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Good morning, and welcome to the Champion Homes' First Quarter Fiscal 2027 Earnings Call. My name is Erica, and I will be coordinating your call today. A question-and-answer session will follow the formal remarks. As a reminder, this conference is being recorded.

I will now turn the call over to Ellen Kaleniecki, Director of Investor Relations. Ellen, please go ahead.

Good morning. Thank you for joining us for today's conference call and review of Champion Homes results for the first quarter ended June 27, 2026. Here to review the results are Tim Larson, CEO; and Dave McKinstray, CFO.

Yesterday, after the market closed, Champion Homes issued its earnings release. As a reminder, the earnings release and statements made during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission.

Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release.

I will now turn the call over to Tim Larson.

Thank you, Ellen, and good morning, everyone. The Champion Homes' team delivered a solid start to fiscal 2027 with results that aligned with our expectations. We continue to outperform the broader industry, demonstrating the strength of our customer-centric strategy and the team's operational execution.

The recent closing of the Homes Direct acquisition marks an important milestone in advancing our direct-to-consumer strategy. The transaction closed on August 1, and we are honored to formally welcome the Homes Direct team to Champion.

While the financial impact in the second quarter will be limited due to timing, we remain excited about the strategic opportunities that we are already seeing as we work with the Homes Direct team. This acquisition reflects how we are allocating our capital to enhance and accelerate our strategic priorities.

Across our channels, product portfolio and operational scale, Champion remains uniquely positioned to help address the need for affordable housing. We remain focused on producing high-quality homes that provide compelling value when compared to traditional site-built alternatives. We will achieve this by advancing a differentiated customer-centric strategy that supports long-term growth and value creation.

Let's turn to our quarterly results. The quarter unfolded largely as we anticipated, and we are pleased with the consistency and execution demonstrated by our team in a dynamic economic environment. Net sales increased 1.3% year-over-year to $710.2 million. Manufacturing capacity utilization during the quarter was 62%, up from 59% sequentially and up 1 percentage point compared to the same period last year. As a reminder, our utilization reporting includes our 6 idled facilities.

Champion again outperformed the broader industry. Our U.S. home sales were up 1.8% versus the same period last year. This performance is against the backdrop of declining HUD industry shipments, which were down year-over-year approximately 5% during the 3-month period ending May 2026.

The demand environment was very encouraging for us in the first quarter. Manufacturing orders increased year-over-year, resulting in an increase in backlogs to $421.8 million versus $302 million at the end of the first quarter last year. Manufacturing backlog lead time ended the quarter at approximately 9 weeks, which is within our target range of 4 to 12 weeks. We continue to manage production responsibly and balance customer demand with market conditions.

From a channel perspective, we achieved solid results across our portfolio, reinforcing the resiliency of our diversified go-to-market model. Sales to our independent retail channel were up 4% year-over-year. We continue to invest in tools and capabilities to support our independent dealers' businesses, including lead management capabilities via our dealer portal, consumer digital engagement initiatives and being nimble with our product offerings. We believe these important investments position both Champion and our dealer network for long-term success.

Our captive retail channel continued to perform well. Captive retail represented approximately 35% of consolidated sales during the quarter compared to 34% in the prior year period. Execution across our retail network remains strong as we leverage our investments across our now 95 captive retail stores, including 11 Homes Direct stores in the Western United States. It's worth noting that our first quarter results do not include Homes Direct, which, as I mentioned, closed August 1.

Community orders were up modestly this quarter. Community operators continually carefully manage inventory levels and monitor consumer demand. Orders from some of the larger operators were drivers during the first quarter, and we are encouraged by community customer engagement trends.

Builder-developer sales increased year-over-year with momentum accelerating in this channel. During the recent quarter, our off-site construction event in York, Nebraska attracted more than 150 attendees and showcased the interest in module and HUD housing solutions. Developers, builders, municipalities and housing advocates from across the nation attended the event. This reflects the growing interest and demand for affordable and timely home construction solutions.

Our joint venture with Triad Champion Financing continued to perform well in the quarter. As we reported on our last call, the ECN transaction closed successfully in our first quarter and generated proceeds of approximately CAD 189.1 million, a portion of which we have reinvested in the Homes Direct transaction.

Turning to the regulatory developments. We are pleased with the continued momentum of policies that expand affordable housing. The 21st Century ROAD to Housing Act recently passed both chambers of Congress with overwhelming bipartisan support, becoming law on July 10. While implementation will take time and the HUD rulemaking process is ongoing, we believe the legislation represents a meaningful step toward expanding housing opportunities and removing barriers to factory-built housing adoption. Our teams remain actively engaged with HUD and other stakeholders as technical specifications and implementation details continue to evolve.

As you would expect, in addition to the HUD rulemaking, there will be new engineering, transport and set considerations for HUD homes that are not built on a permanent chassis. Our teams are excited to implement this change while also remaining focused on our traditional HUD product that is built on a permanent chassis. We envision over time that both types of construction will be utilized throughout the industry.

Additionally, Champion will once again return to the National Mall for HUD's Innovative Housing Showcase in September. The showcase and legislation demonstrate that federal housing leaders are increasingly supportive of manufactured homes as a central solution to the housing affordability crisis.

We continue to monitor zoning reform at the state and local level as well. The Commonwealth of Virginia, for example, recently enacted legislation that allows manufactured housing placement in residential districts where site-built homes are permitted. This represents additional momentum towards the long-term acceptance of off-site built in parity with site-built. We believe the continued incremental regulatory progress leads to a favorable long-term outlook for our industry.

As we've moved through the opening weeks of the second quarter, our observations remain consistent with the themes we've discussed today. The macro environment remains dynamic and consumers continue to face broad affordability pressures. However, demand for attainable housing remains strong, and our team continues to execute our strategy with excellence. We are encouraged by the customer engagement trends and the opportunities we're seeing across our channels.

We believe Champion is better positioned than ever to help address the housing affordability challenge with best-in-class products designed for the specific customers and markets we serve, supported by diversified channels and a highly engaged team. Our balance sheet remains exceptionally strong, providing flexibility to invest in growth opportunities, pursue disciplined capital allocation and continue creating long-term shareholder value.

With that, I'll turn the call over to Dave.

Thanks, Tim, and good morning, everyone. Before I get into the quarter and outlook, I want to briefly welcome the Homes Direct team to Champion. We're excited to have them as part of the company, and we look forward to collaborating together as we continue to expand our retail platform.

Now I'll begin by reviewing our first quarter financial results, followed by our balance sheet and cash flow performance. I'll then conclude with our outlook for the second quarter of fiscal 2027.

Overall, our first quarter results reflected steady execution in a dynamic operating environment. With demand improving as the quarter progressed, the business performed in line with expectations, and we're pleased with how we're starting fiscal 2027. Net sales increased 1.3% compared to the prior year period to $710.2 million. These results were slightly ahead of expectations, reflecting stronger anticipated overall demand throughout the quarter.

In the United States, homes sold increased 1.8% to 7,089 units for Q1. Average selling price increased 0.6% to approximately $95,600, primarily driven by pricing on homes sold through our company-owned retail locations. In Canada, homes sold declined to 185 from 250 in the prior year quarter. The volume decline, which was impacted by weather-related disruptions, was partially offset by higher average selling prices.

Adjusted gross profit was $179 million, representing an adjusted gross margin of 25.2%. This was in line with our expectations and reflected disciplined pricing actions, operational execution and ongoing efforts to offset higher material costs in a volatile macro environment. As we discussed last quarter, these pricing actions typically lag cost increases. We expect the benefits to gain momentum in the second quarter.

Adjusted SG&A expenses represented 16.4% of net sales for the quarter within our expected range. Adjusted net income attributable to Champion Homes was $48.3 million or $0.88 per diluted share. Adjusted EBITDA was $73.6 million, representing an adjusted EBITDA margin of 10.4%. Our effective tax rate was approximately 25% compared with 21% in the prior year quarter, reflecting the expiration of ENERGY STAR-related tax incentives, which we spoke about on our Q4 call.

We ended the quarter with cash and cash equivalents of $784.7 million compared to $638.3 million at fiscal year-end. The increase was primarily due to the proceeds received from the ECN transaction. Operating cash flow totaled $72.5 million during the quarter, demonstrating the strong cash generation characteristics of the business.

We also continued to return capital to shareowners, repurchasing and retiring $50 million of common stock during the quarter. In July, the Board refreshed the share repurchase authorization back to the $150 million level. Since the inception of our share buyback program in fiscal 2025, we have repurchased $330 million or 8% of our total outstanding shares. Overall, we continue to maintain a highly flexible balance sheet that supports organic growth investments, strategic acquisition and shareholder returns. Looking ahead, our outlook reflects both the current operating environment and our confidence in our ability to execute.

Our second quarter guidance excludes Homes Direct given the timing of the transaction close. Consumer purchasing power remains under pressure and interest rates remain elevated relative to historical levels. Despite these headwinds, we believe Champion is well positioned given the value and breadth of our product portfolio and the broad reach of our channel network. Material costs remain elevated across the industry, though the rate of inflation has slowed from what we saw earlier in the fiscal year, and we continue to execute strategies to mitigate the impact.

Looking towards the second quarter of fiscal 2027, we expect revenue to grow mid-single digits compared to the prior year. This reflects the demand increases we saw in Q1 and resulting increases to backlog across our channels. We expect near-term adjusted gross margin in the 25% to 26% range as the actions we have taken to mitigate material cost pressures are beginning to take hold, and we expect those benefits to build as we move through the second quarter.

We continue to manage SG&A prudently with a focus on advancing our strategic growth priorities and driving execution. In Q2, we expect adjusted SG&A as a percent of sales to be 16% to 17%, consistent with Q1 and our run rates following the Iseman acquisition. As a reminder, ENERGY STAR tax credits expired on July 1, which is expected to increase the fiscal '27 ETR to approximately 25%.

In summary, we remain disciplined in our near-term while we continue to invest in our long-term strategy, generate strong cash flow and allocate capital in ways that will create sustainable shareowner value.

I'll now turn the call back to Tim.

Thank you, Dave. Our first quarter results demonstrate that despite a dynamic operating environment, Champion continues to execute its strategy with excellence. The progress we've made over the last several years starts with our people, who we believe are the best in the industry. It is also reflected in our channel diversification, retail expansion, product innovation and our direct-to-consumer platform. Each of these position us favorably relative to the broader market as demonstrated by our performance in Q1.

With that, operator, let's open the line and proceed with questions.

[Operator Instructions] And we'll take our first question from Dan Moore with CJS Securities.

This is Will on for Dan. Can you update us on the cadence of retail traffic and orders through May and June as well as early Q2 and July?

Yes, we saw good momentum through the quarter, and that's reflected in our backlog growth and certainly our outlook for Q2, and that traffic was both digitally as well as through the stores. And I would say the traffic at retail also indicates broader traffic that we're seeing with our independent dealers, and you saw the strength of that in our quarter as well as in our guide. So we've been pleased with the traffic, and we're looking forward to seeing that go throughout the summer months here into the rest of the year.

That's very helpful. Inside the plants, where are you increasing production given the uptick in backlog? Where are you holding steady? And how should we think about production in Q2 relative to the quarter you just reported?

Yes. We began ramping production in the key markets where we saw the growth in Q1, and we'll continue to do that through Q2. We do that very thoughtfully by plant location, looking at what their backlog is, what market conditions they're operating in. But we have been increasing production. You saw that through our utilization, we'll continue to do so where it makes sense by each region.

