Earnings Call Transcript - SKY Q3 2022

Operator, Operator

Good morning and welcome to Skyline Champion Corporation's Third Quarter Fiscal Year 2022 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 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.

Mark Yost, CEO

Good morning, everyone, and thank you for joining. With me on the call is Laurie Hough, EVP and CFO. Today, I will review our third quarter results, discuss our activity so far in the fourth quarter, and give some color on the outlook for fiscal 2023. In the third quarter, we continued to see rising levels of demand driven by numerous factors, including favorable financing, historically low inventory levels, and a rapidly growing base of customers looking for a better alternative to site-built homes. Our attractive product offerings at affordable price points continue to drive order rates higher as industry-wide supply constraints and COVID disruptions remain a headwind to our production levels. Strong order rates drove backlogs up $136 million during the third quarter to $1.5 billion, or an average of 43 weeks of production at the end of the quarter. We anticipate the supply side challenges to continue at least through the first half of Fiscal 2023. We delivered 6,168 homes during the quarter, an improvement of 9% from the prior year. Increased output along with price increases to cover rising material, labor, and freight costs drove revenue to $535 million in the third quarter, up 42% from the prior year. Our frontline teams continue to execute exceptionally well in today's very difficult and unpredictable operating environment. As anticipated, our home sales volume versus the sequential Second Quarter was slightly lower due to planned holiday shutdowns and higher levels of COVID-related absenteeism. Our capacity utilization during the quarter improved sequentially by four percentage points to 68%. We continue to see the benefits of streamlining our product offerings, which allows us to produce more without increasing material usage, and is particularly beneficial in this environment of persistent material supply shortages. During the quarter, we also completed the integration of ScotBilt operations and are exceeding the anticipated acquisition synergies as we leverage the manufacturing facilities in strategic footprints in the Mid-South region. We remain on track with our other expansion efforts, and I'm proud to report that we are a month ahead of schedule in our production at our Navasota, Texas facility. Thanks to our supply partners for providing us the material and the incredible team members that have joined us. I'm really impressed with the workforce and the pace at which they are ramping. As we look forward, market conditions are really starting to come together. We have historic lows in the supply side, while demographic, economic, and migratory factors continue to drive demand. The supply-side housing shortages combined with higher interest rates and inflationary pressures are favorable dynamics for our business model. In these conditions, our advantages only get enhanced. As we have seen in past cycles of rising interest rates, we are better able to convert traditional site-built buyers and gain share. Because of these dynamics, we're even more excited to showcase one of our Genesis Homes in Orlando next week for the International Builders Show. We launched Genesis to help builders during these types of market conditions. The share gains for ourselves and our channel partners will only be heightened by the significant investments we are making in digital enhancements to our business. These investments will help eliminate the friction today's consumer experiences throughout their home-building journey and will provide us with deep analytics to better serve the customer. Strong backlogs fueled by double-digit order rate growth and minimal cancellations, combined with positive market tailwinds and investments, drive our focus on increasing capacity and output. We are continuing to streamline our product offerings and have made very good progress on our long-term plan to incorporate manufacturing technology both on the process and automation side. Our technology partners have done an excellent job solving the unique challenges of our building processes. We will be accelerating investments in technology during fiscal '23. Our supply chain partners have also done an incredible job supporting us during these challenging times. We expect that supply chain challenges will be prevalent throughout the course of this calendar year, as many of our partners have been impacted by COVID outbreaks in the U.S. and overseas. We do anticipate moderate improvement from our supply partners this quarter that will allow us to increase the sequential top-line by mid-single digits in our fourth quarter. It is also because of our partners and our people that Skyline, again, was named the most trusted brand this year. It is only by all of us working together to take care of the customer that we've earned their trust. I will now turn the call over to Laurie to discuss our quarterly financials in more detail.

