Good morning, and welcome to Skyline Champion Corporation's Second Quarter Fiscal 2024 Earnings Call. The company issued an earnings 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 measures, which it believes can be useful in evaluating its performance. A reconciliation of these measures can be found in the earnings release. I would now like to turn the call over to Mark Yost, Skyline Champion's President and Chief Executive Officer. Please go ahead.

Thank you for joining our earnings call and good morning, everyone. I am pleased to be joined on this call by Laurie Hough, EVP and CFO. Today, I will briefly talk about our second quarter highlights and then provide an update on activities so far in our third quarter and conclude with our thoughts on the balance of the year. We saw healthy demand from end consumers through our captive and independent retail channels. Community REIT channel saw continued as expected through the September quarter as our REIT partners worked through their backlog of existing new home inventory before placing new orders. This pause in community ordering, combined with the absence of FEMA-related sales that were in the second quarter of last year, drove our year-over-year declines in both production and revenue. Backlog as of September 30th was $258 million compared to $260 million at the end of the June quarter as sequential quarterly unit increases were offset by decreases in price. Average lead times of 8 weeks have normalized within our local range of 4 to 12 weeks and are consistent with lead times at the end of the first quarter. Order volume during the quarter increased again sequentially, and we are seeing the expected decrease in home prices as consumers shift to smaller homes or homes with fewer features and options given the current interest rate environment. Shifting to some of our strategic actions we have taken recently, on September 26th, we closed our investment in ECN Capital and the establishment of our new captive finance company, Champion Financing. We believe that the formation of a captive finance company will unlock home volume growth and bring value for our key stakeholders by providing broader and more attractive financing options and services to our customers. It will enable us to provide a comprehensive home buying solution while becoming more deeply connected with our channel partner customers and the end consumers who purchase our homes. The investment aligns with our longer-term strategic view on offering digital configuration and selling to homebuyers. As we continue to ramp up Champion Financing, we believe the benefits will create a deeper connection with our dealers and end consumers. Additionally, in October, we closed on the acquisition of Regional Homes, the fourth largest HUD manufacturer in the United States. The largest independent retailer and the company we have long admired. We are confident that the addition of Regional Homes to the Skyline Champion platform will allow us to accelerate profitable growth through the expansion of our retail and manufacturing distribution across the Southeastern United States. Regional Homes has a customer-centric selling approach and is dedicated to providing an exceptional home buying experience, which directly aligns with Skyline Champions core value and our strategic initiative to enhance customer buying experience. In coordination with the closing of the acquisition, I am excited to welcome Heath Jenkins to the Skyline Champion Leadership Team as he will serve as president of our captive retail operations. Heath brings years of industry retail experience and strong leadership capabilities, but most importantly exhibits an unwavering commitment to the customer first. Altogether, these investments represent an exciting opportunity as we strengthen our efforts to support long-term growth and solidify Skyline Champion's market positioning as a leading provider of attainable housing solutions, for which the market is in tremendous need today. Moving to the third quarter outlook. We continue to see stronger order rates from our retail and builder-developer channels and while some REIT customers have returned to the market, others are continuing to destock as we move into our normally seasonally slower period. We expect the third quarter revenue to be up mid to high single digits as a result. We have seen orders strengthen five quarters in a row, driven by the growing need from consumers for affordable housing. We anticipate this need for housing to last longer than we initially anticipated due to recent indications from the Federal Reserve. Additionally, this need is driving more regulatory tailwinds for our products that give us increased confidence in the long-term growth potential of our housing solutions. With our long term strategic investments into retail, financing, digital, and automation, we are adding value and enhancing the buying experience with the end consumer and our channel partners. I will now turn the call over to Laurie to discuss our quarterly financials in more detail.

Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the second quarter followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near-term expectations. During the second quarter, net sales decreased 42% to $464 million compared to the same quarter last year, in which we recognized $118 million in FEMA unit sales. The decrease in net sales reflects a 15% year-over-year decline in average selling price per US home due to FEMA unit sales last year, which carry a higher average selling price than our core product due to the complexity of sales. In addition, our core product average selling price declined due to product mix and the decrease in material surcharges. During the quarter, we sold 4,842 homes in the US compared to 7,274 homes in the prior year period. US home volume was down year over year due to the absence of FEMA-related sales and reduced production schedules to align with order rates. On a sequential basis, US factory-built housing revenue was in line with the first quarter, consistent with expectations that demand would remain relatively flat. An increase in the number of homes sold was partially offset by a decrease in the average selling price per home as core customers opted for smaller and less optioned homes, in an effort to maintain affordable monthly payments given current interest rates. Capacity utilization decreased to 53% compared to 56% in the sequential first quarter of fiscal 2024. Capacity utilization is being adversely impacted by newly opened plants and a rightsizing of production rates at certain plants that serve end markets where current order trends remain softer. Canadian revenue decreased 25% to $29 million compared to the second quarter last year, primarily due to a 23% decline in the number of homes sold, driven by slowing demand. The average home selling price in Canada decreased to $126,100 compared to $129,400 in the prior year period, primarily due to fluctuations in the translation of the Canadian Dollar to the US dollar for the year-over-year period. Consolidated gross profit decreased 58% to $116 million in the second quarter and gross margins contracted by 890 basis points versus the prior year quarter. On a sequential basis, we saw gross margin decline 280 basis points. Our US housing segment gross margins were 24.5% of segment net sales, down 950 basis points from the same quarter last year, primarily due to higher margins seen in unit sales in the prior year quarter as well as lower core product sales volume and a mix shift to homes with fewer features and options, allowing the homeowner to hit monthly payment price points given higher interest rates. Gross margins were also negatively impacted by lower production rates as we are choosing to operate plants at lower run rates to be prepared to quickly ramp upon the return to normal order volume. SG&A in the second quarter decreased $19 million to $64 million primarily due to lower incentive compensation expense on reduced sales activity. Net income for the second quarter decreased 68% to $46 million or $0.79 per diluted share compared to net income of $144 million or earnings of $2.51 per diluted share during the same period last year. The decrease in EPS was driven by the decline in sales and reduced operating leverage on lower volume. Diluted EPS for this quarter includes approximately $0.03 of transaction-related costs incurred for the acquisition of Regional Homes. The company's effective tax rate for the quarter was 24.5% versus an effective tax rate of 25.0% for the year-ago period. Adjusted EBITDA for the quarter was $59 million compared to $197 million in the prior year period. Adjusted EBITDA margin of 12.7% compared to 24.4% in the prior year period reflects the return to more normal profitability levels. In the near term, we remain focused on maintaining efficient production lines as channel conditions improve and order activity returns to a more regular cadence. The structural improvements and investments made in our business have strengthened our operational capabilities, protecting profitability in periods of lower output. That said, we reiterate our expectation that the mix shift by customers looking to maintain affordable monthly payments in the current interest rate environment will continue for the remainder of fiscal 2024. We expect margins to compress further in the sequential third and fourth quarters due to product mix shifts, newly added production capacity continuing to ramp, and the purchase accounting implications of the Regional Homes acquisition. As of September 30, 2023, we had $701 million of cash and cash equivalents and long-term borrowings of $12 million with no maturities until 2029. We generated $54 million of operating cash flows for the quarter compared to $231 million for the prior year period. The decrease in operating cash flows is primarily due to lower net income and the working capital impact of producing FEMA units in the prior year. During the quarter, we allocated $143 million of capital for the strategic purchase of common and preferred shares of ECN Capital. Subsequent to the quarter end, we used $318 million of cash to purchase Regional Homes. In addition, we assumed $93 million of debt primarily related to inventory floor plan liabilities. We remain focused on executing on our operational initiatives and given our favorable liquidity position plan to utilize our cash to reinvest in the business and for opportunities that support strategic long-term growth. Since closing on the ECN investment, we have been working to develop the business plan for the strategic partnership with Triad financial services, including the roll-out of Champion Financing branded floor plan programs for our retail and community channel partners, as well as tailored retail loan programs for our retail network. We are targeting launching these programs in January 2024. As a reminder, the partnership is an asset-light structure, leveraging Triad's existing origination and servicing infrastructure and ECM's funding capabilities, which include relationships with community banks and leading institutional investors with no loan risk on the Skyline Champion balance sheet. We will be reporting the impact of the ECN common stock investment and the results of the captive financing partnership on a quarterly basis. We began the integration of Regional Homes upon closing of the transaction in mid-October. The teams have been meeting to share best practices and to begin to capture synergies. As a reminder, we anticipate synergy capture of $10 million to $15 million over the next two years, including manufacturing procurement synergies leveraging our national footprint and operational improvements from sharing best practices across production and sales. The Regional balance sheet, including retail finished goods inventory, will be revalued to its fair value and will negatively impact the company's consolidated gross margin in the next several quarters as those homes are sold. In addition, SG&A will increase for the amortization of intangible assets generated from the acquisition.

