitigated by reinsurance but they were very significant. Again, I mentioned it's a onetime event. We don't obviously expect this and it hasn't happened in the past several years. We haven't had one of these. We've had certainly claims and seasonal peaks in claims but nothing like this, so we certainly don't expect a repetition of that event. But it had a significant impact on financial services for the quarter and it -- I guess don't be -- unfortunately, don't be too fooled by the mask of the -- of our [indiscernible] mortgage performance. We would've done significantly better had we been -- had we performed to our forecast for our insurance company for this quarter. The numbers would've been significantly better on a consolidated basis.

Got it. So when you say you expect to remain profitable, that's specifically in the Insurance side. You're not talking about Financial Services, which remained -- as a whole? That was -- that already remained profitable in the quarter?

That's correct. What we're saying is we expect the Insurance business as a whole for the full year to record a profit, so ensuing quarters should be profitable, is our expectation.

Perfect. Okay. And then switching gears, the -- would you be willing to disclose the revenue contribution from Fairmont and Chariot in the quarter and/or how many homes were sold on a combined basis from those 2 new properties?

Dan, do you want to comment on that?

Sure. Yes, we clearly saw an increase this quarter, both in revenue and in units shipped from the acquisitions. We don't intend to break it out as you asked, Dan. These transactions were both asset purchases that were underneath the thresholds required for the financial reporting requirements. And so we've elected not to break that information out and disclose any of the particulars related to those transactions because the elements, really, just fold into our existing operations on a go-forward basis.

Okay. Can't blame me for trying.

It's more, [ph] Dan, and thanks for trying. But as we've mentioned on the last call, from a competitor's standpoint, we're one of the few public companies in this entire industry. And so everybody sees our data. We never see our competitors' data. So to the extent we're able to within the confines of reporting requirements, we choose to be somewhat more discrete when we can be.

No problem at all. The -- just switching gears, obviously, the weather in Texas impacted insurance claims. Talk about to what extent it may have impacted your homes shipped as well. It's obviously a large market for you on the MH side of the business.

Well, that's a good point. We certainly did have a delay in shipments, both in our retail -- our company-owned retail stores and, obviously, independent dealers had the same challenge. So with the rain, not only does the period of -- the rainy period itself, when it is raining impact, but then the flooding that took place in Texas created a fairly significant delay. Even after the rain stopped, the land was so wet that you couldn't do the groundwork you needed to do to build foundations for homes and then deliver the homes, set them on sites. So it took a while for that flooding to subside and the ground to be able to be prepared for installation of homes. So while we will quantify that it was an impact in the quarter, we should make up for most of that delay. It is a delay, not a loss in sales typically. We should make up for that in the second quarter. So there was an impact. I won't say that it was material to our whole consolidated results, but it certainly had an impact on our home shipments and sales for the quarter.

Okay. And maybe one more. Maybe just talk about any mix shifts you're seeing to lower entry-level -- or not entry-level, but lower price point homes and what impact, if any, you're seeing on gross margins. And to the extent that we continue to see a mix shift down, can you sustain the margins you've been generating?

Yes, that's a moving target, really. We are seeing -- we're still continuing to see an emphasis on entry-level homes and lower price point homes. Particularly in areas where community operators are leasing the homes or even when they're selling them, they're finding, obviously, the buyers can get financed on a lower price point, people coming out of apartments and so forth. Having said that, however, we are seeing in some areas an improvement in price points. So it is a -- there's a mix going on in states like Florida, even Arizona. Particularly in these states where they're destination states for snowbirds and for retirees, we're seeing some of those buyers buy a more -- not necessarily a larger home, but a more amenitized home, a higher price point home, so it's a combination. I think by and large, we would say that the mix is decidedly towards more entry-level, but I think we'll see a gradual improvement in somewhat higher price point homes as the economy shows signs of improvement and consumer confidence enables people to think about buying either larger or a more fully amenitized home. So it's -- I think we're going to see some fluctuations in that quarter-to-quarter, but I wouldn't read too much into it. I think we're gradually going to see some improvement in average selling price over time, assuming the economy continues to strengthen.

Okay. And I promise -- Dan, any color you'd like to give on the impact of purchase accounting on your margins as well in the quarter?

Sure. We actually did have some purchase accounting adjustments that are related to these acquisitions that impacted our quarter at the gross profit level. And I would just note that under the purchase accounting requirements, the company isn't permitted to record profit on finished goods and with the inventories that are procured as part of the acquisition. So as these homes sold during the quarter, the gross profit, as a percentage of net revenue, was adversely impacted. Really, that was mostly isolated to this quarter. We might have a small amount of this still to occur in the second quarter but not much left. Overall, it's an element that reduces our goodwill somewhat as -- since we can't record profit on this. It helps to mitigate the goodwill levels in the transaction.

Congrats on the acquisition, and look forward to seeing the operational improvements over the coming quarters and years.

Thank you, Dan.

[Operator Instructions] At this time -- I do see a question from Chip Rewey of Third Avenue. It looks like he's no longer connected, sir. There's no other questions in queue at this time.

Okay. Well, thank you very much, folks, for joining the call and we look forward to talking to you during the quarter. As always, any follow-ups can be directed to us, and we wish you a great day. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.