Q3 2022 Skyline Champion Corp Earnings Call
Good morning, and welcome to Skyline Champion Corporation's third quarter fiscal year 2022 earnings call. The company issued an earnings press release yesterday after the close.
I would like to remind everyone that yesterday's press release and statements made during this call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations and projections such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission <unk>.
Additionally, during today's call the company will discuss non-GAAP measures, which it believes can be useful in evaluating its performance.
A reconciliation of these measures can be found in the earnings release.
I would now like to turn the call over to Mark Yost Skyline Champion's, President and Chief Executive Officer. Please go ahead.
Good morning, everyone and thank you for joining with me on the call is Laurie Hough EVP and CFO .
Today, I will review, our third quarter results discuss our activities so far in the fourth quarter and give some color on the outlook for fiscal 2023.
In the third quarter, we continued to see rising levels of demand driven by numerous factors, including favorable financing historically low inventory levels and a rapidly growing base of customers looking for a better alternative to site built homes.
Our attractive product offerings at affordable price points.
To drive order rates higher.
As industry wide supply constraints and Covid disruptions remain a headwind to our production levels.
Strong order rates drove backlog up $136 million during the third quarter to $1 5 billion or an average 43 weeks of production at the end of the quarter.
We anticipate the supply side challenges to continue at least through the first half of fiscal 'twenty to 'twenty three.
We delivered 6168 homes during the quarter, an improvement of 9% from the prior year.
Increased output along with price increases to cover rising material labor and freight costs drove revenue to $535 million in the third quarter up 42% from the prior year.
Our frontline teams continue to execute exceptionally well in today's very difficult and unpredictable operating environment.
As anticipated our home sales volume versus the sequential second quarter was slightly lower due to planned holiday shutdowns and higher levels of Covid related absenteeism.
Our capacity utilization during the quarter improve sequentially four percentage points to 68%.
We continue to see the benefits of streamlining our product offerings, which allows us to produce more without increasing material usage and is particularly beneficial in this environment of persistent material supply shortages.
During the quarter. We also completed the integration of Scott built operations.
And are exceeding the anticipated acquisition synergies as we leverage the manufacturing facilities and the strategic footprint in the mid South region.
We remain on track with our other expansion efforts and I'm proud to report that we are a month ahead of schedule and our production at our Danville soda, Texas facility. Thanks to our supply partners, giving us the material and the incredible team members that have joined US I'm really impressed with the workforce and the pace at which they are ramping.
As we look forward market conditions are really starting to come together.
We have historic lows in the supply side, while demographic economic and migratory factors continue to drive demand.
The supply side housing shortages combined with higher interest rates and inflationary pressures are favorable dynamics to our business model.
In these conditions are advantages only get enhanced.
As we have seen in past cycles of rising interest rates, we are better able to convert traditional site built buyers and gain share.
Cause of these dynamics, we're even more excited to have one of our Genesis homes in Orlando next week for the International Builders' show.
We launched Genesis to help builders during these types of market conditions.
The share gains for ourselves and our channel partners will only be heightened.
By the significant investments, we are making on the digital side of our business.
These investments will help to eliminate the friction today's consumer experiences throughout their homebuilding journey and will provide us with deep analytics to better serve the customer.
Strong backlogs fueled by double digit order rate growth and minimal cancellations combined with positive market tailwind.
And investments drive our focus on increasing capacity and output.
We are continuing to streamline our product offering and they've made very good progress on our long term plan to incorporate manufacturing technology, both on the process and automation side are.
Our technology partners have done an excellent job solving the unique challenges of our building processes.
And we will be accelerating investments in technology during fiscal 'twenty three.
Our supply chain partners have also done an incredible job supporting us during these challenging times, we expect that supply chain challenges will be prevalent throughout the course of this calendar year.
As many of our partners have been impacted by Covid outbreaks in the U S and overseas.
We do anticipate moderate improvement from our supply partners this quarter.
It will allow us to increase the sequential top line mid single digits and our fourth quarter.
