Champion Homes, Inc.

quarter and full year fiscal 2024 earnings conference call. The company issued its earnings press release yesterday after the close. I'd like to remind everyone that today'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 risk 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 financial measures which it believes can be useful in evaluating its performance. A definition and reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to your host, Mr. Mark Yost, Skyline Champions President and Chief Executive Officer. Please go ahead.

Thank you for joining our earnings call and good morning all. I am pleased to have Lori Huff, our EVP and CFO with me today. On this call, I will briefly cover the highlights from the full year and the fourth quarter. I will also update you on our progress in the first quarter of fiscal 2025 and share some insights on our expectations for the remainder of the year. In fiscal 2024, Skyline Champion made significant strides in executing our strategic vision through investments in integrated turnkey solutions for retail, financial services, and home completion. These efforts not only broaden our geographical reach, and enhanced our market approach, but also upgraded our digital lead management systems, improving service to customers, and expanding the market for our products. In line with our investment priorities, we also approved a share repurchase program for up to $100 million of our common stock. This decision reflects our strong balance sheet, robust cash generation while returning excess capital to shareholders, after investing in strategic and growth priorities. For the year, we were able to provide 21,845 customers and families with a place to call home and reported over $2 billion in top-line revenue. The year-over-year decrease in unit volume was driven by the community and government channels as builder-developer and retail unit volumes grew year-over-year. based upon the strength of demand for affordable housing. From a market perspective, consumer demand remains healthy in the face of housing shortages and a growing base of potential homeowners. The challenges posed by higher interest rates further highlight the need for accessible housing options. Our strategic efforts to enhance the home buying experience has significantly increased the visibility of our solutions in this competitive economic environment. Demand this quarter was reinforced by a 16% sequential increase in orders and a 118% organic rise in year-over-year, reflecting sustained demand for affordable housing and the growth in emerging channels like builder-developer sector, which was our fastest growing segment. Despite these gains, the quarter presented challenges, including adverse weather conditions and longer cycle times for our regional acquisition, which temporarily reduced net sales and led to higher levels of finished good inventory. Our U.S. home sales in the quarter increased year-over-year by 15% to 5,652 units. This growth was supported by our strategic acquisition and enhanced manufacturing capabilities. though our process was tempered by inclement weather, which disrupted the shipping and setting of our homes. Additionally, weaker demand in Canada contributed to sales figures that did not meet our expectations. Nonetheless, the positive trends in organic net order volume growth at our manufacturing plants are driving the future outlook. During the fourth quarter, we recorded $34.5 million reserve for estimated remediation costs related to a water intrusion issue. This issue was isolated, involving materials that did not perform in accordance with the manufacturer's contractual obligations and was limited to homes constructed at one of our manufacturing facilities. We discontinued the use of this material in our production process in March of 2021. We are actively seeking recoveries from various parties, including the supplier their insurance provider, and our own insurance provider. Laurie will elaborate on this shortly. Our gross profit margin adjusted for the water intrusion remediation costs indicate sustainable profitability as we continue to navigate shifts in product mix driven by consumer affordability. As operations at our new plants ramp up, we expect some margin impact but the increased volumes should help us maintain our backlog lead times within the usual four to 12 week range. Our year end backlog stood at 316 million, marking a 9% sequential increase with current lead times averaging nine weeks. The integration of our recent investments is a top priority. We are focusing on capturing synergies and aligning cultures and systems capabilities. We have made significant progress in achieving operational and purchasing efficiencies at the regional manufacturing facilities and are on track to achieve the upper end of our original synergy target of 10 to 15 million by the end of fiscal 2025 ahead of schedule. This quarter, we also expanded our financial services through our partnership with Triad introducing new programs that include floor plan financing for our independent dealers and consumer financing for selected national products. Although these initiatives are in the early stages, they have been well received in the market and show great potential in attracting new home customers and meeting the comprehensive needs of home buyers. These strategic actions, supported by our order growth, affirm our commitment to strengthening our market position and delivering on our promise of accessible, comprehensive housing solutions. Moving into our first fiscal quarter, we are seeing healthy demand from both retailers and builder developers. Their consistent ordering patterns are key drivers of our growth. Additionally, with a year-over-year increase in orders from our community partners, we are starting to ramp production in our manufacturing facilities. Looking ahead, we anticipate low double-digit sequential revenue growth. This will be driven by the order growth we have seen, partially tempered by a growing backlog, and as we balance between increasing production while maintaining our high standards of quality. On the macroeconomic front, job and wage growth remain strong, especially in critical sectors like healthcare, manufacturing, and retail, which are foundational to our customer base. Given recent inflationary pressures and robust employment data, we anticipate the Federal Reserve will maintain higher interest rates for an extended period. These dynamics support the stability of future demand for our products. Higher income levels coupled with sustained high interest rates and a shortage of affordable housing align well with our pricing and product offerings. As we continue to integrate our acquisitions and enhance our integrated turnkey solutions across retail, financial services, and home completion, we are not only broadening our geographical reach, but also reinvesting and reinventing our approach to the market. A pivotal aspect of this progress is strengthening our digital lead management system. This enhanced platform is now more robust better introducing our customers to our products and expanding our total market presence. The successful integration of these turnkey solutions has increased our capture rate of both channel partners and end consumers. The positive reception at recent industry events coupled with the launch and early capture rates of Champion Financing highlights the effectiveness of our strategies. These achievements have ignited considerable market interest, opened new paths for growth, and further expanded our opportunities in the housing market. I will now hand the call over to Lori, who will provide more detail and insights into our quarterly financial performance.

