Q2 2025 Champion Homes Inc Earnings Call
Speaker Change: [inaudible]
Speaker Change: Here to review champions results or Mark Yost Champion Holmes, President and Chief Executive Officer, and Lori Hock Executive Vice President and Chief Financial Officer.
Yesterday after the market closed we issued our earnings release as a reminder, the earnings release and statements made during today's call include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 each.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations.
Speaker Change: Such risks risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities Exchange Commission.
Speaker Change: Please note that today's remarks contain non-GAAP financial measures.
Speaker Change: Which we believe can be useful in evaluating performance.
Speaker Change: Our nations and reconciliations of these measures can be found in the earnings release.
Speaker Change: I would now like to turn the call over to champion Holmes, President and CEO Mark Yes.
Good morning, ladies and gentlemen, thank you for joining today's earnings call before we discuss our financial results and outlook I would like to take a moment to honor the memory of Keith Anderson.
Dear colleague mentor and transformative leader for champion homes.
Speaker Change: Keith served both as a director and former CEO at champion.
Were his visionary leadership and steadfast commitment to excellence left an indelible mark on our company.
Speaker Change: His influence extended beyond our corporate boundaries as he played a significant role in shaping the broader housing housing industry through his board and advisory roles.
Speaker Change: His career was distinguished by his integrity innovation and relentless dedication corporate excellence.
Speaker Change: Keith was more than just a leader he was a mentor and a friend to many of us as.
Speaker Change: His wise counsel and warm personality enriched our professional lives and instilled our corporate culture with a sense of purpose and camaraderie.
Speaker Change: As we proceed with today's call, we hope he's memory Dear and continue to be inspired by his enduring legacy.
Speaker Change: His contributions have not only shaped our past, but also laid the strong foundation for our future.
Speaker Change: Now, let us move to the overview of this quarter's performance.
Speaker Change: Our performance this quarter demonstrates effective execution across the company, particularly in enhancing our digital direct to consumer strategy advancing the integration of regional homes acquisition.
Scaling the benefits from champion financing.
Speaker Change: These efforts have enabled champion homes to deliver more value to our customers.
Speaker Change: The second quarter exhibited strong growth with home sales, increasing 29% year over year to 6536 units.
Speaker Change: Additionally, we saw a 14% increase in organic sales orders year over year with gains across retail builder developer and our community REIT partners.
Speaker Change: However, at the end of the quarter hurricane impacts disrupted both orders and sales.
Speaker Change: Affecting both manufacturing and retail locations.
Speaker Change: Due to prolonged power outages and a temporary.
Speaker Change: Suspension.
Speaker Change: Policy, writing by insurers.
Speaker Change: Despite these challenges our team's extraordinary efforts ensured that our operations suffered no significant damage.
The second quarter saw a sequential decrease in revenue from the fiscal first quarter down 12 million, while our backlog grew $23 million, resulting in a total backlog of 427 million at the end of the quarter.
Speaker Change: The average backlog lead times remained steady at 11 weeks aligning with the end of the first fiscal quarter.
Speaker Change: I'm pleased to announce that the acquisition of regional homes has continued and surpassed our expectations.
Speaker Change: We have achieved the upper limit of our synergy targets this quarter, which marks a significant milestone for us in.
Speaker Change: Impressively. This achievement comes just one year following the acquisition a full year ahead of projected schedule.
Speaker Change: Building on the success champion financing our collaboration with Triad financial has also gained significant momentum this quarter.
Speaker Change: Over recent quarters, we've launched new floor plan financing options for our independent dealers and consumer find financing programs for our selected national products.
Speaker Change: The early outcomes from these initiatives have been very encouraging bolstering our confidence that we can provide customers with a comprehensive and peeling home buying solution.
Speaker Change: This success underscores our commitment to enhancing finding.
Speaker Change: Financing accessibility further propelling our growth in the manufactured housing market.
Speaker Change: Altogether these strategic actions support our commitment to strengthening our market position and delivering on our promise of providing accessible comprehensive housing solutions and creating value for our shareholders.
Speaker Change: Looking to our third fiscal quarter, we observe we are observing a softening in order rates, which is in line with our typically slower winter selling season <unk>.
Speaker Change: Additionally, we have known is that consumers are taking a cautious approach delaying their purchasing decisions as they await the outcome of the upcoming election.
Speaker Change: As we address the operational impacts from Hurricanes Helene and Milton.
Speaker Change: I want to express our heartfelt concern for all those affected by these devastating events.
