Good morning. Welcome to the Champion Homes Fourth Quarter Fiscal 2025 Earnings Call. My name is Sherry, I will be coordinating your call today. A 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 of our business results for the fourth quarter and full year ended March 29, 2025. Here to review our results are Tim Larson, Champion Homes President and Chief Executive Officer; and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer. Earlier this morning, 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 will now turn the call over to Champion Homes CEO, Tim Larson.

Thank you, Jason, and good morning, everyone. On behalf of the Champion team, I'm proud to report that in fiscal 2025, we provided over 26,000 homes to customers and families across the U.S. and Canada. This represents a 19% increase in homes sold year-over-year and revenue growth of 23%, resulting in fiscal year 2025 sales of $2.5 billion. Unit volume increase was driven by higher demand across all channels, including from the Regional Homes acquisition for the entirety of the fiscal year. Our performance was driven by an unwavering focus on our customers and executing our strategic priorities. We are investing in new product services for our channel partners and expanding our retail capabilities, including today announcing an acquisition of Iseman Homes, which I will discuss further in a moment. We were very active in the marketplace during the quarter and had a tremendous reception to our new products at the International Builder Show, where we showcased models laser-focused on providing builders with relevant and affordable turnkey homes. In March, we had a great response to our Biloxi Show product lineup, reflecting the strength of the Champion Homes family of brands. More recently, we were able to engage with leadership from the Department of Housing and Urban Development. We are encouraged by the dialogue and the positive feedback we received during their recent visits. We are impressed by U.S. HUD Secretary, Scott Turner's commitment to making homeownership more attainable. I appreciate the time we spent touring our homes and his willingness to learn how we can further expand manufactured housing to address the affordability needs across the country. The recent spotlight in Congress to reaffirm HUD's role as the sole regulator and removing the requirement that manufactured homes be on a permanent chassis are all steps in the right direction.…

Thanks, Tim, and good morning, everyone. I'll begin by reviewing our financial results for the fourth quarter, followed by a discussion of our balance sheet and cash flows. I will also briefly discuss our near-term expectations. During the fourth quarter, net sales increased 11% to $594 million compared to the same quarter last year, with U.S. factory built housing revenue increasing 10%. The number of homes sold increased 5% to 5,941 homes in the U.S. compared to 5,652 homes in the prior year period. U.S. home volume during the quarter was supported by healthy demand across our retail and community channels. The average selling price per U.S. home sold increased by 5% to $94,300 due to product mix, including a higher number of units sold through company-owned retail sales centers. On a sequential basis, U.S. factory-built housing revenue decreased 8% in the fourth quarter compared to the third quarter fiscal 2025. We saw a sequential decrease mainly due to expected seasonality as well as an impact from weather across the south. In addition, manufacturing capacity utilization was 60% compared to 63% in the third quarter. On a sequential basis, the average selling price per home was relatively flat. Canadian revenue during the quarter was $25 million, representing a 22% increase in the number of homes sold versus the prior year period. The average home selling price in Canada decreased 9% to $110,600, primarily due to a shift in product mix. Consolidated gross profit increased 55% to $152 million in the fourth quarter. And our gross margin expanded 740 basis points from 18.3% in the prior year period. The higher gross margin was primarily due to a product liability reserve of $34.5 million recorded in the fourth quarter of last year that did not reoccur in fiscal 2025, as well as…

Thank you, Laurie. While we anticipate near-term order rates to vary by challenged geography, the need for affordable housing remains ever present across the U.S. and Canada. The long-term outlook for Champion is strong, and we have the strategies in place to deliver for all our stakeholders, strategies that we are thoughtfully executing as we evolve the team with a combination of internal advancement, new talent and select engagement of outside resources. Our guiding priorities are not only for the long term, they provide a clear road map for today's environment and deploying our capital, including winning as a customer-centric high-performance agile team, innovating and differentiating with products and services that bring in new buyers, expanding and elevating our go-to market channels, including delivering experiences before, during and after the sale that earn new customers and their referrals. Increasing awareness, demand advocacy for our brands in homes and leveraging our cost, capacity and investments in people and technology. Finally, I would like to recognize the entire Champion Homes team for their exceptional efforts to grow revenue and earnings in fiscal 2025, and as we work together to continue to execute our strategic initiatives for all our stakeholders. And now, let's open the line for questions. Operator, please proceed.

[Operator Instructions] Our first question is from Daniel Moore with CJS Securities. Please proceed.