And then just one more. ASPs tick lower sequentially. Was that a function of mix, fewer homes sold through captive retail both? And what are your expectations for the next few quarters relative to the ASP you reported in Q1?

Dan, so a couple of things going on within the ASP. So we talked about some pricing actions we've been able to take in Q1 to mitigate some of the inflation. So that's definitely a positive as we think about ASP. Well, a couple of just headwinds that we have is first one primarily on the channel mix side of things. So we're seeing good strength out of the community and independent channels. So that, while good in overall volume and net sales is a little bit of an ASP headwind for us. So that's the first one I'd point to.

The second one and smaller in impact for us, but still notable, would just be on the product mix. What we're seeing is we've talked about the consumer environment, as they make their choices, they are going to more base level models, especially as we see them move into the multi-sections. They're electing for a more base level model in the multi-section. So those are a couple of dynamics that we're seeing play out on the mix side of things and impacting ASP.

As we think about it going forward, obviously, this will vary quarter-to-quarter as we think about what's going to be sold through our captive retail channel as that has a big impact on ASPs versus independents and communities. But generally, next quarter, I'd expect it to be sequentially higher than this quarter. And as we think about it year-on-year, roughly flat, maybe some slight headwind just given that mix play out. But again, this will vary as we move forward quarter-to-quarter.

And we'll take our next question from Phil Ng with Jefferies.

Really impressive quarter. I guess, first off, the guidance you guys provided for fiscal 2Q, the mid-single-digit growth, which is great. Any way to unpack the organic piece, price, I guess, Dave already gave price. But any way to unpack the Homes Direct piece in the quarter versus the organic side of things?

Yes. Phil, so the guide is all organic. There is -- we did not include Homes Direct in that guide, just given the timing of the close here late last week. So as we think about Homes Direct, it will be relatively immaterial to the total, but it will be additive to that guide that I provided.

Okay. Is there going to be a ramp-up period in terms of how that kind of builds and how you integrate in terms of the drop-through contribution as we think about how the year progresses?

Yes. Phil, as far as Homes Direct, we've mentioned they did about $70 million in sales. They have 11 locations. One of those locations was next to our Chandler facility, and we were the primary provider of products, obviously, there. The other 10 operate like our traditional dealers. So you're going to see that ramp over time as we migrate other manufacturers' products to ours. And so as you think about the business, those are some of the indicators, and we'll update as we go along. But just to reiterate, there's none of that in our guide in Q2.

Super. That's helpful. And then certainly, exciting news on the legislation front on the ROAD to Housing Act. Tim, perhaps how quickly you think HUD is going to be able to give you some color in terms of how this ramps up? And then you certainly have to retool your specs, your product offering, inventory. So just kind of help us think through when we could potentially see an uplift in demand and some of the steel chassis dynamic, should we think of that as a cost good guy or perhaps it makes your product even more of a value prop for some of the consumers?

Yes. I appreciate the question, Phil. I mean we're very pleased legislation passed and the support that came from the leadership of HUD, Secretary Turner was just tremendous. As we mentioned in the prepared remarks, the industry is now working with HUD on the detailed rulemaking that we will adopt to our code for the HUD code, and that allows us to permit homes without a chassis. That process, as you can imagine, takes time and there's engineering involved in really defining the product specs and also how does it affect transport and set and finish, things that we need to make sure that are ready to be able to comply with the code and the execution.

So that approach is ongoing. From there, there's obviously input that happens with a lot of different comment periods. So we're not anticipating an impact in F '27 because those things take time. In past HUD, if you will, impact has been a year plus. This may happen faster just given the focus on affordable housing, but we don't anticipate an immediate impact. It's going to be gradual over time. And what we're pleased by is the team is working well with HUD, and we're going to continue to focus on the opportunities as they make sense.

And then you've got the local piece, which is how long does the local adoption happen around zoning in each of those municipalities? That's in terms of the timing. In terms of your question on how we think about the chassis removal, yes, we don't really see it as much as a cost play being the primary driver. It's really more about how this changes the aesthetic of our homes to be at priority with site build at the local level and also allows us to do other types of products. And it gives us the ability on the zoning side, as I mentioned, for municipalities that historically maybe weren't as supportive of a home with the chassis, it gives us that opportunity.

So we really see it as about expanding the addressable market, that product aesthetics and also ultimately being able to engage a broader set of buyers through all of our channels, but certainly our builder-developer channel in particular. So it's encouraging, but it's going to take time, and we're engaged in that process right now.

Tim, could you see an uplift as early as spring selling season 2027?

Yes, we'll update you as we go along. It really depends on how long this process takes that I walked through. So we'll keep you posted as we go along and the teams are engaged, and we'll keep you updated as we go along that process.

And our next question goes to John Lovallo with UBS.

It seems like you're targeting a 4- to 12-week backlog range. You're currently around the midpoint there. I mean, what is sort of the optimal backlog level for balancing revenue visibility, customer service and operational efficiency?

Yes, it's a great question. That is our range, and we talk about it in that range. It really is plant-by-plant that we work on that because we're working with the customers when do they need the homes, how does that tie to their projects, including set and finish timing. So we like that 4 to 12 weeks, and we do that customer-by-customer. So for example, there are times customers will say, "Look, the orders I gave you is taking a little longer on set and finish as you can pace those out, we'll move other customers up." So that's where that range really comes into play.

And from a plant perspective, it allows obviously planfulness on labor. And so we make a decision plant-by-plant how we ramp based on that. And we also want to do it thoughtfully on the margin side because you don't want to drive, if you will, overtime or extra cost at a level that's unnecessary. So there's a good balance there. And that's why that range of backlog is what we speak to.

Understood. And then the 2Q guide implies about 200 basis points of gross margin headwind, despite homes -- it could be units increasing year-over-year and backlog being up about 34% sequentially. I mean, is the bulk of this the elevated input cost inflation? Or is there just other factors that we should be considering?

Yes. Thanks. I think it's all on the elevated input costs as we think about it. So just a couple of things I'd note there, and we made the comment to it in the prepared remarks. But we've seen those start to level off now, albeit at this higher rate. So as we look forward, what we're assuming is kind of the environment that we're in now tacking forward. Obviously, it's a pretty volatile environment. So we'll have to see how that unfolds. But it's those same cost pressures that we talked about into Q1 or back in Q1.

As we think about the offsetting mitigation actions, and we've spoken about this. We've spoken about pricing. We've spoken about driving efficiency within the manufacturing. So we'll continue to execute against those things, and we should see those accelerate as we move through Q2 as well.

And we'll go next to Matthew Bouley with Barclays.

I wanted to ask about in terms of the rulemaking process now that the legislation has been passed. I guess this is kind of an open-ended question here. But kind of how do you think about the sort of benefits of standardization in manufacturing? Obviously, when you had a fairly specific HUD code, that ability to kind of create a lot of the same unit with various changes that would have benefits to your manufacturing. And on the other hand, now with the removal potentially of the chassis, you can have more flexible design methods. And so again, an open-ended question, but maybe in terms of how you're putting forth your own inputs into that rulemaking process, and then when it does eventually get into place, how do you think about that balance between, again, standardization versus more of that flexible design?

Yes. I appreciate that, Matt. Great question. Part of the approach is by having a national HUD code that allows for broader utilization of our off-site built homes versus a traditional modular, there is a benefit that you can have national product, national specs that you can leverage across your platform, albeit with some local variation where it makes sense. So that's compared to previously modular built homes that took on the local building specs, which is why modular typically has not as great of adoption as HUD. So we now get the benefit of that national but through the chassis removal approach.

In terms of plant-by-plant, one of the things that our teams always work on is how effective can they be at having enough changeover between types of product. As you've seen in obviously, our product portfolio, we can make a very entry-level home, multi-section. We can make park models, cabins, various variants of those homes and the agility of the team is a key part of that.

Part of what we do during the rulemaking is to help make sure that there are as much standardization as possible while still delivering on what the customer is going to expect. And that standardization does help the execution that you mentioned. So that's literally the process that the teams are going through and the preparation that we'll do as we go forward and leveraging the benefits of our experience on various products that we've done in our facilities.

Got it. Okay. Yes. No, that's really helpful, especially discussing the sort of the local versus national code versus what you already do with modular. So really helpful there.

And then I guess, secondly, maybe just sticking on the same topic because it's such a big topic here going forward. Since the legislation has been passed, how are your conversations going with your institutional customers, with REITs, with builder-developers? What do you think they're going to be looking for from you with this new kind of design flexibility going forward?

Yes. Clearly, our builder-developer business is where you have most of that occurring, given that they're in development projects, they're thinking about their future land use. And so we're in more of the strategic discussions there because they too are waiting to see how long is it going to take to get down to this actual product in the market, and that's going to take some time.

As I mentioned in my prepared remarks, we're hearing from our key customers that many of them are going to continue with the chassis. Communities obviously makes sense, some independents that serve more of the traditional HUD buyer. So we're prepared to have our portfolio support both chassis and off-chassis. And we think that balance is really important given the type of industry we serve and our range of channels. But the conversations with those builders, it's encouraging because they remember when they went to zoning and said, "Well, we want this project". And they said, "Well, we want you to do it mod, not HUD." Well, now we can come back to those in the future and say, "Well, we can do a home that looks like it's on a foundation because it won't be on a chassis," and those are the type of opportunities that we see. So it's a balanced approach across our channels that we see as we go forward.

And we'll take our next question from Greg Palm with Craig-Hallum.

This is Jackson Schroeder on for Greg Palm. I kind of wanted to just start out on getting some color on some of the key markets that you had talked about that saw growth and what kind of drivers to your outperformance, as well as if you could touch on any like competitive dynamics that might be happening across geographies that impacted the quarter and if that might have been a part of the ASPs?

Yes. In terms of geographies, we saw obviously some increased shipments in Texas, Florida, Mississippi, Alabama, those states, a little weaker in the West and parts of the Midwest during the first quarter. With respect to orders and our backlog, we did see broad strength around geographies, maybe a little bit of weakness there in the West relative to the rest of the growth. So that's from a geography perspective.

From your question on the competitive element, you can imagine that every day, our teams are all competing to earn that customer and various markets have certain amounts of retailers and retail presence. And our team does a really good job of helping that customer get to them to the right home at the right price point every month that they're looking to pay, and that's what the battleground is in terms of that approach. And I've been pleased with how that's happening.

To your question on ASP, no, that was more of a function of having more community orders, more retail orders or independent retailers versus captive retail. As Dave mentioned, we have the wholesale price there versus when we have the retail being the main driver, you get the retail and the wholesale. So pricing was really a function of the channel mix that we had versus something more direct in terms of your question.

We did see from a consumer perspective, as Dave mentioned, the entry-level piece, which is obviously going to be driven by the consumer. But we think it's all healthy things relative to the market and our ability to grow share with the right balance in the marketplace.

Perfect. And do you see that kind of shift towards base models that kind of possibly a longer-term thing? Or is that kind of just something that hit in the quarter and kind of starts to normalize going forward?

It certainly reflects the consumer. And so as the consumer health and strengthens, you'll see some opportunities there. It also, again, is by channel and as community strengthens in their need, there tend to be in those single section affordable price point. So it's really going to be more based on those market factors. But we're positioned well across our portfolio in a range of options. We have our good, better, best approach, which allows us to ladder up where there's opportunities with consumers.

[Operator Instructions] We'll take our next question from Jesse Lederman with Zelman.