Thanks, Laurie. As we manage through the rebalancing of our channels, we believe Skyline Champion is well positioned due to our affordable price points, strategic positioning, and our core initiatives. The long-term outlook for demand is supported by the channel opportunities with community REITs, manufactured rent, and builder-developer growth as well as helping our retail partners adapt to changes in consumer demographics. In addition, the need for affordable housing continues to grow every day, and we believe that the elevated cost of housing will drive more traditional site-built buyers to our homes. Before we open the lines for Q&A, I want to take a moment to thank our people. The entire Skyline Champion team, as our consistently strong performance is a result of the amazing things they make happen each and every day. So with that, operator, you may now open the lines for Q&A.

Thank you. Our first question is coming from Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Yes. Good morning. Thanks for taking the questions. I wanted to start with gross margin. It sounds like in the quarter, the maybe the weaker than expected result, it was more a function of some of these plant operating costs versus maybe increased competition or discounting. So I just wanted to make sure that was right? And then just sort of going forward, is the thought process that you're maybe keeping more employees on or keeping more shifts in preparation for that return of demand? Is that one of the reasons why gross margin is going to maybe stay a little bit subdued here in the near term?

Yes, Greg, I think that you summed it up pretty well. We are definitely seeing, in addition to the things that you mentioned, a product mix shift that we were anticipating but to a greater degree as well. So yeah.

And just in terms of maybe quantifying a little bit more relative to this previous quarter, what kind of compression should we expect over the next quarter or two?

Yes. For the next few quarters, we're definitely going to have a lot of moving parts. So we're going to continue to see the product mix shift, with the consumer trying to reach a more affordable monthly payment with interest rates where they are today, as well as the ramping plans and then the impact of the Regional purchase accounting on gross margin. So we are expecting probably around 200 basis points.

And the purchase accounting was kind of 40 to 60 basis points, correct?

Yes, I did mention that last quarter. We are still working through all the numbers based on the closing balance sheet.

Yep. Okay. And then I don't know if you can maybe talk a little bit more about Champion Financing and what that looks like over the next one or two years. I know ECN, the partner here, they have publicly stated the expectation of that JV contributing $40 million of pretax income per partner in calendar 2025. I think maybe they said at least $40 million, if I remember right. Is that something you want to bless as well? And if that's the case, just kind of curious what that ramp might look like over the next couple of years?

Yes, Greg. I think the ramp is out there. I think ECN mentioned 12 to 24 for their 50%. So I think that's where you're looking at that piece for that. The JVs are obviously in a great position. We are very excited about that, especially given the banking conditions that we are seeing today. I think the fact that ECN has capital flow partners from Blackstone and Carlyle is tremendous in today's market. We have already seen two or three banks, regional and community banks, start to exit out of the lending space for our customers. As there is further pressure, and we anticipate some further pressure on regional and community banks, making sure our customers have access to liquidity is very important for our dealers and obviously our partners and builder-developers as a matter of fact. So I think having that partnership with ECN is vital and especially with the strong relationships they have with Blackstone and Carlyle, who committed an additional $1.3 billion worth of capital. So infusing liquidity into the market when community and regional banks do strain is a strong leg forward for us. As Laurie mentioned, we are getting things set up right now. We anticipate we will have the systems and other things ready to go by January timeframe, and so we will really start to ramp it in the calendar year of 2024, and so I think everything's on track for that and the teams are working very well together.

Yes, makes sense. And just to be clear, I was talking calendar 2025. I think they mentioned 12 to 24 in calendar 2024. Is that right?

Yeah, that's correct.

Okay. Makes sense. Okay. I will leave it there. Thanks.

Thanks, Greg.

Thank you. Our next question is coming from Daniel Moore with CJS Securities. Please proceed with your question.

Yes, thanks. Good morning, Mark. Good morning, Laurie. First off, just wanted to clarify comments, Mark. I think you said fiscal Q3 revenue up mid-to-high single digit sequentially. Is that correct? And if so, is that organically or inclusive of Regional?

