Good morning, and welcome to Skyline Champion Corporation's First Quarter Fiscal Year 2020 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 our 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 they believe can be useful in evaluating their performance. A reconciliation of these measures can be found in the earnings release. I'd now like to turn the call over to Mark Yost, Skyline Champion's Chief Executive Officer. Please go ahead.

Thank you for participating in our earnings call to discuss our first quarter results. Joining me today on this call is Laurie Hough, EVP and CFO. I'm excited to be joining you today for my first earnings call as Chief Executive Officer of Skyline Champion, following the retirement of Keith Anderson in June. It is an honor to be leading such a strong organization, and I believe that we have a long runway ahead of us to continue to grow our business and improve our operations while providing our customers with high-quality, innovative, and affordable housing solutions. I'll start off today's call with some highlights from our results, then provide updated commentary on the market, discuss some of the progress we've made with our operational and growth initiatives, and Laurie will deliver some additional detail on the results. Then we will touch on the outlook. As a reminder, the combination of Skyline and Champion closed on June 1, 2018, which was during our first quarter of fiscal 2019. Therefore, the results for the first quarter of fiscal 2020 include 3 full months of operations for the combined company Skyline Champion, while our year-ago comparables include 2 months of legacy Champion and 1 month of the combined Skyline Champion. Let me begin by saying that I am pleased to report very solid results in a quarter where the HUD market was in a period of destocking and the housing market was choppy. During the first quarter, we grew our revenue by 15% year-over-year. We sold 20% more homes in the U.S. at an average selling price of $60,900. We leveraged our top-line growth and delivered a 38% year-over-year increase in gross profit. Adjusted EBITDA for the quarter was $32.1 million, a 41% increase year-over-year. Adjusted EBITDA margin in the quarter was 8.6%, a 150 basis point improvement compared to the 7.1% a year ago. The strong margin improvement was driven by revenue growth, lower material costs, refinement of our product offerings, and operational improvements. Additionally, we continued to realize synergies during the quarter. Turning to the market. We remain positive on the outlook for the manufactured housing industry, as we see the opportunity for continued growth, driven by both demographic and economic factors. We continue to see underlying demand for our homes, driven by a market still characterized by short supply following a decade of limited home production, especially at affordable price points. Factory-built homes offer a compelling value proposition to consumers that are impacted by affordability issues that place many families out of homeownership, coupled with increases in apartment rental rates. Our homes are a solution to the growing need for sustainable and attainable housing. Toward the end of the first quarter, the industry experienced improvements in certain U.S. markets as it moved past short-term weather-related slowdowns and higher-than-normal inventory levels at industry retailers. As we mentioned on last quarter's call, we experienced some demand softening due to retailer inventory destocking in certain markets. We believe that the markets impacted by these conditions have moved past the delivery delays and have stabilized. We remain encouraged about the outlook for the U.S. housing market and the short-term issues that have subsided, and end consumer demand remained and continues to remain healthy. In Canada, orders were down 43% during the quarter. The British Columbia market continued to experience the largest year-over-year decline, and the Alberta region remained weak. In light of the challenging market conditions, our Canadian plants performed well and remained profitable with solid margins due to our efforts to effectively manage production loans and reduce fixed expenses during the slower housing market cycle. Overall, the backlog for the company fell by 31% year-over-year. This was driven by a 60% decline in Canada and a 28% decrease in the U.S. Canadian backlogs are down due to the challenging market conditions mentioned, while U.S. backlogs were impacted by the retail channel inventory destocking. During the quarter, U.S. retailers worked to reduce their inventory by delivering and setting their on-site inventories. At the end of June, our consolidated backlogs were $153 million compared to backlog last June of $222 million. Year-ago backlog was elevated due to the lingering impact of our FEMA production on core product backlog. Although backlog varied significantly by plant, our average U.S. plant backlog stood at 6 weeks of production at the end of the quarter. Sequentially, from the March quarter, Canadian backlogs declined 19% while U.S. backlogs grew 9%. Sequential backlog growth is due to orders starting to rebuild following a slower start to the spring selling season. On the regulatory front, we are encouraged by recent developments. As you may know, during the quarter, Skyline Champion displayed some of our homes on the National Mall, including the new class of homes promoted by the GSEs. The response from the thousands of customers and government officials who toured the homes was overwhelmingly positive. Shortly thereafter, the President signed an executive order, focused on leading regulatory barriers that impede the production of affordable housing. We believe the continued drive from all parts of the government to ultimately provide consumers with increased access to attainable and sustainable homes will help spur demand for manufactured homes. On the financing front, we continue to educate our customers on the benefits of the MH Advantage and Choice home programs that are part of the GSE's duty-to-serve programs. The education process related to these new class of homes is underway, and as expected, will take time. We are very encouraged about the long-term potential of these programs. We have created and are rolling out a separate brand dedicated to this new class of homes, positioned to serve the needs of our retail and builder developer partners. We expect this new class of homes in the GSE channel loan securitization to have a positive impact as we look towards fiscal 2021. Turning to our expansion efforts. Our Leola, Pennsylvania park model facility began production in April and contributed to profitability by the end of the quarter. Our lease of the Louisiana manufacturing facility began production on schedule at the beginning of June. Leesville represents Skyline Champion's 38th facility and incorporates promising new technology for floor and wall build stations. As we've mentioned before, we are initially incorporating this technology into our manufacturing process through a pilot program that we believe will mitigate some of the direct labor risks, while benefiting the bottom line. Through this technology, we are improving the value and quality of our homes for future homebuyers while also improving the safety and work environment for our employees. We have an incubator team that is assessing this technology as part of our longer-term strategy to scale automation enhancements at our other facilities. Our Leesville plant is the only MH facility located in the state of Louisiana and is a prime example of our strategic focus to grow production capacity in markets that are in close proximity to our customers while leveraging technology. These efforts are helping to make homeownership more attainable for a broader reach of families. I will now turn the call over to Laurie to discuss our quarterly financials in more detail.