Thank you. Good morning, Tim. Good morning, Laurie. Maybe start with just elaborating on the discussions with customers in both retail and community markets and the cadence of order rates into April and thus far in May and maybe a little bit more bifurcation by geography. Obviously, Florida by all accounts has been soft, but where are you seeing pockets of strength, pockets of weakness, et cetera.

Hey, good morning, Dan. Encouraging wise, we're seeing digital leads are up across a lot of our regions. But then when we talk to the retail teams, the in-store traffic has been mixed and certainly by region of the country. And as I talk to our independents, they're seeing similar impacts in terms of certain areas where there's strong traffic, others that are a little weaker. But what I would say, in general, what's encouraging is that there's more buyers, active buyers and those buyers are ones that are more motivated to obviously purchase a home and our financing programs are helping that. So I would say there's more serious buyers in the market, and that's why we reflected our low single-digit growth for Q1 versus some what you're seeing in the broader market. But I would say it's been mixed traffic this spring. But we've been driving more leads, certainly driving more of that engagement with our consumers at our retail stores. But it is more a mix, and that's why we signal a more low single-digit rate for the quarter.

Sorry, that's helpful, Tim. And on the community side, a little bit of continued interest, but maybe kind of a slow burner holding off for now, trying to remember your exact commentary in the prepared remarks, but any elaborate there would be great. Thank you.

Yeah, we were up in the quarter year-over-year in the community segment and we've certainly seen some returns with key customers there. But I would say it's mixed for some projects and some community developers that are pacing a bit but we've been pleased with the growth of the community segment over the last year. They're now at 28% of our overall units, which is strong. And so we're pleased with how that's going. But we're just balanced about the community segment given that they face some of the dynamic with the consumer as well.

Got it. And then on the SG&A side, increased sequentially despite a decline in -- sequential decline in revenue. Can you maybe break that out a little bit about how much was incentive comp versus investments in marketing and technology. Just trying to get a sense for how much SG&A in Q4 could be temporary versus kind of permanently higher cost structure?

Good morning, Dan. I would say, we should remember in the fourth quarter that we have quite a few of our industry shows that's kind of a cyclical timing issue for us in the fourth quarter. So that won't reoccur quite as strongly going into the first half of next -- of this fiscal year. So but we aren't going to break out the components individually.

Understood. Okay. And then just last one for me, continue to utilize buybacks as an arrow in the quiver in terms of capital allocation. With the shares indicating where they are this morning, just your thoughts about being more aggressive, cash continues to grow, but despite buying back shares more aggressively. So, any thoughts on that front? And thanks again for the color.

Yeah. Obviously -- go ahead, Laurie.

No, that's okay. Yeah, well, we have a really balanced capital allocation profile. So we'll keep an eye on that and obviously be opportunistic if the shares allow and just make judgment calls based on our overall strategy, Dan.

Thanks again.

I was going to add, Dan, that we're pleased we refreshed our commitment to share repurchase, and we've added $100 million of cash versus last year, which certainly gives us options across our capital allocation.

Our next question is from Greg Palm with Craig-Hallum Capital Group. Please proceed.

Yeah. Good morning. Thanks. Going back to the quarter, I think you had maybe talked or mentioned about some unfavorable weather conditions. Just based on order rates and any backlog, was there any inability to ship homes from retail to end customers? I know you had a dynamic in the year-ago period that came into play. I was just curious if that was impacted at all this quarter as well.

Yeah. The Texas market and part of the South was a bit slower than typically would be -- so there is some impact there. And we factored that into the first quarter of fiscal '26. But I think that plus some of the consumer dynamics that I mentioned are factoring in. But we feel like we're in a good position now with where we are with our inventory and the opportunity to move in a nimble way given consumers' demand that if that continues to grow. So I think we're pretty balanced there.

Yeah. Okay. And I guess it's not a secret that housing overall is pretty soft, but I know activity here has held up maybe better than stick-built, if you want to call it that. But I'm just curious, if you just take a step back a little bit about manufactured housing specifically in the customer base and the demographics. And what gives you a hope that maybe this is a time for more meaningful share gains? Maybe you can talk a little bit about sort of deregulation in there as well because there's obviously some important things going on behind the scenes.