Laurie Hough, CFO

Thanks, Mark, and good morning, everyone. I'll begin by reviewing our financial results for the third quarter of fiscal 2022, followed by a discussion of our balance sheet and cash flow. I will also briefly discuss our near-term expectations. Net sales increased by 42% to $535 million in the third quarter of fiscal 2022 versus the same quarter last year. We generated revenue growth of $148 million in the U.S. factory-built housing segment, as well as growth in our Canadian factory-built housing segment of $11 million. The increase in U.S. factory-built revenue was driven by an increase in the number of homes sold and an increase in average selling price per home. The increase in the number of homes sold was 9% or 489 units for a total of 5,832 homes compared to the same quarter last year. The average selling price per U.S. home sold increased by 32% to $83,000, primarily due to price increases in response to rising material labor and freight costs, as well as changes in product mix. The sequential growth in revenue in the U.S. factory-built segment was 2.7% compared to the second quarter. The increase in revenue was driven by a 3.9% increase in average selling price per new home, partially offset by a 1.2% decline in the number of homes sold. The sequential decline in the number of homes sold was due to the planned manufacturing shutdowns to perform routine maintenance, as well as planned holidays. We also experienced a higher level of COVID-related absenteeism during the month of December, which has continued to disrupt our production run rate in January. Canadian revenue increased 40% to $37 million compared to last year, with the number of homes sold increasing 6% to 336 units. The average home selling price in Canada of $109,900 increased 33% versus the same quarter last year, driven primarily by pricing actions enacted in response to rising material costs. Consolidated gross profit increased to $157 million, up 119% versus the same quarter last year due to increased sales volume and higher pricing to offset rising material, labor, and freight costs. Our U.S. housing segment gross margins were 29.6% of segment net sales, up more than 1,000 basis points from the third quarter last year due to focused product simplification and material rationalization to improve operating efficiencies in order to better leverage increased production and manufacturing fixed costs. Gross margins were also positively impacted by price increases in response to rising material and labor costs and the timing of certain price adjustments for raw materials under our buying program. SG&A in the third quarter increased to $66 million from $44 million in the same period last year, primarily due to higher variable compensation, the impact of the acquisition of the ScotBilt operations in February 2021, and our continued investment in the enhanced customer buying experience. We expect further incremental investments in the online customer experience and systems integration throughout fiscal 2023. Net income for the third quarter was $68 million or $1.18 per diluted share compared to net income of $22 million or earnings of $0.38 per diluted share during the same period last year. The increase in EPS was driven by a combination of higher revenue and improved profitability. The company's effective tax rate for the quarter was 25.6%, an increase from last year due to recognition of a tax benefit linked to a U.S. R&D tax credit in the prior year third quarter. Adjusted EBITDA for the quarter was $97 million, an increase of over 200% versus the same period a year ago. The adjusted EBITDA margin expanded by 960 basis points to 18.1% due to higher sales gross margin improvement and an increase in fixed cost leverage. Looking forward, we expect inflation on building products and labor costs to remain persistent through the first half of fiscal 2023, due primarily to widespread supply chain challenges on top of elevated levels of demand. We utilize several levers in response to increasing material and labor costs, including price adjustments, product standardization, raw material substitutions, and further operational improvements. Despite our efforts to continue to pass on inflation and implement operational improvements, our production continues to be impacted by the availability and timeliness of raw materials due to supply chain challenges, including the volatility and magnitude of the cost changes for materials. During our fiscal fourth quarter, we expect to see some compression in gross margin versus the sequential third quarter due to recent volatility in forest product inflation. In the third quarter, we benefited from our lumber spot buying program and the temporary dip in forest product pricing, which will increase in the March quarter given the recent increases in lumber costs. As of January 1st, 2022, we had $382 million in cash and cash equivalents, generating $76 million of operating cash flows during the quarter. We remain focused on executing our operational initiatives to enhance our production capabilities resulting in higher output levels. Our favorable liquidity position allows us the ability to continuously reinvest in the business and support strategic growth. I will now turn the call back to Mark for some closing remarks.

Mark Yost, CEO

Thanks, Laurie. We are very pleased with our third quarter and year-to-date results. I'm encouraged by the solid momentum in our business despite the turbulent environment that we are operating in. Our strong backlog and investment to transform home building have us well-positioned to solve the growing need for our homes. And with that, Operator, you may now open the lines for Q&A.

Operator, Operator

Thank you. We will now begin our question-and-answer session. The confirmation will indicate that your line is in the question queue. For participants using speaker equipment, you may need to pick up your handset before pressing the star keys. Please hold for a moment while we gather questions. Our first question comes from Daniel Moore with CJS Securities. Please go ahead with your question.

Daniel Moore, Analyst

Thank you. Good morning, Mark. Good morning, Laurie. Congrats on what seems to be a pretty exceptional quarter. Maybe start with the prepared remarks. I think, Mark, you said sequential growth mid-single digits going into this quarter. Did I hear that right? And was that revenue, volume? How do we think about that?