Thanks, Mark. We're pleased with our performance during the quarter as net sales increased 15% to $372 million compared to $322 million in the year-ago quarter. The net sales increase was mainly driven by the inclusion of the legacy Skyline operations, an increase in the number of homes sold in the U.S., and an increase in average home selling prices. U.S. sales grew by 25% to $332 million. The number of U.S. factory-built homes sold increased by 20%. When adjusting out the additional 2 months of the legacy Skyline operations, our U.S. housing segment number of homes sold increased 3% versus the first quarter of last year, despite lagging industry conditions. We also continued to drive volume improvement in our modular and park model product sales. Average selling price per U.S. home sold increased by 4% to $60,900, primarily as a result of a shift in product mix. In addition, U.S. segment revenue benefited from stronger shipments of finished goods inventory at the end of the first quarter. Timing of shipments varies from quarter to quarter based on site readiness, weather conditions, and truck availability. We expect finished goods inventory levels to normalize in the coming quarters. Canadian sales declined by 13% to $24 million as a result of a decline in housing demand in the British Columbia and Alberta provinces. The number of homes sold in the quarter declined to 285 homes compared to 362 homes in the prior year period. However, average home selling prices increased 10% to $83,200 due to product mix and pricing. Consolidated gross profit increased to $76 million, up 38% compared to $55 million in the prior year quarter. Our U.S. housing segment gross margins were 20.6% of segment net sales, up from 17% last year. Sequentially from the March 2019 quarter, U.S. factory-built housing segment gross margins were flat as the benefits from synergy capture, lumber and OSB costs, and refinement of product offerings were largely offset by investments made in employee benefits to take care of our employees and further improve retention. During the quarter, we achieved our targeted run rate synergy range of almost $16 million annually, which is 6 months earlier than previously projected and at the higher end of our estimated range. We are proud of our accomplishments, integrating the businesses, and can now shift to new opportunities to drive further value in the years ahead. SG&A in the first quarter increased to $52 million versus $45 million in the same period last year. The increase was primarily due to the inclusion of the Skyline operations and the current quarter financial results, as well as higher variable compensation due to sales and profitability growth. Additionally, we incurred $1.3 million of ramp costs for capacity expansion that are included in SG&A, and a $1 million non-cash fair market value adjustment for an office building acquired as part of the combination. Net income for the first quarter was $17.4 million or $0.31 per share compared to a net loss of $900,000 or $0.02 per share during the same period in the prior year. The increase was driven by higher operating income from increased sales and improved profitability, a reduction of other expenses, primarily costs related to the combination, and lower interest expense. On an adjusted basis, we generated $0.35 of net income per diluted share compared to $0.30 in the year-ago quarter. The company's effective tax rate for the 3 months ended June 29, 2019, was 27.6% versus an effective tax rate of 133% for fiscal 2019 first quarter. The change in the effective tax rate was primarily due to higher year-ago costs related to the combination for which we could not take a tax deduction. The current quarter's effective tax rate is more representative of the company's ongoing expected tax rate. Adjusted EBITDA for the quarter was $32.1 million, an increase of 41% over the same period a year ago. The adjusted EBITDA margin expanded by 150 basis points to 8.6%, largely due to revenue growth, lower material cost input, synergy capture, and operational improvements from further refinement of product offerings. As of June 29, 2019, we had $144 million of cash and cash equivalents. Cash generated from operations during the first quarter of fiscal 2020 improved by $22 million versus the same period last year, driven by lower transaction-related expenses, higher operating margins, lower finished goods inventory, and improved working capital management. During the quarter, we used excess cash to pay down $5 million of our outstanding revolving credit facility. As a result, the company had $34 million of unused borrowing capacity on the revolving credit facility as of June 29. We have a strong cash position with added liquidity from our credit facility that provides ample flexibility to invest in our core business and our strategic initiatives. With synergy capture and integration behind us, we can now focus our strong free cash flow on opportunistic growth, including potential acquisitions or further organic capacity expansion. I'll now turn it back to Mark for some closing remarks.

