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Skyline Champion (SKY)

Participants
Sarah Janowicz Investor Relations
Mark Yost President & Chief Executive Officer
Laurie Hough Executive Vice President & Chief Financial Officer
Greg Palm Craig-Hallum
Matthew Bouley Barclays
Daniel Moore CJS Securities
Call transcript
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Operator

Good morning, and welcome to Skyline Champion Corporation's First Quarter Fiscal Year 2021 Earnings Call. The company issued an earnings press release yesterday after the close. I would now like to introduce your host for today's call, Sarah Janowicz, the Company's Director of Investor Relations and External Reporting. Sarah, you may begin.

Sarah Janowicz

Good morning, and thank you for participating in our earnings call to discuss our first quarter results.

call EVP Yost, and today's and and on Hough, Laurie CFO. me is President Mark CEO; Joining I would forward-looking like Reform release meaning and to the Act remind everyone made of this that of during XXXX. call Securities include Private statements the statements within Litigation yesterday's press These subject and to uncertainties actual could cause projections. statements to expectations differ and are results materially risks that from our Exchange include earnings with uncertainties and the and release the in risks forth the factors Such in filings and our Securities Commission. set

today's in A during be be these measures, the release. will which we non-GAAP over turn Additionally, to earnings can call call, discuss evaluating I to we believe measures like would found the can reconciliation useful in performance. now our of Mark.

Mark Yost

everyone. our of the talk morning, our our far will Thank second with progress provide on so quarter and Today, first about initiatives results update and you, about balance and then an in the. fiscal strategic you good briefly quarter activity I on Sarah thoughts

by well when for of expecting our reduction the well Let me quarter a results report results May. originally fiscal people was customers. executed care Despite team saying to pleased begin our revenue, in I and XX.X% than last first to better reported we take in am I our adapted that and

As margins times. operating and we a preserved result, cash flows unprecedented these

of all, temporarily one call, we at many plants facilities idled Day. As but in earnings late and on we our operations mentioned March resumed by last our Memorial

increased. half geographies and improved as our even the lagged As demand we volumes some order moved of the back quarter, first through our of

to in XX% quarter since the June. and of production last We have we're of beginning levels levels seen the steady 's in first approximately back increase

over levels rates to increases of last, due have order pent-up due have July by ordered across strong housing seen strong housing, prior by and destocking well to the comps During the manufactured shutdowns XX%. of spring affordable the for most markets insurance. Recently month early as our we season, over as exceeding strong continued, caused demand lower inventory in government demand selling order

by grew end of quarter the first million million backlog XXXX. Our during from $XX at $XXX million the March $XXX

of There of factors to the basis and notably due two our strong $XX contributing same prior. increase the a comparison, lower million backlog production period are in the to during labor As backlog, grew demand constraints. levels

Under First, on responding to phenomenal doing fully to activities is requests our inquiries we production demand. would quoting side, team and channels. sales job, the normal demand ramp-up product from our a conditions, increased meet customer

level. the have activity many side experienced unemployment effects Act. operations by assistance expected the labor moderated like We have CARES factoring we the from However, supplemental federal provided

expect natural we we been our demand employee labor has force to expire, increased occurs, headcount Act more to replace housing. supplemental an to and facilities, accommodate to uptick in CARES unemployment to for attrition see seek as qualified candidates benefits our challenging. and recruitment the the add Once expect and As increase

of take. of we prepared support any However, to the government that manage forms the round next may various are

for sanitation CDC of protocols and side, manage our COVID-XX. in operation to our to at monitor, adhering the continue safety and spread On execute the social we measures facilities and reduce guidelines to our enhanced other distancing

efficiency not our incorporating and environment to have these in we maintain significantly safe teams adapt are production activities. their acclimated as these manufacturing day-to-day employees. processes that a our adjustments our levels refine found to impacting continued have to for have or the We Encouragingly, protocols productivity

