Good morning, and welcome to the Champion Homes Third Quarter Fiscal 2025 Earnings Call. My name is Rob, and I'll be your -- coordinating your call today. At this time, all participants are in a listen-only mode. The question-and-answer session will follow today's formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'll 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 of our business results for the third quarter ended December 28, 2024. Here to review Champion's results are Tim Larson, Champion Homes' President and Chief Executive Officer; and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer. 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 introduce Champion Homes' CEO, Tim Larson, who was appointed CEO and a member of the company's Board of Directors in December. Tim is a highly accomplished executive and CEO with decades of leadership in the consumer products and manufacturing industries, including significant experience transforming a diverse portfolio of businesses via customer-driven innovation and omnichannel retail. Tim originally joined Champion Homes in May of 2021 as Chief Growth Officer and led the development and delivery of the company's customer experience growth strategy and omnichannel platform. During this time, Tim has worked very closely with Champion's talented employees, customers and channel partners as well as working closely with the leadership team. I will now turn the call over to Champion Homes' CEO, Tim Larson.

Thank you, Jason. Good morning, everyone. We appreciate you attending today's earnings call. Since joining Champion three-and-a-half years ago, being part of this team and what we do has become core to my purpose. I'm honored to serve and lead our collective team as we embark on our next phase of growth. Champion Homes is a company with a talented team, a strong reputation and a great portfolio of brands and products. Each of those attributes were recently recognized nationally. For the fifth straight year, our Skyline brand was named the most trusted manufacturing housing brand by Lifestory Research. This reflects our unwavering commitment to provide customers with high-quality homes and experiences. Since stepping into the role, I've been actively engaged in feedback sessions across our stakeholders. We've already identified opportunities to further capitalize on our strengths and drive additional value. I'm committed to building on the effectiveness of our strategy, including the expansion of our retail and direct-to-consumer capabilities and strategic investments that support the growth of our community, independent retail and builder developer customers. In my conversations with employees, I'm thrilled by their enthusiasm and willingness to think differently and advance even further as a customer-centric organization. It's already unlocking new ideas and actions to improve and elevate the business. I've already been able to connect with numerous customers in my first 50 days, and I remain impressed by their passion for the industry and the opportunities ahead. In December, I was able to meet with several investors and analysts to share my excitement for the Champion Homes business, and I look forward to building on our conversations, including our commitment to drive sustainable profitable growth and long-term value. As I look ahead, we will continue to execute our differentiated strategy while remaining nimble in a dynamic market.…

Thanks, Tim, and good morning, everyone. I'll begin by reviewing our financial results for the third quarter followed by a discussion of our balance sheet and cash flows. I'll also briefly discuss our near-term expectations. During the third quarter, net sales increased 15% to $645 million compared to the same quarter last year with U.S. factory-built housing revenue increasing 17%. The number of homes sold increased 14% to 6,437 homes in the U.S. compared to 5,643 homes in the prior-year period. U.S. home volume during the quarter was supported by healthy demand across our sales channels as well as an additional two weeks of sales from our Regional Homes acquisition, which closed mid-October of last year. The average selling price per U.S. homes sold increased by 2.8% to $94,900 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 increased 4% in the third quarter compared to the second quarter of fiscal 2025. We saw a sequential increase mainly due to increased shipments after hurricane delays at the end of our fiscal second quarter, both in our plant's ability to ship homes as well as our company-owned retail location's ability to close home sales. In addition, manufacturing capacity utilization was 63% compared to 60% in the sequential second quarter. On a sequential basis, the average selling price per home increased 2.7% due to a higher mix of units sold through our company-owned retail sales centers. Canadian revenue during the quarter was $26 million, representing a 16% decline in the number of homes sold versus the prior-year period. The average home selling price in Canada decreased 0.6% to $122,900, primarily due to a shift in product mix. The reduction in Canadian sales volume can be attributed to a combination…

Thank you, Laurie. It's an exciting time at Champion, and I'm honored to be [collabing] (ph) with such a talented team. While the word Champion certainly conveys the excellence we are driven to deliver, we are also embracing the meaning Champion as a verb to champion our customers and to champion off-site built homes. In summary, after a bit over 50 days in the new role, we have the team highly focused on a core set of priorities, executing the fundamentals, including leveraging our capacity, innovating with product to grow and bring in new buyers to the category, evolving the experience for today's and tomorrow's customers with solutions before, during and after the sale, elevating the awareness of the benefits of off-site built homes, driving a customer centric culture and strategically deploying our capital. I look forward to updating you on these initiatives on our next earnings call. And now, I'd like to open the floor for questions. Operator, please proceed.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] And our first question is from the line of Greg Palm with Craig-Hallum. Please proceed with your questions.

Yeah, thanks. Good morning, everybody, and congrats on the good results here.

