Champion Homes, Inc.

Good morning and welcome to Skyline Champion Corporation fourth quarter and full year fiscal 2022 earnings call. The company issued an earnings press release yesterday after close. I would like to remind everyone that yesterday's press release and statements made during this call include forward-looking statements within the meetings 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 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 could be found in the earnings release. I would now like to turn the call over to Marcio Skyline, Champions President and Chief Executive Officer. Please go ahead.

Thank you for joining our earnings call, and good morning, everyone. Joining me on the call is Lori Huff, EVP and CFO. Today, I will briefly talk about our full year and fourth quarter highlights, then provide an update on activities so far in our first quarter of fiscal 2023, and wrap up with thoughts about the balance of the year. I'm pleased with the results Skyline Champion achieved in fiscal 22 as we continued to make progress delivering top line growth and expanding our profitability while improving our capacity and capabilities to better serve our customers. For the year, we were able to provide 26,165 customers and families a place to call home as we grew net sales by 55% and adjusted EBITDA by 163%, expanding margins by 650 basis points. Our results were driven by the rising demand for affordable housing and our ability to increase output at higher profitability levels despite ongoing supply chain headwinds and inflationary pressures. From an industry standpoint, demand remains strong as supply side housing shortages, a growing base of home buyers, and higher interest rates and inflationary pressures are converging, greatly raising the need for affordable housing solutions. The current environment has increased the awareness of our housing solutions, and our investments in enhancing the buyer experience has allowed us to convert more traditional site buyers and expand our market share. We ended the year on a strong note with an excellent fourth quarter, results driven by the demand for new housing and our improved operational capabilities. Our affordable price point during these inflationary times continue to generate healthy order demand with backlogs growing by $127 million during the fourth quarter to reach $1.6 billion. Fortunately, we were able to increase production during the quarter, allowing us to improve our delivery times to our customers to 35 weeks at the end of the quarter compared to 43 weeks at the end of the third quarter. As a result of the solid production increases, we delivered 6,980 homes, an improvement of 10% from the prior year and up 13% sequentially. We improved our U.S. manufacturing facilities utilization to 72% for the quarter, an increase of four percentage points from the third quarter, achieving these production gains despite facing operational challenges caused by supply chain disruptions across our manufacturing operations and the industry. Our improved production efficiencies were helped by the continued progress streamlining our product offerings and allowed us to increase daily production rates. While we were able to add to our workforce, transportation cost availability remains a challenge to output with truck driver shortages across all regions of the country. Additionally, our Navasota Texas plant completed its certification process in March and began shipping homes in April. We have built an incredible team that continues to impress by their pace and dedication in ramping that facility. In February, we exhibited one of our Genesis homes at the International Builder Show in Orlando, and again at the MHI Congress and Expo in March. This home design helps builders achieve a tremendous value to home buyers for far less than traditional site-built homes stretching the home buyer's dollar in a rising interest rate environment. To that end, we recently signed a multi-year agreement with a top 100 builder to provide our Genesis homes for their developments so that they are able to profitably hit an affordable price point. During the quarter, we also entered into a delivery disaster relief order for the production and delivery of FEMA units. The order totals approximately $200 million and will be produced in the first and second quarters of fiscal 2023. FEMA units generally have more specifications than our typical homes and therefore drive a higher average selling price. We will be producing these units in batches at several of our factories across the US, which will help with production efficiency, as well as minimize the impact to our long-term primary customers. We are also excited to announce that on May 16th, we closed on the asset purchase of Manus Custom Home Builders. With the addition of the 250,000 square foot campus in Laurenburg, North Carolina, and its retail location in Eastern North Carolina, along with our existing North Carolina campuses, we are now better able to serve customers throughout the region with cost-effective, streamlined product offerings that are greatly needed in this current economic environment. We anticipate continuing to build out the approximately $15 million of existing backlog as we upgrade and retool portions of the plant. As we look forward, market conditions remain healthy with historically low availability of affordable housing supply, favorable demographics, and also migratory factors. With rising interest rates and inflation, we are seeing traditional site-built homebuyers moving into our more value-oriented factory-built home solutions. Additionally, we see demand from communities and build for rent increasing as retail traffic tempers. Our orders in April and so far in May have kept pace with our increased production levels and cancellations due to rising interest rates or price increases have been minimal in most regions and slightly elevated in a few regions. With the addition