Mark Yost, CEO

Yeah, Dan. We're looking at that as kind of top-line revenue growth with the supply chain starting to rebound a little bit. We think there's a little bit of sequential improvement quarter-over-quarter.

Daniel Moore, Analyst

Perfect, very helpful. And then, as we open the facility in Texas, do you expect or would you expect some continued sequential unit volume growth as we move into the first half of fiscal '23 or is that TBD based on supply chain and other challenges, etc.?

Mark Yost, CEO

Obviously, supply chain would be a critical factor, but I would expect sequential improvement as the supply chain starts to ease up throughout the calendar year.

Daniel Moore, Analyst

Got it. Laurie, can you provide some insights on gross margin? There have been changes in buying timelines and lumber prices. What kind of compression should we anticipate in this fiscal quarter, and do you see that as a sustainable run rate moving forward?

Laurie Hough, CFO

Hi, Dan. Yeah. We certainly saw in the third quarter some favorability in our gross margin because of the spot-buying programs for lumber. And as everybody is seeing, those costs are certainly increasing pretty steadily and quickly. In addition, we had higher levels of COVID absenteeism that filtered into January and throughout the month, which are going to also impact gross margin. I'm expecting that margins will balance out somewhere between what we saw in the second quarter and the third quarter. And then, of course, keeping in mind at the EBITDA margin level, we're going to see some increases in SG&A sequentially.

Daniel Moore, Analyst

Very helpful. Lastly, could you discuss the biggest bottlenecks from a supply chain perspective? I know it's been challenging, but is there anything specific you would mention to help clarify how long it might take to alleviate the situation? Thank you for the insights.

Mark Yost, CEO

Yeah, Dan, I think supply chain is a game of whack-a-mole, as you mentioned. Right now, I would say that the biggest challenges are things like ductwork and other small electrical components that are still clearing through the system. Different colors in specific grades of roofing shingles, other things like that are difficult to come by. It really changes day-by-day inconsistent, so that's why we'd see some improvement and kind of a steady improvement since we've come out of the holiday shopping season, but it's not consistent. So that's why we're confident we can ramp. We're confident we can bring Navasota and further align it. It's really just a timing issue of when the supply chain fills up throughout the calendar year.

Daniel Moore, Analyst

Got it. I will jump back with any follow-ups. Thank you very much.

Operator, Operator

Thank you. The next question is coming from Greg Palm with Craig-Hallum Capital Group, please proceed with your question.

Greg Palm, Analyst

Yeah. Good morning and thanks for taking the questions. I will add my congratulations as well.

Mark Yost, CEO

Thanks, Greg, good morning.

Greg Palm, Analyst

Maybe to start, can you talk about what you're seeing in terms of order rates year-to-date?

Mark Yost, CEO

Yeah. Order rates have been good year-to-date. Obviously, it's January, so normally there's a lot of volatility in order rates, but I would say overall, I would expect backlogs during the quarter to be relatively flat. So order rates are still very good.

Greg Palm, Analyst

Got it. Regarding the types of new customers you may be encountering, you mentioned that this is the kind of environment where you would anticipate gaining significant market share. Could you elaborate on those comments a bit more?

Mark Yost, CEO

Yeah. Sure, Greg. I think there's a few factors here. One is we're seeing high inflationary pressures across the board, mainly driven on the material and labor sides. Our competitiveness versus our site-built competitors allows us to use substantially less labor per home than site builders do. We use substantially less material than most site builders do. As a result, in inflationary times, we become much more cost-effective, and our position on the cost curve gets much better. That's one key driver; our efficiencies really come to shine in inflationary times. Plus, our general business model generates a tremendous amount of cash, allowing us to grow our top-line revenue with very minimal CapEx investments, and we're able to pass on inflationary pressures. We can raise prices to offset inflation. Those dynamics of our business model are very good. I think that's compounded favorably by interest rate increases. With higher price expectations coming out for the site builders and interest rate increases, customers are forced to find a different alternative. This really plays into us, and encourages builders to switch to an offsite model to achieve success.

