Good morning, and welcome to Skyline Champion Corporation's Second Quarter Fiscal Year 2021 Earnings Call. The company issued an earnings press release yesterday after the close. I would now like to introduce your host for today's call, Sarah Janowicz, the Company's Director of Investor Relations and External Reporting. Sarah, you may begin.

Good morning, and thank you for participating in our earnings call to discuss our second quarter results. Joining me on today's call is Mark Yost, President and CEO; and Laurie Hough, EVP and CFO. 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 our filings with the Securities and Exchange Commission. Additionally, during today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. A reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to Mark.

Thank you, Sarah, and good morning, everyone. Today I will provide an update on the second quarter as well as the balance of the fiscal year and beyond. I will discuss the overall favorable housing environment, which continues to recover in the very strong long-term dynamics. Let me begin by saying that I’m very encouraged about the strength of the broader industry. We’ve seen a significant inflection point in the homebuilding industry as demand at the macro level is being driven by low interest rates, millennial home ownership and people adapting to lifestyles centered around the home. With homes now serving as a home, office, school, gym, entertainment center, and a place of safety and solitude, we believe demand, especially for high-quality and affordable homes will remain strong. We are fortunate that we’re very well positioned to benefit from these dynamics. True to these dynamics, we’re seeing strong demand in order rates. During the quarter, our consolidated orders were up 70% sequentially from our first quarter, and up 53% from the second quarter of last year. We delivered 4,991 homes during the quarter, an 18% improvement from the sequential first quarter, but down 7% from the prior year due to our production ramp. During the quarter, our U.S. manufacturing facilities improved capacity utilization by 5%, reaching 63% during the quarter, despite being hampered by intermittent COVID plant shutdowns, supplier disruptions, and short-term hurricane-related outages. By the end of September, we reached production levels that are similar to those achieved at the same time last year. Our Western Canadian plants have followed a pattern like the U.S. plants. Sales were down about 7% in the quarter of fiscal '21 as compared to the same period last year, but we're up 62% from the fiscal first quarter. Canada also saw a steady increase in orders during the quarter. The strong order demand for our homes has continued to outpace production, which has resulted in increases in backlog. Our backlog grew $198 million during the second quarter to $390 million and stands on average in the U.S. at 19 weeks. As a basis of comparison, our backlog grew $19 million during the second quarter of last year and was out at an average of 7 weeks in the U.S. As our supply chain partners increase their production levels, we will be able to deliver more products to our customers. While recruitment of new applicants is not at pre-COVID levels, it has improved in most regions of the U.S. over the last few months. We are in the process of training and onboarding new employees and are working to increase our labor force to accommodate the increased demand for housing. Maintaining a safe and healthy environment for our employees remains a top priority, and we continue to follow the enhanced safety and sanitation protocols at our facilities in our adhering to CDC guidelines for social distancing and other measures to reduce the spread of COVID-19. Walk-in traffic at retail stores is still below pre-COVID levels, but has also improved over the last few months. Customers coming in to look for homes are ready and able to buy. We hear that many buyers are moving from multifamily apartment buildings and need more space as they spend more time at home due to the financing environment; many first-time buyers are entering the market. In talking with our dealers, financing availability is still strong, and inventory levels are lean as customers are purchasing spec homes instead of waiting for custom-ordered homes to arrive from the manufacturing facilities. We continue to gain traction in our builder-developer channel with our Genesis brand. Our penetration into small and midsize subdivision builders continues to gain momentum. Builders like the turnkey nature of the product. More of our channel partners are asking for full turnkey solutions. In the Northeast, where we've launched our set crew and finishing services last year, we are utilizing our turnkey approach on a Genesis exclusive subdivision currently underway. Likewise, the ADU market is starting to pick up out West. Given the backdrop of low interest rates, favorable demographic and geographic trends combined with limited housing supply, we believe that the demand for our housing solutions will grow. What is important to note is that the demand is being driven across every channel we serve and across multiple geographies, which has deeper roots in sustainable demands in past years. Given the dichotomy between housing inflationary factors and a recovering economy with millions out of work and behind in payments wanting to expand, we believe that our attainable housing solutions will outpace the overall market. With our labor force, we can scale more effectively over the long-term, especially as we expand our automation and digital capabilities, which we intend to invest more heavily in for our customers. I will now turn the call over to Laurie to discuss our quarterly financials in more detail.