Thank you.

Maybe start with just a little bit more of a recap on the quarter and kind of the outlook, I was hoping maybe you could give us a little bit more color on kind of how orders trended throughout the quarter. And then, just in terms of what you're kind of seeing in January, and more importantly, what you're hearing from your customers in terms of outlook for 2025 in general?

Yeah, Greg, as far as Q3 goes in that recap, our plant shipments in retail recovered a little quicker on the hurricane outcomes than expected. So, that was some tailwinds. And then, we were able to increase capacity, as you heard in Laurie's remarks, up to that 63%. So that allowed us to produce more during the Q3. And then, as Q3 went on towards the back half, when seasonality started to come into play, orders slowed a bit. But as we noted, we still have a strong Q4 ahead of us and we expect a low-double-digit growth versus last fourth quarter. And what's driving that is we're seeing healthy traffic at our stores and we're hearing that from independents as well. Quoting activity has picked up here recently and we certainly had a strong response at Louisville. Now, there have been a few geographies that were impacted a bit by the temps and snow. So, that's a consideration. So that's a bit of the basis for why we shared what we did in terms of the fourth quarter view. But all in all, we're optimistic as we start the spring selling season.

Yeah. Okay. Makes sense. And Tim, I think all of us would probably appreciate a little bit more color on kind of what you think the company has done well or maybe could do better or just kind of any change in kind of direction or strategic focus going forward, just given that you're now at the CEO seat now.

Yeah. I mean, strategically, because I've been here 3.5 years, I've been a part of building the strategy and executing the key priorities. So, it's major strategic themes I don't see changing. What we're really doing is, as I mentioned in my remarks, really focusing on the fundamentals, the things that we see work well in the market across our retail operation, how do we expand those. From a product perspective, you're going to continue to see innovating and evolving. We got to be nimble for today's consumer and make sure we can also invite new buyers into the category with product. And from a customer experience, if you think about digital as the front door, then at retail and then what happens post sale, really executing on that experience. And then, really being smart with our capital and deploying it across those strategic priority. So, I think it's really those themes and it's really driving the execution across those themes.

Yeah. Okay. Well, look forward to get progress updates over time. Best of luck. Thanks.

Sounds good. Thanks, Greg.

Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your questions.

Yes, thank you. Good morning, Tim. Good morning, Laurie. Champion, as you described, increase the number of homes sold sequentially. It sounds like recovered from the hurricane a little bit faster than expected. It dipped into backlog a little during the quarter, but still healthy at 10 weeks. Just talk about the confidence and trajectory of order rates as we look to Q4 and early fiscal '26? And should we expect production to roughly align with the trajectory of order rates going forward? How do you think about managing backlogs? Thanks.

Yeah, from a backlog perspective, you mentioned the 10 weeks and that was at the end of the Q3. What I would say as we go forward, we're feeling good about our orders. It's really early in the selling season from the full F '26 view and we certainly are seeing some signs with our retail, as I mentioned that are promising. We obviously got to look at the broader housing market. If you think about F '25 from an economy perspective, there's mixed signals. Some are saying some flat, little up. Now we're very optimistic about our products and our price points as an advantage. And so, as we develop our fiscal year '26 plans, we're planning for continued profitable growth, leveraging our capacity, and we're going to update you further on our next call. But the early signs would indicate we're feeling good about those rates and we're going to execute accordingly.

Great. And one of the themes over the last several years has been a penetration of those kind of top 100 community developers. How is that trending from your perspective? How do you think about the opportunity set there and more generally for Champion and MH to take share from site built where the biggest opportunities over the next, say, two to three years?

Yeah, in the near-term, we were able to have the growth in that channel up year-over-year. It's obviously a smaller channel for us today, but we see over time that really building. And as I mentioned, we executed projects in a number of markets that give us the proof points that we're learning on how do you evolve those, make them go faster and that includes working with the local municipalities. Those particular projects require zoning support, they require the local involvement, and we're learning how to accelerate that. And so, I would say from an opportunity, we're really strong in terms of the long-term view of it. In the near term, it's just working through those realities by market. But we're pleased with the response that we have in those markets to the quality of the homes, the price value, the acceptance in those communities. We just have to have more communities see that and learn from those and embrace those as we go forward. And so, our strategy is going to continue to grow the builder developer channel.

Helpful. Last one for me. I'll jump back in queue. But SG&A, it ticked higher as a percentage of revenue despite the strong top-line growth. How much of that spend or increase would you say reflects incremental investments, including technology and personnel to support growth? And more generally, you gave good color in terms of outlook for revenue and gross margin. How do we think about SG&A in Q4 relative to Q3 and what's a good run rate going forward? Thank you again.