Nice job during the quarter. And I've got another question on price, not to kind of harp on it, but it sounded like last quarter, you were anticipating some of these channel and price point mix headwinds. And if I remember correctly, you suggested that you thought pricing would be relatively steady sequentially. And of course, with the decline, kind of still wondering, like, were the mix headwinds more than you were expecting? What were some of the other dynamics that may have deviated from your expectations entering the quarter?

Yes. Thanks, Jesse. Exactly as you said it, just a little bit more of a headwind than we had initially anticipated. So really nothing more to it than that. We did anticipate as we went through, but it was a little bit more. We saw more strength in independents and communities than we had anticipated.

Got it. I guess it's a good problem to have. So I guess on a like-for-like pricing basis, how would you describe your pricing power and pricing out in the market?

Yes. I mean, we talked about we've taken pricing actions in Q1. And with our product, we feel like we can get the value for our product, and we've done that very strategically to be -- maintain competitiveness in each of our markets. So we feel good about that.

I do think it's important to understand the pricing dynamic that we're talking about. When we sell a home wholesale, the average price is in the $85,000 range. When we sell in captive, it's in the $140,000, $150,000 range. So if you think about the strength, when I talk about the relative strength in community and wholesale or independent, excuse me, you're really talking about that $85,000 price point versus $140,000 price point. So a small move in that can actually have a pretty big impact to ASP.

So when I talk about versus expectations, we're not talking about a huge move. It's really just that difference between wholesale and retail pricing and the impact that can have. That's why I made that comment towards how it will vary quarter-to-quarter as we go forward because these aren't huge moves, but they can have pretty -- what look like percentage point changes on ASP.

All right. That's really helpful. I guess me and perhaps others were underappreciating the magnitude that the mix dynamics can have on the ASP. So that was really interesting and helpful color.

I'd love to talk a little bit more about SG&A. It seems to kind of continually grudge higher quarter-over-quarter. It was up about $4 million to $5 million on an adjusted basis and which the prior quarter should already include Iseman, and we're going to have the Homes Direct overhead presumably entering the fold coming up here in the next quarter or 2. So just curious if you could talk about kind of the pre-Homes Direct run rate of SG&A, what's in there? What's maybe transitory, what might come at and how we should expect SG&A to trend once kind of the Homes Direct overhead is more fully incorporated?

Yes. So we've been pretty consistent in the 16% to 17% of sales. And as we think about our SG&A, you have to remember that a good portion of that is variable. It comes with as we sell homes, as we sell more homes, you're going to get higher SG&A costs. So there is a big relationship there.

Now Homes Direct will add to it as we go forward. It's a little bit larger than Iseman from a sales perspective. So if I were to point you to what to look at, think about the relative size of Iseman to Homes Direct and then you can kind of adjust your model proportionately for SG&A. You can think about it that way, what Homes Direct would add.

Now as we think about steady state going forward, ultimately, we'll start to pick up some leverage on the fixed portion of the SG&A, and we'll continue to do that. It's that variable portion that will pick the absolute dollar higher. So as you think of it as a percent of sales, we'll see it gradually over time as we continue to expand the top line and we get that leverage on the fixed portion of it, we'll see the percent of sales work lower, but the absolute dollar will work higher, right? So that's kind of how to think about it, Jesse.

Yes, makes sense. I appreciate that. Just kind of looks like even if I assume some run rate for variable versus fixed, the fixed component did tick higher quarter-over-quarter as well. Can you just give us maybe an update on maybe relative to like a year ago outside of Iseman, what some of the SG&A? I know you've talked about in the past, some of the technology initiatives. If you can give us an update on how that's trending?

Yes. So just a couple of things. One, if you look at the prior year in Q1, we did have some discrete things that impacted it. So that's why I say more broadly, if you step back and look at a broader set of quarters, that's one thing to look at.

The other thing to think about is as retail grows, so will SG&A. Retail runs heavier as a percent of sales to SG&A. So there's a mix in retail. Tim spoke about retail ticking up slightly as a total of our business in net sales. So there's that impact as well. We are making investments for the long-term. Now as we think about that, we're making choices on how we fund it to drive SG&A prudently, where can we shift dollars of investment, but we are making investments in infrastructure, things like IT, people, our team members, things like that to make sure that we can drive the business over the long-term.

Great. Well, we appreciate everybody joining us today. We look forward to updating you on our second quarter and all the progress in the market. Thanks, everybody. Have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, and welcome to the Champion Homes Fourth Quarter Fiscal 2026 Earnings Call. My name is Nikki, and I will be coordinating your call today. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the call over to the company's recently appointed Head of Investor Relations, Ellen Kaleniecki, to begin. Ellen, please go ahead.

Good morning. Thank you for joining us for today's conference call and review of our business results for the fourth quarter and full year ended March 28, 2026. Here to review the results are Tim Larson, Champion Homes' President and CEO; and Dave McKinstray, Champion Homes' Executive Vice President, CFO and Treasurer.

Earlier this morning, Champion Homes issued its earnings release. As a reminder, the earnings release and statements made during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission.

Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release.

I will now turn the call over to Tim Larson.

Thank you, Ellen. It's great to welcome you to Champion Homes as our new Director of Investor Relations. Good morning, everyone. Fiscal 2026 results reflect a year of strong execution and performance. We navigated a challenged macro environment by being agile and active across the business with our customer-centric approach as our North Star. On our call a year ago, we shared our strategic priorities, and we are encouraged by the progress of our team and the impact we are experiencing in the marketplace. This is best reflected in the fact that across Champion, we earned the business of 26,622 customers in fiscal 2026, the record number of homes sold since the company went public in 2018.

Off-site built homes continue to be a compelling affordable solution to the national housing crisis. With the average price of a home in the U.S. hovering near $500,000, Champion Homes provides today's buyers with a high-quality, attractive brand-new home at a fraction of that cost. That relative value proposition only becomes more powerful in a higher cost, higher uncertainty environment. And that's one of the reasons why we are so encouraged by the road ahead at Champion.

We're pleased that the ECN transaction closed last month. and we're putting a portion of that capital to work towards our strategic priorities by expanding our retail channel and elevating the customer experience. In support of those strategies, we announced today the acquisition of Homes Direct. Homes Direct is a beacon of the manufactured housing industry with locations in Arizona, California, Colorado, New Mexico and Oregon. This acquisition expands our presence in the West adding 11 retail locations and will bring our number of company retail stores in the U.S. to 95.

Homes Direct's founder is Ray Gritton, an industry pioneer and well-respected leader. It's personally been a pleasure to work with him on this transaction. He and his team had a business model that's a great fit with our vision and culture, and we look forward to further collaborating with Ray and the Homes Direct team.

The 11 retail locations have annualized revenues of approximately $70 million, and we see a strong pipeline of local market demand and commercial opportunities. We expect the transaction to close in our fiscal second quarter. The Homes Direct transaction demonstrates our commitment to expanding our retail presence and utilizing our capital to support our strategy.

Our team's agile execution across our strategic priorities is creating meaningful differentiation in our products and overall customer experience. And that's why we continue to outperform the industry. Performance that was also recognized this recent quarter with two industry honors that reflect how our homes are evolving and elevating. The team was honored by the National Association of Homebuilders with their Best in American Living Gold Award, and the team earned a 12th consecutive excellence award from the Manufactured Housing Institute. Each reflects our enduring commitment to innovation and operating excellence.

Now I'll review our fourth quarter and full year performance. Fourth quarter net sales were $621.3 million, up 4.6% versus the prior year and above our sales expectations for the quarter. Although extreme weather caused some headwinds early in the quarter, our team managed through it effectively. Manufacturing capacity utilization, including idle facilities, was 59% in the fourth quarter consistent with the third quarter sequentially and slightly below the 60% we reported in the same period last year. Manufacturing orders increased 7% year-over-year in the fourth quarter. Manufacturing backlog ended the quarter at $316 million, up $50 million or approximately 19% sequentially. The average backlog lead time was 8 weeks, consistent with both the prior quarter and the same period last year.

We continue to pace production with demand in each market, and we are encouraged by where our backlog stands today. Having entered into our key spring selling season, as additional context on the quarter, HUD industry shipments were down approximately 9% in the 3-month period that ended in March 2026 compared to the prior year. Champion Homes outperformed the broader market during this period, only slightly down low single digits, further reflecting the team's execution, tenacity and strength of our product portfolio. From a channel perspective, sales to our independent retailers increased year-over-year.

We continue to receive positive feedback and adoption of our dealer portal and its capabilities reflecting our commitment to invest in the growth of our dealers. This channel worked through inventory levels through the first 3 quarters, and it was back to more normal ordering levels through Q4. Our captive retail channel delivered another quarter of year-over-year growth, including continued strong execution as we've integrated Iseman. Captive retail sales represented 37% of consolidated sales in the fourth quarter versus 35% in the same period last year. The retail team continues to provide timely new homes at the right price value for today's buyers. In the community channel, as anticipated, sales were down in the fourth quarter versus the same period last year. This included some impact from the extended weather in the northern markets. Despite the fourth quarter impact, sales in this channel grew year-over-year. In the builder developer channel, sales grew year-over-year, continuing the momentum in this strategically important channel.

We recently announced our offsite construction event that will be in June in York, Nebraska. This one-of-a-kind event offers builders an in-person experience to see how offsite construction can help them grow their business. We hosted a similar event last year in Cleveland with over 200 attendees. These events help educate homebuilders on what's possible with offsite as they hear directly from builders growing their business with Champion.

Our joint venture with Triad continues to produce strong results and provides diverse financing options for our retailers and consumers. As I noted earlier, an investor group led by Warburg Pincus completed the acquisition of Triad's parent company, ECN. In our current fiscal first quarter, we received the proceeds from the sale of our 19% ownership interest of ECN of CAD 189.1 million. We are pleased to continue our joint venture with Triad and to collaborate with the new ECN leadership team.

On the legislative and regulatory front, we are very encouraged with the continued progress since our last call. Last week, the House of Representatives passed the 21st Century Road to Housing Act with an overwhelming majority supporting the bill. It is now headed back to the Senate for final approval before it will be sent to the White House for Signature.

It's clear the bipartisan focus on solving the affordable housing crisis remains strong including support for manufactured housing. More broadly, we continue to monitor HUD code evolution, chassis rulemaking and zoning reform activity at the state and local levels. Each of these represent a potential catalyst that could further expand the addressable market for our best-in-class homes.

Looking ahead, despite continued macro uncertainty in the market, I remain confident in our team's ability to be agile and evolve while advancing our strategic initiatives. With the spring selling season underway, we're pleased with the order activity we've seen so far albeit with the backdrop of a dynamic consumer and economic environment. Our team remains focused on driving results and building on the momentum I shared earlier. Our balance sheet is strong, and our capital allocation strategy is disciplined. We remain focused on investing in our strategic priorities that support sustainable growth and create shareholder value.

I will now turn the call over to Dave to further discuss our financial performance.

Thanks, Tim, and good morning, everyone. I will begin by reviewing our fourth quarter fiscal 2026 financial results, including a discussion on our balance sheet and cash flows. I'll then finish with our outlook for the first quarter of fiscal 2027.

