Keith Anderson - CEO Laurie Hough - EVP & CFO.

Daniel Moore - CJS Securities Greg Palm - Craig-Hallum.

[Abrupt Start] During today's call includes forward looking statements within the meaning of the Private Securities and Litigation Reform Act of 1995. These statements are subject to risk and uncertainties that could cause actual results to differ materially from our expectations and projections.

Those risks and uncertainties include the factor set forth in the earnings release and in their filings with the Securities and Exchange Commission. Additionally during today's call the company will discuss non-GAAP measures which we believe can be useful in evaluating their performance.

A reconciliation of these measures can be found in the earnings release. I would now like to turn the conference over to management. Please go ahead..

Good morning. This is Keith Anderson, Skyline Champion's CEO. With me this morning is.

With me this morning is Laurie Hough, EVP and CFO of the company. Thank you for joining our first quarter 2019 earnings call.

We are excited about the future of our company given the momentum stemming from our transaction on June 1, between Skyline and Champion forming the number two market share manufacturer in our industry with an expanded footprint and product offering.

I would like to acknowledge our secondary equity offering which priced last week, 10.350 million shares were solved at $22 per share price raising approximately $228 million before fees for selling shareholders. I appreciate the strong investor interest and would like to welcome all the new shareholders to Skyline Champion.

We look forward to continuing to get to know you and updating you about our business and performance going fosrward. Before we jump into the quarterly results I would like to take a few minutes to provide some background on the company and our strategy for those of you that are new to the story.

We're the second largest factory built housing company in the U.S. with pro-forma market share of approximately 17% % of the HUD manufactured housing industry. We also hold a leading position in Western Canada. On a pro forma basis we generated 1.3 billion of net sales and adjusted EBITDA of 76 million for the fiscal year ended March 31, 2018.

This adjusted EBITDA margin of approximately 6% is report expected synergies stemming from the combination. Our U.S. business represents approximately 84% of the pro forma net sales with Canada and our transportation business each representing approximately 8%. Our product portfolio is broad by type of home and price point.

Manufactured housing accounts for the majority of our shipments followed by modular housing commercial and part model RVs. Our products are sold through a network of more than 1000 independent dealers across the country as well as 21 company owned retail stores were quite located primarily in the southern U.S.

We operate 36 manufacturing facilities strategically located in the markets that are close to our customers. Our industry is attractive and it is being driven by differentiated and secular trends leading to outsized growth compared to the traditional site built housing market.

Market volumes for manufactured housing have been recovering but remain significantly below long term averages but 2018 MH [ph] industry volumes expected to approach 105,000 units compared to the long term average of 224,000.

Viewed from another perspective MH is expected to be about 10% of single family housing starts this year compared to the longer term average of more than 17%.

We think growing demand combined with new financing options will help to close that gap with historical trends as MH places as an increasingly important role in providing the market with affordable housing solutions.

First let's discuss our financial results for the quarter and then talk about some of the tailwinds that are providing the industry with further momentum for growth and expansion.

We're very pleased with our first quarter financial results for the three months ended in June it's important to note that since Champion was the accounting acquirer in the combination. We adopted Champions' fiscal year reporting period which began on April 1st.

Therefore this quarter's results only include one month June of Skylines operating results along with three months of Champion's results. Highlights include our adjusted EBITDA more than double that 22.7 million and represented 7.1% of net sales compared to 4.5% for the first quarter of 2018.

This was driven by 78 million or 32% increase in net sales from selling 20% more homes in the U.S. and over 13% increase in our Canadian home sales. While Laurie will discuss our financials in more detail I've a few thoughts to share with you. We continue to see strong demand in most of the U.S.

markets as well as in the British Columbia Province of Canada. Backlogs continue to grow as demand through all three of our distribution channels, independent dealers, company owned stores as well as communities continues to accelerate.

Consumers continue to view our homes as attractive and affordably priced and that are built with the quality in care and with features fitting the needs of today's families. We are also beginning to see more competitive retail financing programs appear for both the chattel and land home segments of our business.

This is helping us improve our order rates as well as helping our customers qualify for higher priced homes than in the past. We are excited about these developments and look forward to executing our strategy as a combined company with increased scale and scope. I will now turn the call over to Laurie to discuss the quarter in more detail..

Thanks, Steve. We are pleased with our performance during the quarter as net sales increased 32% to 322 million compared to 244 million in the prior year.

The net sales increase was driven by four main factors, one, increased manufacturing capacity, two; plant outbreeding improvements which led to increased output, three; additional retail sales centers in operation during the most recent quarter and four; an increase in the average home selling price.

Net sales included 22 million generated from the Skyline operations for the one month of June 2018. The number of U.S. factory built homes sold in the first quarter of fiscal 2019 increased 20%. Average selling price per U.S.

home sold increased 15% as a result of increased market demand, product mix and pricing actions to offset the impact of rising material and labor cost. In addition our Canadian sales volume improved by over 13%. Gross profit increased to $55 million up 53% compared to the $36 million for the prior year period. Our U.S.

factory built housing segment increased gross margins to 17% of segment net sales from 14.4% in the same period last year.