It is also because of our partners and our people. The skyline again was named the most trusted brand this year.
It is only by all of US working together to take care of the customer that we earn their trust.
I will now turn the call over to Laurie to discuss our quarterly financials in more detail.
Thanks, Mark and good morning, everyone I'll begin by reviewing our financial results for the third quarter of fiscal 2022, followed by a discussion of our balance sheet and cash flow I will also briefly discuss our near term expectations.
Net sales increased by 42% to 535 million in the third quarter of fiscal 2022 versus the same quarter last year.
Generation revenue growth of 148 million in the U S factory built housing segment as well as growth in our Canadian factory built housing segment of $11 million.
The increase in U S factory built revenue was driven by an increase in the number of homes sold and an increase in average selling price per home.
The increase in the number of homes sold was 9% or 489 units for a total of 5832 homes compared to the same quarter last year.
The average selling price per U S homes sold increased by 32% to $83000, primarily due to price increases in response to rising material labor and freight costs as well as changes in product mix.
The sequential growth in revenue in the U S factory built segment was two 7% compared to the second quarter.
The increase in revenue was driven by a three 9% increase in average selling price per new home, partially offset by a one 2% decline in the number of homes sold.
The sequential decline in the number of homes sold was due to the planned manufacturing shutdown to perform routine maintenance as well as planned holidays.
We also experienced a higher level of Covid related absenteeism during the month of December which has continued to disrupt production run rate in January .
Canadian revenue increased 40% to $37 million compared to last year as the number of homes sold increased 6% to 336 units.
The average home selling price in Canada of $109900 increased 33% versus the same quarter last year, driven primarily by pricing actions enacted in response to rising material costs.
Consolidated gross profit increased to $157 million up 119% versus the same quarter.
Quarter last year due to increased sales volume and higher pricing to offset rising material labor and freight costs.
Our U S housing segment gross margins were 29, 6% of segment sales.
More than 1000 basis points from the third quarter last year due to focused product simplification and material rationalization to improve operating efficiencies in order to better leverage increased production and manufacturing fixed costs.
Gross margins were also positively impacted by price increases in response to rising material and labor costs and the timing of certain price adjustments for raw materials under our buying program.
SG&A in the third quarter increased to 66 million from 44 million in the same period last year, primarily due to higher variable compensation the impact of the acquisition of the Scottsville operations in February 2021.
And our continued investment and the enhanced customer buying experience.
We expect further incremental investments in the online customer experience and systems integration through fiscal 2023.
Net income for the third quarter was $68 million or $1.18 per diluted share compared to net income of 22 million or earnings of 38 cents per diluted share during the same period last year the.
The increase in EPS was driven by a combination of higher revenue and improved profitability.
The company's effective tax rate for the quarter was 25, 6% an increase from last year due to recognition of a tax benefit related to a U S. R&D tax credit in the prior year third quarter.
Adjusted EBITDA for the quarter was 97 million an increase of over 200% versus the same period a year ago.
Adjusted EBITDA margin expanded by 960 basis points to 18, 1% due to higher sales gross margin improvement and an increase in fixed cost leverage.
Looking forward, we expect inflation on building products and labor cost to remain persisted through the first half of fiscal 2023, due primarily to the widespread supply chain challenges on top of the elevated levels of demand.
We utilized several levers in response to increasing material and labor costs, including price adjustments product standardization raw material substitution and further operational improvements.
Despite our efforts to continue to pass on inflation and make operational improvements our production continues to be impacted by the availability and timeliness of raw materials due to supply chain challenges, including the volatility and magnitude of the cost changes of raw materials.
During our fiscal fourth quarter, we expect to see some compression in gross margin versus the sequential third quarter due to the recent volatility in forest product inflation.
In the third quarter, we benefited from our lumbar spine program and the temporary dip in forest product pricing that will increase in the March quarter, given the recent increases in lumber costs.
As of January one 2022 we had $382 million of cash and cash equivalents and generated 76 million of operating cash flows during the quarter.