Net sales for the fourth quarter were $621.3 million, an increase of 4.6% compared to the prior year period, coming in slightly ahead of our expectations of low single-digit revenue growth. In the United States, the number of homes sold in the fourth quarter decreased 0.6% to 5,908 with the total for the full fiscal year coming to 25,718 homes. The average selling price per U.S. homes sold in the fourth quarter increased 4.6% to $98,600. This was driven by a shift towards more multi-section homes and higher prices on homes sold through our company-owned retail sales centers. Captive retail sales represent 37% of our consolidated sales in the fourth quarter compared to 35% in the same period last year. In Canada, homes sold increased to 243 from 230 in the prior year. Canadian revenue increased year-over-year, benefiting from higher volume and favorable foreign exchange rates.

Adjusted gross profit increased 4.6% to $159.4 million with an adjusted gross margin of 25.7%, which is essentially flat compared to the fourth quarter of last year. The company's effective tax rate for the fourth quarter was 20.3% versus an effective tax rate of 17.1% for the year ago. Adjusted net income attributable to Champion Homes in the fourth quarter increased 1% to $37.7 million or $0.68 per diluted share compared to $36.3 million or $0.63 per diluted share in the prior year. Adjusted EBITDA for the fourth quarter increased 6.3% to $55.9 million. Adjusted EBITDA margin increased slightly to 9% compared to 8.9% in the prior year.

Now let's turn to cash flow, which continues to underscore the strength of our operating model. As of March 28, 2026, we had $638.3 million in cash and cash equivalents. For the full fiscal year, net cash provided by operating activities was $303.9 million. This is an increase of 26.2% compared to $240.9 million in fiscal 2025. That strong operating cash flow generation reflects the earnings power of the business and disciplined working capital management.

During the fourth quarter, we continued to return capital to shareholders repurchasing and retiring $50 million of our common stock. For the full fiscal year, we repurchased a total of $200 million worth of shares. Additionally, earlier this month, our Board refreshed our share repurchase authorization back to $150 million. This is part of our broader capital allocation strategy to drive shareholder value. I'll now share a view of our first quarter of fiscal 2027.

Looking at the first quarter of fiscal 2027, our team is staying focused on executing on our strategic priorities. We remain cautiously optimistic while acknowledging several macro uncertainties. The consumer environment reflects ongoing affordability challenges with CPI remain elevated and consumer purchasing power under pressure. In this context, Champion Home's value proposition as attainable housing solution becomes even more compelling. We continue to monitor the macroeconomic environment and its impact on supply chain dynamics, energy costs and broader consumer sentiment. Our team is actively tracking developments and managing these variables. Looking ahead to the first quarter of fiscal 2027, we expect revenue to be approximately flat versus the prior year as the team continues to constructively manage through a challenging environment for the consumer.

Looking at adjusted gross margin, we expect near-term adjusted gross margin in the 24.5% to 25.5% range. As we mentioned last quarter, the market continues to experience inflationary pressures which accelerated throughout Q4 and now into Q1. While we're managing margins through efficiency and value, these initiatives lag input cost inflation. Additionally, we expect modest headwinds from channel and product mix. In the near term, these factors will impact margins, but over the long term, we expect stability as inflation moderates and our margin initiatives are implemented. We continue to manage SG&A prudently with a focus on advancing our strategic growth priorities and driving execution. In Q1, we expect adjusted SG&A as a percent of sales to be in the 16% to 17% range, which is consistent with our run rate following the Iseman acquisition.

As a reminder, ENERGY STAR tax credits expire July 1, which is expected to increase the fiscal 2027 effective tax rate by approximately 3% to 4% compared to fiscal 2026. It's important to note that our outlook does not include the impact of Homes Direct acquisition as we expect that to close in Q2. Lastly, we expect to continue to drive strong operating cash flow, which provides flexibility to deploy capital in a disciplined way to support our strategy. We're investing our balance sheet and growth through our announced acquisition of Homes Direct, while also returning capital to shareholders through our share repurchase program. These actions reflect a balanced approach to maximizing shareholder value.

With that, I'll turn the call back to Tim.

Thank you, Dave. We appreciate the time to share our results. They reflect the Champion team's unwavering commitment to our customers and executing on their strategic priorities. We look forward to continue to expand demand for our products, growing the adoption of off-site build homes across the U.S. and Canada and driving long-term value for our shareholders.

And now let's open the line for questions. Operator, please proceed.

[Operator Instructions] We'll take our first question from Daniel Moore with CJS Securities.

Maybe just talk a little bit about the cadence of order rates and traffic that you're seeing over the past few months and thus far into fiscal Q1. And any update on just the general health and outlook as far as community and builder developer would be great.

Dan, I appreciate your question. Yes, certainly, we reflected in our backlog, the momentum we started to see in March, and that was encouraging. And I would say the environment at our captive retail, we can see good traffic. As we progress through the quarter, we've also seen some uptick in aspects of our community channel. As you know, the community channel is pretty broad, but we're encouraged by some of those operators that are looking to have orders filled here. I would say, at the consumer level, you're seeing a broad array of consumer dynamics, part of why we have a good portfolio of products as we can appeal to some of those site-built buyers looking for an affordable home, and that helps us in the environment, albeit with the entry-level consumer maybe on a bit more pressure. But on the balance, we're encouraged as we look at the orders so far within the quarter and we'll obviously be updating that at our next quarter. But overall, the backlog was helpful as we go into this quarter.

Really helpful. And I appreciate the outlook and the color on gross margins. Just talk a little bit more about incremental input cost pressures, what you're seeing? And if you kind of think about the expectations for margins, given where we sit today as we move forward, do we see fiscal Q1 as sort of bottoming, leveling off? Obviously, dependent on the direction of those factors, but any color beyond kind of the current build would be great.

Yes, Dan. So I think just generally speaking, we're seeing it through the marketplace. We actually signaled on our Q3 call that we had started to see inflation tick up on some of our larger categories forest products. We've seen it on lumber. We've seen it in OSB. As we move through Q4, what we saw ultimately was some more inflation on things like steel. And then obviously, we're seeing it on petroleum products as well. So a lot of our portfolio is starting to see some of those input cost pressures, which then, as I mentioned in the prepared remarks, we're taking actions to offset whether it be through efficiency or value or mix and how we drive that to the consumer. But those actions are lagging the rate of inflation that we're seeing. So as we think about it, we know that it will have a probably an outsized impact, that difference, if you will, on Q1. It's hard to say how we get beyond that. But that will obviously have an impact.

The other thing that I'd mention is the mix impact. So beyond just inflation, just the mix impact Tim mentioned just a moment ago about the community channel, as we see that come back, that's a little bit of a headwind to us. And then the other thing that I'd mentioned, obviously, the consumer being a little bit more, maybe, price conscious. We're seeing them manage that, which has an impact on our mix as well. So those are the things I'd call out in margin here in Q1. And then as we think about it going forward, obviously, we're just going to have to monitor all those different factors that drive it.

Really helpful. Last one and I'll jump back down but any -- just any additional color on the Homes Direct acquisition? 11 retail locations, purchase price, expected accretion and whether or not that's an area that those regions are an area where you expect to continue to look to build out organically or via M&A as we move forward.

Yes. Thanks, Dan. No, the Homes Direct acquisition is really a great opportunity for us and the collective Homes Direct team. If you think about the West Coast for us, we've got great plant locations, including a great plant in Chandler, Arizona, that today works with Homes Direct, which is right adjacent to the plant gives us the model that we can replicate across those other 10 locations as those locations now work even more with our plants. We do business with them today, and that's been a key part of the relationship, but they still have other products that they carry other brands. We're going to migrate those over time like we have with Iseman and obviously, we've had success there that you've seen in our results. So we're very encouraged by it.

The other great thing about Homes Direct is they have a really great customer experience and post-sale experience on the service side, they're highly rated for that. That just speaks to the strength of their team, their people and their processes and when you combine that with what we've been able to do on our other captive retail integrations and the playbook that's being built, we really see opportunity as we go forward and accretively growing that business. We've demonstrated that with Iseman, obviously, with regional. So we're really encouraged by adding another 11 stores to our West Coast operating and our overall retail footprint.

We will move next with Greg Palm with Craig-Hallum.

I wanted to follow up on gross margin commentary a little bit because it seems like you're -- I understand some of the input cost inflation, but you're getting at least like sequentially obviously, much higher utilization. I forget if you said mix was going to be a headwind sequentially, but you've also got JV flow-through income, which presumably was a pretty big tailwind in Q4. I'm guessing that continues. So can you just -- I mean, can you quantify maybe how much is directly from input costs? And just to be clear, I mean, is there anything else going on? I mean, I don't know, competitively, is there anything that's a little bit more of a concern now versus 3 or 6 months ago?

Yes, I think we hit on a large majority of that. The biggest piece is going to be the input cost, but the mix piece is another factor that we're seeing drive through in Q1. So the largest portion of our gross margin headwind is going to be the input cost inflation, as I mentioned, those actions that we're taking to offset it will lag just a little bit. And then the mix impact is going to be the kind of secondary item. From an overall competitive, we mentioned the consumer and where the consumers had that impact on mix. But as we look at the other variables, we don't see anything that will be significant. As we look at price, we expect our price to be relatively sequentially flat as we move forward in time. Again, the mix impact may impact that a little bit. But there isn't anything out of those things that are going to be really big drivers to the sequential impact.

Okay. And sorry, is the mix from less homes going through captive? Or is it just more homes going through community channel? What exactly is the mix impact?

Yes. So it's going to be a couple of things. We did talk about the community channel. The community channel will be a little bit of a headwind for us as we think about Q1. The other one isn't as much of a channel dynamic but more of a product mix dynamic and that's going to be more as the consumers looking to hit price points that maybe are a little bit lower from a monthly payment perspective and what that does is essentially says, "Okay, this is the price point I have to hit. This is the product that goes with it", and that's going to be the secondary impact is more of that product mix as the consumer manages their overall spend.

Yes. Okay. Makes sense. And then, I guess, in light of the Road to housing Act, Tim, I'd love to just get some more of your comments on kind of the longer-term benefits, how long some of this stuff might take to play out, but there's obviously some pretty sizable opportunities going on behind the scenes. So just kind of curious to get more thoughts around that.

Yes. Thanks, Greg. I mean big picture, it's encouraging to see the bill pass in the house. And obviously, we look forward to continue with the legislative process. We'll see how long that time takes. I would say the activity that's going on not only at the federal level, but we are seeing in some states. We've talked about Kentucky, Texas, recently, we had Montana that's deployed an approach that gives more parity to offsite built homes. You'd like to see those proof points. And hopefully, that extends to other states with even greater populations.

In terms of the timing, that's going to come down to how long do we get through the legislative process, the rulemaking then ultimately HUD, their ability to put it into the regs. And that process we're anticipating. We're working through as much as we can proactively but we know that's going to take some time. In advance of that, not only are we working on [indiscernible] from a product perspective and a readiness. We continue to work, for example, in our builder developer channel with local municipalities to have more proof points to demonstrate how offsite built homes can solve affordability and then get the benefit of the tailwinds as these things roll out. So it's encouraging. We've been very active on the policymaking front, not only things that I've mentioned, but obviously, you heard about the potential for the institutional investor impact, and that was really key that we advocated on our behalf of community customers and the critical element that they provide on renting and affordability solutions for a range of consumers.

So Greg, I look at it it's positive. It's just going to be a question of how long in time does it take and we're certainly preparing for those aspects and are encouraged by the progress that we're seeing.

We will move next with Matthew Bouley with Barclays.