Hi, Dan. So, SG&A is usually about 35% variable. So, as revenue increases or decreases, that 35% variability is going to change relative to revenue. So that's what we saw this quarter as revenue went up, our variable comp structure went up. We are making investments in people to drive our strategy forward, including our captive retail organization and then also investing in technology to support our direct-to-consumer platform and other IT capabilities to support our captive retail as well as back-office enhancements. So, those are going to continue at the pace we saw in the third quarter for the next several quarters.

Understood. I'll jump back with follow-ups. Thank you again.

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

Hey, guys. Tim, congrats to the new role. Looking forward to working with you more going forward. I guess the first question I have is obviously from your prepared remarks, you said it's a pretty fluid situation, but tariffs are top of mind for a lot of investors. It's on a pause, but let's say if it does move forward, whether it's Mexico, Canada and China, how does that impact you? Certainly, you guys do use a lot of wood products. Some of that comes from Canada. But just kind of help us think through the impact in terms of operationally and what that means from an inflation standpoint and your ability to kind of manage that and kind of sustain that gross margin framework, Laurie, you kind of highlighted earlier.

Yeah, Phil, obviously, it is very dynamic and we're monitored very closely. And what I would say is we do have a playbook that has elements from what we learned from COVID that can apply. And from a macro perspective, what we're really going to be looking at is how do we make sure we balance that cost versus price versus volume if we do start to see those inflationary impacts out of the tariffs. Now, we've seen some scenarios where maybe there'll be less of that impact as we think about some of the different supply elements, and that's why we have to take a really piece-by-piece approach for all the different drivers. But our team is already on it and really anticipating that we prepared in the event we've seen some of those things come back after this immediate stay. So, we'll keep you posted as we go along, and we're obviously going to be very thoughtful about how we approach across those three drivers.

Just operationally -- I mean, you guys have a business in Canada, but operationally from a manufacturing and whatnot in Canada versus U.S., is there any trade flow and any color to kind of size up in terms of your supply base in terms of materials and stuff that could be impacted from tariffs? Have you taken a stab at quantifying that?

We feel pretty balanced in terms of our flow of different sources. So, we're not concerned operationally. It's obviously we're going to watch the cost. And as I mentioned, manage that relative price and volume. But really, I think the team is prepared to execute given different scenarios. So, we're just watching it very closely and making sure that we continue to run operations at the levels we need. So at this point, we're just managing it from that perspective.

Okay. And then, this Regional Home acquisition has been a home run for you guys. Having your own captive retailer has been quite additive. Is there a game plan to do more of that, whether it's organically and M&A? And have you gotten any pushbacks just given some of the channel conflict dynamics?

In terms of our ability to operate our retail, when we talk about direct-to-consumer, it really is both supporting our captive, but it's really been supporting our independent because as we make investments in digital, we're sending lead to our independents. We're supporting that. And so, we look at it on a market-by-market basis. And one of the benefits of having a family of brands is we can have multiple brands in the market, which allows us to support multiple retail approaches, and we're going to continue to do that. So, we really see it as a strength because some of the things we learn in captive, we apply to our independents and vice versa. And so, it's really an additive approach to the business and we're going to continue to do that.

Okay. And just last -- one last one for me really quickly. On the FEMA order side, I know the hurricanes obviously was very devastating in the South, particularly in the Carolinas area and then the wildfires in California right now. Is that an opportunity? Have you seen any orders come from FEMA, particularly in the Carolinas thus far?

There's been a lot of conversations in our outreach, both at the federal and local level, but there's not yet any specific orders. We're certainly managing our capacity in anticipation of that, and we're really eager to serve those in the Carolinas as well as in California. So, we'll keep you posted as that evolves.

Okay. Thank you. Appreciate the color.

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

Hi. Thanks for taking my questions, and echo the congrats, Tim. Tim, I guess just picking up on one of Phil's questions in terms of the captive retail, can you give us a sense, just update us on what percentage of your U.S. sales are going through captive retail at this point today? And do you have a target or a vision for what that mix ultimately gets to?

So, it's currently 35% of our sales on the U.S. side. In terms of our goal, I would really say it's going to be strategically how we achieve our growth goals and objectives across a portfolio of channels, which captive is really important. But obviously, we have our independent channel, our community or builder developer. And so, I would look at it as by market where we see opportunities, we're going to prioritize the right channels. And so, we continue to grow it. It's obviously been successful for us, but we're going to take a balanced approach across our channels, including with captive.

Okay, that's helpful. And then shifting gears to the gross margin side, and Laurie, you mentioned the moving pieces, both in the quarter and then going back to kind of the 26% to 27% range. If you bucket out then what contributed to the upside in this quarter and then kind of guide back 100 basis points to 200 basis points lower. How would you ballpark that in terms of the wood product costs versus an assumption of near-term mix dynamics?