idled in of were plants reopened last. plants. the production Our We has compared XX% the production channels Sales been of the ratios similar reduced from levels. to orders the to June and the increased walk-in-traffic. their quarter. backlog plants the first to growing -- orders plants quarter on March of down volumes and first during continue June back our leads, saw more at see period the retailers have U.S. a is these levels Western sales outpaced online coming quarter increase end followed half as pattern in U.S. at fiscal are temporarily We about in Canadian closing XXXX XXXX steady as same a which

was homes still Show to challenges The to financing to walk-in-traffic pre-COVID and Those is with IBS While to long-term the our dealers, to team this and levels objectives. to continues below continue levels at of build. restrictions launched look are progress able is by U.S. earlier and due coming inventory throughout buy, presented lean. levels on of operating Genesis in various make talking brand the ready able for January, strong Even through the traction COVID, our are

with success now a developments working seen a with few towards developments. are we finalizing subdivision smaller have We subdivision mid-sized and deals

automation, continued With distancing and continue we to standardization, digital and a the to better in customers. social safety solutions challenges, partner invest to our us our make

about order optimistic growth cautiously broader environment. and overall backlog, housing in demand strong trends long-term to is rates strong we're support we While that in housing. single the family The encouraged growth very the experiencing industry due opportunities macro by remain

Our term, We be and optimism home programs continue in industry demand if to now not the is government but the the is near-term. the demand choppiness Act, in tempered surprised would U.S. robust the to set by primarily believe that shipments by in CARES longer new be there's considering. over challenges, the the presented expire short-term supply will

Given the difficult it business trend to months. will the to economy volumes the operating the is next normal volatility in in more few disruption conditions, how predict and

projections XX% on its and magnitude outpace could of we anticipate demand Offsite as as well housing city XXXX. areas length be as be manufactured migration to have secular government specifically for tailwinds construction and could be rural the the with environments very market bullish the crowded We the growth believe industry, penetration geographies. in or housing manufactured overall longer will industry, the However, programs. and volume depending down a for lever the from innovation recent We ability will rural production, to increase homes industry potential on attainable term of opportunities remain offsite meaningful, there in with need line being suburban housing better the suburban in housing. that a and homebuilding which

and work by in we companies home As plans desired changes floor homeowners. contemplate at and anticipate amenities types the arrangements, individuals potential long-term of

aren't who move, ready Laurie in discuss people projects, existing quarterly I turn extensive more additional a for or over now compelling for our call space proposition will undergo in Finally, to offer to the financials to blow backyard. units home to in detail. an remodeling value turning

Laurie Hough

same We good sheet million. The results U.S. sales morning product U.S. channels. Canadian quarter. to of U.S. headwinds, housing everyone. or discuss partially increase A offset same was driven and selling the The XX% to in increase declines term. sales in average quarter. a the sold Net million, between segment home million flow. decreased in compared decline in position saw will in revenue X% due financial volume. shift revenue of in followed our $XX.X in housing in per factory-built driven by our the Canada by backlog reviewing a primarily in also quarter the briefly was price last. in of cash average decreased quarter margin Mark, price expecting sold $XX,XXX homes segment the in $XX.X well selling decline Thanks, home in I a discussion in $XXX and by home will as decreased I we're as of shift the home factory-built the some X,XXX due selling sales mix our balance Canadian XX.X% and a the by the begin to versus to near X.X% more to to million by number factory-built our to $X.X XX%, decrease homes declines first by product section the mix Average in $XX,XXX retail decrease to revenue corresponding a XX% prices single of last.

be oil quarter. Our million, related industry continues the Consolidated gross prior impacted Canadian dynamics by Western Canada. to $XX profit in XX% versus to decreased down business

were XXX leverage XX.X% sales, decline. impacted margins first the U.S. housing segment the quarter segment gross reduced result margins the sales by points of which from of was costs, the volume net Our last. the of were fixed down Gross basis

controllable same expenses minimize the near sick extended to travel in employees, last. $XX.X continue period increased primarily of of as to million employees benefits furloughed in both to during costs of to In elimination COVID-XX. quarter providing $XX.X care support well for addition, of a continuing reduction in The the the decreased due including compensation million by $X.X health order totaled decrease as variable our longer-term deferral evaluate we and and impact million and first we continue which spend to as pay the quarter. cash benefits, marketing was non-essential versus in SG&A incentive