Thanks, Mark, and good morning, everyone. I will begin by reviewing our financial results for the quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss the margin headwinds we are expecting in our fiscal third quarter. Net sales decreased by 9% to $322 million in the second quarter versus the same quarter last year. We saw revenue declines of $29.5 million in the U.S. factory-built housing segment, as well as declines in our Canadian factory-built housing segment of $1.8 million. The decline in U.S. factory-built revenue was primarily driven by a decline in the number of homes sold and a reduction in average selling price. The decrease in the number of homes sold was 6.7% or 337 units compared to the same quarter last year. The average selling price per U.S. home sold decreased by 2.9% to $60,400 due to a shift in product mix to more single-section homes and customers selecting less expensive upgrades versus the same period last year. While results remained below last year's levels, we are particularly encouraged by the strong sequential performance as conditions have improved significantly compared to the beginning of the pandemic. Net sales revenue and the number of homes sold for our U.S. factory-built segment increased 14% and 16% respectively in the second quarter compared to the first quarter of fiscal 2021. Canadian revenue decreased 7% to $24.6 million compared to last year driven by a 4% decline in the average home selling price to $81,300, as well as a 3% decline in the number of homes sold to 302 units. The decrease in the average selling price was due to a shift in product mix. Consolidated gross profit decreased to $62.8 million, down 15.2% versus the prior year quarter due to reduced sales volume. Our U.S. housing segment gross margins were 19.2% of segment net sales, down 170 basis points from the second quarter last year due to increased material costs as a percent of sales caused by market volatility in certain commodities, including forest products. SG&A in the second quarter decreased to $41.4 million versus $48.4 million in the same period last year. The decrease was primarily due to a reduction in variable incentive compensation and reduced travel and marketing costs. We also experienced favorability in SG&A costs due to a reduction in non-cash equity compensation expense of $1.4 million. We recorded other income of $2.6 million during the quarter related to the Canada's emergency wage subsidy program enacted in response to the pandemic. We continue to monitor our eligibility to apply for financial assistance with this or any other government program. Net income for the second quarter was $17.5 million or $0.31 per share compared to net income of $17.7 million or earnings of $0.31 per share during the same period in the prior year. On an adjusted basis, we generated $0.31 of net income per diluted share compared to $0.34 in the year-ago quarter driven by a combination of lower gross profit, which was partially offset by a reduction in SG&A, the benefit of the Canadian wage subsidy program, and a reduction in income tax expense. The company's effective tax rate for the three months ended September 26, 2020 was 24.4% versus an effective tax rate of 29.8% for the fiscal 2020 second quarter. The company's effective tax rate decreased primarily due to increased federal tax credits related to R&D and the ENERGY STAR program. Adjusted EBITDA for the quarter was $28.9 million, a decrease of 10.9% over the same period a year-ago. The adjusted EBITDA margin compressed by 20 basis points to 9% due to an increase in material costs that were partially offset by lower SG&A expenses and the Canadian wage subsidy program. Without the benefit of the wage subsidy, our adjusted EBITDA margin would have been 8.2%. Shifting to our outlook for the third quarter, we believe our financial results will continue to be impacted by increased material costs, especially forest products, labor constraints, including higher than normal absenteeism due to COVID, and intermittent material shortages. There has been considerable market volatility for lumber and OSB over the last few months. While pricing seems to have peaked and is starting to decrease, we expect to see compression in our margins in our fiscal third quarter as more of the impact of the spike in lumber pricing will be realized in our results due to the length of our backlog and the structure of our lumber and OSB contracts. We have instituted price increases to help offset a portion of the increased material costs. But in some cases, we are constrained by competitive pressures and other market dynamics that don't permit a full recovery of the increased costs in the short-term. Over the medium and long-term, we believe the demand for single-family homes is strong and the increase in input costs can be passed on to the end consumer as they seek affordable and attainable housing solutions. Turning to our labor force, voluntary attrition is lower this quarter compared to this time last year. We value our direct labor team members and are committed to retaining our people and growing our team to meet increased demand. We continue to recruit, onboard, and train new team members to support the expected growth in the business. However, our production capability may continue to be limited in the short-term by additional instances of high absenteeism or intermittent plant shutdowns related to COVID-19. We mentioned last quarter that labor constraints contributed to our idling of two plants that are situated in a campus-style layout. By the end of our second quarter, we restarted operations at one of the two idle plants and expect to restart our operations at the other plant later this fiscal year as recruiting initiatives allow. As we progress through the second half of our fiscal year, we expect to continue to experience intermittent shortages or delays of certain raw materials used in our homes. We believe our supply chain partners are experiencing similar challenges with labor constraints, including COVID outbreaks and higher than normal absenteeism. We believe that we will be able to work with our vendors to effectively manage through these situations by using alternate sources or products to obtain the supplies needed for the home building process. As of September 26, 2020, we had $264 million of cash and cash equivalents, and long-term borrowings of $77 million with no maturities until June 2023. We generated $32 million of operating cash flow during the second quarter compared to $25 million during the same period last year. The increase in operating cash flow is primarily due to cash flow benefits from government programs. Under the CARES Act, employers are eligible to defer the employer portion of payroll taxes in part until as late as December 2022. During the first half of the fiscal year, we've deferred just over $7 million of U.S. payroll taxes and have received almost $6 million from the Canadian wage subsidy program. We remain focused on executing on our growth and operational initiatives and plan to utilize our cash to reinvest in the business and to support strategic growth. I'll now turn the call back to Mark for some closing remarks.