Maybe just one here on the guide for Q1. I think you said flat revenue year-over-year. I just wanted to unpack that a little. It sounds like you have positive order rate price/mix has obviously been positive. I think you said it's going to be consistent sequentially. So I guess that would still be up year-over-year. And correct me if I'm wrong. And then you've got the Home Direct acquisition. So I guess how much does that acquisition contribute to the quarter? Is that included in that guide? And then just maybe if you could kind of break out those pieces of volume and price mix and kind of why the revenue would end up flat.

Yes. Thanks. So first, Homes Direct is not in the guide. We don't expect to close that until our fiscal second quarter. So Homes Direct is not included in that guide. From a net sales perspective, in the flat guide, so what I did say on prices, we expect it to be relatively flat sequentially. Now what that means from a year-on-year perspective is the amount of growth in our rate of price will be not as high as it was in Q4. So recall, and we've mentioned this in the past that we took price within our captive retail. So we've now lapped that as we head into Q1. So while we'll still realize price year-on-year, it won't be at the same rate that we did in Q4. So that's an important thing to keep in mind.

The other thing that I would note here is as we look at -- especially in our year ago comp. We shipped a little bit heavier in Q1 as opposed to Q4. So there is kind of a benefit, if you will, of some of the production that we had in Q4 of last year that went into Q1. As we think about them this year, really, we're managing -- ramping up our production with the orders or producing with the orders that we see in hand and then matching it to our shipments, whereas again, we got a little bit of a benefit of production helping Q1 shipments in the year ago. So those are the two things that I would call out to watch on the flat year-on-year guide going forward.

Okay. Perfect. Thank you for clarifying on Homes Direct. I missed that. You said that. And then so maybe just another one here on the numbers. You had mentioned the petroleum impact. Obviously, you guys own your own fleet. I'm curious, I mean, in some cases, does that actually advantage you competitively versus if any -- versus someone, let's say, have to use a common carrier? And then specifically, in terms of your own costs, I mean, do you use surcharges? Do you try to build petroleum and fuel into the price of the product? How do you actually kind of mechanically go about offsetting this kind of headwind?

Yes. So a couple of things. I'd start with as we think about the fleet. The petroleum costs are typically built into the rates that are charged from a competitive lane rate perspective. So while the advantage wouldn't come necessarily within the fuel price, it comes more from a service and everything else.

Now as you think about petroleum and the input cost of petroleum, it's not just diesel fuel. I think there's petroleum that goes into a ton of the products that we play in our homes every day. So as we mentioned that, that drives the input costs on the materials that go into our homes. It's not necessarily the cost of the diesel fuel itself. Those of you who think about it, we are seeing those lane rates go up. And that's part of how we think about the overall cost of our homes as we go forward. And how we manage that, of course, is how do we drive efficiency within our supply chain to make sure that we're delivering homes and building homes that have the right quality, the right cost and everything that goes with it as we think about all the other levers, how do we manufacture most efficiently in our plants and then how do we balance making sure that we're competitive and offering the right value to our consumers in each of the markets we serve.

We will move next with Mike Dahl with RBC Capital Markets.

The first one is a follow-up on cost dynamics. So obviously, a lot of moving pieces, but can you bucket for us or quantify roughly speaking, kind of, a, the total percentage that you're facing in terms of inflation on a year-on-year basis? And then if there's any way to break down what's kind of wood-based versus things like plastics or steel. I think that would be helpful.

And then on the offset side, I think when things were really stressed during kind of the COVID boom period, you also had some tools like escalator clauses. Maybe that's not as applicable when you have shorter lead times and backlog today, but just remind us if there's any other levers like that, that could kind of kick in and help to quickly mitigate?

Yes. I'll first hit kind of the big picture pieces. As we think about the pricing in this market, we're going to work with our dealers, our communities appropriately, but we've got to be balanced to that from a consumer perspective because they're looking to get the home that's the best value for their consumer. So we do have those levers if needed but the macro picture is how do we balance volume, price, margin capacity utilization for the best outcome. And so we have to be thoughtful on those drivers, and I'll let Dave speak a little bit to your questions and some of the cost input.

Yes, we won't get into the specifics of each of the cost buckets. But I think if you look at the year-on-year pressure we have in gross margin, the majority of that is going to come through the cost increase we're seeing with a couple of other smaller drivers in there that I've already mentioned. But if you think about then the size of our spend categories, the forest products is going to be the largest of our spend categories. We know we're seeing cost pressure in that. You can see that through any public market data as well. So that can give you an idea of what we're seeing on the forest product side. Steel is not going to be near the size of our forest product spend, but we're definitely seeing the rate of inflation within the steel category. And then as I mentioned, the petroleum price impact and what it has on the rest of our spend buckets, that's kind of across the board, if you will, or maybe more widespread is probably better said. So you're going to see that impact across many different smaller categories within our spend buckets.

And I think the thing to keep in mind is the timing of these elements, as Dave mentioned earlier, the actions we take around there, whether it be price related or operational efficiency, those can be a little bit paced post this immediate impact. a bigger picture as we go forward longer term, whether it's our product portfolio, our various channels, we've got the opportunity to continue to have strong margins and things that you've seen historically. It's just [ true ] as we work through this window, we've got to balance that and manage that for the factors that I mentioned.

Got it. Okay. That's helpful. Just shifting gears to the Homes Direct acquisition, kind of have a 2-parter here, First, you did mention that you already do some business through Homes Direct or with Homes Direct. So of the $70 million in annualized run rate revenue, is that incremental? Or could you help us understand what portion of that is incremental versus what you already sell through them?

And the second part is you mentioned a couple of things that seem kind of unique about this specific business within the retail landscape. And I was hoping you could go into a little more detail about some of those dynamics in terms of -- it looks like how they deal with the customers. it's more of an end-to-end kind of support platform. So maybe just talk a little more about what's unique and how portable some of that will be to the rest of your locations?

Yes. Great question, and I'll start where you ended. So Homes Direct really does look at it end to end. And when I met Ray a few years ago, we had introduced to have a few minute conversation, it turned into an hour because we're talking about the customer experience and where that could go and it's because they really see the opportunity to help that customer all the way from when they're online through their living in their home and that end to end and they take care in both their team's training and the ways the homes are displayed in retail. Some of you have been to the Chandler location. You know what I'm talking about in terms of that overall experience.

The other element you asked about is what percent of volume are we today? We don't break it out specifically, but what I can share with you at each of those other 10 locations, there's a number of other brands on the store and on the lot. And so there's meaningful opportunities for us over time to migrate those to all of our Champion brands and portfolio of products across the plants in the West. So you'll see that over time come through. And obviously, we've had the benefit you've seen in our Iseman acquisition, how we've added our own products over time. So that -- there is accretive opportunity and upside there as we go forward. And obviously, the $70 million they do today is in those 11 stores, and we're a portion of that, but we're certainly not all of it.

We will move next with Philip Ng with Jefferies.

Any color on how we should think about the margin profile from a Homes Direct standpoint? Will this be additive, whether it's gross margins and EBITDA? and when we think about cost synergies, any more color in terms of what are the big buckets here?

Phil, in terms of Homes Direct, it certainly is going to be positive. We get the benefit of the retail margin in addition to the manufacturing margin. As we move more products that they today get from other sources to our sources, that helps the plant because you get better utilization. So there's a positive element on the margin side from those drivers.

In terms of the cost side. For us, they're a retail operator. They don't have manufacturing. So some of those traditional synergies we see, we don't see in that aspect. But what we do see is the opportunity to build on the playbook of our retail and sharing the best practices not only with Homes Direct, they're going to be sharing with us that affects our other 83 location. So there's some synergies in terms of the effectiveness of retail and then because we've added retail stores over the years, we do have some cost benefit because we can have some common capabilities around marketing, our overall staff levels that support retail but it's more about the organic growth and the growth in the West, that's the opportunity versus a cost play.

Okay. That's helpful. Once this is properly integrated, Tim, what percentage of your sales mix is captive retail?

Yes. Certainly, right now, you see us in that mid- to upper 30s depending on the quarter, so that -- this is going to benefit that. But we're also growing our other channels, whether it be builder developer and depending on the cycle community. So that's going to move around. But ultimately, we see it as growing our path to retail.

Okay. Helpful. A question for Dave. I mean you gave some color, Dave, for 1Q gross margins in that 24% to 25.5% range, appreciating some of the continuous improvement in cost out initiatives you're looking to ramp up hasn't kicked in yet, but is there a path perhaps in the back half where margins get back in that 26%, 27% range? And is taking price, especially on your captive retail side of things a consideration right now?

Yes. So I think as we think about it, a lot of variables going into the -- beyond Q1, right? So what is the rate of inflation we're going to see beyond the quarter from where we're at today, what are we going to see from all the different dynamics within our mix portfolio and really the impact that is happening to the consumer because of the general macro trends. So those are some of the unknown questions. As we think about it, obviously, you mentioned some of the efficiency things that we spoke about. We're going to start implementing here as we move through the quarter and into the back half of the year.

The other thing that I would mention, you asked about the price side of things. we're always trying to balance the competitive side on pricing. So that's really a regional by market discussion that we're always constantly having is what is the right price point to meet the demand for our consumer, manage our overall margin profile with the capacity within our plants. The products that we offer, all those different levers that go into it. So something that we're always looking at. But it's a more dynamic discussion as we think about it. So as we think about it, we'll see how all those factors come together in the back half of this calendar year and really update you as we go forward.

Okay. A follow-up, I guess. Is the expectation -- I mean it's very dynamic. But based on what you know today, should we expect inflation peaking in 1Q and then you kind of build off of that? Or that inflation dynamic you actually could pick up even more as the year progresses based on what you know today? And on the freight side of things, is that a pure pass-through or you have to take price there?

Yes. So dynamic market, you said it. It's a dynamic market. So it's hard to say exactly where it will be beyond Q1 as we head into Q2 and Q3. From a freight perspective, it is mostly a pass-through, but it's part of the broader cost side of things that we're looking at with each of our partners as we go forward and ultimately, the consumer. So yes, it's broadly a pass-through. But again, it impacts the total price of our homes.

We will move next with Jesse Lederman with Zelman & Associates.

Dave, it sounded like when you talked about mix shift from a price point perspective in fiscal 1Q '27 coming up here, you expected kind of a shift back to more single-section homes, whereas that momentum has been shifting more towards multi-section perhaps as the lower end of the income spectrum is priced out or people are mixing down to a larger manufactured home perhaps. Can you just talk through maybe what you've seen in the last couple of quarters and how that's trending so far in the first quarter?

Yes. I'd say bigger picture, longer term, we have seen more trend to the multi-section. I do think as we go forward here in Q1. We mentioned the community channel and maybe some more optimistic outlook. Obviously, it's a little bit mixed. But that has -- they tend to be more single unit. So that will have an impact. That's kind of a channel mix. As we think about the product mix, it's not necessarily multi versus single. There's a lot of dynamics with it, right? There's going to be options and all the different customizations that consumers can make. Those are choices that they're making to manage the overall price point. So it's not necessarily as easy as single versus double.

But as we think about going forward, our consumer's a broad spectrum. It's not just a single consumer. And so we are seeing more consumers who stepped in from traditional site built who are buying more of the multi-section. At the same time, you have community operators who tend to be more single section and then you have all the in between, right? And that's going to be a mix of both single multi, but then again, back to the different product variations that we have and the options that we offer our consumer. And I think that's really a testament to the strength of our overall portfolio and the different products and options that we can offer to the consumers.