Thanks, Laurie. With the inventory destocking stabilized, we anticipate short-term pricing pressures as the industry rebalances backlog levels. We continue to see end consumer demand remain healthy, driven by the increasing demand for attainable housing, supported by improving financing and regulatory environments. With favorable long-term demand fundamentals, we are taking steps to position Skyline Champion for continued success. In the near term, we are continuing to invest in our Leesville plant startup, in employee training and development, and in our go-to-market strategy. This includes technology, which will help grow our relationships with our building developers as well as our independent retailers, increasing our market share of single-family housing starts. As we continue to pursue organic growth initiatives, supported by a favorable market backdrop, we are also evaluating potential acquisition opportunities that fit our disciplined criteria. Longer term, we are well positioned to remain one of the leading providers of factory-built homes and generate attractive returns for all of our stakeholders while providing quality housing for our customers and their families. And with that, operator, you may now open the lines for Q&A.

Your first question comes from Daniel Moore from CJS Securities.

Mark, try not to brag too much around the office to Keith about these numbers. But wanted to start with ASPs, up 4% in the quarter. Maybe just walk us through how much of an impact was pass-through of rising raw material costs year-over-year in terms of pricing? And what did the mix look like? I'm wondering if you're selling maybe a slightly higher proportion of park models and smaller homes, given the streamlining efforts in California. Just talk about mix a little bit.

So Dan, the 4% growth in ASP is mainly due to the mix. There is some price increase compared to last year, which is related to the timing of our price adjustments due to raw material inflation. However, I would attribute most of it to the mix. We are also seeing higher overall content in homes, which affects the ASPs. Additionally, there are more delayed shipments as well.

Very good. And in terms of gross margin, up 330 bps year-over-year. How much of that do you attribute to favorable input costs? A little bit of input cost deflation over the last few months versus operating improvements in Skyline and legacy Champion and synergies. Just trying to get a sense for what the maybe rank ordering, the largest impacts on gross margin year-over-year?

Yes. Difficult to rank. Certainly, we saw some benefit from the lower lumber and OSB costs. We also saw some productivity gains just from a higher sales volume. And the synergies reaching run rate was helpful this quarter. We did see offsetting some of that higher employee benefit costs and general wage inflation.