pandemic. $X integration charge a $X having due costs benefit to SG&A for incurring in as recorded million sale as in We not well that asset the prior. was period, not Canada's XXXX for United of Canada's acquisition value enacted also saw million Subsidy and been We an Emergency of related a the record favorability we extend held the that of the of classified on Wage combination initially from the million the in Wage $X.X August December other proposal has a program Emergency to subsidies the during income a to through to XXXX. to related run through response scheduled Subsidy States of Act as to adjustment expenses experienced activities fair there to CARES

of our monitor partially adjusted for eligibility sponsored months due for were compared decrease sponsored SG&A government Adjusted was of our share for subsidies. employee and profit, margin driven EBITDA On $XX.X was the June million, benefit in by a the programs. financial effective an the adjusted $XX any reductions XXXX quarter. or tax X.X%, the Net wage gross increase $X.XX volumes XX.X% net that Without EBITDA effective $XX.X was production share fiscal EBITDA the compressed the per XX.X% in net benefit same would backlog to income tax in versus of XXXX, a largely subsidies. At assistance lower $X.XX the the first XX.X% an subsidies, same offset million. to to XX adjusted government or of over of June, of period ago. earnings the million generated lower rate offset rate was million the of to first three for costs will ramp apply share which pace we the ago in a been government We a of income to was and backlog an incoming are basis, The weeks quarter quarter. labor XXXX continue of our end $X.XX compared consolidated U.S. during $XXX per XX, company's ended fees the in for [ph] by prior, million at combination orders. of to per $X.XX of compared eight have production X.X%. backlogs $XXX match end the June The last to quarter points availability partially benefit basis wage and averaging period as availability of to by June to production margin the the by Current

in an primarily market. We levels, in have the backlog also British uptick Columbia seen Canadian

We environment. will the and modify as navigate we continue scheduled to production current evaluate

XX, flow period, in with as is CARES to eligible of to the cash the million $XX employers closely to XXXX, As capital $XX equivalents effort until the same of manage and approximately during from due We are December well spend payroll and compared working cash increase until XXXX. of of XXXX. Under cash June, non-essential The cash of operating to flow taxes period and government differ of XXXX, the during program. portion million $XX quarter as operating employer $XXX cash the Act, June during had our no million of benefit flow maturities we generated million long-term first borrowings last.

almost program. of subsidy end Canadian received the of As the deferred taxes we first $X and almost million quarter, $X of payroll U.S. from the have million wage

pass for campus we has to production demand costs. our building in while industries, the input Both have on our cash along We to partially for to addition, so with to quarter, more outlook customer and and end one of campus OSB consolidate the use last. layout, able homebuilding be to versus been quarter, our increased, we've in reductions impacted business are locations believe and the each our we the operational Shifting levels in employee manage two in labor financial are growth commercial same delayed best products by plants line. strategic operating on The our from at Currently June continue up The the these broader material and consolidated effectively reinvest strength style one compared to focus These have idled. and pricing increase, constraints. voluntary Shifting and facilities to seen to and maintain utilize on deposits a of labor offerings plan transactions wake executing production initiatives. campuses we and and cash income. efficiency. building while by inflows the increases. quarter therefore, the on when time to available we've the These one the generally in to absenteeism, results labor offset In were well-being from some employee second decrease to facility labor with our may have these this margin multiple our as last, constraints production elevated cost we retention, creating actions cause costs incur us than pandemic. will product backlogs into health exposure, and of to benefit temporarily continue may of attrition the

we're we and strategic are control prepared respond additional needed call opportunities to continue our the some While take to costs, turn now prepared for growth to back initiatives. to drive I'll if closing remarks. to also Mark to actions

Mark Yost

Laurie. Thanks,

results in July that saw we quarter as by we impacted demand trends and activity. significantly the recently encouraged are first the through with by COVID-XX, quarter and While more improvements we progressed order were

the our market market manage to the ability coming the affordable continue prepared very hard the and leader. confident attractiveness in in be you impressed to long-term our continued and are lines housing months, operator, employees end consumer. for organization market I current with work to We remain to solutions through the has responded may with provide customers as of way variability to that the With Q&A. a our the remain Champions Skyline now continue and in environment the open adapt for but

