Champion Homes, Inc.

Good morning and welcome to Champion Homes, Inc. first quarter fiscal 2025 earnings call. The company issued its earning press release yesterday after the close. I would 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 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 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 Mark Yost, Champion Homes President and Chief Executive Officer. Please go ahead.

Thank you for joining our earnings call today, and good morning, everyone. I am pleased to be joined by Lori Huff, our EVP and CFO. On this call, I will first go over the key points from our first quarter, then discuss our progress in the second quarter so far, and conclude with thoughts about the balance of the year. I'm pleased to report that the positive momentum we carried from our fourth quarter has not only continued, but strengthened, primarily due to the traction of our strategic initiatives. Our first quarter results reflect good execution across our business, notably in enhancing our customer channels, advancing the integration of regional homes, and realizing the early benefits from our champion financing joint venture. These achievements are closely aligned with our strategic focus, which are increasingly critical in addressing the rising demand for affordable housing amid limited supply. The quarter showcased robust growth, with home sales climbing 33% year-over-year to reach 6,705 units. Additionally, organic sale orders increased 60% year-over-year, underscoring strong market demand. This growth was supported by our strategic acquisition and improving activity in our retail, builder-developer, and community channels. Demand in Canada remains soft as inflation and economic uncertainty is weighing on the consumer sentiment and enthusiasm for new home purchases in that market. Sequentially, our first quarter saw notable increases in revenue of $91 million alongside growth in our backlog of $89 million, bringing our backlog to a total of $405 million as of June 29th, driven by improved demand. Backlog lead times were on average 11 weeks versus 9 weeks at the end of the March quarter. We are steadily increasing our production rates at our plants to address this backlog. The acquisition of regional homes continues to overperform expectations, successfully integrating and targeting to hit the higher end of the $10 to $15 million synergy range by the end of fiscal 2025, well ahead of expectations and schedule. Champion Financing, our collaboration with Triad Financial, has gained significant momentum recently. Over recent quarters, we've launched new floor plan financing options for our independent dealers and consumer financing programs for selected national products and locations. The early outcomes from these initiatives have been very encouraging, bolstering our confidence that we can provide customers with a comprehensive and appealing home buying solution. This success underscores our commitment to enhancing financing accessibility, further propelling our growth in the manufactured housing market. I'm also excited to announce that following our annual shareholder meeting, we have changed our corporate company name to Champion Homes Inc. This marks another milestone in our direct consumer journey and emphasizes our commitment to expanding our market presence and enhancing shareholder value through a cohesive and dynamic brand strategy. We are focused on leveraging the Champion Homes flagship brand as a catalyst for growth and commercial excellence for years ahead. Altogether, these strategic actions, along with the pace of order growth, support our commitment to strengthening our market position and delivering on our promise of providing accessible, comprehensive housing solutions and creating value for our shareholders. As we move into our second fiscal quarter, demand from retailers and builder developers remains solid, reflected in steady ordering patterns that have continued to drive growth. We're also ramping up production in response to these increased orders from community partners. Looking forward, we believe our top-line performance for the second quarter is estimated to be flat or possibly down sequentially due to the impacts of weather events that could delay production and or the timing of shipments. Despite these challenges, we are focused on maintaining our high standards of quality as we scale production. While traditional new home construction has softened with higher inventory levels and reduced orders, we are seeing a rise in demand. This increase is attributed to more affordable pricing and enhanced quality positioning our homes as an attractive choice for many home buyers amid the current economic conditions. Such contrasting trends underline the distinct market dynamics influencing different segments of the housing industry and the favorable outlook for housing at the middle class price point. The integration of these solutions have improved our capture rate of our channel partners and end consumers. The positive feedback at recent events and the early successes of Champion Financing demonstrate the effectiveness of our strategies, sparking considerable market interest and opening new growth avenues within the housing market. I will now pass the discussion over to Lori, who will delve deeper into our quarterly financial performance.

Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the first quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near-term expectations. During the first quarter, net sales increased 35% to $628 million compared to the same quarter last year, with U.S. factory-built housing revenue increasing 40%. The number of homes sold increased 36% to 6,538 homes in the U.S., compared to 4,817 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 $151 million to net sales during the quarter. The average selling price for U.S. homes sold increased by 3% to $91,700 due to a higher mix of retail units sold. On a sequential basis, U.S. factory-built housing revenue increased 18% in the first quarter compared to the fourth quarter of fiscal 2024. We saw sequential growth primarily in the community and retail sales channels. On a sequential basis, the average selling price per home increased 2% primarily reflecting the higher mix of retail units sold during the quarter. Average selling prices exceeded expectations for the quarter as we saw healthy demand across most markets and wholesale price stability. Capacity utilization was 58% compared to 57% in the sequential fourth quarter of fiscal 2024. Current utilization rates primarily reflect the increased capacity brought online through recently opened plants. Canadian revenue during the quarter was $21 million, representing a 24% decline in the number of homes sold, which was partially mitigated by a 5% increase in the average home selling price. The average home selling price in Canada increased to $124,500 due to a shift in product mix. The reduction in sales volume can be attributed to a combination of factors, including higher interest rates and economic uncertainty in key markets that have tempered buyer enthusiasm of new homes. These conditions are anticipated to continue to impact the housing market dynamics in these regions in the near term. Consolidated gross profit increased 27% to $164 million in the first quarter, and our gross margin contracted by 170 basis points from 27.9% in the prior year period. The lower gross margin was primarily due to lower wholesale average selling prices on new homes sold and changes in product mix to homes with fewer or lower cost options. In addition, margins were impacted by the effect of purchase accounting increases to the carrying value of the finished goods inventory that was acquired with the regional homes acquisition, which had a negative 50 basis point impact on consolidated growth margin during the quarter. We expect this purchase accounting impact to continue in the near term as we sell off the remaining finished goods inventory acquired. On a sequential basis, gross margin came in better than anticipated due to the increase in captive retail unit sales, stabilization of average wholesale selling prices, lower input costs, and synergy capture from the regional homes acquisition. SG&A in the first quarter increased $38 million to $109 million. The increase is primarily attributable to the regional homes acquisition In addition, we incurred a charge of approximately $8 million in the first quarter related to the change in fair value of the earn out related to the acquisition. It's important to note that the maximum earn out amount of $25 million remains unchanged. On a sequential basis, SG&A increased due to the acquisition related earn out charge and variable costs related to higher revenue and profitability. Net income for the first quarter decreased 11% to 46 million or 79 cents per diluted share compared to net income of 51 million or earnings of 89 cents per diluted share during the same period last year. The decrease in EPS was driven by lower gross margin and higher SG&A, including the impact of the regional homes acquisition. Adjusted net income per diluted share was $0.91, excluding the fair value adjustment for the regional earn-out accrual and the company's share of ECN's calendar first quarter loss of $1.2 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 22.5% versus an effective tax rate of 25.2% for the year-ago period. The effective tax rate was positively impacted by an increase in recognition of tax credits related to the sale of energy-efficient homes. Adjusted EBITDA for the quarter was $75 million compared to $67 million in the prior year period. Adjusted EBITDA margin was 11.9% compared to 14.4% in the prior year period, which was impacted by lower gross margin and higher SG&A. With demand returning and the stabilization of wholesale product mix, we feel gross margins have returned to more normal levels. Going forward, we expect gross margins will be impacted quarter to quarter by fluctuations in wholesale unit volume sold through our captive retail operations versus independent channels. As of June 29, 2024, we had $549 million of cash and cash equivalents and long-term borrowings of $25 million with no maturities until 2026. We generated $85 million of operating cash flows for the quarter compared to $75 million for the prior year period. The increase in operating cash flows reflects higher adjusted net income and more favorable working capital changes versus the prior year, partially offset by the growth in our independent dealer floor plan receivables. In the quarter, we leveraged our strong cash position and returned capital to our shareholders through $20 million in share repurchases. Additionally, our board approved the replenishment of our $100 million share purchase authority, reflecting confidence in our strong cash generation. I'll now turn the call back to Mark for some closing remarks.