Yeah, for sure. There's a few different levers there. One of our commitments to have captive retail is that's where you really can drive the customer experience and the speed with the customer and you combine that with your consumer financing program. So that's why we're expanding Iseman. Second, another area you mentioned is the regulation elements. We're encouraged by the focus on reducing the chassis meet requirements, looking at different approach in terms of the reform around zoning potentially so that more local municipalities are supportive. Obviously, removing the chassis is going to help that in certain markets. The other driver is just an overall awareness. When we have the HUD Secretary walk through our homes, his feedback was positive, while we had beautiful home so well built, just getting that efficacy out there. So more consumers are aware of it. You see that with our investment in marketing spending, and obviously, what we're doing digitally. Then in terms of the consumer, really making sure they're aware of the price points that you can get in the brand-new home. And that's obviously the key is our financing program, so you can get a customer matched to the right spot with that right price point, just getting more awareness in the market and pulling in new consumers, and we're putting our digital spend to work there. We're using social media to attract people who typically would may be aware of our products, and pull them into our retail. So those are all drivers. Now that's against the backdrop that there's more challenges with the consumer in terms of some of the uncertainty we're seeing. So that's why we're investing to make sure that we're getting into their mindset in terms of consideration purchase. The combination of those things I think are really are what's going to be in the near-term key. But then from a longer-term, our product innovation spend is to make sure that we have a range of products for those range of customers that are looking for the different types of homes and needs. And you saw that at the show, maybe bring out our shows where you see the type of new products that we're coming out with. And I think those are all key in terms of growth and the strategic priorities that I laid out in my remarks.

Yeah. Okay. Makes sense. Thanks for the color.

Our next question is from Matthew Bouley with Barclays. Please proceed.

Good morning, everyone. Thank you for taking the questions. I'll ask on the gross margin. The change to the near-term guide, I think you said 25% to 26%. I think previously, it was in that 26% to 27% range. So my question is if some of the, I guess, pressures that you're seeing today if your view is there sort of more temporary and that the 26% to 27% is still realistic over time. Or is it that you're kind of still, I guess, looking for what the structural gross margins of the business should be going forward as, obviously, the business mix has shifted over the years? Thank you.

Good morning, Matt. Thanks for the question. We do think that lowering to the 25%, 26% range is just for the short term based on softening consumer confidence and decrease in demand in certain markets as well as some inflation that we're seeing in material costs. Long term, we still expect structural margins to be in the 26% to 27% range based on the improvements that we've made across the platform.

Got it. Okay. Thanks for that, Laurie. And then secondly, interesting discussion at the top there around some of your discussions with the new HUD Secretary. Maybe just around that potential removal of the permanent chassis requirement. Any color on sort of what that would do for your own costs? How realistic is that actually happening? And I guess how would you then react around either passing that through to consumers or maybe just impacting other designs just kind of giving you more flexibility in the product design? Just how would that all play out? Thank you.

Yeah. First off, from a consumer perspective, it allows you to do maybe two stories more effectively, give some elevations because you can do more slab on grade. So it drives that benefit from a curb appeal. And then there's some municipalities that are still hung up on having a chassis in their home. So it helps with the zoning support. From a cost perspective, certainly not having the chassis. You need it for transport, different types of transport that may be lower cost. So there is some opportunity there. As far as how we would approach it, our goal is to create the right product, price value. And if we have a chance to do that for a consumer, it just allows it great, but obviously, we want to continue to drive margins. We'd have to look at the balance there. But it's encouraging that it's actually now in discussion and the progress in terms of regulators. And I think because of the strength of the quality of our homes and the way that we can deliver them, it really gives us the confidence that this should happen and likely will happen. But all optimally has to go through the bills process, which is well underway at this point. So we're encouraged by it, and we're also looking at product innovations that would leverage from it. So we'll keep you posted as it evolves, but it's an encouraging time.

All right. Thanks, Tim. Good luck, guys.

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

Good morning, thanks for taking my questions. A couple of follow-ups here. First on the gross margin dynamics, I guess, can you be more specific about what role the input costs are playing in the near term? Because if I look at kind of wood products, even lumber is up a little, OSB down a lot. So I would think your blended wood basket is actually kind of flattish, but maybe just give us a sense of what's impacting -- what's the cost impact versus that mix or mix down impact in your near-term margin expectations?

Hey, Mike. Good morning. I would say that we're obviously going to break out components, but we do have portions of our wood products that we buy at the spot rate and also portions that we buy on contract. So the mix of those don't necessarily align a 100% with the spot rate activity. So we need to keep that in mind. We're also seeing some increases in some other component costs across the board. So -- and then we are seeing some pricing pressure in certain regions of the country based on consumer confidence.