Speaker Change: Nine of our 48 plant locations in Florida, Georgia, and the Carolinas have been directly impacted leading to expected timing delays and order fulfillment home deliveries and retail sales.
Speaker Change: Our focus is on the extensive cleanup and rebuilding efforts required in these regions and we are committed to supporting our employees and the communities. During this challenging time.
Speaker Change: Going forward, we do anticipate a modest decline in topline performance for the third quarter projected to decrease by mid single digits sequentially.
Speaker Change: This anticipated dip is largely attributable to the timing disruptions from the hurricanes.
Speaker Change: Despite the immediate headwinds we anticipate strong.
Speaker Change: And long term demand within these regions spurred.
Speaker Change: By widespread destruction of homes.
Speaker Change: This is expected to increase demand and it places us in a pivotal position to aid in the rebuilding efforts.
Speaker Change: Firming, our commitment to support the recovery in these communities.
Speaker Change: I'll now turn the call over to Laurie will discuss our quarterly financial performance in more detail.
Laurie: Thanks, Mark and good morning, everyone I'll begin by reviewing our financial results for the second quarter, followed by a discussion of our balance sheet and cash flows.
Also briefly discuss our near term expectations.
Laurie: During the second quarter net sales increased 33% to 617 million compared to the same quarter last year with U S factory built housing revenue increasing 37%.
Laurie: The number of homes sold increased 31% to 6357 homes in the U S compared to 4842 homes in the prior year period.
Laurie: U S home volume during the quarter was supported by additional retail and manufacturing capacity, resulting from the regional homes acquisition that contributed approximately 148 million to net sales during the quarter.
The average selling price per U S homes sold increased by four 5% to $92400 due to a higher mix of unit sold through our company owned retail sales centers.
Laurie: And a sequential basis U S factory built housing revenue decreased 2% in the second quarter compared to the first quarter of fiscal 2025.
Laurie: We saw a slight sequential decline mainly due to hurricane Helene landfall two days prior to the end of the second quarter.
Laurie: Several of our manufacturing plants in Florida, Georgia, and the Carolinas lost a day or two of production and were unable to ship homes.
Laurie: In addition, our captive retail locations were delayed in closing several home health.
Laurie: On a sequential basis, the average selling price per home increased 1% due to changes in product mix.
Laurie: Manufacturing capacity utilization was 60% compared to 58% in the sequential first quarter of fiscal 2025.
Laurie: Current utilization rate, primarily reflects the increase capacity brought online with their recently opened plants.
Laurie: Canadian revenue during the quarter was 22 million, representing a 23% decline in the number of homes sold and a one 5% decline in the average selling price per home versus the prior year period.
Laurie: The average home selling price in Canada decreased to $124200 due to a shift in product mix.
Laurie: The product the reduction in sales volume can be attributed to a combination of factors, including higher interest rates and economic uncertainty in key markets that have tempered by our enthusiasm for new home.
Laurie: These conditions are anticipated to continue to impact the housing market dynamics in Canada in the near term.
Laurie: Consolidated gross profit increased 43% to 166 million in the second quarter and our gross margin expanded by 190 basis points from 25, 1% in the prior year period.
Laurie: The higher gross margin was primarily due to higher average selling prices on new homes sold.
Laurie: As our company owned retail sales centers captured a greater share of overall sales versus the prior year and.
In addition, lower input costs, primarily from forest product material contributed to the higher gross margin profile.
These favorable margin trends were partially offset by the effect of purchase accounting increases to the carrying value of the finished goods inventory that was acquired with the regional homes acquisition, which had a negative 40 basis point impact on consolidated gross margin during the quarter.
Laurie: On a sequential basis gross margin came in better than anticipated due to lower input costs and higher captive retail sale.
Laurie: SG&A in the second quarter increased $35 million over the prior year period to $100 million.
Laurie: The increase was primarily attributable to the original homes acquisition and higher variable costs related to higher revenue and profitability.
Laurie: The company's effective tax rate for the quarter was 21, 6% versus an effective tax rate of 24, 5% for the year ago period.
Laurie: The effective tax rate was positively impacted by an increase in recognition of tax credits related to the sale of energy efficient homes.
Net income attributable to champion homes for the second quarter increased 20% to $55 million or earnings of 94 cents per diluted share compared to net income of 46 million earnings of 79 cents per diluted share during the same period last year.
The increase in EPS was driven mainly by higher operating income in the second quarter.