We remain focused on executing on our operational initiatives to enhance our production capabilities, resulting in higher output levels, our favorable liquidity position allows us the ability to continuously reinvest in the business and to support strategic growth.
I'll now turn the call back to Mark for some closing remarks.
Thanks, Laurie we are very pleased with our third quarter and year to date results I'm encouraged with the solid momentum in our business. Despite the turbulent environment that we're operating in.
Our strong backlog in investments to transform homebuilding have us well positioned to solve the growing need for our homes.
Operator, you May now open the lines for Q&A.
Thank you we will now be conducting our question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.
One moment, please pull for questions.
Our first question is coming from the line of Daniel Moore with CJS Securities. Please proceed with your question.
Thank you good morning, Marc Good morning, Lori Congrats on obviously, a pretty exceptional quarter.
Maybe start with the prepared remarks.
Marks I think Mark you said sequential growth mid single digits going.
Going into this quarter did I hear that right and it was that revenue volume how do we think about that.
Yeah, Dan we are looking with that as kind of top line revenue growth with.
With the supply chain starting to.
Rebound a little bit, we think theres, a little bit of a sequential improvement quarter over quarter.
Perfect very helpful.
Then do we as we opened the facility in Texas.
Do you expect or would you.
Some continued sequential unit volume growth as we move into the the say first half of fiscal 'twenty three.
You know or is that a TBD based on supply chain other challenges et cetera.
You know, obviously supply chain will be a critical factor, but I would expect a sequential improvement as supply chain starts to ease up throughout the Ah.
Calendar year.
Got it and Lori care to make our lives a little easier and just maybe talk about the E. Thank you for the color on gross margin. Obviously, you know some changes in terms of timing of buying and in lumber price patterns, but.
You know.
But what type of Ah, let's say compression might we look for and in this fiscal quarter and would that be a sustainable run rate going forward.
Hi, Dan Yeah, we certainly saw in the third quarter some favorability in our gross margin because of the stop buying program for lumber.
And as everybody has seen those those costs are certainly increasing pretty steadily and quickly. In addition, we had higher levels of COVID-19 absenteeism that that filtered into January and throughout the month that are going to also impact gross margin.
So I'm expecting that margins won't balance out somewhere between what we saw in the second quarter and in the third quarter and then of course, keeping in mind at the EBITDA margin level, we're going to see some increases in SG&A sequentially.
Very helpful. Lastly for me, maybe just talk about the.
What are the biggest bottlenecks right now from a supply chain perspective, I know, it's been a game of whack a mole, but is there anything specific.
You'd call out in and Yeah, just to get a better sense of wind.
How long it might take the votes to alleviate thank you for the color again.
Yeah, Dan I think you know supply chain is a game of whack a mole issue mentioned right now I would say the biggest challenges are things like duct work and other things like that small electrical components are still clearing through the system.
Different colors and specific grades of like roofing shingles, other things like that are difficult to come by.
It really changes day by day.
Inconsistent so that's why we'd see some improvement in kind of a steady improvement.
We've come out of the I'll call it holiday shipping season.
But it's not consistent so that's why we're we're confident we can ramp we're confident we can bring the episodes and further bringing episode of Hawaii.
It's really just a timing issue of when when the supply chain fills up throughout the calendar year.
Got it I'll jump back with any follow ups. Thank you very much.
Thank you. The next question is coming from Greg Palm with Craig Hallum Capital Group. Please proceed with your question.
Yeah. Good morning, Thanks for taking the questions and I will add my congratulations as well.
Thanks, Greg good morning.
Maybe to start can you talk about you know what you're seeing in terms of order rates year to date.
Yeah order rates are or have been good year to date, obviously, it's January so normally there's a lot of volatility in order rates, but I would say overall I would expect backlogs during the quarter to be relatively flat. So order rates are still very good.
Got it and in terms of the you know the types of customers, maybe the types of new customers that you're maybe seeing out there I think you mentioned that this is the type of environment, where you would expect to take meaningful share from side Bill maybe you can kind of help flesh out those comments a bit more.