That's inclusive of Regional, Dan, in that number. Yeah, we expect somewhere at least in that range mid to high single digits at least for the quarter. Sequentially.

Got it. And it sounds like some communities are returning, while some are still destocking. Are there any discernible differences, be it regional or other, that you can identify, or is it more community versus community?

It's really more community by community. We have seen actually a handful of communities return. They have been starting to order and get back on a normal cadence. Others are still in that destocking process. So it's I don't want to say it's fifty-fifty, Dan, but it's definitely a split between the communities that are starting to move and others are still in that pause mode.

Got it. And what can you say just in terms of longer-term progress that the Genesis Solution is making? We focus on those top 100 builders, but even beyond that, in terms of sort of converting to your solution. I recognize it takes years, not quarters, but what's the sort of momentum or cadence of those dialogues?

The momentum is phenomenal, actually. I think now that interest rates have stayed up a little bit and are forecasted to remain elevated longer, according to the Fed, it's really causing builders to take a look at what that outlook is. Right now, a majority of builders are buying down loans to drive their volumes and I look at our quarter: we had order growth of 20% sequentially, and orders year-over-year grew by 250%, and that's with no buy-downs, no real incentives to drive volumes. So I think the affordable price point is there and with their cost to capital for small to mid-tier builders kind of ranging in that 14% range for development, that's a huge incentive for them to switch to our solutions to where we can save them 9 to 12 months of cost capital time. So it's tremendous. So I would say the momentum is definitely picking up, especially now that people are looking at the fact that buy-downs can't last forever and the Fed's extending longer. I think that really motivates builders to look at alternatives because they can't maintain that approach indefinitely.

Got it. Helpful. And last for me, just circling back to the gross margin, I appreciate the color and commentary. You know, 200 basis points, kind of back down to the 23% range, maybe a little conservative, we'll see. Just talk, Laurie, about when we get through the purchase accounting and get to maybe back to 60% to 65% utilization, where you see margins leveling off even at this new, let's say, if it's a new norm for a longer period of time in terms of lower price points, mix, etc., where you sort of see us leveling off over the next 4 to 8 quarters?

Yes, Dan, thanks for the question. We still think that our long-term structural margin targets are in that mid-20% range. So I do believe that we're going to get back to the targets that we talked about historically; it's just going to be bumpy for the next few quarters.

Alright, very helpful. I'll jump back with any follow-ups. Thanks.

Thank you. Our next question comes from Phil Ng with Jefferies. Please go ahead.

Hey, Mark. You sound pretty excited about this direct-to-builder channel. Certainly, you have some excess capacity right now with a softer demand backdrop. What's your ability to kind of pivot to serve that a little more fully? Is there anything you need to do on the labor front or the facilities?

Thanks for the question, Phil. No, that part of the reason we're running this quarter, we ran at 53% capacity utilization. Part of the reason we're choosing to run at less than optimal capacity utilization is really to ensure we have that available capacity to enter that channel. Right now is that pressure point, and I think a lot of builders have been buying down rates thinking that this would be a short-term fix to keep their sales up. I think now that it's more of a marathon than a sprint in terms of rate buy-downs, they're starting to reconsider. So I think we've got the infrastructure in place to move into that channel very quickly, which is why I think the pipeline is shaping up the way it is for us.

Okay. That's helpful. And then how do you see this ECN integration rolling out and progressing over the next 6 to 12 months? Any big milestones you want to achieve ahead of the spring selling season? And then you called out how having this partnership now gives you better access to liquidity, especially in an environment where credit's a little tougher. Does it help on the rate side of things as well? Do your consumers get a more competitive rate now versus when you didn't have this partnership previously?

Yeah, Phil. We haven't done anything to drive rates in a different way. There are some benefits, I think, to our partners in terms of rate that we can look at, especially with our turnkey solutions that we're offering. If they're buying from us, if they're using our construction services, they're using our floor plan and other things, I think overall, we can look at it from a volume discount basis that will definitely help them in some ways. I really think the benefit for them is going to be a few-fold: 1. It's access to liquidity. 2. The speed at which we're going to deliver. So we're working hand in hand with ECM in the Champion Financing program to really deliver a great customer experience with faster turnaround times, better offerings in terms of what we can deliver to them. And then I think the third piece is, as I said, a suite of services where they have one partner they can deal with for multiple needs, and obviously competitive rates to the end consumer is really what it's all about.