Thanks, Laurie. While we remain mindful of the uncertain conditions that the pandemic has introduced, we believe we are well positioned to support growth in revenues and expanded returns over the longer term as we work through labor constraints and pricing dynamics over the short-term. I continue to be impressed with the way our entire team has rallied together in the current environment. Our employees are amazing and dedicated. They continue to work hard, providing the market with attainable housing options that are so desperately needed today. And with that operator, you may now open the lines for Q&A.

Our first question comes from Daniel Moore with CJS Securities. Please go ahead with your question.

Good morning, Mark and Laurie. Thank you for taking the questions.

Good morning, Dan.

I wanted to start with maybe just describe the monthly cadence of homes shipped through the quarter and thus far into October. I think Mark, you said you were back at the similar rates of production to this time last year at the end of September. I'm wondering if we have been able to exceed that at this point?

Yes. Dan, thanks. I think steadily through July, August, and September, we saw pickups in production. So it was pretty good pickups month after month. We have a 21% increase in production in the second quarter versus the first quarter. Thus far into October, we're running about 10% to 15% in the first few weeks of October higher production levels than we were during the average of the second quarter. So we've seen steady improvement even into October and it's progressing. The concern going forward, I think, is with the increase in COVID cases and potential for enhanced supplier disruption, maybe later in the quarter. We're kind of moderating the production levels or potential production levels to think that we're going to be relatively flat for the quarter in terms of shipments versus last year.

Got it. That's helpful. And you gave very good color, obviously in the prepared remarks, but maybe just talk about whether it's rank ordering, but the most significant bottlenecks to expanding production, is it labor, is it the supply chain concerns? If so, what items and just kind of what's in your control and what's a little bit less than your control in terms of how long it might take to ramp up?