Yeah sure Greg I think I think there's a few factors here one is we're seeing high inflationary pressures.
The board, mainly driven on the material side and the labor side.
So if you think of our competitiveness versus our site built competitors, we use substantially less labor per home than site builders do we use substantially less material.
Than most builders do so as a result, an inflationary times, we become much more cost effective and so our position on the cost curve gets much better. So that's one key driver or is that just our efficiencies really come to shine and inflationary times plus when you look at our general.
Business model, we generate tremendous amounts of cash.
We can grow our top line revenue with very minimal Capex investment.
And we're able to pass on inflationary.
Art, we can raise prices to offset inflation. So I think those dynamics of our business model are very good.
That's compounded favorably by interest rate increases because if you look with higher price expectations.
Coming out from the site builders.
And with interest rate increases.
Just even even the most recent.
Stats on new site builds were I think $404000.
Per median price per home in the.
In the fourth calendar quarter on average and if you assume interest rates go up half a percent.
And the average customer for north for $24000 less home with interest rate increases so they're gonna be forced to find a different alternative or incentivize to form finds a different alternative.
And that really plays into us and really plays into the fact that builders are going to start to switch to an offsite model to be successful.
Makes sense that's that's helpful.
Last one you know circling back to gross margin.
If we think about the go forward periods, and we make some assumptions around demand staying at elevated levels and you know capacity and volumes ramping up hopefully you're not going to see the same levels of sort of COVID-19 absenteeism and even some of the supply chain.
Those that are likely impacting gross margin is there any reason not to think that as those volumes increase throughout fiscal 'twenty three that you won't see.
So at least a modest lift to gross margin relative to you know what youre thinking.
And at least for the current quarter.
Yeah, Greg you know there will be some efficiencies that come through as we continue to simplify our product offering and increase production output.
But the majority of our cost of sales is variable so.
You know well see well see some improvement as we as we continue to focus on the product simplification initiatives and efficiencies.
Okay, Great all right I'll leave it there thanks and good luck.
Thank you.
Thank you. The next question is coming from Matthew Bouley with Barclays. Please proceed with your question.
Good morning, everyone. Thank you for taking the questions and congrats on the results question on.
I guess customer qualification and risk of cancellations, given how long they're there in the backlog I think you said 43 weeks now.
I know you guys are relatively protected in terms of you know dealers having to take ownership. When you start construction and I know you've done all the work around you know testing that backlog, but I'm just curious in this rate environment. If you know I guess number one what is happening with chattel rates and number two just what is that risk you know before.
Where you start construction.
You know buyers or in this backlog for a long time that they either fallout of qualification or have a change of heart I guess related to financing rates. So what what's the risk of all that.
Yeah, Matt. Thank you you know I think overall, we've seen very low cancellations very low cancellation rates thus far.
Generally when a dealer puts a whole my line.
They will generally requalify the customer prior to that home going onto production. So in other words before it's produced there's generally a the discussion to requalify the customer to make sure before that dealer puts that order in.
Is that the customer can we qualify at that time, obviously, if there is extreme volatility in rates.
Post that then before close there could be a window, but generally that's just a few weeks time period.
So we have good visibility going forward on those issues.
And you know I think right now what we're seeing is most customers are able to still qualify.
Actually most of our credit scores and other people are.
There are a growing customer base of first time homebuyers, who actually have.
Really good income.
And really good credit scores. So it's they're not on the bubble necessarily in and when they're going from a $400000.
Site built price and they're moving to a better alternative.
More affordable price that can actually qualified and keep that debt home.
Up to date.
That makes sense now that that's great color there mark Thank you for that.
So second one I have to go back to the gross margin.
I believe you know Laurie I don't know if I'm reading too much into this but the first things you mentioned around the gross margin, where where the product simplification and material rationalization.
I know, obviously, you discussed the benefit of lumber prices, there as well but.
But just speaking specifically.
Specifically on the simplification and rationalization efforts are those structural at this point or are those you know kind of a function of just the tight supply environment. So those those efforts may not kind of stick it in a more normalized environment for lack of a better term. Thank you.