Okay. Got it. I appreciate that. And then just a follow-up on that response to Matt's question on the permanent chassis requirement. In your -- with builder developers specifically, as you -- as you've kind of rolled out and tried to promote the Genesis brand and build those relationships. Has that been a hang up in your discussions with builders because that is a limited factor? Or how would you describe that when you think about the potential on that part of your business or further that part of your business specifically? And then if I could just ask more broadly when you talk about kind of some more measured pace on that side of the business recently understandable, but maybe just put some numbers around that.

Yeah. Great question. In terms of the chassis, yeah, that is a key opportunity with those developers because oftentimes, those developers are going into new municipality, new land zoning and that certainly would help if they're looking for that more single-family, slab-on-grade look. The other factor is those builders at times are looking for two-story projects, which this would be an advantage for that approach. In terms of the overall builder developer, the pipeline is continuing to build, and we've had really good response to the new products that we've come out with. One of the realities of that business and given it's a smaller size in our total portfolio is the time it takes for those projects. They can be anywhere from 12 months to 24 months. So that pace does impact when those more orders really materialize but we're encouraged by the pipeline, and we're working directly with those builders. And I think the pacing also is with the [macroeconomic] (ph) environment, some of them are looking at the phases and how quickly they deployed but we're working with them directly to make sure that we can help and support that and move those projects along. And we're leveraging what we've learned from the projects that we've done so far. So again, that's a longer-term development channel for us, but it's one that both the regulatory opportunities and the way we're pacing this is really helping. So I appreciate the question on builder developer.

Thanks, Tim.

Our next question is from Phil Ng with Jefferies. Please proceed.

Hey, guys. I guess a question for Laurie. Your near-term margin guidance is pretty steady from Q4, which is great. But certainly, we're still seeing impacts from tariffs. It doesn't sound like it's massive, but help us kind of think through how that could impact margins and do you have to take incremental price because you kind alluded to perhaps some pricing pressures in certain markets.

Hey, Phil, good morning. Yesh, so we're not seeing a significant increase in tariffs currently. We are watching and monitoring as it changes on a daily basis. So keeping track of that and understanding where our product comes from and what the impact will be and then just being proactive about sourcing from other locations and so forth. So where we have an active playbook of things that we can do when that comes up, but we're not quantifying what that will be.

Okay. But -- let's say, if you do see a little more inflation, just given that the current demand backdrop, do you feel comfortable that you have the ability to take some price? Or you're going to have to manage through that, I guess, in the near term?

I think it depends on the region of the country. So, keeping in mind that our plants ship within a 500-mile radius generally without being too cost prohibitive on transportation. So ultimately, the decision still lies on price with and at the plant level. We give them guidance, but they have to measure competitively what's happening in their markets relative to consumer demand and pricing more broadly.

Okay. Super. I guess a question for you, Tim. On the Iseman transaction, certainly, you guys had great success with regional home. Can you give us a little color on the opportunity here in terms of driving gross margins higher and some of the synergies. And then the $40 million number, is that all incremental? I just wasn't sure if you guys were selling through them already?

Yeah. In terms of the $40 million, we are -- they are our key customers today, but there's still meaningful opportunities to bring existing volume that they're doing with other providers to us, and we'll do that over time. In terms of the opportunities beyond that, one of the things we've learned this last year at Regional is in addition to the synergies, we can also drive accretive growth, which we did with Regional, and we certainly are prepared to do with Iseman. Ken and his team there are a great team. There's an opportunity to collaborate with both of our organizations from what we've learned. And now we can bring some of the tools directly to that team and directly to the consumer. So we're excited about that and opportunities with product. And so we've got a lot to build on with the success of regional, but also in a broader market in the Midwest. And strategically, obviously, we see we've had a presence in the South and Southeast, where we're excited to expand that in the Midwest. So those are opportunities for us.

Would it be accretive to gross margins out of gates, Tim?

I think we'll get through that. We're just -- obviously announced today, we're going to work through integration. We're seeing some things that are encouraging in that front, but we'll be back to as we work through the acquisition. But we're excited to move to that integration phase next, and we're anticipating closing this at the end of June.

Okay. Appreciate the color.

Our next question is from Jesse Lederman with Zelman & Associates. Please proceed.

Hi, thanks for taking the questions. Laurie, I just want to clarify, so it sounds like in the 25% to 26% gross margin guide, you're not seeing any impact from tariffs yet. Does that number include any baked-in conservatism from potential inflation from tariffs or no?

It does not. No.

