Good morning and welcome to the Champion Homes Second Quarter Fiscal 2025 Earnings Call. My name is Sachi [ph] and I will be coordinating your call today. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to your host, Jason Blair, to begin. Jason, please go ahead.

Good morning. Thank you for taking the time to join us for today's conference call and review our business results for the second quarter ended September 28, 2024. Here to review Champion's results are Mark Yost, Champion Homes President and Chief Executive Officer; and Laurie Hough, Executive Vice President and Chief Financial Officer. Yesterday, after the market closed, we issued our earnings release. As a reminder, the earnings release and statements made during today's 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. 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. Please note that today's remarks contain non-GAAP financial measures which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release. I would now like to turn the call over to Champion Homes President and CEO, Mark Yost.

Good morning, ladies and gentlemen. Thank you for joining today's earnings call. Before we discuss our financial results and outlook, I would like to take a moment to honor the memory of Keith Anderson, a dear colleague, mentor and transformative leader for Champion Homes. Keith served both as a Director and former CEO at Champion, where his visionary leadership and steadfast commitment to excellence left an indelible mark on our company. His influence extended beyond our corporate boundaries as he played a significant role in shaping the broader housing industry through his Board and advisory roles. Keith's career was distinguished by his integrity, innovation and relentless dedication to corporate excellence. Keith was more than just a leader. He was a mentor and a friend to many of us. His wise counsel and warm personality enriched our professional lives and instilled our corporate culture with a sense of purpose and comradery. As we proceed with today's call, we hold Keith's memory dear and continue to be inspired by his enduring legacy. His contributions have not only shaped our past but also laid the strong foundation for our future. Now, let us move to the overview of this quarter's performance. Our performance this quarter demonstrates effective execution across the company, particularly enhancing our digital direct-to-consumer strategy, advancing the integration of Regional Homes acquisition and scaling the benefits from Champion Financing. These efforts have enabled Champion Homes to deliver more value to our customers. The second quarter exhibited strong growth, with home sales increasing 29% year-over-year to 6,536 units. Additionally, we saw a 14% increase in organic sales orders year-over-year, with gains across retail, builder/developer and our community REIT partners. However, at the end of the quarter, hurricane impacts disrupted both orders and sales, affecting both manufacturing and retail locations due to prolonged…

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 increased 33% to $617 million compared to the same quarter last year, with U.S. factory-built housing revenue increasing 37%. The number of homes sold increased 31% to 6,357 homes in the U.S. compared to 4,842 homes in the prior year period. U.S. home volume during the quarter was supported by additional retail and manufacturing capacity resulting from the Regional Home's acquisition that contributed approximately $148 million to net sales during the quarter. The average selling price per U.S. homes sold increased by 4.5% to $92,400 due to a higher mix of units sold through our company-owned retail sales centers. On a sequential basis, U.S. factory-built housing revenue decreased 2% in the second quarter compared to the first quarter of fiscal 2025. We saw a slight sequential decline mainly due to Hurricane Helene's landfall 2 days prior to the end of the second quarter. Several of our manufacturing plants in Florida, Georgia and the Carolinas lost a day or 2 of production and were unable to ship homes. In addition, our captive retail locations were delayed in closing several home sales. On a sequential basis, the average selling price per home increased 1% due to changes in product mix. Manufacturing capacity utilization was 60% compared to 58% in the sequential first quarter of fiscal 2025. Current utilization rates primarily reflect the increased capacity brought online through recently opened plants. Canadian revenue during the quarter was $22 million, representing a 23% decline in the number of homes sold and a 1.5% decline in the average selling price per home versus…

Thank you, Laurie. The outlook for our company remains optimistic, particularly against the backdrop of the broader housing market. Despite the general challenges facing new traditional construction, our operations are benefiting from the healthy demand and resilient margins. This includes revised orders from retailers and builder developers as well as our community partners, reflecting a persistent need for affordable housing solutions. These trends not only demonstrate the resilience of our market but also positions us ideally for sustained growth. Moreover, we are strategically expanding our reach into Builder-as-a-Service and consumer retail sales through digital platforms, complemented by our innovative financing solutions. These initiatives are designed to drive our growth and enhance value for all stakeholders. The recent hurricanes while impacting the near-term timing are expected to ultimately create a surge in demand in the affected regions, affirming our pivotal role in recovery and rebuilding efforts. This positions us to further solidify our market presence and capitalize on long-term growth opportunities. And now, I'd like to open the floor for questions. Operator, please proceed.