Greg Palm, Analyst

Makes sense. That's helpful. Last one, circling back to gross margin. If we think about the go-forward periods and we make some assumptions around demand at elevated levels, and capacity in volumes ramping up, hopefully, you're not going to see the same levels of COVID absenteeism and even some of the supply chain issues that are likely impacting gross margins. Is there any reason not to think that as those volumes increase throughout fiscal '23, you won't see at least a modest lift to gross margin relative to what you're thinking for the current quarter?

Laurie Hough, CFO

Yeah, Greg, there will be some deficiencies that come through as we continue to simplify our product offerings and increase production output. But the majority of our cost of sales is variable. So we'll see some improvement as we continue to focus on product simplification initiatives and efficiencies.

Greg Palm, Analyst

Okay. Great. All right, I'll leave it there. Thanks and good luck.

Mark Yost, CEO

Thank you.

Operator, Operator

Thank you. The next question is coming from Matthew Bouley with Barclays. Please proceed with your question.

Matthew Bouley, Analyst

Morning, everyone. Thank you for taking the questions and congrats on the results. Question on customer qualification and risk of cancellations, given how long they are in the backlog. I believe you said 43 weeks. I know you guys are relatively protected in terms of dealers having to take ownership when you start construction. And I know you've done all the work around testing that backlog, but I'm just curious in this rate environment: number 1, what is happening with chattel rates; and number 2, what is that risk before you start construction? Buyers are in this backlog for a long time; they could either fall out of qualification or have a change of heart related to financing rates. So what's the risk of all that? Thanks.

Mark Yost, CEO

Yeah, Matt. Thank you. Overall, we've seen very low cancellations. Our cancellation rates are very low thus far. Generally, when a dealer puts a home online, they will typically requalify the customer prior to that home going into production. In other words, before it's produced, there's generally a discussion to requalify the customer to ensure that they fully qualify at that time before the dealer places the order. If there are extreme rate fluctuations afterward, then there could be a window before closing but generally, that’s just a few weeks’ time period. We have good visibility going forward on those issues. Right now, we're seeing that most customers are still able to qualify. Many of our customers are first-time home buyers who have good income and credit scores, so they're not on the bubble. When they transition from a $400,000 site-built price to a more affordable alternative, they can generally qualify and maintain that home up-to-date.

Matthew Bouley, Analyst

Makes sense now. That's great color there, Mark. Thank you for that. Second one, I have to go back to the gross margin. Laurie, I don't know if I'm reading too much into this, but the first things you mentioned around the gross margin were the product simplification and material rationalization. I know obviously you discussed the benefit of lumber prices there as well. But just speaking specifically on the simplification and rationalization efforts, are those structural at this point or are those more a function of the tight supply environment? So those efforts may not stick in a more normalized environment for lack of a better term? Thank you.

Laurie Hough, CFO

No, I would say that they're more structural changes. It varies by plant, how far along in the process of simplification we are, but they're definitely more structural.

Matthew Bouley, Analyst

Okay, perfect. Thanks much, and congrats again on the results.

Operator, Operator

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

Mike Dahl, Analyst

Hi. Thanks for taking my questions. First question, and sorry to keep harping on the gross margin side. I'm hoping for a little more quantification of the lumber dynamics because you didn't seem to get hurt by that much when lumber spiked last year. In proportion, the benefit from a temporary dip in calendar '21 seems far in excess of what the spike last spring hurt you by. Can you just go into a little more detail on exactly what was the benefit in the quarter from lumber? And have you made changes to your spot program? Or just help elaborate a little bit more on the spot versus contracts?

Laurie Hough, CFO

Sure. We have made changes. We have a percentage of buy versus contract that varies by plant, Mike. It also varies based on the price of the SKUs. During this quarter, we bought more lumber at lower prices through the spot buying program with the anticipation that prices would go up. We are quantifying it publicly.

Mike Dahl, Analyst

Got it. Okay. Thanks. My second question. Just to think about the demand, the backlog, obviously, the overarching widespread supply constraints, availability of material and labor. I get that, but when you think about your capacity relative to where you're seeing the most demand growth and the most backlog growth, can you just talk about whether you think geographically your capacity is positioned the right way today, obviously, inclusive of what you're bringing on, or if there are further adjustments in terms of where you have capacity that you think are needed in light of the demand trends that you've seen evolve?