Laurie: Adjusted EBITDA for the quarter was 74 million compared to 59 million in the prior year period, adjusted EBITDA margin was 12.0% compared to 12, 7% in the prior year period, which was impacted by higher SG&A.
Laurie: We expect the recent hurricanes in the southeast will impact revenue in our fiscal third quarter, although the extent of that impact is difficult to estimate.
Laurie: Gross margins have stabilized however, we expect margins to fluctuate quarter to quarter as.
Laurie: As a result of product mix.
As of September 28, 2024, we had $570 million of cash and cash equivalents and long term borrowings of 25 million with no maturities until 2026 lead.
Laurie: We generated $60 million of operating cash flows for the quarter compared to 54 million for the prior year period.
Laurie: The increase in operating cash flows reflects higher net income partially offset by an increase in our inventory balances when compared to the prior year period.
Laurie: In the quarter, we leveraged our strong cash position and returns capital to our shareholders through $20 million and share repurchases.
Laurie: Additionally, our board recently approved a replenishment of our $100 million share repurchase a repurchase authority, reflecting confidence in our strong cash generation.
Speaker Change: I'll now turn the call back to Mark for some closing remarks.
Mark: Thank you Laurie the outlook for our company remains optimistic, particularly against the backdrop of the broader housing market.
Mark: Despite the general challenges facing new traditional construction.
Mark: Our operations are benefiting from the healthy demand and resilient margins.
Mark: This includes revised orders from retailers and builder developers as well as our community partners, reflecting a persistent need for affordable housing solutions.
Mark: These trends not only demonstrates the resilience of our market, but also positions us ideally for sustained growth.
Mark: Moreover, we are strategically expanding our reach into builder as a service and consumer retail sales through digital platforms.
Mark: Complemented by our innovative financing solutions. These initiatives are designed to drive our growth and enhance value for all stakeholders.
The recent hurricanes, while impacting near term timing are expected to ultimately create a surge in demand in the affected regions.
Mark: Affirming our pivotal role in recovery and rebuilding efforts.
Mark: This positions us to further solidify our market presence and capitalize on long term growth opportunities.
Now I'd like to open the floor for questions.
Operator. Please proceed.
Thank you.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while they pull for questions.
Speaker Change: The first question is from Greg Palm from Craig Hallum. Please go ahead.
Greg Palm: Yeah. Good morning, Thanks for.
Greg Palm: The questions I'd also like to.
Greg Palm: Echo your comments about Q T at all.
Speaker Change: Really strong influence on a lot of people inside and outside the company. So I'm gonna be missed by by a lot of a lot of people here.
Greg Palm: I wanted to just start with maybe you know if you're able to quantify just some of the impacts from from the storms you know near term Bolton and the recently completed quarter and current quarter any way to sort of quantify either from a volume or revenue standpoint, and I guess the bigger question is at what.
Greg Palm: Do you sort of catch up that pent up demand as it did they could take a couple of quarters.
Greg Palm: Is it into next year, what's your what's your best guess at this point.
Speaker Change: Yeah. Thank you Greg I think you know production at several of our facilities in Florida, Georgia and the Carolinas.
Speaker Change: Were interrupted due to power outages and flooding in the surrounding areas.
Speaker Change: Retail placements last week of September in North Carolina, and Florida.
Speaker Change: Those stores had to close and insurers stopped binding policies. The final week of September. So there definitely was an impact on the quarter.
Speaker Change: Overall, I think you know as far as when we catch that up it really depends a lot on the infrastructure rebuild.
Speaker Change: So right now we're assuming it's going to take you know probably this quarter and maybe a little bit into the next quarter for them to rebuild.
But if you have that clean up goes a little quicker or the infrastructure moves.
Speaker Change: It moves ahead of schedule here and I think that demand is there.
Speaker Change: Okay.
Speaker Change: And just.
Speaker Change: You know I think the obvious bright spot in the quarter on the gross margin side of things you know really really remarkable performance there.
Speaker Change: You're still seeing some purchase accounting headwind so maybe a two part question.
Speaker Change: What point do those and I assume we're pretty close but you know just even looking ahead, not just kind of near term but.
Speaker Change: Is this you know.
Speaker Change: A better sort of gross margin rate knowing that we're gonna have maybe some upside from you know as capacity increases.
Speaker Change: Increases in maybe just highlight a little bit more on in terms of the quarter other than you know.
Speaker Change: The mix of units going through you know captive or anything else that you want to call out in terms of the outperformance.