Hi, Matt No I would say that they're more structural changes you know it varies by plant how far along in the process of simplification, we are but but definitely more structural.
Okay perfect. Thanks, so much and congrats again on the results.
Okay.
Thank you. Our next question is from Mike Dahl with RBC capital markets. Please proceed with your question.
Hi, Thanks for taking my questions.
First question and sorry to keep harping on the gross margin side you.
I'm, hoping for a little more quantification of the lumber dynamics, because you didn't seem to get hurt.
By that much one lumber spiked last year, but in proportion to benefit from a temporary dip.
Late in calendar 'twenty, one seems far in excess of what the spike.
Last spring hurt you by so can you just go into a little more detail on exactly what was the benefit in the quarter from lumber and have you made changes to your spot.
Program or just elaborate a little bit more on the spot versus contract.
Sure. So we we have made changes we the percentage of spot buy versus contract varies by plant, Mike and it also varies based on the price of yes.
So during this quarter, we bought more in lumber at lower prices through the spot buying program with the anticipation that it would go up so.
It's as simple as that we arent quantifying it publicly.
Got it okay. Thanks.
Question. So when we think about the the demand the backlog obviously the overarching.
Kind of widespread supply constraints availability of material and labor I get that but what do you think about your capacity relative to where you're seeing the most demand growth in the most back backlog growth.
Can you just talk about whether you think geographically your your capacity is positioned the right way today, obviously inclusive of what youre, bringing on or if there are further adjustments in terms of where you have capacity that you think are needed in light of the demand trends that you've seen evolve.
Yeah, Mike I think you know there's there's two parts to that question. The first is I think we're well.
We're positioned geographically well for the demand trends that are out there. If you look at migratory factors in the U S and where people have relocated to.
You know I think we've.
<unk> been growing our presence in those states so the Carolinas.
Georgia through Florida, Texas, you know theres been a tremendous amount of migration to those regions. So I think we've opened up capacity bought capacity.
In those regions in advance.
Take advantage of that.
As far as are we positioned well for further demand I would say that.
We are.
We need more.
More capacity with the number of orders that were turning away.
Rejecting every day, yes.
We're we're passing on so many orders today, but.
We definitely need more capacity today.
Throughout then I would say, it's probably in those same geographies I would mention but you know I think it's throughout the entire country.
As you know some additional capacity in eastern Canada would be good there's tremendous housing demand out there.
But I would say generally speaking there's very few regions of the U S.
Our soft drug to pass at least one or two geographies that are a little soft it could be seasonal due to weather and some of the northern climates, you know great plains regions not as robust.
As other regions, but.
You take Texas through Oregon and draw a line there of the U S and that's.
There's fantastic demand there. So I think you know growth of demand.
I mean their order rates have outpaced every homebuilders by a large margin this past calendar year.
And we've turned away more orders.
Our backlog, so it's a pretty robust demand.
Alright, thanks for that Mark and maybe my last one just yeah.
I certainly understand and appreciate your point of view on kind of the potential conversion factor for MH versus say bill as.
You see affordability shifts and some of that makes sense, but if I take a step back.
Manufactured housing did decline in 2018 in 2019 alongside site built housing the last time, we saw a rate shock.
So you know I I guess I'm not really seeing it in the data that there were these share gains just a few years ago and some of the same arguments could've been made so maybe talk through what you see as the differences in.
This upcoming year next couple of years versus maybe just a few years ago when that dynamic didnt play out.
Yeah, I think a few things one if you.
If you go back through history. If you look at I think we have historical data on in our Investor presentation. You can go back to let's say the 19 seventies.
I know that's not the time periods you were mentioning but the 19 seventies you know we saw as the manufactured housing industry robust growth very extraordinarily robust growth.
And that was a period of you know obviously higher inflationary rates in <unk>.
But we're similarly.
Faced with in today's current environment and outlook.
I think part of the difference in.
That dynamic you're referring to is the fact that we didn't have financing.