Mark Yost, CEO

Yeah, Mike. I think there's two parts to that question. The first is, I think we're positioned geographically well for the demand trends that are out there. If you look at migratory factors in the U.S. and where people have relocated, we have been growing our presence in those states like Carolina, Georgia, Florida, and Texas, which have seen a tremendous amount of migration. So I believe we've opened up capacity and purchased capacity in those regions in advance to take advantage of that. As far as whether we’re positioned well for the demand, I would say that we need more capacity given the number of orders we are turning away daily—we're passing on a lot of orders right now, and definitely need more capacity. It's likely in those same geographies I mentioned, but frankly, I think there's a need for additional capacity throughout the entire country. Some capacity in Eastern Canada would also be beneficial as there's tremendous housing demand there. But generally speaking, very few regions in the U.S. are currently soft in capacity. One or two geographies might appear a little soft, possibly due to seasonal weather in some of the northern climates. The Great Plains region isn't as robust as other areas, but if you draw a line from Texas to Oregon in the U.S., there's fantastic demand present. Our order rate has outpaced every homebuilder significantly this past calendar year, and we've had to turn away many more orders than our backlog indicates, showing robust demand.

Mike Dahl, Analyst

Thanks for that Mark. And maybe my last one. I certainly understand and appreciate your point of view on the potential conversion factor for MH versus site-built, as you see affordability shifts and some of that makes sense, but if I take a step back and manufactured housing did decline in 2018 and 2019 alongside site-built housing the last time we saw a rate shock. So I guess I'm not really seeing it in the data that there were these share gains just a few years ago, and some of the same arguments could’ve been made. So maybe talk through what you see as the differences in this upcoming year or next couple of years versus maybe just a few years ago when that dynamic didn't play out?

Mark Yost, CEO

Yes. I think a few things. First, if you go back through history, looking at historical data, I think we have data in our Investor Presentation. Go back to the 1970s. I know that's not the time period you mentioned, but the 1970s experienced robust growth in manufactured housing, along with extraordinarily robust growth tied to high inflationary rates and pressures that we currently face. A main difference in the dynamic you're referring to is that we didn't have as much financing available back then. As recently as 22 years ago, the spread for traditional mortgages were double what they are now. So when you see rising interest rates today, we still have a lower spread, and many of our buyers are now more qualified. During prior periods, buyers were often cash-only. In contrast, our right channel's customer base today comprises more individuals with decent credit profiles. The build-for-rent model and capital pouring into this segment are also very robust today, contrasting with previous years. Overall, economic trends for demand are more positive. We noticed different profitability margins and competitive positions now than we did back then.

Mike Dahl, Analyst

Thanks for that. I appreciate the perspective.

Operator, Operator

Our next question is coming from the line of Phil Ng with Jefferies. Please proceed with your question.

Collin Verron, Analyst

Hey, good morning. This is actually Collin calling on behalf of Phil. I just want to follow up on the financing environment you're just talking about. Can you give a little bit more color or maybe quantify the size of the spread between more MH Lending and the traditional 30-year mortgage just after the recent move in mortgage rates? And then do you expect any air pocket in demand in calendar year 2022 as higher rates are digested by home buyers?

Mark Yost, CEO

Collin, I think there are a few factors. Currently, the spreads are about 200-250 basis points higher than traditional mortgages, which holds consistent with last quarter. As mortgage rates move to the 30-year mark, you can expect that spread to fluctuate. Regarding potential air pockets, I don’t foresee significant ones as interest rates rise. However, I do anticipate some housing pressures later this calendar year. Single-family starts have outpaced completions in the homebuilding world. So there might be process catch-ups where you see a surge of homes hitting the market as the supply chain improves.

Collin Verron, Analyst

Okay. That's helpful color. And then just on your production rates, you've been able to increase those over the past several quarters. Can you just talk about where you are, I guess, in the long-term process of improving those rates and give us some goalposts in terms of quarterly or annual production over the next couple of quarters and maybe on a longer-term basis?

Mark Yost, CEO

Yes, Collin, we're not providing specific guidance, but it truly depends on supply chain. Currently, we have seven idle plants that we would look to bring on and restart at the appropriate time as supply chain improves and market dynamics continue. Our existing plants are operating suboptimally due to material shortages and re-sequencing of production. When the supply chain improves, we’ll see enhancements and production. Volatility in the supply chain is likely to persist throughout this calendar year, potentially recovering by the end of the year.

Collin Verron, Analyst

Great. Thank you for taking my questions.

Mark Yost, CEO

Thank you.