Speaker Change: Hi, Greg Yeah, I would say definitely saw some positive impact on gross margins for lower forest product.
Speaker Change: Input cost.
Speaker Change: So we don't expect that to be quite as significant in the third fiscal quarter.
Speaker Change: Will negatively impact margins from a purchase accounting perspective, we do feel that that we're kind of through that at this point and it will be immaterial going forward.
Greg Palm: And then as you mentioned in the last key component was stronger captive retail sales than we expected right answer best quarter.
Speaker Change: Even with the impact of the Hurricanes, so the captive retail segment.
Greg Palm: Wow.
Speaker Change: Yeah, that's what I thought okay, I will leave it there congrats on the solid execution against.
Speaker Change: Thank you Greg.
Speaker Change: The next question is from Daniel Moore from CJS Securities. Please go ahead.
Daniel Moore: Yes. Thank you good morning, Mark morning Murray.
Daniel Moore: More.
Daniel Moore: Maybe just a little bit more color in terms of obviously the the impacts of the Hurricanes is helpful and clearly we're going into a little bit of a seasonally softer period, just your thoughts about the overall expectations for order rates and backlog should we think about you know backlog potentially moderating for a quarter or two.
Daniel Moore: Before I start, perhaps starting to pick up as we get into the seasonally stronger spring and summer selling season.
Speaker Change: Just thinking how you just in terms of how you're thinking about managing production versus versus order rates for the next say one to two quarters.
Speaker Change: Yeah. Thank you Dan I think you know we were looking at this and expecting a little bit of an order softening going into b.
Speaker Change: Presidential election.
Speaker Change: I looked at the current last quarter. It was really a quarter of a I'll call. It a tale of two halves.
Speaker Change: The first half of last quarter orders were very strong.
Speaker Change: Kind of organically in the 30% range and then you know as soon as.
Speaker Change: Hum.
Speaker Change: Soon as the presidential candidates mentioned, you know things like a $25000 incentive.
Speaker Change: You know what I think orders are right.
Speaker Change: Right after that week started to soften a little bit.
Speaker Change: As we kind of expected going into the presidential election. So I think the outcome of the election is going to influence.
Speaker Change: That trajectory on orders a little bit so we've actually purposely been building a little bit of backlog going into the winter season.
Speaker Change: Waiting on the outcome of the elections.
I think you know order pace is still very good up 14% organically year over year, so very good pace.
Speaker Change: I think backlogs will moderate a little bit going into December.
Speaker Change: I expect once we get through the election cycle, maybe depending on which candidate wins could influence the order pace.
In the third and fourth quarter.
Speaker Change: Depending on.
Speaker Change: You know the incentive structure and or a regulatory environment.
Speaker Change: Each candidate is proposing.
Speaker Change: That's really helpful and maybe just following up on Greg's question on the gross margin front, if you had to sort of rank order the favorable impacts of the quarter.
In terms of.
Speaker Change: You know kind of the delta between lower forest products or input costs and mix.
Speaker Change: We think about that you'd either sequentially or year over year.
Speaker Change: Yeah, Dan, we're not going to break out the bucket of the impact.
Speaker Change: Understood I appreciate the commentary previously maybe just.
Taking the seasonality and end.
Speaker Change: The impacts of the Hurricanes out of the equation you just talk about what you're hearing from both free customers as well as community developers and you know how that translates into your kind of confidence as we look out beyond the next one to two quarters.
Well I think the the tone in the marketplace is very good community rights were a strong order growth channel. This this quarter a builder developers were extremely strong. So I think you know if if the order pace slowed at all it was really in some of the retail channel.
In certain areas, which is really akin to the consumer confidence and waiting for the results of the election I think.
Speaker Change: So very good optimism on all sides are leads are up our quote activity is very strong. So I think people are shopping they're coming in we've got good traffic both at retail.
Speaker Change: And with our community partners. So I think I think the traffic's. There I think people are just holding off on the execution of the buying decision until they see if there's.
Speaker Change: Summed.
Speaker Change: Some type of opportunity for some type of incentive post election.
Speaker Change: Alright that makes sense.
Speaker Change: And maybe lastly.
Bought back a little bit of stock in the quarter you kind of.
Speaker Change: Basically through the synergies or most of them.
Speaker Change: With the acquisition a year ahead of schedule just talk about your appetite for M&A.
Speaker Change: You know going forward and how do we think about capital allocation priorities for the next two to four quarters. Thanks again.
