Champion Homes, Inc.

Good morning and welcome to Skyline Champion Corporation's first quarter fiscal year 2022 earnings call. The company issued an earnings press release yesterday after the close. I would like to remind everyone that yesterday's press release and statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Additionally, during today's call, the company will discuss non-GAAP measures which it believes can be useful in evaluating its performance. A reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to Mark Yost, Skyline Champions President and Chief Executive Officer. Please go ahead.

Thank you for joining our earnings call, and good morning, everyone. With me on the call is Lori Huff, EVP and CFO. Today, I'll start off with some highlights from our first quarter, then provide an update on the activity so far in our second quarter, and wrap up with some thoughts on the balance of the year. In the first quarter, we saw an acceleration of the favorable trends we highlighted on our year-end call. We are experiencing robust demand for affordable housing and are generating improved output levels as our strategic initiatives continue to drive production efficiencies. Demand is being driven by numerous factors, including favorable financing, historically low levels of inventory, and rapidly growing base of customers looking to become first-time homeowners. Our affordable price point during these inflationary times contributed to strong order demand that resulted in backlogs growing by more than $341 million during the first quarter to $1.2 billion despite sequential unit production growth. As a result of the solid production increases, we delivered 6,757 homes, an improvement of 60% from the prior year and up 7% sequentially. When adjusting for the extra week of production in the fourth quarter of fiscal 2021 and for the Scott-built transaction, sequential organic unit growth was 13%. Excluding Scott-built, our U.S. manufacturing facilities continue to operate at capacity utilization levels near 80% for the quarter. Utilization improved about 2% from the prior quarter's rates. We achieved this despite facing ongoing operational challenges caused by supply chain disruptions across our manufacturing operations and the industry as a result of reduced raw material availability. Our improved production efficiencies allowed us to increase daily production rates over the levels achieved in this sequential fourth quarter, due in part to the progress made on streamlining product offerings. Labor availability has improved somewhat over the last quarter, benefiting our production levels, but is becoming more challenging as we experience the peak vacation months and prior to the governmental unemployment assistance subsiding. In Western Canada, we generated healthy results from our plants, with home sales volume doubling from the prior year. Volumes did decline on a sequential basis due to the product mix and extra week of production in the sequential fourth quarter. In June, we completed the purchase of a two-plant campus of a previously idled manufacturing facility in Navasota, Texas. It is our expectation to have one of the plants operational by the end of this fiscal year. The addition of this facility will further strengthen our production capabilities in one of the most significant manufactured housing states in the country. As mentioned on the previous call, with the recently acquired facilities and our product streamlining efforts to date, we are resetting our total capacity levels. Incorporating the additional production capabilities, considering all of our idle facilities, our production capacity is now restated at 66%, providing flexibility as we continue to grow our volumes. We continue to expect that demand for affordable housing will be strong through the remainder of the second quarter and then stay elevated but moderate to more normal levels, consistent with our outlook on last quarter's earnings call. Raw material availability and supply chain challenges across the industry are expected to continue in the near term and will govern production levels in the upcoming quarters as demand outpaces supply. While we anticipate the challenges of supply chain, and regional labor to cause sequential declines in our second and third quarters, we expect that these challenges will subside by our fourth fiscal quarter. As we navigate through short-term supply-side challenges during fiscal 22, we remain focused on our long-term growth opportunities. With entry-level housing supply hitting a five-decade low and millennial household formations increasing, we continue to gain confidence into our move into digital and turnkey offerings. Inflationary and interest rate pressures will only hasten the transition away from site-built housing to more modern production practices. Therefore, we are focused at expanding our capacity and investing in automation to enhance our processes, ultimately boosting the supply to our channel partners and our customers who are seeking a more attainable home. I'm excited that we recently added Roland Manassa, our VP of Manufacturing Technology. His experience at developing and deploying automation solutions with General Motors, General Electric, and most recently with Amazon, will help us accelerate our solutions. The growth in orders during the past few quarters has been driven by demand for affordable housing solutions and our ability to enhance the customer's buying experience through our digital efforts. In fiscal 22, we plan to accelerate our investments into platforms to drive continued growth. Today's consumers reward brands that they can trust and that deliver a simple and seamless experience digitally and at retail. Our recent investments in our platform and our team have resulted in early success and it is our expectation that we will see continued success with the consumer as the leading and the most innovative manufactured home builder. I will now turn the call over to Lori to discuss our quarterly financials in more detail.