Operator, Operator

Thank you. Our next question is coming from Jay McCanless with Wedbush. Please proceed with your question.

Jay McCanless, Analyst

Hey, good morning. Thanks for taking my questions. First question, could you remind us where steel fits in your COGS basket, and are you seeing any benefit from the recent price declines in that commodity?

Mark Yost, CEO

Yes. Jay, I think obviously steel pricing factors into our HUD related products that are based on steel chassis. However, the impact from steel costs pales in comparison to lumber. So you can see some relief in there, but it's not significant.

Jay McCanless, Analyst

At least highlight one commodity that is going down instead of up. My second question: you were talking earlier about the communities. Could you maybe talk about where your business trends are with them and what type of volume increases you saw year-over-year in the third quarter?

Mark Yost, CEO

Yes. We don't disclose sales by channel, but the community channel has been very strong and active. If you look at most of the communities, UMH, especially the public ones, which are probably representative of others, have very strong Greenfield development. So we see tremendous upside and they are clamoring for product. Therefore, that trend is definitely in line with growth. The retail channel, our retail distribution partners also show very strong demand with order rates up, and they're producing well with park models and tiny homes. Demand is strong across various segments; it's really about how we allocate our limited capacity to fill that demand today.

Jay McCanless, Analyst

Exciting to hear that the Texas plant is ramping quickly. Could you give us an update on the plants you purchased in the Carolinas, any progress on those?

Mark Yost, CEO

Yes. We acquired two plants in North Carolina. We are looking to bring those on, but we're really waiting on supply chain. It's critical for supply chain consistency; if not, you'll start training the labor only to idle plants a few weeks in. So we will bring on plants in the right geographies as market conditions dictate.

Jay McCanless, Analyst

So really no change from what you were seeing last quarter in terms of being able to get consistent supply into those plants?

Mark Yost, CEO

Correct.

Jay McCanless, Analyst

Okay. And then the last question I have, I thought it was very interesting that the FHFA rejected the GSE's latest duty to serve submissions. Don't know if you had any high-level thoughts about that and anything new or notable in terms of GSE interaction with the MH industry since we talked in the second quarter call?

Mark Yost, CEO

Yeah. Nothing really new on that front and nothing surprising in terms of the interaction between the government-sponsored enterprises. Fortunately for us, I think there is a strong enough secondary market and private secondary offerings that have proven to bring in capital. Those factors are not impediments right now to any of the demand trends we're seeing.

Jay McCanless, Analyst

Okay. Sounds great. Thanks for taking my questions.

Mark Yost, CEO

Thank you.

Operator, Operator

Thank you. Our next question is from Daniel Moore with CJS Securities. Please go ahead with your question.

Daniel Moore, Analyst

Thanks again, maybe one or two follow-ups, just putting together some of the commentary. Mark, the historical perspective is really helpful. Any sense of where, obviously not Skyline Champion's, but just in general, margin profiles were either gross margin or EBITDA during periods of high inflation and rising rates like the '70s that you mentioned previously?

Mark Yost, CEO

I don't have information that goes back that far, Dan, but look, during times of inflationary pressure, generally, the industry can pass on price increases and maintain margin. Of course, there's some short-term volatility as you engage with customers regarding their loans, but over the cycle, you can pass on pricing increases and maintain margins. During inflationary times, site builders can generally see significantly higher pricing compared to manufactured housing, enhancing our desirability.

Daniel Moore, Analyst

Understood. One more just in terms of uses of cash. You can ramp CapEx, and you are obviously reinvesting in the business, but even higher rates probably can't keep up with the level of cash generation. So would you consider alternatives like buybacks to take advantage of periods of share price volatility like we've seen year-to-date or sticking with the status quo in terms of capital allocation priorities? Thanks again.

Laurie Hough, CFO

Yeah, Dan. We're continuing to invest in the business through opening up additional idled capacity, as well as production automation, R&D, and enhancements to our customer base and website. That's our major focus for capital allocations today.

Daniel Moore, Analyst

Okay. I appreciate the color again.

Operator, Operator

Thank you. We have no additional questions at this time, so I would like to pass the floor back to management for any closing remarks.

Mark Yost, CEO

Thank you everyone for taking the time this morning to dial into our call. We appreciate it. We look forward to the future as we solve and transform home building as we know it. Take care, stay safe, stay amazing. Take care.

Operator, Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.