Okay. And last thing, and I'll jump out. Backlog down year-over-year, but up sequentially in the U.S. Can you just talk about how many weeks of backlog you're operating at now? How does that compare to historic averages? And what are optimal levels, where would you like to be?

Yes. So, Dan, right now, we're operating at about 6 weeks of backlog. Typically, we'd like to operate in the 4 to 6-week range of backlog that allows us to have timely delivery to our customers, but it also allows us to effectively schedule production and the supply chain with our suppliers. So 4 to 6 range is optimal. I think backlogs last year were elevated due to kind of the lingering effects of the FEMA production. And compared to prior years, 6 weeks is actually above normal, actually. So I think the backlog levels are good, especially given the fact that we've increased our productivity year-over-year-over-year. So 6 weeks this year is probably much better than 6 weeks 2 years ago because of the productivity enhancements.

Your next question comes from Greg Palm from Craig-Hallum Capital Group.

Congrats on the really good results here. So starting out with unit growth, specifically, let's talk about U.S., which has trended nicely better than the industry volumes, obviously, implying some market share gains. But just kind of curious, how much of that is a byproduct of the new capacity coming online? Where are you seeing the most strength?

Yes. I think, overall, we did see our U.S. shipment growth, on a similar basis, go up 3% year-over-year. So we do feel we're performing very well given the challenging markets. Overall, we've seen growth somewhat, to be honest, Greg, across the board. Our park model and modular sales have been up year-over-year. HUD shipments, I'd say, we still had the destocking in the Texas to Tennessee region throughout the quarter. Things have picked up since then. So we've kind of seen a normalization. I would say the geographic slowdown in destocking is now kind of behind us. Now what we're seeing is product-specific, plant-specific, more normalization of some of the backlogs and some of the product development pipeline. So I think, overall, we're feeling pretty good across the country just with certain product categories still kind of coming out of the backlog inventory destocking.

All right. Great. Shifting gears to Leesville. I'm curious, you talked about some of this new technology that you're incorporating over there. Is that targeting, I guess, better margins for that plant, improved efficiencies and throughput? What's sort of the end goal? And can you maybe talk a little bit in detail about what you're actually putting in there from a pilot program?

Yes, sure. So we're starting off, Greg, with just some very basic technology that will advance over time. So our incubator team that we've assembled is kind of working through how to redefine our production processes. So the automation will, one, it will improve quality, so at the end of the day, we'll have a much cleaner product coming out; two, it will save on our material costs, we'll have less scrap generation and enhancement there. So you'll get benefits there. On the direct labor side, we'll save a little bit of direct labor costs, but I would say, I view it more as a future direct labor risk avoidance, direct labor is going to get more challenging, not less challenging in the future. And so by doing this, we can hire a more stable workforce and get up to speed training faster, along with the benefits that we found that the up-and-coming millennials will enjoy working with this technology much more so than maybe prior physical labor. So all those benefits kind of accrue, and we're going to roll it out and work out the bugs in Leesville and then roll it forward as we learn and discover how to optimize it and step up the curve.

Good. Okay. And then Laurie, how should we be thinking about the margin drag as some of these newer facilities have started to come online? What's been, I think you mentioned something like $1.3 million this past quarter. I don't know if that was specific to Leesville or that was an overall number. But just anything from a modeling standpoint that we should be kind of paying attention to going forward?

Yes, $1.3 million was the overall figure. We expect some continued drag as we proceed, but we will be shipping products from Leesville in the second quarter. Instead of the drag affecting SG&A, it will impact margins. So you will notice a slight reduction in margins as a result. From a modeling perspective, I would say it aligns with what we've observed in the past few quarters.

Okay, perfect. And then I guess, just last one. Mark, going back to a comment towards the end of your prepared remarks. You said something like pricing pressure due to destocking. Was that a comment sort of in hindsight, what you've seen sort of in the spring and early summer months? Or was that kind of a future comment? Just wanted a clarification, if we could.