Yeah. Mike, we're not going to bucket that publicly. So -- but certainly, input costs was favorable versus our guide at the end of the second quarter, in the third quarter. And I really do not expect to see that continuing based on what force products are doing. And then obviously, we need to look at the dynamics of the tariffs and how they're going to impact pricing. And then, also product mix plays a big piece in our gross margin overall, how much is running through our captive retail versus how much is single wide versus multi-section homes and then option content as well. So, all of that is contributing to our structural margins of 26% or 27%.

Okay, got it. I guess just to be clear, in that comment of 26% to 27%, is that meant to be that you'll be back there in the fourth quarter? And then, are you including a prospective tariff impact in that, or that's just based on kind of what you can already see given the way you purchase and kind of flow through with a lag on your wood costs?

Yeah. So that's what I expect to see in the fourth quarter and that does not necessarily include the impact of tariffs.

Okay, got it. Thank you.

Our next question is from the line of Matthew Bouley with Barclays. Please proceed with your questions.

Hey, good morning, everyone. Welcome, Tim, and thank you for taking the questions. I wanted to go back to California, I guess putting FEMA aside, but just thinking about the tragic events. You guys have a footprint down there with the three plants. I know you participate a lot in ADUs, especially over there. So, just as you kind of think about that rebuild and how are some of those conversations going and how do you guys kind of plan on participating in that rebuild down there? Thank you.

Yeah, we're very eager to help and we've already had conversations there from a local level and also with the team on various products that we think are a good fit. I would say that they're really focused right now on some of the initial work to get the sites prepared and that's going to take some time. But we're proactively working with them when they're ready for those homes to support them. And so, we're eager to do that, but as these things do take some time based on the logistic elements that they're working through.

Got it. Okay. Thank you for that, Tim. And then secondly, just kind of zooming into the very near-term, I think you mentioned a bit of an order slowdown during the third quarter. I'm just curious if that was just sort of normal winter seasonality or if, for example, the rise in interest rates or anything else kind of sort of impacted demand a little bit more than you would typically see during the third quarter. Thank you.

Yeah. No, we saw it as seasonality. And as we've come out of that season, we're starting to see things pick up consistent with the early spring selling season. So, at this point, we're seeing it as a seasonal impact and are encouraged with the early spring selling season.

Perfect. Well, thanks, Tim, and good luck, guys.

Thanks.

Our next question is from the line of Jesse Lederman with Zelman & Associates. Please proceed with your questions.

Hey, thanks for taking my questions. A strong quarter. And congrats, Tim, on the new role. First question is about the new administration. Curious if you've heard anything about maybe potential initiatives or regulatory changes from the top down that may be a tailwind for the sector?

So, obviously, over the years, there's been a lot of conversation on the importance of affordable housing and that's our view as well. And we're optimistic that there are supportive actions on the horizon. Nothing immediate to date, but what I would say is part of the benefit of these builder developer projects we're doing is we can show examples of what can happen in the community. And we're hopeful that at the federal level, the state level, there are more folks taking and embracing our approach there and are optimistic that those proof points will encourage other municipalities to do the same. But there's a lot of actions going on today in the administration and so we're certainly having those conversations and sharing how we can be a solution for affordable housing.

Got it. Makes sense. Thanks for that color. On capacity utilization, so up sequentially, up year-over-year, it seems like demand has been solid across all end channels. What would you like to see to move that even higher? So, are there things that you're waiting for? Are there certain indicators across any of the channels in particular, or just holistically that you're waiting for or looking for before you push that number higher and increase output?

So, as I mentioned, we have all of our key channels. And in each of those channels, we have leading indicators that we can see how the quotes are coming, how the activity, and that really is our cue to look at our production rates. And so, we'll continue to do that. I think we have a very good balance of how we approach that to make sure that we're optimizing our margin and our cost based on how we run the operation and we're going to continue to do that. So, it's really those leading indicators. And our capacity utilization that we shared includes our idle plants. So, while it's 63%, that includes half a dozen plants we're not even operating. So, if you look at the actual number, it's a little bit higher than that, and I feel good about how we're approaching our operational capacity. And as I mentioned, in some markets, we'll look to increase that as we go forward.

Got it. And so, is there any thought to increasing capacity or turning the capacity on in any of those idle plants in the foreseeable future?

So, it's really based on those local markets and not at this time. We've got great plants in many of our key markets that are in a good position with our backlog. So, we continue to watch that, but we're fortunate to have that flexibility if need be.

Great. That's all from me. Thanks so much.

Thank you.

Thank you. At this time, I'll turn the call back to Tim Larson for closing remarks.

Thanks, everybody, for joining today and your continued interest in Champion Homes. We look forward to updating on our progress, and have a great rest of your day. Thanks so much.

This will conclude today's call. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.