Back at whereas much financing if you will back just a few years ago. If you recall I think spreads.
As recently as 22 years ago.
Spreads to traditional mortgages were double what they are now so you know I think when you see.
Rising interest rates at that point in time, we still had extraordinarily high spreads and mostly casually buyers during that period of time. So I think the housing market is a little different I think the financing environment is a little different you know that.
It's out there today than what we saw previously and I'll also say, there's a little bit of a different tone in terms of.
The communities like Sun E O S. H a lot of the REIT buyers were in a different place back in 2018, and 19 and they generally make up 35% to 40% of MH demand as an industry.
So I think they were on more on the sidelines at those periods of time.
Obviously with the rental market outlook and the housing market outlook, it's very different today.
Build for rent.
The capital that's flowing into the build for web channel, let alone go way.
Land lease communities.
Is very robust so I think it's a very different.
Tone today, and so I think when the housing market.
Previously I would I would look at it you know look at the pricing environment look at the difference in spreads and interest rates look at the REIT channel and their demand at that period of time.
All those factors are vastly different today so.
Thanks, Thanks for them.
Yeah I appreciate the perspective thanks.
Thank you. Our next question is coming from the line of filling with Jefferies. Please proceed with your question.
Hey, good morning. This is actually calling on for Phil I just wanted to follow up on the financing environment. You were just talking about can you give a little bit more color or maybe quantify the size of the spread between Morgan M. H lending in the traditional 30 year mortgage just after the recent move.
In mortgage rates and then do you expect any air pocket in demand in calendar year 2022 is higher rates are digested by homebuyers.
Yeah, I think Collyn I think there's a few factors that won the deal.
Spreads I think right now our two to 250 basis points traditional mortgages. So that that's holding you know that's holding to where it's been last quarter. So I think as mortgage rates move to the 30 year, you'll see that spread.
Well you know bump around there so it's a constant spread.
As far as pockets I don't see pockets, so much as interest rates move as much.
You know there will be there will be likely some.
Housing pressures that that happened later this calendar year.
Single family starts have outpaced completions.
The housing.
Homebuilding World and so I think there's going to be a kind of a work in process catch up.
Where you have give or take you know 100, who let's say 40000 homes.
Come to market as supply chain improves because they're they're caught between the housing starts and completions. So I think you'll see a little bit of a.
No.
A thing where you see a bunch of houses to come to market it really doesn't offset the.
Low supply in the existing homes, but so there will be a little bit of gap, there, but nothing to be concerned with long term.
Okay. That's helpful color and then just on your production rates, you've been able to increase those over the past several quarters can you just talk about where you are I guess in a long term process of improving those rates and give you. Some goalpost for you do you can get in terms of quarterly or annual production over the next couple of quarters and maybe on a longer term basis.
Yeah. So so call them, we're not we're not giving guidance, but I will tell you you know it really depends on supply chain right now.
We've got.
Southern idled plants that we would look to bring on and restart at the appropriate time, our supply chain improves and market dynamics continue.
So I think those plants would would be enhanced as we start off obviously, our current existing plants are operating in Washington officially because of material shortages.
Re sequencing of production. So obviously there will be some.
And Smith, <unk> production or supply chain.
Groups, but I do foresee that supply chain would be.
Volatile.
Throughout this calendar year towards the pit.
Might recover body.
By late in the calendar year, but it'll be volatile nonetheless in the short term.
Great. Thank you for taking my questions. Thank.
Thank you.
Thank you. Our next question is coming from Jay Mccanless with Wedbush. Please proceed with your question.
Hey, good morning, Thanks for taking my questions first question could you remind us in your Cogs basket how to steal sit in there and are you seeing any benefit from the recent.
Price declines in that commodity.
Yeah, Jay I think I think obviously steel pricing factors and for our HUD related products that are on steel chassis.
It's not all.
You know it pales in comparison to lumber. So you see some of that relief in there, but it's not.
No doubt.
Significant.
Yeah.