Although material prices and labor costs have been increasing in recent periods we have been able to offset the margin effect of those increases with the combination of price adjustments, operational improvements and product rationalization the company continues to standardize product designs and material purchase which allow for more efficient production.

As a result of these efforts the US manufacturing plant has been able to increase output which allows for better leverage of fixed cost. The increased volume at the Canadian operations also helped to improve that segments gross margin. SG&A in the first quarter increased $18 million versus the same period last year.

Primarily due to transaction related expenses such as equity compensation, integration and restructuring expense of $9.6 million. In addition variable compensation expenses increased $4 million with the increase in sales and profitability.

Lastly SG&A increased to $1.7 million due to the additional capacity of the Skyline operations added in the month of June. The net loss for the first quarter was $900,000 compared to net income of 5.3 million during the same period from the prior year. The decline was driven by an increase in income tax expenses as well as a SG&A.

The company's effective tax rate for the three months ended June 30, 2018 was 133% versus an effective tax rate of 35% for the fiscal 2018 first quarter. The increase in the effective rate was primarily due to non-deductible transaction related expenses and non-cash stock compensation expense.

SG&A was higher due to the same transaction related to legal, accounting services expenses and the non-cash equity compensation expense. Absent these non-deductible discrete items identified in the quarter the company's effective tax rate would have been 28.7%.

Adjusted EBITDA for the three months ended June 30, 2018 was $22.7 million, an increase of 109% or $11.8 million over the three months ended July 1, 2017. The adjusted EBITDA margin expanded by 260 basis points to 7.1%.

We're seeing improvement driven by strong demand in a number of our markets improved operating leverage as our volume grows and early results from our operating margin improvement initiative.

As of June 30, 2018 we had $80.9 million of cash and cash equivalents, cash generated from operations improved by over 6 million versus the same quarter last year during by improved profitability. The company has $30.5 million of unused borrowing capacity under our $100 million revolving credit facility.

We have a strong and growing cash position with added liquidity from our credit facility that provides ample flexibility to invest in our core business and our internal initiatives. We continue to target $10 million to $15 million of synergies over the next 24 months.

There were minimal synergies recognized in the first quarter of fiscal 2019 due to the timing of the close, but we are making good progress on procurement savings opportunities as well as identifying and beginning to implement operational best practices. We remain confident in our ability to achieve the targeted synergy range.

I'd like to turn the call back to Keith for some closing remarks..

Thanks, Laurie. As you can see we're off to a strong start to the fiscal year. As we look forward we expect our markets to remain healthy driven by increasing demand for affordable housing and improving financing availability for our consumers.

We see opportunities to grow our business organically, pursue incremental M&A and expand our margins through operating leverage, operational initiatives and transaction related synergies. Longer term we are well positioned to remain one of the leading providers of factory built homes and generate attractive returns for our shareholders.

That concludes our prepared remarks.

Operator could we open the call to any questions that are outstanding?.

[Operator Instructions]. Our first question today is coming from Daniel Moore from CJS Securities. Your line is now live..

In terms of ASPs maybe talk a little bit about what's driving that 15% growth in average selling price in the U.S.? Is it pure path through raw materials? Are seeing favorable mix? Anything else in there?.

Dan, it's a little bit of both. We did see high single digit inflation in our material costs in the first quarter. So certainly increasing prices to offset that but mixed results so impacting the average selling price..

Helpful.

And in terms of the margin improvement, is it possible to tease out how much of the 230 basis point gross margin increase was from -- if we could bucket that a little bit between price streamlining operations, purchasing, you know any other factors?.

Yes, I can't give you a specific number but it’s a combination of several obviously several items just improved volume and operating leverage and then we've been working to rationalize our product offerings both in our base metals and options as well as reducing our material SKUs and then just with the backlogs that we have at the factories today we have the ability to streamline the product mix as they go through the factory which also helps to improve throughput..

Very helpful.

Do you have to Laurie perhaps revenue adjusted EBITDA on a pro forma basis for the quarter and comparable quarter last year?.

That information will be in the Q which will be coming out later this week..

That's fine.

And then maybe just a few modeling questions, I think you said the adjusted tax rate was 28.7% is that a good rate to think about going forward?.

It's in the range, yes..

Got it. And then either quarterly run rate or the remainder of the year how should we think about you know DNA and CapEx as well as that non-cash comp line/.

Yes. I think the information in the Q will help you with that..

Got it.

I will get there and lastly obviously Keith has mentioned in his prepared remarks talked a lot -- we have heard a lot about financing lately you know what's the latest you're hearing from the GSCs in terms of interest and expanding credit in those programs and secondly are you starting to see more private institutions enter the chattel lending space and if so how quickly do you think we might get to enough critical mass to warrant a secondary market opening up? Thanks for taking the questions..

Sure. Thanks, Dan. We've had some really good conversations with the GSCs and there seems to be a lot of positive momentum with them supporting our industry with products that really fit our demographic and collateral profile.

It is a unique business, it's a niche industry and therefore you have to customize those products to work both short term and long term for lenders and investors. On the land home side we feel that the GSCs will be rolling out good successful programs later this year. Fannie Mae is already introduced a piece of their program.