No, I think it's probably more of a future comment over the next month or two, let's say, Greg. Towards the end of the inventory destocking, we saw a handful of the market participants looking to generate or trying to stimulate orders with some pricing, and we have backlogs of 6 to 8 weeks depending on the parts of the country. That pricing came into effect toward the tail end of the quarter. So you'll just see that kind of rolling through. I don't think it's everybody, but you just see a little bit of softness.

Your next question comes from Phil Ng from Jefferies.

Good to hear that the destocking has winded down at the retailer level. Have you seen any restocking activity? And now that you're lapping some of the tougher FEMA comps, how do you think about the type of shipment growth you're expecting in the next few quarters?

Yes, it's been good to see the destocking phase coming to an end, which is encouraging. Overall, I anticipate that in the next few quarters, the market will remain relatively similar to last year for the rest of this calendar year, possibly with a slight increase. Looking ahead to next calendar year, I expect to see growth in the marketplace compared to last year.

You're anticipating relatively flat growth in the market. Given some of the new regions you're entering, do you believe you'll continue to outperform the market?

I think as long as we're bringing value to our customers in the right ways, we should continue to outpace the market, yes.

Got you. And then given some of the modest pricing pressure you called out in the channel right now, can you kind of quantify or expand on the magnitude? It didn't sound like that was that meaningful. The reason why I'm asking, obviously, you benefited from input costs fading a bit. The tariffs, I understand, are coming through, obviously. How impactful could that be in with maybe some more modest pricing? Could we see margin depression in the next few quarters?

I believe the question relates to the impact of incoming tariffs and slight increases in input costs. You might experience a delay of a month or two in passing on some of those price increases. This could lead to some compression as the market normalizes. However, as we see backlogs continue to grow, our backlog has increased by 9% in the U.S. year-over-year, I think the market will adjust accordingly. It's been a challenging period due to destocking, but we are nearing the end of that short-term downturn.

Got it. I have one more question. Laura, you mentioned that the integration of Skyline is complete, and your balance sheet looks very solid. You talked about possibly adopting a more proactive approach to capital deployment. I'm curious about your organic capacity across major regions. Are there any areas where you see the opportunity to increase capacity? Additionally, regarding M&A, should we anticipate that small acquisitions will significantly contribute going forward? How should we think about valuation in light of recent M&A activity in the industry?

Sure. I think overall, we're always looking at M&A activity. I think both in the consolidation of the industry to expand economies of scale and lower the costs overall to the end consumer, I think there's some opportunities in certain geographies. I think we see strong market demand. When you look at end consumer demand and the placement levels that we see in staff surveys and other third-party services, the end market is still growing quite healthily, especially in certain regions of the country. So I think we would be interested in continuing to grow, especially with the backdrop of the financing returning and the new class of homes and the expansion of that into both the retail channel and also into the larger home building market with builder developers. So I think both of those opportunities, to expand capacity and with further M&A or organic startups, is an opportunity. And I think overall, we probably look to make ourselves better to do business with our customers. So looking at opportunities and pain points for our customers in the retail channel and in the builder developer channel that if there are acquisitions or investments we could make to solve communication or development or other channels for them, we’re interested in doing those activities as well.

Your next question comes from Matthew Bouley from Barclays.

I wanted to follow up on the Leesville plant. You mentioned that it is a pilot program and that you've got this incubator team. Just what's the timeline for evaluating that? And I guess, Mark, over time, just how do you envision ultimately bringing these processes to additional facilities?

Sure. Sure, Matt. I think, overall, the plant just started up in June. So I think we're kind of in the midst of the learning curve. So we're learning quickly, which is a great thing. I would expect that different pieces of this could be rolled out relatively quickly in the next year or so to other facilities. Some of the things like the larger wall-building technology and changing some of the production flow processes that we would need to do, probably a little bit longer term, probably in the 2- to 3-year horizon. So it really just depends on which piece of automation. We have 3 or 4 different processes ongoing at that plant, and they're all kind of in that incubator stage.

Okay, perfect. And then I think last quarter, you guys talked about April orders, up double digits. Any color on order trends through the quarter and into July?