Okay. Thanks for clarifying that. I'm curious, can you talk about you're seeing mix shifts lower to either smaller-sized homes or less options and upgrades. Are you also seeing or are able to quantify mix shift from maybe buyers that would otherwise be buying an existing home that are now considering a manufactured home, maybe even a single section. Is that something you can track? Is that something you expect? Maybe can you talk a little bit about what you're seeing at the larger-sized homes?

Yeah. I think in terms of the market trends, we are seeing that smaller size, and that's driven more by price point and monthly payment, which speaks to the consumer environment. As far as new consumers coming in the category, I mentioned our efforts to pull in those consumers. And certainly, those first-time homebuyers are buyers that are looking for entry level but a new home. That gives us the opportunity. So we're starting to see that. But I would say, as an industry, one of the things we have to be focused on is how we attract even more new consumers, and that's why the actions with the administration, what we're doing with new products and certainly the messaging around awareness are key. But now is a good environment to be doing that.

Absolutely. And it sounds like there's some opportunity, even just as industry to do some consumer education from a buying process perspective or a financing perspective and kind of how the manufactured housing, home buying process work. So hopefully, that's something that can be a tailwind as well. One more for you, Tim, and you talked about the dealer portal that you've started to roll out. Can you talk a little bit about how that may work in practice and maybe some signs you're seeing into the effectiveness of that program? Thank you.

Yeah. So, it ties in tandem with our consumer platform at championhomes.com that we launched. That allows them their dealer to visibly see the leads that are coming through and to quickly respond to those and engage with those and then also manage downstream in the process with order status and being able to connect that to our plans. We also are able through that portal to give the latest digital marketing tools and our capabilities that we can do nationally to support them. And so it starts to organize around the hub of how they work with Champion as a retailer and leverage the effectiveness. And so we're rolling it out in phases. The early response has been really good, but we see it as key to integrating the digital experience from the consumer to the retailer and to us as the OEM in an integrated way.

Awesome. Sounds very exciting. Thanks a lot.

Our next question is from Jay McCanless with Wedbush Securities. Please proceed.

Hey, good morning, everyone. Laurie, I was hoping you could drill down more on the price competition. What markets specifically are seeing the price competition? And is it more focused on single section or double-section homes?

Yeah, it varies, Jay. We are seeing a pickup actually in activity out West. We are seeing a little bit of slowness in Florida, as we mentioned and then also in the Northeast. We are seeing a shift to more single-wides and smaller homes, a smaller footprint home with less features and options. And as we mentioned, that will have an impact on margins because our option content generally comes in at higher margins than the base price of the house.

Great. Thanks. And then the second question, still haven't heard FEMA, I think, ordering any homes. Have you all heard anything recently from them, whether it be out West or some of the stuff in the Carolinas?

Yeah. No orders have yet. Obviously, we're working with them to prepare for whenever they're ready for that, but we certainly are supportive whenever that occurs, but no orders at this point.

Okay. And then the last question for me. Just kind of talk about where chattel rates went this quarter versus last year and anything positive or negative you guys are seeing on credit availability for chattel.

Yeah. Credit availability is pretty stable, Jay. And as far as rates, there's still about 150 to 200 basis points higher than the 30-year fixed for a well-qualified buyer.

Okay. Thanks. Appreciate it.

[Operator Instructions] Our next question is from Daniel Moore with CJS Securities. Please proceed.

Thank you, again. My follow-up was on Iseman was answered, but maybe just talk a little about the level of discussions with other regional dealer groups and maybe the M&A pipeline more generally?

Yeah. I mean we're not going to talk about specifics, but bigger picture, you look at our strategy, and we've laid out those five priorities at the end of my remarks, those are aligning how we're thinking about M&A, capital allocation. And certainly, we're excited about Iseman, and we're going to focus on that execution and integration. But certainly, our strategy reflects where we want to put our capital going forward.

Okay. Thanks, again.

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

Well, obviously, you can see in our first month here of operating the agility and action orientation that we have. I mean if you think about, we've had 26,000 homes wrapped up last year, which is the highest ever outside of one year of the pandemic, the acquisition of Iseman Homes. We executed in idling a couple of our plans, which is always a tough decision but the right decision for fixed cost, launched our integrated digital platform that we talked about today. And we talked a bit about purchasing, but we've strengthened that team pretty notably, and that allows us to navigate this environment. We're advocating and advancing policy, and we added another $100 million on our balance sheet and obviously have -- that's in addition to the stock that we repurchase. So as we go forward here, we're in a really strong position with our strategy and our team. We are going to continue to build on that and navigate this environment, and we really look forward to updating your progress, and thank you for your continued interest, and thank you for joining us this morning. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.