[Operator Instructions] The first question is from Greg Palm from Craig-Hallum.

I'd also like to echo your comments about Keith. He had a really strong influence on a lot of people inside and outside the company. So going to be missed by a lot of people here. I wanted to just start with, maybe if you're able to quantify just some of the impacts from the storms near term, both in the recently completed quarter, in current quarter. Any way to sort of quantify either from a volume or revenue standpoint? And I guess the bigger question is, at what point do you sort of catch up that pent-up demand? Do you think it takes a couple of quarters? Is it in the next year? What's your best guess at this point?

Yes. Thank you, Greg. I think production at several of our facilities in Florida, Georgia and the Carolinas were interrupted due to power outages and flooding in the surrounding areas. Retail placements the last week of September in North Carolina and Florida, those stores had to close and insurers stopped binding policies the final week of September. So there definitely was an impact on the quarter. Overall, I think as far as when we catch that up, it really depends a lot on the infrastructure rebuild. So right now, we're assuming it's going to take probably this quarter and maybe a little bit into the next quarter for them to rebuild. But if that clean-up goes a little quicker or the infrastructure moves ahead of schedule, then I think that demand is there.

Okay. And just I think the obvious bright spot in the quarter on the gross margin side of things, really, really remarkable performance there. And I think you're still seeing some purchase accounting headwinds. So maybe a 2-part question. At what point do those end -- I assume we're pretty close but just even looking ahead, not just kind of near term but -- is this a better sort of gross margin rate, knowing that we're going to have, maybe some upside from -- as capacity increases? And maybe just highlight a little bit more on terms of the quarter other than the sort of the mix of units going through captive. Anything else that you want to call out in terms of the outperformance.

Greg, yes, I would say definitely saw some positive impact on gross margins for lower forest product input costs. So we don't expect that to be quite as significant in the third fiscal quarter. So will negatively impact margins. From a purchase accounting perspective, we do feel that we're kind of through that at this point and it will be immaterial going forward. And then as you mentioned, the last key component was stronger captive retail sales than we expected running through this quarter even with the impact of the hurricane. So the captive retail segment did really well.

The next question is from Daniel Moore from CJS Securities.

Maybe just a little bit more color in terms of, obviously, the impact of the hurricanes is helpful. And clearly, we're going to a little bit of a seasonally softer period. Just your thoughts about overall expectations for order rates and backlog. Should we think about backlog potentially moderating for a quarter or two before start -- perhaps, starting to pick up as we get into the seasonally stronger kind of spring and summer selling season. Just thinking how you -- just in terms of how you're thinking about managing production versus order rates for the next, say, one to two quarters?

Yes. Thank you, Dan. I think we were looking at this and expecting a little bit of an order softening going into the presidential election. As I looked at the current last quarter, it was really a quarter of, I'll call it a tale of 2 halves. The first half of last quarter, orders were very strong, kind of in the -- organically in the 30% range. And then, as soon as -- as soon as the presidential candidates mentioned things like a $25,000 incentive, I think orders right after that week started to soften a little bit, as we kind of expected going into the presidential election. So I think the outcome of the election is going to influence that trajectory on orders a little bit. So we've actually purposely been building a little bit of backlog going into the winter season, waiting on the outcome of the elections. So I think order pace is still very good, up 14% organically year-over-year, so very good pace. I think backlogs will moderate a little bit going into December. And I expect, once we get through the election cycle, maybe depending on which candidate wins could influence the order pace in the third and fourth quarter, depending on the incentive structure and/or regulatory environment, each candidate is proposing.

Really helpful. And maybe just following up on Greg's question on the gross margin front. If you had to sort of rank order the favorable impacts of the quarter in terms of kind of the delta between lower forest products or input costs and mix. How would we think about that either sequentially or year-over-year?

Yes, Dan, we're not going to break out the buckets of the impact.