Yes, I think labor has steadily improved during the quarter. We've brought on more than about a hundred people, I think we've hired during the quarter. And they've been onboarding and ramping up, so we've seen good traction in getting new hires brought in. So I think with the CARES Act subsidies kind of waning, I think that's improved steadily since then. Labor still comes to market, but I would say it popped up early in the quarter. Second quarter, it was probably labor-related. Later in the second quarter, it was probably supply disruption that was primary, especially in certain cases forest products were very scarce. So we had to travel and go around just to find lumber products in some cases. In many cases trying to find appliances or other things to make sure we get a complete home for the customer. So those were challenges probably late in the second quarter. Those in thus far in October have I think mitigated somewhat. So we're seeing improvement in supply chain and improvement in labor pretty consistently, which is encouraging. Just it really comes down to will the ramping COVID cases cause a week outage at a certain plant or another week outage or will governors and other people take action to pull back certain limitations.

Could you provide more details about margins? I understand it's early in the quarter, but if we can increase production sequentially, should we expect gross margins to remain flat compared to this quarter, or do you foresee them declining sequentially based on current conditions? Thank you.

Hi, Dan. I can take that one. We expect margins to go down sequentially from the second quarter, primarily due to the length of our backlogs and the structure of our lumber and OSB contracts, still expecting to see some decreases, especially in the U.S.

Thanks, Dan.

Thank you. Our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Hi. This is actually Ashley Kim on for Matt this morning. So I just wanted to ask on the increased backlogs, are you worried about any increased exposure to input costs volatility just given these. And then on that, how are you kind of managing pricing in light of the increased materials costs?

Yes, Ashley, thank you. I believe the pricing environment is positive, and overall, with the levels of demand and pricing, many site-built homes have seen significant price increases. For us, given our backlogs, we have adjusted prices for most of our products moving forward, and we can typically pass along these increases based on competitive pressures in different regions. Overall, we are generally successful in passing on these price hikes. The only factor that Laurie mentioned earlier is that we had a considerable amount of set prices in our backlog, while lumber and OSB prices changed rapidly and unexpectedly. Additionally, some of our supply contracts were disrupted, preventing us from obtaining lumber as expected, which forced us to purchase from the spot market in some instances. Therefore, I think the pricing environment remains strong. I anticipate some compression in the third quarter, but once that period is over, I don't expect much compression moving forward, if any.

Okay. Thank you for that. That's helpful. And then on the ramping capacity, did you have to make any changes to compensation in order to get the labor that you needed in order to meet demand or was that mainly just kind of a result of uncertainty around the CARES Act and that was kind of bringing more labor your way?

Yes, I believe that the competition for labor due to the CARES Act was primarily responsible for the challenges we faced earlier this year. Labor availability is definitely improving. I anticipate that depending on certain government stimulus packages or other initiatives, it may impact labor availability, but overall, I would say labor is accessible. With high levels of unemployment, many people are seeking work, and we are an attractive company to work for with a valuable product to build; there is a need for homes today. Therefore, it's less about the pricing environment for labor and more about training, developing, and ramping up the workforce, which takes some time.

Okay. I'll leave it at that. Thank you.

Thank you.

Thank you. Our next question comes from the line of Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Yes, thanks. Good results in light of everything going on. I mean, Mark, I hate to put you on the spot, but from a demand standpoint, I guess thinking back to last quarter, you sounded a little bit more cautious, or maybe cautiously optimistic is the right way to describe it. You sounded a lot more bullish this quarter, obviously, given the backlog in the order rates, that's I guess not all that surprising. But what gives you maybe some added confidence that what we're seeing now in terms of the demand environment has some legs behind it.