Figured out at least highlight one commodities going down instead of up.
My second question you were talking earlier about the communities could you maybe talk about where your business trends are with them and and maybe.
What type of volume increases you saw year over year in the third quarter.
Yeah, we don't disclose sales by channel, but I I think the community channel has been very strong and active.
You know if you look at most of the communities UMH, especially the public ones, which are probably representative of others.
U M H E O S Sun communities have very very strong Greenfield development.
In terms of their processes.
And where they're going so I think you know, we see tremendous upside and they're clamoring for product so.
That trend is definitely out there in terms of growth, but the retail channel and our retail distribution partners very strong demand and order rates are up.
They are producing very well the ball park model tiny homes 80 use models are up so so really we're seeing benefits.
And demand across its really more of how we allocate our limited capacity.
To fill that demand.
Today.
Okay.
It's exciting to hear the Texas plant is ramping fairly quickly can you give us an update on the plans you purchased in the Carolinas any any progress on those.
Yeah. So we we acquired two plants in.
North Carolina.
Those plants, we will look to we're really waiting on supply chain you know once we get.
Firm commitments on supply chain and have visibility you never want to start a plant and train the labor and get everyone up to speed it only to play out three weeks into your ramp.
That doesn't go well, so you need enough supply and certainty of supply and consistency of supply.
Went into it so we will bring on plants.
In the right geographies, obviously, we're bullish on Carolinas.
As the market dictates where supply chain dictate.
It's really no change from what you were seeing last quarter in terms of being able to get consistent supply into those plants.
Correct.
Okay.
And then the last question I have.
I thought it was very interesting that the FHFA rejected the GSC is latest duty to serve submissions.
Didn't know if you had any kind of high level thoughts about that and anything new or notable in terms of GSE interaction with the MH industry.
Since we since we talked on the second quarter call.
Yeah, no nothing really new on that front and nothing really surprising in terms of the interaction between between the department.
Fortunately for US I think there is a strong enough secondary market and some private secondary offerings that have happened to bring in capital and so I think you know.
Those are not an impediment right now too.
Any of the demand trends we're seeing.
Okay sounds great. Thanks for taking my questions.
<unk>.
Thank you as a reminder, if he would like to ask a question. Please press star one on your telephone keypad at this time. Our next question is coming from Daniel Moore with CJS Securities. Please proceed with your question.
Thanks, again, maybe one or two follow ups, just putting together some of the commentary Mark the historical perspective is really helpful.
Any sense of where obviously not to skyline champion's, but just in general you know margin profiles were either gross margin or EBITDA during periods of high inflation rising rates like the seventies that you mentioned previously.
Don't have information that goes back that far game, but you know I just look at it during times of inflationary.
Pressure you know generally the industry is able to pass on price increases and maintain margins. Obviously, there's some short term volatility in terms of you know.
You got to work with customers if their loan is out there and you want to do stuff, but but over the cycle, you're able to pass on price increases as a whole and maintain your margins and I would say during inflationary times, obviously the S. Ts.
Site builders because of their significant inefficiencies versus us are going to be higher on a relative basis overtime. So I think you know passing on price increases and keeping it affordable.
It's very doable.
Understood and one more just in terms of uses of cash you can ramp Capex and you are obviously reinvesting in the business, but even at that higher rates, probably can't keep up with the level of cash flow of cash generation. So would you consider alternatives like buybacks.
Take advantage of periods of share price volatility like we've seen year to date or are you now kind of sticking with the.
The status quo in terms of capital allocation priorities. Thanks again.
Yeah, Dan the you know, we're continuing to invest in our businesses through opening up additional idled capacity as well as production automation R&D and our customer facing website enhancements.
So that's that's our major focus for our capital efficiency.
Okay I appreciate the color again.
Yes.
Thank you we have no additional questions at this time, so I'd like to pass the floor back to management for any closing remarks.
Thank everyone for taking the time this morning to dial into our call. We appreciate it look forward to the future as we solved and transformed homebuilding as we know it take care stay safe stay amazing picker.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.