Thanks, Mark, and good morning, everyone. I'll 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 9% to $536 million compared to the same quarter last year, with U.S. factory-built housing revenue increasing 12%. The number of homes sold increased 15% to 5,652 homes in the U.S., compared to 4,900 homes in the prior year period. U.S. home volume during the quarter was supported by additional retail and manufacturing capacity resulting from the regional homes acquisition that contributed approximately $108 million to net sales during the quarter, as well as the opening of our Bartow, Florida and Decatur, Indiana facilities earlier this year. The average selling price per U.S. home sold decreased by 3% to $89,800, due to changes in product mix and reduced material surcharges compared to the prior year. On a sequential basis, U.S. factory-built housing revenue decreased 3% in the fourth quarter compared to the third quarter of fiscal 2024. Interest rates continue to have an impact on our core product ASPs as consumers are focused on maintaining affordable monthly payments. On a sequential basis, the average selling price per home decreased 3%, and going forward, we expect revenue and ASPs to continue to be impacted by a mix of lower option homes. Capacity utilization was 57%, which was flat compared to the sequential third quarter of fiscal 2024. Current utilization rates primarily reflect the increased capacity brought online through acquisitions and newly opened plants. Canadian revenue during the quarter was $23 million, representing a 23% decline in the number of homes sold, which was partially mitigated by a 4% increase in the average home selling price. The average home selling price in Canada increased to $121,200 due to a shift in product mix. The reduction in sales volume can be attributed to a combination of factors, including higher interest rates that have tempered buyer enthusiasm. In addition, economic uncertainties driven by the current drought in the prairies and western Canada are causing rural homebuyers to delay their purchases. These conditions are anticipated to continue to impact the housing market dynamics in these regions in the near term. Consolidated gross profit decreased 30% to $98 million in the fourth quarter, and our gross margin contracted by 1,040 basis points from 28.7% in the prior year period. The change in gross profit and gross margin reflects the impact of the estimated liability of $34.5 million recorded in the fourth quarter of fiscal 2024 related to the remediation costs for water intrusion issues in homes produced at one of our plants from 2016 to early 2021. We've developed a remediation plan that calls for inspection and repair or mitigation of affected homes. We estimated the charges by establishing a range of total expected costs using an actuarial analysis. The analysis resulted in a range of losses between $34.5 million and $85 million. We were not able to determine a value in the range that was more likely than any other value, and as prescribed by accounting guidance, recorded the charge based on the low end of the range. We will monitor the results of the inspection and repair activities and may revise the amounts of the estimated liability, which could result in an increase or decrease in the estimated liability in future periods. As Mark mentioned, we're pursuing recoveries from the manufacturer, the distributor, and the related insurance companies, but cannot estimate or record those potential recoveries in this period. Adjusted gross profit decreased by 6% to $133 million, an adjusted gross margin with 24.8% of net sales, a 390 basis point contraction compared to the prior year period. The contraction in adjusted gross margin was primarily due to lower average selling prices in the U.S. and the shift in product mix to less optioned homes, as well as the ramping of our previously idle facilities and the impact of the regional homes acquisition. Regional homes' core product gross margins are generally lower than the legacy Skyline Champion margins. In addition, consolidated margins were impacted by the effect of purchase accounting increases to the carrying value of regional finished goods inventory, which had a negative 80 basis point impact on consolidated gross margins during the quarter. We expect this purchase accounting impact to continue in the near term as we sell off the finished goods inventory acquired. SG&A in the fourth quarter increased $18 million to $91 million, primarily due to the regional homes acquisition, partially offset by lower variable compensation at existing operations. Net income for the fourth quarter decreased 95% to $3 million, or 5 cents per diluted share, compared to net income of $58 million, or earnings of $1 per share, during the same period last year. The decrease in EPS was driven by the decline in sales and gross profit, including the impact of the estimated remediation costs for the water intrusion issue. Adjusted net income per diluted share was $0.62, excluding the estimated remediation costs for the water intrusion liability. and the company's share of ECN's calendar fourth quarter loss of $7 million. As a reminder, we record the impact of our equity investment in ECN's common shares on a one-quarter lag. The company's effective tax rate for the quarter was 19.2% versus an effective tax rate of 24.5% for the year-ago period. The decrease in the effective tax rate is primarily due to equity compensation and tax credits. Adjusted EBITDA for the quarter was $53 million compared to $76 million in the prior year period. Adjusted EBITDA margin was 9.9% compared to 15.5% in the prior year period, which was impacted by lower gross margins and higher SG&A. As we've noted in previous quarters, we expect a continued decline in our gross margin in the near term. This trend is influenced by homebuyers increasingly selecting homes with fewer options, driven by inflationary pressures and persistently high interest rates. Additionally, the ramp up of our new plant operations and the sale of finished goods inventory from the acquisition of regional homes retail sale centers contribute to this outlook. Collectively, these dynamics are likely to push our gross margins down in the short term 100 to 150 basis points versus the sequential fourth quarter. Despite these headwinds, we remain confident in reaching our long-term structural margin targets, bolstered by ongoing enhancements in our operational capabilities and strategic investments in the business. As of March 30, 2024, we had nearly $500 million of cash and cash equivalents and long-term borrowings of $25 million with no maturities until 2026. We generated $4 million of operating cash flows for the quarter compared to $52 million for the prior year period. Operating cash flows were adversely impacted by the growth in our captive retail inventory balances and growth in our independent dealer floor plan receivables. On May 16, 2024, our Board of Directors approved a share repurchase program for up to $100 million of our common stock. The share repurchase program may be amended, suspended, or terminated by the Board of Directors at any time. We plan to fund the program from existing cash on hand in future cash generation. This program represents a logical evolution of our capital allocation strategy as our strong balance sheet and cash generation allows us to maintain a balanced approach to returning capital to shareholders, reinvestment, and growth initiatives. I'll now turn the call back to Mark for some closing remarks.