Yes, Greg, thanks and good morning. Overall, there are a few things to note. First, demand is coming from every channel we serve and in various markets. In previous years in the manufactured housing industry, demand was often driven by large, one-time events like FEMA contracts or sudden surges in orders that overwhelmed the supply chain. For instance, two years ago we faced a buildup in the supply chain that led to accelerated orders, followed by a destocking phase in the retail network that reduced orders. Currently, retail inventories are in a healthy state; they're lean. Additionally, because we're witnessing demand from multiple channels, it feels more widespread and deeply rooted. The financing environment is robust, and we're noticing a significant increase in millennial interest from our dealers. Many people who've lost jobs or have lower incomes are seeking to escape high rental payments. By moving to a community or purchasing one of our homes, they can save a few hundred dollars a month. Thus, the current economic conditions and financing options are contributing to this demand, which I believe will persist. I'm optimistic about the fact that our order rates have risen 53%, even with our substantial presence in California, which faced wildfires, and in Louisiana, which was hit by hurricanes. Some key states like Michigan and Florida saw a decline in shipments, yet our orders significantly increased. Therefore, I believe demand remains very strong, with solid foundations for continued growth.

Okay, good. And in terms of pricing, maybe I missed it. I'm not sure did you quantify, maybe how much industry pricing has gone up here over the recent months, given all of sort of the inflation we've been seeing?

I don’t believe we provided specific figures on industry pricing, Dan. However, I can say that overall lumber pricing has increased. According to a recent report from the NHB, site builders have seen an increase of about $16,000 per home in that area. While our industry hasn't experienced quite that level of increase, it is still significant, amounting to thousands of dollars per home. So yes, it has been substantial when lumber prices double or triple.

Yes. Okay. And I mean, I guess just going back to the margin, I think you've probably beaten our gross margin expectations almost every quarter since we've covered the stock. Even though you certainly guide for conservatism, but just help us understand because presumably a pricing is up and shipments are flat. That means revenue is up year-over-year, up sequentially. And I guess I would assume if pricing has already gone up that may be the headwind from lumber and raw materials. It won't be as bad as the previous quarter, but you're certainly alluding to the fact that it might be worse. So just maybe help us understand the dynamics in there.

Hey, Greg. I can take that one. So the price increases are going to have to trickle in over the December quarter because of the length of our backlogs. And at the same time we're going to be hit by higher lumber prices because of the structure of our contract. So we actually are expecting to see sequentially and versus the third quarter a pretty significant decrease in margins.

Okay. I mean, as we get through this, the sort of near-term impact, I mean, you were consistently running 20% plus pre-COVID. Is that sort of a good baseline when we're sort of through this near-term impact?

Yes, definitely. I think we'll be able to get back there pretty shortly for this quarter.

Okay, perfect. Okay, that's it for me. Thanks.

Thanks, Greg.

Thank you. Our next question comes from the line of Mike Dahl with RBC Capital Markets. Please proceed with your question.

Hey guys, this is actually Chris for Mike. Thanks for taking my questions. The first question, just want to dive into the competitive dynamics you're seeing right now, I mean, given Laurie your comments on potentially increased competition. Could you just kind of give us a little more, a breakdown of driving that increase in competition and whether we should expect that to continue going forward?

Yes. Thanks, Chris, and good morning. I think overall the competitive environment is, obviously, always there. I think right now today demand is outweighing most of the industry's ability to manufacture supply. So I think it's really on a geographic basis that you might see pockets of competition that are more competitive than others. Generally speaking, overall, I think the company is able to pass on price increases and manage the business effectively given the competitive dynamics in the market. It's obviously a lean market. But overall I think the competitive dynamics are good and maybe not more challenging than former times, just it's the timing and sequencing of people's reaction to maybe the lumber inflation. That is a dynamic that I think we'll see over the coming months.

Okay. Got it. And then just for my second question, with the pricing that you guys have in place today, is that enough, once you work through this backlog, is that enough to kind of cover what the peak lumber inflation is going to look like? Or do you still need incremental pricing from here to make to cover those costs?

Yes, I think overall we didn't really price the product necessarily, I think for full inflation. It's always a forecast, but generally you try not to price it the peak you try and price it, what you think is going to be in the forecast. So overall I think with lumber prices coming down on average our forecast are probably aligned with where we think we should be. So as lumber is expected to continue to decrease, we are seeing input other input prices start to increase, maybe offsetting some of the declines that we're seeing in lumber because other products are lagging to that lumber inflation, but they're starting to uptick because of those supply chain challenges that I mentioned earlier. So I think you're going to see lumber coming down. You're going to see other materials start to come up and it'll be kind of be in line with where we think it's going to be at.

