Champion Homes, Inc.

Good morning and welcome to Skyline Champion Corporation's third 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.

Good morning, everyone, and thank you for joining. With me on the call is Lori Huff. EVP, and CFO. Today, I will review our third quarter results, discuss our activities so far in the fourth quarter, and give some color on the outlook for fiscal 2023. In the third quarter, we continue to see rising levels of demand driven by numerous factors, including favorable financing, historically low inventory levels, and a rapidly growing base of customers looking for a better alternative to site-built homes. Our attractive product offerings at affordable price points continue to drive order rates higher as industry-wide supply constraints and COVID disruptions remain a headwind to our production levels. Strong order rates drove backlogs of $136 million during the third quarter to $1.5 billion, or on average, 43 weeks of production at the end of the quarter. We anticipate the supply side challenges to continue at least through the first half of fiscal 2023. We delivered 6,168 homes during the quarter, an improvement of 9% from the prior year. Increased output along with price increases to cover rising material, labor, and freight costs drove revenue to $535 million in the third quarter, up 42% from the prior year. Our frontline teams continue to execute exceptionally well in today's very difficult and unpredictable operating environment. As anticipated, our home sales volume versus the sequential second quarter was slightly lower due to planned holiday shutdowns and higher levels of COVID-related absenteeism. Our capacity utilization during the quarter improved sequentially four percentage points to 68%. We continue to see the benefits of streamlining our product offerings, which allows us to produce more without increasing material usage and is particularly beneficial in this environment of persistent material supply shortages. During the quarter, we also completed the integration of Scott-built operations and are exceeding the anticipated acquisition synergies as we leverage the manufacturing facilities and strategic footprint in the Mid-South region. We remain on track with our other expansion efforts, and I'm proud to report that we are a month ahead of schedule in our production at our Navasota, Texas facility, thanks to our supply partners giving us the material and the incredible team members that have joined us. I'm really impressed with the workforce and the pace at which they are ramping. As we look forward, market conditions are really starting to come together. We have historic lows on the supply side, while demographic, economic, and migratory factors continue to drive demand. The supply side housing shortages, combined with higher interest rates and inflationary pressures, are favorable dynamics to our business model. In these conditions, our advantages only get enhanced. As we have seen in past cycles of rising interest rates, we are better able to convert traditional site-built buyers and gain share. Because of these dynamics, we're even more excited to have one of our Genesis homes in Orlando next week for the International Builder Show. We launched Genesis to help builders during these types of market conditions. The share gains for ourselves and our channel partners will only be heightened by the significant investments we are making on the digital side of our business. These investments will help to eliminate the friction today's consumer experiences throughout their home building journey and will provide us with deep analytics to better serve the customer. Strong backlogs fueled by double-digit order rate growth and minimal cancellations combined with positive market tailwinds and investments drive our focus on increasing capacity and output. We are continuing to streamline our product offerings and have made very good progress on our long-term plan to incorporate manufacturing technology both on the process and automation side. Our technology partners have done an excellent job solving the unique challenges of our building processes, and we will be accelerating investments in technology during fiscal 23. Our supply chain partners have also done an incredible job supporting us during these challenging times. We expect that supply chain challenges will be prevalent throughout the course of this calendar year, as many of our partners have been impacted by COVID outbreaks in the US and overseas. We do anticipate moderate improvement from our supply partners this quarter that will allow us to increase the sequential top line by mid single digits in our fourth quarter. It is also because of our partners and our people The Skyline, again, was named the most trusted brand this year. It is only by all of us working together to take care of the customer that we earn their trust. I will now turn the call over to Lori to discuss our quarterly financials in more detail.

Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the third quarter of fiscal 2022, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near term expectations. Net sales increased by 42% to 535 million in the third quarter of fiscal 2022 versus the same quarter last year. We generated revenue growth of 148 million in the US factory built housing segment, as well as growth in our Canadian factory built housing segment of $11 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 per home. The increase in the number of homes sold was 9% or 489 units for a total of 5,832 homes compared to the same quarter last year. The average selling price per U.S. home sold increased by 32% to $83,000 primarily due to price increases in response to rising material, labor, and freight costs, as well as changes in product mix. The sequential growth in revenue in the U.S. factory-built segment was 2.7% compared to the second quarter. The increase in revenue was driven by a 3.9% increase in average selling price per new home, partially offset by a 1.2% decline in the number of homes sold. The sequential decline in the number of homes sold was due to the planned manufacturing shutdowns to perform routine maintenance as well as planned holidays. We also experienced a higher level of COVID related absenteeism during the month of December, which has continued to disrupt production run rates in January. Canadian revenue increased 40% to $37 million compared to last year. as the number of homes sold increased 6% to 336 units. The average home selling price in Canada of $109,900 increased 33% versus the same quarter last year, driven primarily by pricing actions enacted in response to rising material costs. Consolidated gross profit increased to $157 million, up 119% versus the same quarter quarter last year due to increased sales volume and higher pricing to offset rising material labor and freight costs. Our U.S. housing segment gross margins were 29.6% of segment net sales, up more than a thousand basis points from the third quarter last year due to focused product simplification and material rationalization to improve operating efficiencies and in order to better leverage increased production in manufacturing fixed costs. Gross margins were also positively impacted by price increases in response to rising material and labor costs and the timing of certain price adjustments for raw materials under our buying program. SG&A in the third quarter increased to 66 million from 44 million in the same period last year, primarily due to higher variable compensation the impact of the acquisition of the Scottville operations in February 2021, and our continued investment in the enhanced customer buying experience. We expect further incremental investments in the online customer experience and systems integration through fiscal 2023. Net income for the third quarter was $68 million, or $1.18 per diluted share, compared to net income of 22 million or earnings of 38 cents per diluted share during the same period last year. The increase in EPS was driven by a combination of higher revenue and improved profitability. The company's effective tax rate for the quarter was 25.6%, an increase from last year due to recognition of a tax benefit related to a U.S. R&D tax credit in the prior year third quarter. Adjusted EBITDA for the quarter was $97 million, an increase of over 200% versus the same period a year ago. The adjusted EBITDA margin expanded by 960 basis points to 18.1% due to higher sales, gross margin improvement, and an increase in fixed cost leverage. Looking forward, we expect inflation on building products and labor costs to remain persistent through the first half of fiscal 2023 due primarily to the widespread supply chain challenges on top of elevated levels of demand. We utilize several levers 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 continues to be impacted by the availability and timeliness of raw materials due to supply chain challenges, including the volatility and magnitude of the cost changes of raw materials. During our fiscal fourth quarter, we expect to see some compression in gross margin versus the sequential third quarter, due to the recent volatility in forest product inflation. In the third quarter, we benefited from our lumber spot buying program and the temporary dip in forest product pricing that will increase in the March quarter, given the recent increases in lumber costs. As of January 1st, 2022, we had $382 million of cash and cash equivalents and generated $76 million of operating cash flows during the quarter. We remain focused on executing on our operational initiatives to enhance our production capabilities, resulting in higher output levels. Our favorable liquidity position allows us the ability to continuously reinvest in the business and to support strategic growth. I'll now turn the call back to Mark for some closing remarks.