of our Navasota Texas plant, our recent acquisition of Manus Homes and our continued efforts to streamline production at our existing facilities and FEMA production, we expect revenue to increase sequentially by mid single digits in the first quarter of fiscal 2023. Despite our efforts of our team and our supply chain partners, we do expect availability of some raw material to become more scarce in the mid to late summertime period. We are planning for this and will continue to manage through these challenges. but it may impact our production during fiscal 2023. This along with the availability of drivers to transport our homes are some of the challenges we will face when increasing production. We are excited once again to be promoting factory-built affordable housing solutions during the Innovative Housing Showcase in Washington, D.C. in early June. This event is hosted by the U.S. Department of Housing and Urban Development and will showcase the value of factory-built homes to policymakers, the media, and homebuyers. Focusing on the longer term, it's becoming more evident every day that the antiquated system of traditional home building is not sufficient to meet the needs of customers. Due to the early successes we have seen both in manufacturing technology and digital offerings, we will be ramping up our investments in these areas to make homes more affordable and attainable for our customers. 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 fourth quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near-term expectations. During the fourth quarter, net sales increased by 43% to $638 million compared to the same quarter last year. We saw revenue growth of $180 million in the U.S. factory-built housing segment during the quarter, despite the prior year quarter having an extra fiscal week, which accounted for approximately $31 million of sales. 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 number of homes sold was 11% for 657 units for a total of 6,580 homes compared to the same quarter last year. The average selling price per U.S. home sold increased by 31% to $87,800 due to price increases to offset inflation brought on by rising material, labor, and transportation costs. On a sequential basis, revenue in the U.S. factory built segment increased 19% in the fourth quarter compared to the third quarter of fiscal 2022. This increase was driven by a 13% increase in homes sold and a 6% increase in average selling price per home. Canadian revenue increased 30% to $46 million compared to the fourth quarter of last year, driven primarily by a 36% increase in the average home selling price, partially offset by a 5% decline in the number of homes sold. The higher average home selling price in Canada of $114,700 was driven by price increases enacted in response to inflationary pressures. The decline in the number of homes sold during the quarter was a result of the prior year quarter having an extra fiscal week of production. Consolidated gross profit increased to $191 million in the fourth quarter, up 93% versus the prior year quarter due to higher volumes pricing, and improved operations. Our U.S. housing segment gross margins were 29.6% of segment net sales, up more than 700 basis points from the fourth quarter last year. In addition to strong demand and pricing, continued product standardization and material rationalization helped to increase production, enabling us to leverage fixed costs. SG&A in the fourth quarter increased to $75 million from $52 million in the same period last year, primarily due to higher variable compensation driven by the increase in sales volume and profitability. The increase in SG&A also reflects our investments in additional capacity and initiatives focused on enhancing the customer buying experience. The online customer buying experience remains a key initiative and we expect incremental investments to continue through fiscal 2023. Net income for the fourth quarter was $87 million or $1.51 per diluted share compared to net income of $35 million or earnings of $0.59 per diluted share during the same period last year. The increase in EPS was driven by higher sales and improved operating efficiencies resulting in improved profitability. The company's effective tax rate for the quarter was 24.8% versus an effective tax rate of 24.5% for the year-ago quarter. Adjusted EBITDA for the quarter was $121 million, an increase of 137% over the same period a year ago. The adjusted EBITDA margin expanded by 760 basis points to 19% due to higher sales growth, gross margin improvement, and leverage of fixed costs. Looking forward, we expect inflation on building products, labor, and transportation costs to remain persistent through the first half of fiscal 2023. We utilize several levers in response to increasing 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 and timeliness of raw materials, as well as possible shifts in product mix caused by economic pressures driving homebuyers to smaller, less optioned homes, which will soften margins. While we remain confident in our ability to execute in the current environment, the impact of an elongated inflationary environment does create a natural headwind on our margin progression. As of April 2, 2022, we had $435 million of cash and cash equivalents and long-term borrowings of $12 million with no maturities until 2029. We generated $224 million of operating cash flows for the year, an increase of $71 million year over year. The increase in operating cash flows is primarily due to the increase in net income and customer deposits, which were partially offset by an increase in inventory balances, accounts receivable, and capitalized cloud computing costs. We remain focused on executing on our operational initiatives, and given our favorable liquidity position, plan to utilize our cash to reinvest in the business and to support strategic long-term growth. I'll now turn the call back to Mark for some closing remarks.