Speaker Change: Yeah. Thanks, Dan I think you know M&A is definitely a priority for us.
Speaker Change: You know, we're blessed with the acquisition and the people at regional and the team at regional.
Speaker Change: I've done amazing things and so I think that.
Speaker Change: It gives us some confidence.
Speaker Change: You know we can do it in further acquisitions, our pipeline is very robust.
Speaker Change: So I think we're very active in thinking about that that would be our top capital priority.
Speaker Change: As we go forward and then you know innovation and driving some of the growth of our platforms and our direct to consumer strategy would also be pivotal and that.
Speaker Change: Along with of course, since we're generating high cash.
Speaker Change: We have the ability to return some to shareholders as well.
Speaker Change: Okay.
The next question is from Matthew Bouley from Barclays. Please go ahead.
Speaker Change: Good morning, you have.
Speaker Change: On for Matt today, and thank you for taking our questions.
Speaker Change: You mentioned that the demand in your builder developer channel was extremely strong could you talk a little bit about more about that.
Speaker Change: Kind of relative to last quarter, what you've seen with builder sign ups, whether it's continuing to accelerate or kind of staying stable.
Speaker Change: Yeah, so the new builder.
Speaker Change: Newbuild or capture this quarter accelerated.
Speaker Change: Lately over last quarter, so we're seeing it accelerate.
Speaker Change: The capture rate as small to mid tier builders are under pressure.
Even the large traditional builders I think you're starting to see some margin pressure and compression in.
Speaker Change: And their ability to meet the demands of first time homebuyers, So I think.
Speaker Change: That bodes well for us as we go forward so golden developer continues to escalate.
Speaker Change: And we anticipate that it'll be a strong growth channel for.
Speaker Change: For foreseeable future.
Speaker Change: And then.
Speaker Change: Thinking about the impact of Hurricanes and I.
Speaker Change: Are you expecting any.
Speaker Change: Impact.
Speaker Change: Restocking.
Speaker Change: Is there anything that we should think about in terms of whether or not people might be.
Speaker Change: He was talking more if they're expecting the demand to pick up.
Speaker Change: Anything around that.
Speaker Change: No I think you know obviously dealers are going to start I think probably in the near term as they see infrastructure.
Speaker Change: Start to get rebuilt in certain areas start.
Speaker Change: Start to you know.
Speaker Change: I would call order.
Speaker Change: Because theyre going to need to backfill the demand there was thousands upon thousands of homes. Unfortunately destroyed.
And so the demand for housing in those regions is going to be substantial.
Speaker Change: So yeah I would expect you know as they see the visibility.
Speaker Change: In terms of infrastructure timing, then they'll start to place orders.
Speaker Change: More readily to take care of the homeowner.
Speaker Change: Homeowners who have been displaced.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: The next question is from Fiona Shang from Jefferies. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hi, This is Fiona I'm, sorry herself and congrats on a good quarter.
Fiona Shang: Just curious given the damage from Hurricane Kelly and that do.
Fiona Shang: Do you guys see any potential pay in.
Fiona Shang: Your next from FEMA going forward.
Fiona Shang: And concerning to the contract award is backing the physically can you switch and you guys are expecting to see more unit growth. This time.
Fiona Shang: Yeah.
Speaker Change: Yeah, I think I think as far as FEMA, we haven't received any type of orders, yet obviously theres been mass destruction.
Speaker Change: In those regions. So you know the federal government along with state governments are actively trying to figure out what type of response to do but there's no activity from people as of yet.
Speaker Change: Okay. Thank you.
Speaker Change: Just another follow up given.
Speaker Change: Given the chatter, we usually like the 30 year fixed market tree have you see any movement in furniture.
Speaker Change: I'm sorry, that's quota.
Speaker Change: No the channel rates generally lag changes in mortgages by about six months generally speaking.
Speaker Change: They are currently running at about a 150 basis point spread for good credit.
Speaker Change: You know somewhere north of 8%, So I would say eight eight points.
Eight eight and a half something like that for fairly good credit.
Speaker Change: Okay. That's helpful. Thank you thank.
Speaker Change: Thank you Pam.
Speaker Change: There are no further questions at this time I would like to turn the floor back over to Mark Yost for closing comments.
I want to thank everyone for taking the time to listen to our call. This morning and for your continued interest in champion homes. We look forward to updating you on our progress on our fiscal third quarter earnings call. Thank you and have a great day.
Speaker Change: Yeah.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
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