Operator

Thank Please Palm the comes question Group. you. [Operator with Craig-Hallum Greg line Capital with Instructions] of your question. Your from proceed first

Greg Palm

everything on, thanks. in call. just guess, morning. the I clarify Good Yes, given results, Really Mark, to something earlier going said good you

about X. quarter-end mean July is since I would I think pretty hear talked Am thinking I XX%, right? that you I about right? Did backlog that that X orders mean presumably increased up that significantly.

Mark Yost

Yes.

that you're I think, thinking right.

July orders well are over Our in XX%.

backlogs have have grow continuing them to right? correct, we've So, been, been our

Greg Palm

on XX% basis, up That's a -over- correct?

Mark Yost

-over- Yes. It's basis. actually growth over XX%

Greg Palm

Okay. Well.

in good. sense mean any demographics. lived whom cities the are they in Okay, folks any I buyers these for that -- rentals, change in

I wrap to housing some for think of a, around if of everybody as I am you heads housing? demand sure to not on it trying sense sort have sort is their the manufactured out there. relates

Mark Yost

Yes.

obviously financing. I think, in you're starting seeing several, trends pickup kind of a to converge. we're One, see

improve. you're You've more seen have housing been even built financing there. the overall housing, seeing pickup manufactured with favorable. a And Spreads

mortgages level. has the XX points. been of differential while the say So by, double I'd traditional lending spread type we've seen that basis plus for chattel improvement improved

one competitiveness, in So you've because favorability market. spreads, better lending seen chattel lending in much That's the a new of chattel driver. the in

in marketplace demand. looking a kind rural Millennials you're currently think renters it points are to Second activity level homes price. step little but just the a higher they're driver, buying and and we will I mid-price seeing also areas I in are seeing would buying say trend buyers we are we're is buy, bit down of seeing, are rural

So I you're seeing well. that think as

Just demand in out kind concern lower strong. market. to of very of payments caution future overall is and But wanting a their

Greg Palm

I about utilization weeks what's September labor be June. the expectation lag, you they the in or we'll mean, maybe last. guess, to you in the production versus I have with your July production do volumes for in on expect probably -- availability. I the know in mean, par Would coming Good. volumes could more Okay. But the continued quarter.

up to XX%? I mentioned you that was think June

Mark Yost

expect to of down in kind for X% would XX% last production I quarter. the versus either levels levels somewhere 's Yes,

obviously on ramp I that has bit a dynamics, think either What little we're packages tail to we the and but changes very going market towards effect aid be what those on from all end the up, of the We're are because that of have. labor, outlook in balance it will the carefully. and the quarter. evictions supply-demand the new unemployment government, watching

how coming form to this, or out will it's takes we the be in will somewhat but supply what that on it strategy utilize of labor. strategy got the production increased scenarios -- will kind we're government deal form on of how it dependent with five our So going six We've the production and we aid demand. ramp to and balance

Greg Palm

Okay, sneak in makes could last one, sense. here. And if I one

the offset for help the that little backlogs to I'm a get production OSB, with of talked volumes then got volume significantly a [indiscernible] kind gross mix and June. I that and and ultimately you're the margin think what higher some to trying given the just shifts, that higher. XX.X% Does labor started the sense of costs in worked relative orders volatility increase normalize as sort between some you September U.S. Laurie, been about the think there's cost over quarter of manufacturing backlogs orders expectation then seeing. down I to because bit backlog, past of

So I about in what Is XX%? that that? just towards match think saying what for is your we down thinking or how shipment September shipments guess quarter, expectation should you're is should when to we're trend the what that that about five production should

Mark Yost

Yes.

that's on correct Mike. it view I the think

production we knew shipments quarter I the that with think levels. will during in follow line

Greg Palm

Got it.

suggest? trends replenishing Okay. around trends there orders? those acceleration should the just of outcome, be albeit far robust the that trends than less in these and shipment as shipment less recent future backlog the -- really And on is then catch some based volatile essentially are orders these Or the order of the up what economic terms kind