Awesome. Appreciate that. With the Triad JV and based on some commentary the team has made in the past, it sounds like you have a really good grasp on the potential home buyers and their different metrics and qualification. Is there anything you could share from that perspective on what you're seeing over time in the last few quarters, maybe quarter-to-date on the health of the prospective buyer. And anything you can quantify would be great.

Yes. Great question, Jesse. So big picture, we know that the industry in the first 3 months of the calendar year was down 9%. So obviously, you had some pressure at the consumer levels that affected year-over-year. On the positive side, we outperformed that pretty significantly, and part of the benefit was we were to bring in consumers that were maybe traditional site-built buyers. We see that in our data and the product portfolio Dave just mentioned. Now that group of customers, obviously, is against 100,000 annual units. So it's going to take time over time to bring more of those customers in as we grow the overall addressable market.

But one of the things we're seeing on the entry-level consumer, as you can imagine, is inflation is going to more disproportionately impact that entry-level buyer because when they look at their monthly payment, their cash flows, when things like gas prices jump up, et cetera, there's some more pressure there. So what we've been doing is making sure we have the right entry-level price point product. At times, that means a little less options. And then as Dave mentioned, there is that trend in the community channel as well.

So that's why we want to continue to have a broad growth products, a range of channels to reach those customers and then our online and marketing digital efforts were creating a broader reach to engage a broader set of buyers. And those buyers are tying back to the various segments that you referenced that we can start to learn from that data and really look at how we make sure that we are matching to the broadest set of buyers in the market. So that's why these nuanced elements are so key because you're working in a very multifaceted environment across channels, across consumers, and we're very fortunate to have better data in order to drive that.

Dave, really helpful. Last one for me. I'd love to get a little bit more color on the community channel, maybe if you have a better sense now than the last couple of quarters of what kind of caused the slowdown kind of later last year and what your confidence is for the recent inflection hire to maintain into the balance of the year here.

Yes. Thanks, Jesse. So as we think about the community channel, you've got a range of operators and each of them have various portfolios of projects, some new builds and expansions, more lots in their communities, some are these change outs of existing homes. They also have the factors, which is are they heavy rental or are they more land lease and those all have factors in terms of their cycles. Are they upgrading existing homes rather than purchasing new. So when we work with each of those operators, we're working with their plans and their build outs relative to those factors, and we are seeing some operators that are more in adding of those lots and new homes or those replacements.

We do have some operators that are more just managing their portfolio and do more in the updates. And so what we're signaling is, this quarter, we saw more of an uptick whereas in previous they were managing more inventory or coming off of, if you will, the growth that they had throughout the pandemic. So I would say it's encouraging, but it's mixed depending on the community operator. And obviously, we're working closely with them by regions of the country. And what I'm encouraged by our plant teams, et cetera, is how they're working with them on specific products to really hit the need for their price points and their initiatives within each of those operators.

And at this time, there are no further questions in queue. I will now turn the meeting back to Tim for closing comments.

Yes. I appreciate everybody joining, and I just want to congratulate the Champion Homes team on a really strong F '26, obviously, a record number of year of homes, and we're carrying that momentum and we really appreciate all of you joining us today and the continued interest. And obviously, there's so much opportunity ahead with the broader housing market as we navigate the current environment, and we look forward to updating you on our next quarter call. Thanks so much.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, and welcome to the Champion Homes Third Quarter Fiscal 2026 Earnings Call. Here to review the results are Tim Larson, Champion Homes President and Chief Executive Officer; Dave McKinstray, Champion Homes Executive Vice President, Chief Financial Officer and Treasurer; and Laurie Hough, Champion's former Executive Vice President, Chief Financial Officer and Treasurer, who announced her retirement in December. Yesterday, after the market closed, Champion Homes issued its earnings release.

As a reminder, the earnings release and statements made today -- during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release.

I will now turn the call over to Champion Homes CEO, Tim Larson.

Good morning, and welcome to the Champion Homes Third Quarter Fiscal 2026 Earnings Call. Here to review the results are Tim Larson, Champion Homes' President and Chief Executive Officer; Dave McKinstray, Champion Homes Executive Vice President, Chief Financial Officer and Treasurer; and Laurie Hough, Champion's former Executive Vice President, Chief Financial Officer and Treasurer, who announced her retirement in December.

Yesterday, after the market closed, Champion Homes issued its earnings release. As a reminder, the earnings release and statements made during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations.

Such risks and uncertainties include the factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission. Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release.

I will now turn the call over to Champion Homes CEO, Tim Larson.

Thank you, and good morning, everyone. I'd like to begin by welcoming Dave McKinstray. Dave officially joined Champion on January 12 as CFO. He has a record of delivering results in complex environments and driving growth and execution of operational initiatives across consumer products and manufacturing businesses. We look forward to the benefits of Dave's experience and leadership and are excited to have him on the Champion Homes team. On behalf of the Board and management team, I'd like to recognize and thank Laurie Hough for her 2 decades of dedicated service to Champion Homes.

During her tenure, she has helped build us into the industry leader we are today. We hope that she will enjoy her well-earned retirement and wish her all the very best. Before we turn to our results, I'd like to acknowledge our Chair of the Board, Tawn Kelley. Tawn has been a valued Board member since 2023 and became Chair of our Nominating & Governance Committee in August of 2024. We are thrilled that Tawn was elected as Chair of the Champion Board of Directors last November. Her leadership and expertise will be instrumental in guiding us on our next phase of growth.

Now I'll cover our fiscal third quarter highlights and progress on our strategic priorities that are advancing across Champion Homes. As I've shared previously, increasing awareness and demand for our products and brands is one of our strategic priorities. Building trust with consumers is one of the most impactful ways to build awareness and referral. We are proud to share that our Skyline Homes brand was named America's most trusted manufactured homebuilder by Lifestory Research. This marks the sixth year in a row that our Skyline Homes brand has earned this recognition, and it's based on an independent survey of over 47,000 consumers.

It is also exciting to see the top 3 brands from the industry study are from the Champion Homes family of brands. Skyline Homes and the Champion Homes brands are 1, 2 and completing the podium is Genesis Homes, our builder developer brand. This recognition underscores the strength of the Champion portfolio and our relentless drive to deliver a great experience for the families that purchase and live in our homes we design and build.

Product innovation is one of our strategic priorities, and our team continues to launch new home plans at varying price points, including homes targeted for a broader segment of new buyers and expanding the addressable market for off-site built homes. This strategy is reflected in the Emerald Sky home we launched at the recent Louisville show. A stunning 1,600 square foot, 3-bedroom, 2-bath home at a consumer retail price of approximately $185,000. When combined with land cost in each market, that places the total price for our home well below the new home ASP in the United States that's hovering around $500,000.

We are pleased with the feedback in response to a range of new products featured at the Louisville show. We will continue to bring homes to market that provide our channel partners with the ability to offer buyers a great monthly payment and with all the benefits of a new home. On the legislative and regulatory front, there has been considerable activity recently, and I want to spend a few moments on the latest developments as each are at different stages of the legislative process. We previously shared updates on the ROAD to Housing Act.

In December, the act was not included in the final National Defense Authorization Act as was originally anticipated by most in the industry. However, the House of Representatives has been drafting their package called the Housing for the 21st Century Act and we are following it closely as it includes elements that support the expansion of offsite-built homes. There remains a strong bipartisan focus on solving the housing crisis and we believe that is the foundation for the Senate and the house to work together to enact meaningful legislation.

We were also encouraged to see the house pass the Affordable HOMES Act, which reaffirms HUD as the final authority and manufactured housing standards. This legislation eliminates duplicative federal rules and ensures that energy efficiency improvements are made in a way that preserves affordability. We continue to monitor legislation and zoning reform at both the local and national level and remain encouraged to see policymakers working to address affordability issues in the broader housing market.

In late January, I was able to spend time with HUD Secretary, Scott Turner's team in Dallas. We had the opportunity to tour a Burleson, Texas plant with his team and regional HUD leadership. These efforts demonstrate HUD's commitment to helping to provide affordable housing Americans and we look forward to continuing to spend time with them in anticipation of the HUD Code evolving from the legislation I just mentioned.

Now I'll review our third quarter's performance, which was in line with our expectations as we navigate a challenging macro in the consumer environment. Our strong performance relative to the broader housing market was a result of our team's execution of our strategic initiatives, reflected in higher ASPs from a shift to more multi-section homes and increased prices on new home sold through company-owned retail stores as well as the contributions from the Iseman transaction. Our teams continue to thoughtfully pace production with demand in each market. Manufacturing backlogs at the end of December decreased sequentially by 15% to $266 million.

The average backlog lead time ended the quarter at 7 weeks compared to 8 weeks at the end of the prior quarter and 10 weeks at the end of December last year. Manufacturer orders were up in the quarter compared to the same period last year. Third quarter net sales increased 2% year-over-year to $657 million, and total homes sold during the period decreased by 2% to a total of 6,485 homes. As a reminder and consistent with what we shared on our last earnings call, we anticipated the year-over-year volume contraction due to the prior year period benefiting from deliveries impacted by weather shifting into Q3 from Q2 and fiscal year '25.

From a channel perspective, sales to our independent retail channel decreased year-over-year and were flat sequentially as a result of the prior year comp dynamic I just mentioned. We continue to receive positive feedback and adoption of our dealer portal that is a one-stop digital experience that brings together lead management, order information, inventory and valuable sales resources for our dealers. It's a key capability that leverages our investments to generate leads for our independent retailers through our direct-to-consumer strategy.

At captive retail, sales increased year-over-year benefiting from the execution by our combined sales teams with the acquisition of Iseman Homes and from an increase to our average selling price. Captive retail sales represented 38% of consolidated sales in 3Q and versus 35% last year. The retail team continues to provide timely new products and home features at the right price value for today's buyers.

Moving to the community channel. As anticipated, our community sales were down in the third quarter versus the same period last year as we paced inventory levels with moderating order rates and softer consumer confidence in the period. We received encouraging responses to our new products from our community customers at the Louisville Home Show, which is a positive leading indicator for us as we move into the spring selling season.

I particularly enjoyed connecting with our community customers in Louisville. We believe in the great price value that our community customers offer and the critical role they play in solving the affordable housing crisis. Sales through builder developer channel grew in the third quarter versus the same period last year. We were pleased to be part of the launch with our customer, TCM Capital at the Blythe Village project in Fresno, California this week. This build-to-rent community with 67 units was designed with our HUD product. It is a great proof point as to what's possible through our build developer team, products and partners.

In addition, we are excited to showcase our builder developer capabilities in a new home at the International Builders' Show in Orlando this month. Both initiatives reflect our continued commitment to the expansion of this channel in our portfolio. Champion financing continues to produce strong results and allows us to provide diverse financing options for our retailers and consumers. Triad's Capital Partners had a chance to join us in Louisville, where they shared positive responses to our homes and our strategic initiatives. Their interest in offsite homebuilding is a testament to our opportunities ahead and the broader engagement in the sector.

We are also pleased that the sale of Triad's parent company, ECN Capital to Warburg Pincus is progressing well and received shareholder approval in January. The transaction is expected to close in the first half of the year. The transaction will extinguish our 19.7% ownership in ECN Capital with ECN shares valued at $3.10 per share delivering proceeds to Champion of approximately CAD 189 million. In connection with our support of this transaction, we agreed to extend our Champion financing joint venture for additional 3 years. We look forward to the continued collaboration with the ECN and the Warburg team.

I will now turn the call over to Dave and Laurie to talk further about our financial performance.