Thanks, Mark, and good morning, everyone. I will begin by reviewing our financial results for the fiscal first quarter of 2022, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our expectations for the second quarter, as well as the longer term outlook. Before reviewing our numbers, I would like to remind everyone that our results in the year ago quarter were negatively impacted by COVID-related government restrictions, causing some of our plants to be shut down and other disruptions throughout the value chain. Net sales increased by 87% to $510 million in the first quarter of fiscal 2022 versus the same quarter last year. We generated revenue growth of $208 million in the U.S. factory-built housing segment, as well as growth in our Canadian factory-built housing segment of $23 million. The increase in U.S. factory-built revenue was driven by an increase in the number of homes sold and an increase in average selling price. The increase in the number of homes sold was 58%, or 2,344 units, for a total of 6,372 homes compared to the same quarter last year. The average selling price per U.S. home sold increased by 16% to $71,800 due to product mix and price increases in response to rising material costs. We are pleased with the sequential growth in revenue in the U.S. factory-built segment, which increased 15% in the first quarter compared to the fourth quarter of fiscal 2021. This increase was driven by an 8% increase in homes sold and a 7% increase in average selling price. When adjusting the fourth quarter to a normalized 13-week fiscal quarter and adjusting for the Scott-built transaction, organic revenue grew by 20%, with U.S. factory-built homes sold increasing 13%. Canadian revenue increased 149% to $38 million compared to last year, driven primarily by a 100% increase in the number of homes sold to 385 units. The average home selling price in Canada of $98,300 increased 24% versus the same quarter last year, driven primarily by pricing actions enacted in response to rising material costs. Consolidated gross profit increased to $112 million, up 107% versus the prior year quarter due to increased sales volume and higher pricing. Our U.S. housing segment gross margins were 21.7% of segment net sales up 220 basis points from the first quarter last year due to improved operating leverage and efficiencies more than offsetting the deterioration in margin from material price increases. SG&A in the first quarter increased to $54 million from $40.8 million in the same period last year, primarily due to higher variable compensation and travel expenses, as well as our continued investment in the company's online customer experience and other platform enhancements. We expect these investments to continue to accelerate throughout the remainder of this fiscal year and into fiscal 2023. Net income for the first quarter was $42.9 million, or 75 cents per diluted share, compared to net income of 11.9 million or earnings of 21 cents per diluted share during the same period last year. The increase in EPS was driven by a combination of higher revenue and gross profit. The company's effective tax rate for the quarter was 24.6% versus an effective tax rate of 27.7% for the year-ago quarter. The company's effective tax rate decreased primarily as a result of greater pre-tax income while non-deductible items remained constant. The proportion of U.S. versus Canadian income and a one-time benefit for vested equity compensation. Adjusted EBITDA for the quarter was $62.7 million, an increase of 178% over the same period a year ago. The adjusted EBITDA margin expanded by 410 basis points to 12.3% due to higher sales growth, gross margin improvement, and leverage of fixed costs. The prior year's EBITDA included 4.2 million of wage subsidies provided by government-sponsored financial assistance programs that were enacted in response to the pandemic and did not reoccur in fiscal 2022. While we've seen the prices for certain forest products decline during the first quarter, inflation on other building products remains persistent and is expected to continue for the remainder of the year due primarily to the widespread supply chain challenges combined with high levels of demand. We expect that labor will be challenging in the near term, impacted by government incentives and the peak vacation months. As a reminder, there are several levers we utilize in response to increasing material and labor costs, including price adjustments, product standardization, raw material substitutions, and further operational improvements. Despite our efforts to continue to pass on inflation and make operational improvements, our production may be impacted by the availability of raw materials due to supply chain challenges, the availability of qualified labor, and the homebuyer's ability to qualify for financing at the higher inflationary rates. As of July 3rd, 2021, we had $288 million of cash and cash equivalents and long-term borrowings of $39 million with no maturities until June 2023. we generated $32 million of operating cash flow during the quarter in line with the prior year quarter. On July 7, 2021, subsequent to the end of our fiscal quarter, Skyline Champion entered into a $200 million revolving credit facility, replacing our existing $100 million facility. As a part of the refinancing, we paid off our outstanding revolver balance, totaling $26.9 million, using the company's cash on hand. The new credit facility expands the company's available liquidity for strategic initiatives and opportunistic acquisitions. We remain focused on executing on our growth and operational initiatives and, given our favorable liquidity position, plan to utilize our cash to reinvest in the business and to support strategic growth. I'll now turn the call back to Mark for some closing remarks.