Mark Yost

very exceptionally the I good. think demand sales is backlog building, No, levels are strong, are

the in amount a and get government outcomes wave And of of to as pause going of is call, happening situation on what housing create people on those the on this, some market? the create view happening evictions see kind doesn't shaped depending to as the over prior programs see the that pause time, I right. some Does is other to our unemployment. that extended, it backfill kind market later of view the the of we with housing I a are. If we a if what see pause mentioned So of a happens of with renters properties, where of of based trying with X are happening we're evictions, going is what vacant some next

could you home pause a see in So slight ordering. demand

having actually part on is. of view how on depending how to of is So backlog the outcome forward, our currently manage we of the remainder want the

aren't ramp So things towards shipments see production end outpace to if that things the. will in extended we'll tail the to the, strategies then later and continue as we get choppy take of and

Greg Palm

it. Got

trends Okay. is question And your developer from kind your are of versus, shipments. in of what terms retail channel? with then, you or large next sticking my But versus smaller, customers seeing demand

Mark Yost

I'd You record are record know, retail I'd the having is now. right or and channel say, demand month retailers period. say, sales extremely most levels strong of

probably So, strong, to I in seeing -- the build-to-order ready-to-go site product. and extremely you're what similar built retail on-site the channels think, between in difference

the they the with are walking can. thing then retailers into actively seeing moving and off quickly sales centers, we're as People shelf as selling same buying So, are and retail.

call I XXX of imbalance traction On Genesis activity Those, finalizing the mentioned builders obviously, now and getting brand, shortage am that think, as levels. in the XXX the smaller subdivision and we've with on where I builders subdivision agreements channel, the because we're very and the units time. a into to to-date, of we tremendous longer with handful the a builder affordable success developer lead housing. supply/demand good had encouraged, a in we've with our seen of have amount see I housing of

So I in progress activity into larger a it's that scale starting market. think And developments. there's to of lot

Greg Palm

great. you. Thanks. in I could And for That's one if squeeze more

XXX the margins points have I think quarter. of lower basis in some wage you subsidies, the said that, ex been your would

how a of rest of next? think to different sense to the could about of evaluate as today, that cycled through ended you support the of continuing this of relative Congress you As proposals the or the what kind have that, stimulus we kind be in and do

Laurie Hough

Yes. Labor retention important. really is

do can, them I our support continue So, anyway believe despite subsidies order we we're retain in that employees to are. government what the to going to

our given to the labor our we need Just up. get production demand,

Greg Palm

you. Okay, thank

Operator

comes with Please Your proceed line your next Bouley question. the Barclays. from Matthew of with

Matthew Bouley

taking Hey, questions. good everyone. the Thanks morning, for

financing I some all to mentioned, being environment Any in strong obviously to Thank strong trends mortgage question the playing kind MH sort think that's as these you that feeling on clearly orders? of, guys positive site-built and have the and Mark demand financing an and just how versus of how cost you and traditional for recent things into the clearly rates thoughts earlier low of well. been for relative side as are mortgages you. so the

Mark Yost

the X.XX% Yes, I anywhere ranging like X%. right now are think scores and on depending between spreads

So somewhere in that range.

traditional Our mortgages. current versus spreads

So a -- know, quite traditional come depending a which points lender, gone period past the know, come period, XX down in that's you period time bit time on time down XXX similar the down, the that's has about basis mortgages you basis. over on points XX versus to recent like anywhere. Depending basis

it So the on situation, compress. we've seen that but depends in lender the spread really

been very that's trend, Matthew. So positive

Matthew Bouley

Interesting.

improving trending here But some to you loud but somewhat you and the direction? the choppiness know, then are just clear helpful. demand margin I with is there reinstating any the targets, back that's the where, you. right secondly hear half. if at yes, and in in point environment you clearly might some a volumes Thank there know, Okay, thoughts And we're around, volatility, the be

Mark Yost

Yes, Matt.

are We the keep going eye environment. to on just an

so broader and much dependent and the is unemployment economy know, rate. You

just So on eye keeping it.