Thanks, Tim, and good morning, everyone. I'd like to begin by expressing how excited I am to be joining Tim and the rest of the Champion Homes team. Champion has an impressive legacy of delivering innovation, affordable housing solutions, and I'm energized to contribute to our next chapter. In my first few weeks, I've been impressed by the team and by the opportunities ahead of us. I'm grateful to Tim for his vision and leadership, and we've had time to deep dive into the strategic initiatives that he has established for the company. I look forward to driving these initiatives with Tim and the rest of the team.

I'm going to turn the call over to Laurie to review the quarter, and then I will come back to share my view of Q4.

Thanks, Dave, and good morning, everyone. I'll begin by reviewing our financial results for the third quarter, followed by a discussion of our balance sheet and cash flows. During the third quarter, net sales increased 2% to $657 million compared to the prior year period, with U.S. factory-built housing revenue also increasing 2% year-over-year. The number of U.S. homes sold in the third quarter of fiscal 2026 decreased 3% to 6,270 homes due to a decrease in sales to the community REIT channel as well as a function of the prior year period, having an outsized benefit of homes sold as a result of weather that shifted sales from the fiscal second quarter to the fiscal third quarter of last year.

These decreases were partially offset by the inclusion of the acquisition of Iseman Homes in the current year period. The average selling price per U.S. homes sold increased 5% to $99,300 due to changes in product mix and increased prices on new homes sold through our company-owned retail sales centers. On a sequential basis, U.S. factory-built housing revenue decreased 4% in the third quarter compared to the second fiscal quarter due to normal seasonality and as anticipated, a decrease in sales to the community REIT channel.

Manufacturing capacity utilization was 59% compared to 60% in the second quarter. On a sequential basis, the average selling price per U.S. home sold remained relatively flat. Canadian revenue during the quarter was $26 million, representing a 3% increase in the number of homes sold versus the prior year. The average home selling price in Canada decreased 2% to $120,000 compared to the prior year period, primarily due to a change in product mix.

Consolidated gross profit decreased 5% to $172 million in the third quarter. Our gross margin of 26.2% came in slightly better than our expectations but decreased 190 basis points compared to the prior year period. The year-over-year gross margin compression was primarily due to higher manufacturing material costs relative to price and less absorption of fixed costs due to lower sales volumes, partially offset by higher ASPs and new homes sold through our company-owned retail sales centers and a higher percentage of total sales through our company-owned retail sales centers.

SG&A in the third quarter increased to $110 million from $108 million in the same period last year primarily due to the inclusion of the Iseman Homes acquisition. SG&A as a percent of sales was 16.7%, which is relatively flat compared to the prior year period. The company's effective tax rate for the quarter was 18.3% versus an effective tax rate of 21.1% for the year ago period. The effective tax rate was positively impacted by an increase in recognition of tax credits related to the sale of energy-efficient homes in the current year period.

Net income attributable to Champion Homes for the third quarter decreased by 12% year-over-year to $54 million or earnings of $0.97 per diluted share. The decrease was primarily driven by lower gross margin. Adjusted EBITDA for the quarter was $75 million, a decrease of 10% compared to the prior year. Adjusted EBITDA margin decreased by 150 basis points to 11.4% compared to the prior year period. As of December 27, 2025, we had $660 million of cash and cash equivalents, and we generated $100 million of operating cash flows during the third quarter.

In the quarter, we once again leveraged our strong cash position and returned capital to our shareholders through $50 million in share repurchases. Additionally, our Board recently refreshed our $150 million share repurchase authority, reflecting confidence in our continued strong cash generation.

Before I conclude my earnings call remarks, I want to express my appreciation for my time with Champion Homes. I've been fortunate to meet and work with incredibly talented individuals across my tenure and while I look forward to my retirement, I will miss the team that made working for Champion so rewarding. It has also been a great pleasure to work with our sell-side analysts and investors over the years. Thank you for the interactions and the relationships that have been fostered as a result. I look forward to watching Champion Homes continue to execute on its strategy.

And with that, I'll turn the call over to Dave for some remarks on the company's near-term expectations.

Thank you, Laurie. Looking ahead to the fourth quarter, we expect revenue to be up low single digits versus the prior year with gross margin anticipated to be in the 25% to 26% range. These expectations reflect cautious consumer sentiment, the seasonally lower winter selling period and softer demand in certain markets and customer channels. Additionally, weather-related disruptions, including recent extreme weather events, have the potential to create additional variability in delivery timing and quarterly results.

As a reminder, consolidated gross margin can vary quarter-to-quarter due to changes in product mix, channel mix between independent dealers and company-owned retail locations. While continuing to manage SG&A prudently, we remain focused on advancing our strategic growth priorities. Additionally, it's important to remember, in Q4 in advance of the spring selling season, participation in several fourth quarter trade shows is expected to drive a modest increase in fixed SG&A versus other quarters.

Lastly, as we go forward, we expect to continue to drive strong operating cash flow, and I'm excited by the many opportunities we have to utilize our balance sheet. We will be assessing our capital allocation strategy to ensure we're investing in long-term sustainable growth and maximizing shareholder returns.

With that, I'll turn the call back to Tim.

Thank you, Dave. We appreciate the time to share our third quarter results and how it reflects the Champion team's unwavering focus on our customers and executing on our strategic priorities. We look forward to finishing the fiscal year strong and continue to expand demand for our products and deliver attainable housing solutions to our customers. And now let's open the line for questions.

[Operator Instructions] The first question comes from Greg Palm with Craig-Hallum.

Maybe just a little bit more color on kind of the environment, what you saw in the quarter geographically. And then just as it relates to the current quarter, how we should sort of think about some of these weather-related impacts? And what -- are you taking into account any of that in the guidance specifically?

Greg, thanks for the questions. In terms of the geography, nothing unusual that happens between quarter-to-quarter movement. You're always going to see that in the HUD data. And a lot of those things happen based on mixed factors and local factors. We're encouraged in our buyer data that we're seeing new consumers to offsite-build homes, and that really impacted our quarter.

Additionally, in terms of your question on the weather. Really, there were some delays that impacted production days. Our goal is to be able to make that up within the remaining part of the quarter. So it comes down to how many of those days are we going to make up. And then the delivery side, how is deliveries impacted if there were local areas where the ability to get the home ready for set.

So ultimately, we're going to work through those in the quarter and I know the team is driving to do that in a thoughtful way. And then I think in terms of the overall trends that we saw, we're encouraged by the team's ability with new products and in the marketplace to attract more consumers. And that's really the strategy that we've been focusing on in this environment. So all in all, it was a solid quarter and also, we're focused on executing the fourth quarter with those things in mind.

Okay. Makes sense. And I think you mentioned higher ASPs in captive. And I guess I just wanted to clarify something. Was that a byproduct of mix? Or are you saying specifically that pricing on a like-for-like basis was higher? I guess what I'm kind of getting at is, you aren't seeing any change or deterioration in the pricing environment? I just wanted to confirm that.

Yes, it was both. And it's year-over-year. We saw both some price and then also mix, as we mentioned, some more of the multi-section homes.

Okay. And then I guess, just broadly, in light of some of these more recent comments on housing, whether it's affordability or ramping up supply, maybe this is just a good opportunity for you to kind of remind us all of what sort of role that you think factory built could sort of play in this?

Yes. I think it plays an important role and frankly, a critical role when it comes to the price point. As I talked about in my remarks, we've got products now that really zero in on that -- expanding addressable market for off-site built. And when you combine that with the legislation that's being discussed that's really focused on affordability, it's a great time to be in this business.

And I think part of what we've spoken to is how we're preparing with our channels, with our products, our go-to-market to be able to engage a broader set of consumers, and that's really the strategy that we're executing. So there's going to be ebbs and flow in the legislative process. You see that. But ultimately, it's clear there's bipartisan support. And so we're eager to see those items pass so that we continue to build and grow the industry.

The next question comes from Matthew Bouley with Barclays.

I guess, first, I wanted to just touch on the volumes relative to the industry. I think obviously, we've all seen the industry data that was down kind of, what, low double digits, low teens through the first 2 months of the quarter. And I don't know if December was really different, but given you guys and your peer were kind of only down at a single-digit rate. I'm just curious and kind of comment on your own volumes versus the industry. And obviously, what I'm trying to get at is, what that implies about the go forward in terms of what your own out-the-door sales might look like?

Yes. In terms of the team, they did a really good job executing with our channel partners, and that included leveraging the digital investments I mentioned. And we've also been evolving our product and being very agile product in each market and that certainly helped us in the quarter over some of the dynamics you mentioned. The other thing is that includes our captive retail stores. And as a reminder, when we report our units that includes both our retail and manufactured, and so each quarter, channel mix is a driver of that.

And certainly, there was positive from a retail in the quarter. And as we think about going forward, as Dave mentioned, we signaled growth quarter-over-quarter in the fourth quarter for us and it builds on some of those drivers that we just talked about. So I think it's encouraging, as I mentioned, that we're seeing consumers come in from the broader housing market, and that helps us in an environment within our own industry. So I would say those are the drivers that really we're focused on as we execute through this quarter as well.

Okay. Got it. Got it. And then secondly, the community channel. I mean -- I think what you said was it was down year-over-year, which was in line, which you had said, of course, last quarter. But it sounded like maybe there was some encouraging commentary coming out of Louisville. So yes, with your community channel partners. So just any color on kind of what -- maybe what they're waiting for and sort of what their own inventories are looking like and if there is an outlook at some point in calendar '26 to maybe see a kind of recovery in the community channel?

Yes. We certainly have worked closely with our community channel partners on their demand plans for the upcoming season, and they did give us positive feedback about our new products and as we worked with them on their execution. What we're seeing is in each market, depending on where their consumer is at, what their demand levels are, they're pacing, obviously, their product and inventory, and we work very close with them on that.

So as we head into the spring selling season, we'll be working with them in terms of those demand plans and volume in terms of the execution. What I would say is there's similar macro environment trends that they're seeing. So if we see a stronger consumer as the spring selling season grows, there's the benefit of that. At the same time, it can be choppy. And so we're working very close with our community channel, and I'm proud of the team, how they've created products release that focused on that community segments, and we're prepared as their businesses grow and they need to grow. But we're really balanced about the community channel given those factors.

Congratulations to Laurie and Dave as well. And good luck.

The next question comes from Mike Dahl with RBC Capital Markets.

First one, I just wanted to dig in a little bit on the margin commentary for the following quarter. And if we look at it kind of sequentially, can you help us understand what are your assumptions and the puts and takes around kind of price cost? So if you could break that down in both pricing and costs. What your mix assumptions are and what role shifts in utilization rates and fixed cost absorption may play in just the sequential decline in gross margin that you're projecting? And if you could be specific, that would be great, but ballpark or directional would help as well.

Yes. I appreciate the question. I think if you start at the top, and we said in the prepared remarks, we'll have variability in our gross margin. We've seen that over time, and there are shifts. You mentioned some of them, right, the product mix, channel mix, all those different drivers. As we mentioned to Q3 was in line with our expectations of gross margin. As we look out to Q4, one dynamic that we're watching, I think is something that's important as we continue to shift more towards captive retail, that will increase the amount of potential swings we see.

And one of the things that we're seeing in Q4 is, we're actually seeing an inventory build in captive retail, which is a timing thing really from a gross margin perspective, but is a headwind on the Q4 period sequentially versus Q3. So that's one nuance that will be specific to Q4. Again, over the long term, it will work itself out. The other factors that you mentioned, I would suggest that they're going to be roughly in line with what we saw in Q3. The dynamics underpinning the market will continue from Q3 to Q4. We don't expect any wild variables between ASPs, between input costs or mix from what we saw in Q3.