Understood. Appreciate the commentary previously. Maybe just taking the seasonality and impact of the hurricanes out of the equation, can you just talk about what you're hearing from both REIT customers as well as community developers and how that translates into your kind of confidence as we look out beyond the next 1 to 2 quarters?

No, I think the tone in the marketplace is very good. Community REITs were a strong order growth channel. This quarter builder developers were extremely strong. So I think if the order pace slowed at all, it was really in some of the retail channel in certain areas which is really akin to the consumer confidence and waiting for the results of the election, I think. So very good optimism on all sides. Our leads are up. Our quote activity is very strong. So I think people are shopping. They're coming in. We've got good traffic both at retail and with our community partners. So I think the traffic is there. I think people are just holding off on the execution of the buying decision until they see if there's some type of opportunity for some type of incentive post-election.

All right, makes sense. And maybe lastly, you bought back a little bit of stock during -- in the quarter. You kind of basically through the synergies or most of them with the acquisition a year ahead of schedule. Just talk about your appetite for M&A going forward and how we think about capital allocation priorities for the next 2 to 4 quarters?

Yes. Thank you, Dan. I think M&A is definitely a priority for us. We're blessed that the acquisition and the people at Regional and the team at Regional have done amazing things. And so I think that gives us some confidence in doing further acquisitions. Our pipeline is very robust. So I think we're very active in thinking about that and that would be our top capital priority as we go forward and then innovation in driving some of the growth of our platforms and our direct-to-consumer strategy would also be pivotal in that, along with, of course, since we're generating high cash. We have the ability to return some to shareholders as well.

The next question is from Matthew Bouley from Barclays.

You have Elizabeth Langan [ph] on for Matt today. You mentioned that the demand in your builder developer channel was extremely strong. Could you talk a little bit about -- more about that and kind of relative to last quarter, what you've seen with builder sign-ups, whether it's continuing to accelerate or kind of staying stable?

Yes. So the new builder, the new builder capture this quarter accelerated slightly over last quarter. So we're seeing it accelerate. The capture rate as small to mid-tier builders are under pressure. Even the large traditional builders, I think, are starting to see some margin pressure and compression in their ability to meet the demands of first-time homebuyers. So I think that bodes well for us as we go forward. So builder developer continues to escalate and we anticipate it will be a strong growth channel for the foreseeable future.

And then, kind of thinking about the impact of hurricanes. And are you expecting any impact at the inventory stocking position? Or is there anything that we should think about in terms of whether or not people might be -- dealers might be stocking more if they're expecting the demand to pick up or anything around that?

No. I think obviously, dealers are going to start, I think, probably in the near term as they see infrastructure start to get rebuilt in certain areas, start to I would call order because they're going to need to backfill the demand. There was thousands upon thousands of homes unfortunately destroyed. And so the demand for housing in those regions is going to be substantial. So yes, I would expect, as they see the visibility in terms of infrastructure timing, then they'll start to place orders more readily to take care of the homeowners who have been displaced.

Next question is from Fiona Shang from Jefferies.

This is Fiona on for Phil Ng. Congrats on the good quarter. I'm just curious, given the damage from Hurricane Helene and Milton do you guys see any potential upside in unit from FEMA going forward? And comparing to the contract awarded back in the fiscal year of 2023, are you guys expecting to see more unit growth this time?

Yes. I think as far as FEMA, we haven't received any type of orders yet. Obviously, there's been mass destruction in those regions. So the federal government, along with state governments are actively trying to figure out what type of response to do but there's no activity for FEMA as of yet.

Okay. And then just another follow-up. Given the charter rate usually like the 30-year fixed mortgage rates, have you seen any movement for the charter rates for this quarter?

No. The charter rates generally lag changes in mortgages by about 6 months, generally speaking. They're currently running at about a 150 basis point spread for good credit, somewhere north of 8%, so I would say, 8%, 8.5%, something like that for a fairly good credit.

There are no further questions at this time. I would like to turn the floor back over to Mark Yost for closing comments.

I want to thank everyone for taking the time to listen to our call this morning and for your continued interest in Champion Homes. We look forward to updating you on our progress on our fiscal third quarter earnings call. Thank you and have a great day.

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