On the chattel side they will be focused on that in 2019, they have several resources working on that at this time.

I should mention on the chattel side also, there been a very positive movement with other private institutions expanding their credit box and improving the terms for our end customer that we're really excited about and we think that as those institutions get good performance data the secondary market will come along as well to help support our industries.

So both our positive developments that we should certainly gain from in the coming years..

That's helpful. With a huge percentage of your market going back more than a few years, so it would be great to see it comeback. Thanks again..

Our next question today is coming from Greg Palm from Craig-Hallum. Your line is now live. .

Congrats on the results and obviously the first time as combined Skyline Champion company..

Good morning, Greg..

I would like to start out with just sort of from a demand environment standpoint in light of some of the commentary from some of the traditional home builders curious you know what you're seeing out there in the market especially in the last maybe two to three months from a traffic standpoint from an order standpoint, anything kind of changing from kind of year to date or is it still sort of status quo strong?.

Yes Greg you know we've seen really good order rates all across the country.

I would say early in our fiscal year the north and northeast started off a little slow I think it was pretentiously part of the long winter drag that occurred but since then both the Midwest and Northeast markets have come on really strong, Texas and Florida remained very strong markets and the West Coast has really picked up over the last 6 to 12 months.

So a lot of good traffic out there at our retail locations and our independent stores. I think the momentum is certainly here to continue..

If I may ask, if I just sort of do some back of the envelope and take out what I thought maybe was the one month of Skyline contribution in the quarter.

I get to something we're still sort of north of 20% year over year revenue growth for Champion standalone I guess, can you confirm that? I think that was all over [indiscernible] so I guess what I'm getting at how sustainable is that type of growth rate going forward I mean that's obviously pretty substantial there..

Your math is spot on so that's right and we're obviously being helped by the volume and throughput through the factory and a couple of those items that we mentioned in response to Dan's questions earlier. So we have strong backlogs right now and increasing capacity is helping..

Yes. That’s great and then on the backlog do you have the number of how that compares to 222, how that compares to a year ago levels either on a pro forma basis or maybe a Champion standalone and I guess more importantly it just in terms of working that off.

Is it more about improving throughput at the existing plants? Do you plan on opening some of the idle plants? What's the strategy there?.

Yes. Backlog you know on a comparable year-over-year basis is pretty consistent with prior numbers that we've put out in the 60% not including the Skyline plans..

And as far as working that off Greg, we obviously have backlogs that are longer than we'd like in certain markets around the country. We're focused on streamlining some of our product array to improve productivity but we're also looking at you know organic or internal capacity growth.

We've got a few plant expansions that are well on the way of completing that are current champion plants that can add production as well as down the road further you know we'll be looking at other market opportunities to see if growth is another denominator for our future strategy. So all these pieces will come together..

Yes its good problem to have when you've got high demand but clearly a problem and an issue that probably this is from a capacity standpoint that this industry is going to need to sort of work off in the coming years. I guess lastly Keith just kind of given this is your first quarter on the public here.

The cash generation will probably be pretty high. So I would just love to get a sense of kind of what your near term capital allocation priorities are..

Yes.

I mean first and foremost our number one priority is to integrate successfully Skyline so that means all aspects of the operation to maximize synergies in most importantly to build a stronger foundation for future growth but after that later this year or early next year as I mentioned we're going to be focused on other markets that we may be under concentrated in today that we have a strong feel that will continue to grow in our industry.

We also look at some of our retail distribution opportunities and see if we should be expanding in need of the markets we're in today and/or other markets.

So I view capacity as an important ingredient for future success and that's where some of our cash capital allocation will go in a prudent conservative manner but one that will allow this company to continue to meet and exceed industry growth rates..

Our next question is a follow-up from Daniel Moore from CJS Securities. Your line is now live..

Thanks again.

You gave great color in terms of streamlining operations and some of the operational improvements and efficiencies at Champion now that you've had a month or two to get to know the Skyline assets a little better how would you compare them to Champion's and any color on the incremental opportunity to raise margin profile there?.

Sure, Dan. Well we're first and foremost impressed with the team there at Skyline, they've gone through a lot of change and they've been very open to adding value to all the decision making and all the best practices discussions that are going on so that we can combine to become a better company.

We really like the locations of the eight plants and the management teams at those eight plants. They're going to allow us to win the game and we're really focused in the early days already.

We've identified some PVA savings that we think can increase incremental margins on the Skyline side while not taking away any features that the customer may value.

We've identified some product overlaps whereby plants that are in close geographic areas may be both producing part [ph] models or modular homes that could simplify and improve their productivity by just moving that production to one or the other facility.

So I'm impressed Dan with the progress we've made in the early days and really look forward to the teams coming together and putting the numbers on the board..

Very good. Thanks for the color and look forward to seeing some of the operations first-hand here in September..

Yes we look forward to that, Dan..

Thank you. We have reached the end of our question and answer session. I would like to turn the floor back over to management for any further or closing comments..

Well thank you all for joining us today and expressing your interest in time. We look forward to talking again next quarter. Take care now. Bye..

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..