Sure. I think order trends overall, April was strong, May was down, and June was strong. So I'd say, overall, for the quarter, our orders were up year-over-year on a same basis, 1% to 2%. And so I think as we see the trend forward, we're going to continue to see the backlog strengthen between now and September, October and then our typical normal winter slowdown.

Got it and then just to clarify on the pricing pressures, the short term pressures. Are those actually enough to offset the positive mix that we've been seeing, such that the average price will actually decline from the current $61,000 just in the near term?

Matt, I would expect to see a little bit of pressure in the second quarter, so I would say, in the short term, possibly. And then as the effects of the destocking and the build of the backlog come in, in the third quarter, a little bit more normalization.

Your next question comes from Mike Dahl at RBC Capital Markets.

Mark, I wanted to follow up on the comments around orders just now. I guess, if I take your commentary about moving past the inventory issues, it would seem like at retail, the retailers would have some room on the forefront plan of credit lines again, but you're still seeing the destocking. With consumer demand strong, just wanted to get your views on why you don't think there's been a quicker ramp back up in order activity from the retailers? And what are kind of the impeding factors here?

Yes. Thanks, Mike. I think the way we see it and the way it normally works is when backlogs are long in duration, so we have larger backlogs, normally, orders will pull forward in the cycle, meaning that they will place orders earlier. And when backlogs are low, you'll see orders come in at the last minute. So I think the order level can be a little bit of a misread. In terms of the fact that when backlogs are light, people will delay their orders to the last minute to get them in the pipeline. So on an equivalent basis, I think you've really got to take the shorter-term backlogs in conjunction with the order rates. I think they kind of go hand in hand because you won't see strong orders until the last minute, which will probably start coming in during the second quarter time period.

Okay. So while your expectations are that the market is still relatively flat in the second half, it seems like some of that's also just probably prudent conservatism based on what you've just seen, and there's some potential for a better uptick from those last-minute orders?

Sure. I mean, that's fair.

Okay. Shifting gears back to the margin side. I just want to make sure we're understanding some of the cadence commentary correctly with these puts and takes around pricing and some of the other costs. Laurie, I think you also made a comment that near-term margins in the U.S. would look similar to the last few quarters? And I guess, you've done an 18.5% and then 2 quarters at 20.6%. So can you just level set on what your new normal is when you talk about that in terms of expecting it to be fairly similar going forward?

Sure. So generally, we feel that the U.S. margins are sustainable. But I think we're going to see some short-term impact from the capacity expansion and the ramp of Leesville and the continued ramp of our Leola, Pennsylvania. Although by the end of June, we were seeing profitability out of that plant. So that will be more minimal than the Leesville facility. In addition, we're going to continue with the training and development of our employees. And we are going to continue to see some of the wage inflation that we saw as well as higher insurance costs and the 401(k) match that we put in place. So there's going to be some puts and takes. I think the second quarter; we might be flat to slightly down in the margins but generally sustainable where we are in the third and fourth quarters and further out.

Okay, great. That's helpful. And also a nice level if you can continue there. And then my last question, just around the comments on the product refinement. I just wanted to dig in a little bit more on that and figure out how much of that is some of the forward plan and SKU rationalization versus other mix issues or intentional shifts there. Can you just give us a little more detail on when you say that product refinement was a benefit, what specifically are you talking about?

Yes. I think it's more the SKU and forward plan and other factor refinement to where we are getting ahead of the design curve, allowing us to bring in predesign flexibility to give more optionality for our customers, but at the same time, optimize our manufacturing processes. So I think it's that combination along with the product standardization and SKU rationalization that has helped us to optimize some of that product refinement.

There are no further questions at this time. I would now like to hand back to our presenters for closing remarks.

Thank you very much, Cameron. Well, I would like to just reiterate the fact that we are very proud of our first quarter results. As we look forward, the overall trends for the industry we couldn't be more excited about. We're starting to see engagement of retailers and builder developers on the new class of homes that we're starting to produce as we go forward, along with just overall end demand being relatively strong in most of our markets. With that, thank you very much for joining the call, and I look forward to the future. Thank you.