Matthew Bouley

Laurie. Thanks, Okay. Thanks, Mark.

Mark Yost

Thanks.

Operator

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

Daniel Moore

Mark. morning, morning, Laurie. Good Good

Mark Yost

Good Dan. morning,

Daniel Moore

Are pinched across you're seeing there where specific similar a being challenges Are same bit maybe availability. areas labor little the or geographies, across country? you Again, the more?

Mark Yost

it's think widespread. I No, really

out in to or or an seeing what hire we're where you XX get think applicants. XX put an and I is application resumes essence -- we employee before

you job. or one will put one that now for zero same get you'll know, out You

takes different that the as and to to as see it and react unemployment, a going near the expires term, Act I stimulus it. watch in CARES form we're view we So how

there -- amount unemployment rich. find is just benefits are unemployed currently when of for not employees work a incentive it's were So who very tremendous to the

Daniel Moore

at production X% Helpful. significantly. growing about XX% are obviously losing or grow And down this competitors to much call and just clearly the position, you is even or to XX% keep kind it of further may supply-demand before looking become backlog little How concerned a orders be favorable dynamics, quarter, if going growing backlogs can for site-built? potential sales to

Mark Yost

think kind the Yes, backlog of seeing across grow. I industry, continue we're to

employees think vis-à-vis, we So are how be industry might have see competitors manage through basis. well. view overall, geography a on different other backlog or I small fairly will I the backlogs keeping there But that of this people I who then outcome certain from react, pace levels be have rolled by surprise if want the to employment a he way. we government what new different increase highly levels a reaction to the how dependent action certain government. we on motivates the out programs a don't take We that

and before week think really another those I plan policies some the a we've just in throughout waiting So to in production place. increase hopefully place putting of or got so

Daniel Moore

Helpful.

CARES the? rising than and to the extended cautious Act through the is optimism, or checks the then your available is optimism on demand labor and running but the more about concerns caution, it side cautious supplemental related it of the out supply, lack remainder And focus rather of Okay. of unemployment is

Mark Yost

a view again then here. see like going you're Yes, almost union type to of that actually I structure

form see take to aid they greater pressure no expected shares, one what So unemployment strategies you will that. we depending that to benefits the certain to extended the put not benefits side, evictions and I see on we'll that continue react the factors. -- -- it of much package on are if supply Act, have and that currently the are is think next there other CARES If you'll evictions to and form unemployment allow

going we're -- that demand the think going the that looking in one housing equation larger I of you're of pause case, in it'll market you'll to a at a and see kind you're be backlog. the -- reasons side to

if ability three pause to probably So, two get of other and work cycle downward resolved. that through, to the remain from because, months is or specifically evictions take that resilient we'll itself is a have there to produce things, and will kind through

Daniel Moore

starting are Are And Okay. question. apologize what orders or I mentioned are activity, gain you you traction, and obviously etcetera? Genesis But interest the more wait a to they similar hearing developers? their seeing of on from generally sort not see then, brand, still hands, more your community for you asking sitting

Mark Yost

Yes.

community to through is to the. expect and it I starting half I think the second return continue channel grow to the of

I think coming home they've rent. with success success into seen -- many and collections. traction They've good had with had good activity, buyers

the of REITs You see some seen they've you've there, -- out public what commented on.

I bullish think, they're very on the outlook.

and the to starting favorably. return And so starting communities I think very to is are REITs

Daniel Moore

of best And Congrats. luck. Thanks. helpful. very That's right. All

Mark Yost

Thank you.

Operator

we of Mr. answer session, I like question reached end would the turn the call Yost to and the Mark for closing to gentlemen, have remarks. and Ladies and back

Mark Yost

the and the good, of environment, customers. the affordability financing care housing demand for that long rural key people, outlook the the taking and for challenging are call not quarter. to they've a joining factor Hector. With the the just resiliency going today. you, to urban trend the of thanks And past very It by shows of which important are our performed us very this but only over forward. team everyone be Thank the is and proud was term how quarter. from tailwinds It most going and Very provided

customers Thank taking of have to our a our forward you look people. So, care and and good day.