Got it. If I could just sneak one more and just to clarify, is that what's driving your commentary on the low point that as the cost pressures abate that will allow for pricing to catch up?

Yes. So I think with our pricing, we have backlogs that were through the end of the year at the same time that our lumber contracts or supply was either affected by outages. So we weren't able to buy it at our contracted negotiated prices or it wasn't available, I should say, at those prices. And so we had to go to the spot market just to continue production and or in some cases you have a situation where lumber went so quickly because of those shortages that it will compress some of the margin in the backlog.

Got it. Appreciate all the color.

Thanks, Chris.

Thank you. Our next question comes from the line of Phil Ng with Jefferies. Please proceed with your question.

Hey, good morning. This is Maggie on for Phil. I guess first sticking to raw materials, you've talked a lot about the elevated lumber costs, but we've also started to hear the manufacturers make price increases now for other categories like insulation, roofing, and doors. So I guess if you could just talk about on how you're thinking about the magnitude of some of those other categories into this quarter and into the fourth quarter?

Yes, thanks, Maggie. I believe that the inflationary pressures from the commodities you've mentioned will begin to take effect. We expect to see increases in roofing materials and other commodities closer to the end of the third quarter and early fourth quarter. However, since lumber, which has seen a decline, is such an important part of the home building process, I think these changes will balance out. Therefore, I don’t anticipate a significant overall increase in inflation. Instead, I expect that the adjustments in lumber prices will counterbalance the changes in the other commodities. I think our pricing is appropriate as it stands.

Got it. Okay. And then kind of switching gears on, can you talk about the rollout of the Genesis product line and the market acceptance, and maybe some color on the revenue opportunities over the next year or so?

Thank you. I believe Genesis is an exciting product for us. We are making progress with small and mid-tier subdivision builders, and that is going well. The rollout of our turnkey services, which we began last year mainly in the Northeast, has been positively received by various channels, including our community partners and retailers. The set and finish crews we introduced last year are now working on subdivision developments, with one currently in progress in the Northeast. As builders discover how straightforward and user-friendly the product is, along with its quality and competitive pricing, it becomes a highly appealing solution for them in their subdivision projects. I see great potential here, and we are actively developing multiple subdivisions to demonstrate to developers that this product is effective and sells well.

Okay, great. Thank you.

Thank you.

Thank you. Our next question is a follow-up from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Thank you again. Totally looking for as much specificity as possible, so production run rate we've got a good sense for October. Is that reasonable? If we think about that as sort of plateauing for the remainder of fiscal Q3, can we continue to ramp that up a little bit, or is that more challenging given potential COVID outbreaks, lumber availability, et cetera.

Yes, I appreciate it, Dan. Overall, I expect us to continue increasing our production per day. We are experiencing success in the number of floors and units we can produce daily. However, I anticipate some COVID disruptions that may reduce production days this quarter, based on the current trends we're observing in the U.S. and Canada with rising COVID cases. It's hard to ignore that if these cases keep spiking, we might face higher absenteeism levels, particularly as we approach the holidays when people may prioritize visiting family. This could lead to employees being less inclined to come to work before and after the holidays. Thus, while I expect our daily production to rise, I am concerned about the interruptions caused by COVID and their impact on our supply chain. Overall, I believe production levels will be similar to what we experienced in the third quarter of last year, likely showing a mid to high single-digit increase from this current quarter, despite daily production increases, due to potential outages later in the year.

Got it. Although it sounds like as the run rate exiting the quarter into fiscal Q4, we should be in better position all else equal and obviously depending on COVID and other factors.

Yes, without a doubt.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Yost for any final comments.

Thank you very much. I'm very impressed with what our team has done and their ability to not only survive but thrive in these challenging conditions and just continue to keep up the good work for everyone listening and for everyone out there. We're here to produce great homes for great people. So thank you very much. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.