Super. And just one last one for me. How do you see your sales cadence wrapping up in the fourth quarter? You talked about 3Q. It's just kind of a noisy year, so it would be helpful to get your perspective on how the quarter shapes up. Do you expect pricing and mix to stabilize here, or could there be some further degradation in the back half?

Yeah, I think there is going to be a little bit of noise. We are going to have some choppiness as we integrate Regional; they have a different price point and other things that we'll have to bring in here. But I would see revenue up sequentially and then continue to grow into spring, as the market ramps and some of the community customers continue to come back. I really think it's positioned very well. ASPs are going to be a little bit noisy, to be honest, just because with the mix of retail versus manufacturing, you're going to see kind of volatility in rates. This isn't really a price deterioration or increase; it will be more mix-oriented as Laurie mentioned earlier.

And then Regional mix is down or up? Or I just want to make sure, you made some integrated Regional. Just want to ensure I flush that out.

Yeah. So Regional is seeing the mix shift that we are seeing more broadly across all of the plants. So where last year they had higher prices, their prices are coming down as well just due to the mix shift in the monthly payment price point that the customer is driving. So we do expect ASPs to come down just generally sequentially from the second quarter to the third quarter and probably stay in that range for the next few quarters, as we work through that leveling of mix.

Okay, thanks a lot.

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

Hi. It's actually Christopher Kalata on for Mike. Just to follow-up on the Regional discussion, now that the deal is closed, is there any more specifics you could provide in terms of expected unit contribution in next quarter and into 4Q, just given the additional color you have now?

Chris, thank you for the question. We don't break out Regional separately in terms of the guidance; I think they are wrapped up in our overall statement of how we see the third quarter shaping up.

Got it. Understood. And then just maybe shifting towards the changes in your core customer dynamics following the move-up higher in rates. Have you seen a change in order trends in the last month or two? How the financing environment has shifted in response to the move higher? Have spreads expanded? Any color you could provide on the health of the core and which consumer today, relative to a few weeks back and the financing changes?

Yes. Thank you, Chris. I think I'm actually fairly confident in the consumer right now. We've seen, like I said, one thing I look at very directly is the fact that our unit volumes and our order rates have picked up 20% sequentially, and as I said earlier, I think 250% year over year, and that's without incentives. So I think that we're seeing that drive to affordability. We are seeing customers look for a better alternative, and we don't really have to drive huge financial incentives to capture that customer base. Our customers right now are seeing probably the best rates we are seeing right now for the channel at about 8.5%. I would say the average is probably closer to 8% to 9%. If they're poor credit, they are in the 10% to 11.5%. So, but it's a great spread right now, 50 to 100 basis points that we are seeing for channels, which is very competitive in the marketplace today. So it's a great value for our consumers.

That's it. Thanks for taking the questions.

Thank you. We do have a follow-up question coming from the line of Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Yeah. Thanks for taking the follow-up. Can apart from the, excluding this purchase accounting, will Regional's gross margins be accretive, or are they kind of in line with that mid-twenties gross margin? I forget whether you have talked about that before, but maybe you can remind us?

Yes, Greg, they're a little bit lower. So we've got to work on bringing in the synergy capture over the next couple of years to bring that up.

Okay. Got it. So maybe that's part of the mix shift as well. And then just thinking longer term, I know Laurie, you mentioned kind of getting back to mid-20s, but why wouldn't it be higher? Whether it's in that kind of 26% to 27% range that you were talking about previously or even somewhere in the higher 20s, just under more normal capacity utilization levels. You mentioned the synergy capture. It just feels like, but I just wanted to maybe flush that out a little more if I could?

Yes, Greg, the 26% to 27% is still certainly doable. At normal capacity levels and obviously as volumes increase, there's some upside potential there too. So we see it in that range, 25 to 27% whatever.

Okay. So it doesn't sound like anything changed in terms of getting back to that lever long term versus what we were thinking last quarter?

Not from a long-term perspective, no.

Yeah. Okay. All right. Understood. Thanks for taking the follow-ups.

Thanks.

Thank you. It appears we have no further questions at this point, so I'd like to pass the floor back over to Mr. Yost for any additional closing remarks.

I would like to thank everyone for participating in today's call. We appreciate the time and your continued interest. We look forward to updating you on our progress in our third-quarter call. Thank you and have a great day.

Thank you.