Okay. That's very helpful. And then in terms of, I guess, just to pick up on that last comment about the inventory build in captive retail. Can you broaden that out and talk a little bit more about what those sell-in versus sell-through dynamics have been and whether you think they're -- there's some -- either -- because I didn't know if there was actually some destocking. And in some ways, it sounds like you're actually putting more inventory into your channel. So just help us understand that a bit.

Yes. Thanks for the follow-up. So I think, first, my comment was forward-looking. If you look back, and I think the company spoke about this -- we spoke about this on prior calls was, as we went forward over the last 2, 3 quarters, we actually drove down or drew down on inventory within our captive retail. As we go forward, there's the spring selling season. So it's really in preparation of the spring selling season that we're going to see that uptick in inventory. So it's more of a seasonal dynamic than an underlying dynamic within the business.

Yes, that's right, Dave. The only thing I would add is, it's planned to be able to be ready for the spring selling season rather than a slowdown in sales in that channel. It's really preparing for the product lines as we go to market. And it also relates to our strategy with margin. As we come out with new products, we're always thoughtful about how to make sure we have a strong margin with each of those products depending on their various price points. And so it really comes together in terms of the strategy to make sure we're prepared at our captive retail for the spring selling season and driving our goals that we talked about.

And congrats again, Laurie, on an amazing career and Dave on the new appointment. And as Matt said, good luck and talk to you soon.

The next question comes from Phil Ng with Jefferies.

Congratulations, Laurie. It's been a pleasure working with you and looking forward to partnering with you, Dave, going forward. I guess to kind of kick things off, Tim, what's the early read on spring selling season? I mean backlog did dip sequentially, but that feels more seasonal in nature. So just give us a pulse in terms of what you're hearing, what you're seeing, whether it's traffic, orders from your customers and how the different channels effectively are managing inventory, particularly. I'm most curious on the inventory side for REITs.

Yes. I appreciate that, Phil. In terms of the trends, what we've been seeing and we carried in some order growth, we mentioned in Q3, we had orders growing, and that's going to benefit us in Q4, and we signaled a year-over-year growth to the start of the calendar year in our fourth quarter. We certainly anticipate, hopefully, as consumers have some tax relief and other elements with rate trends that those can be in our favor, balanced with the macro and consumer drivers and choppiness that we've seen in the market of late.

And I think as we think about our strategy, we've put ourselves in positions with our key channels with the right product in this environment. And in terms of your question of the community channel inventory, if you remember years ago, there was quite a bit of buildup and then it took a while to have that come back. What I'm encouraged by is, we've been very calibrated with our community channel partners. So if they see an opportunity, we're going to be able to move quickly versus having that kind of languished in terms of the timing of their inventory.

So our approach there is to stay in sync with them and make sure we're flexible as we go through the spring selling season in our community channel specifically. But I think our outlook as we think of this year going forward is how we continue to earn more of those consumers from the broader housing market and the product strategy we have laid out is to drive that.

But just everything I'm hearing -- I'm not hearing anything noticeable shift in terms of how you kind of view the consumer and your REIT partners. Certainly, there was some inventory management last quarter, but it feels reasonably steady as we kind of go into the spring selling season. Is that a correct interpretation?

Yes. I think to be specific, what we've signaled is we're working with them closely in certain markets, it may be a little bit more pace given the environment in that market, where other projects that are starting up, they're looking to do more new demands and builds. And so at the community channel, we're really watching closely in terms of moderating our inventory with them. So we've seen it year-over-year, quarter-over-quarter, we saw some abatement there. It's more of a balanced approach with our community customers as we go through the spring selling season. And given seasonality, we need to get more into that spring selling season, and we'll be updating you in Q4 about the community channel trends within the quarter.

Okay. Super. On the legislation front, Tim, can you expand on some of the nuances between the bills from the House versus the Senate as it relates to manufacture homes, certain elements like the steel chassis it was something that was highlighted, perhaps on the zoning. But any more color to kind of nuances between the 2 bills, I'm sure you spent a little more time unpacking it. And then next steps from here? And any color on a timing perspective?

So yes, specifically, the Senate bill that we've been talking about that included the chassis was not included in the defense bill. However, the House bill does also include the HUD homes without a chassis that was in the Senate bill. And so that's just beginning the process with the House. So we're encouraged that, that ability to have a HUD code home without a chassis, is still part of the legislative process. Clearly, it's got to move through the House and then into the Senate, and we believe it will, based on bipartisan support, but there's going to be ebb and flow of part of the legislative process.

Obviously, you're seeing out of Washington, a lot of focus on housing, affordability, increasing the supply of affordable homes. All that certainly are the right things that we're hearing in terms of that. So we'll see how the legislative process plays out. It appears that there's a lot of bipartisan support to drive that and we're preparing accordingly. But at the same time, we got to focus on what we can control as the legislative process takes its place, and that's what we're doing every day in anticipation of it, but also doing projects, like I mentioned in build a developer with local municipalities that can prove out how affordable housing can be delivered in each city.

So I think it's the combination of the federal and the local, and we're driving execution with whatever those bills are coming out, we'll be ready for. But at the same time, it's going to take time within that process. So our goal is, hopefully, it happens sometime this year, but we'll see how the legislative process plays out in the upcoming months.

The next question comes from Daniel Moore with CJS Securities.

Dave, welcome. And just quickly echo Laurie, thank you for all the help over the last several years and best of luck and enjoy it. Maybe jumping -- just expanding on a couple of the questions. I appreciate the color and the look into fiscal Q4, both from revenue and a gross margin perspective. In terms of the revenue guide, what are your expectations for backlog on a sequential basis, assuming we're kind of in that revenue guidance as we get to the end of fiscal Q4? And from a gross margin perspective, slight incremental pressure from here. Would you expect that to start to level off? What are your expectations kind of looking out over the next 2 to 4 quarters from a gross margin perspective based on the visibility we have today?

Yes. Thanks. I think first, from the revenue standpoint, Tim just talked about some of the dynamics that we're seeing in the order flow, which as you think about what that means from a backlog perspective, then it's going to be kind of a continuation of what we saw in Q3, where the sequential improvement, if you will, quarter-on-quarter continues. So I feel good about the orders that we got in Q3 and the orders that we're seeing here early in Q4.

Your question on margin, as I mentioned in the previous question, is most of the dynamics are going to be the same from Q3 to Q4. We're not seeing any significant variables within that. There is that one seasonal variable that I talked about on the, call it, readiness inventory for spring selling season at captive retail, but those underlying dynamics are expected to continue. Over the long term, our goal is to continue to drive gross margin, and we're doing that through driving value to the consumer. So we don't see any huge variables beyond Q4. We're managing it within this range, and we feel good about where we're setting up for Q4 from a margin perspective.

Very helpful. Appreciate it, Dave. Just as I think back, I know the trade show SG&A issue certainly cropped up in the past. I think, as I recall, a few million dollars, maybe $3 million to $5 million, something like that. Is that overly aggressive? Just any quantification there on the incremental SG&A for the quarter?

Yes. You hit the seasonality of SG&A for us. The show season, if you will, in Q4 hits us. I would say just as a road map, if you look at last year as a percent of sales, Q3, we were basically in line from SG&A as a percent of sales. I think that's a good road map for how you can think of Q4.

Very helpful. And then just capital allocation, bought back $50 million of stock in the last 3 quarters. Obviously, the Board re-upped the authorization. Is that a run rate you expect to continue given the incremental capital coming in from ECN? Or might you be even more aggressive considering the kind of the recent pullback in share price? Just how are we thinking about balancing that?

Yes. In the near term, I don't foresee any changes. As we think about it over the long term, we're going to continue to assess our capital allocation. And as I mentioned in the prepared remarks, our goal is to make sure that we're driving those investments towards the highest return items that are going to drive the highest return for our shareowners in line with our strategic priorities. So near term, don't expect any changes. And then over the long term, that's a continued assessment that we're going to make to make sure we're driving the most potential value.

The next question comes from Jesse Lederman with Zelman & Associates.

Congrats again to Laurie and look forward to working with you, Dave. I'd like to follow up on the policy front. It was recently announced a program called Trump Homes with several large public site-built homebuilders potentially building roughly 1 million homes over an undefined period of time with investment from private investors. I'm just curious if -- amidst the focus from the administration on housing affordability, is Champion Homes or even to your knowledge, industry advocacy groups getting involved in that conversation to try and provide or fill the administration's in for and the nation's in for affordable homes as incremental to what you're already doing operating the business as it stands?

Jesse, yes, I certainly read about that from yesterday's remarks. And I would say from a strategic perspective, it's definitely in line with the execution that we're driving with our products, our channel strategy, our builder developer capability. As I mentioned, a few weeks ago, I was with the HUD team, and they got to see firsthand the capabilities we have.

And if you think about the messages that are coming out, a lot of the policymakers in Washington, they've been talking about how off-site built homes, manufactured housing industry is a core part of that solution because when you think about the price points that we need to get to in our country, those $150,000, $200,000, $300,000 homes that's really made possible in an off-site model, which is what we've been delivering. So we're encouraged by, obviously, the policy, but also the messaging, and we're going to stay tuned into what those specifics are to make sure we're positioned well to realize the opportunity that comes from that.

Okay. Great. Last quarter on gross margin, Laurie, you kind of pegged the tariff impact at about 0.5 percentage of material costs and noted that you expected it to rise kind of towards 1%. So I was curious, where did that shake out relative to your expectations in the third quarter? And maybe, Dave, going forward, what's the assumption incrementally for fiscal fourth quarter? Is that going to be an incremental headwind that's driving the margin a bit lower sequentially as well? Or where do you see that tariff impact shaking out?

Yes. Thanks for the question. I think, first, the team has done a great job managing our tariff impact and working with our various suppliers to do that. So really applaud and appreciate that effort. And what we saw in Q3 was it came in pretty significantly below the 1% that we've talked about in the past.

And so as we look forward to Q4, again, similar to some of the other commentary I had on gross margin, we're assuming those same dynamics into Q4. Now, of course, on tariffs, it's an evolving situation. So that can change based on the next potential news on it, but it's something we're always watching and we'll continue to react as that news comes, and we'll manage it accordingly.

Great. Good to hear. And if I may sneak in one more. Tim, since quarter end, as far into the quarter as you're willing to share, maybe even December as well, what are you seeing from a retail perspective in terms of maybe key leading indicators for the spring selling season, whether that's dealer traffic or quote activity or anything along those lines you can share? Because I know you mentioned that you're a little bit cautious on the consumer. So any intel from that perspective would be helpful.

Yes. To be specific, the consumer caution was is more of the trends that we've seen over the last year, some of the ebbs and flows by market, particularly on the community side. But from a broader consumer, certainly, the demand is there for affordable housing. And we see that in our leads, our engagement in terms of our digital platforms, and we saw it at retail. Obviously, some of the weather pockets affected some of that for a bit, but we're planning for a continued strong spring selling season, and that's how we're approaching the business.

Obviously, our ability to share that we're going to be up quarter-over-quarter in Q4 is based on some of those indicators. But we know what our backlog is, and we're managing through that, but also thinking through how we continue to drive demand through the quarter. So it's going to come down to that execution, but also do we get the consumer support through the quarter. So Jesse, I'd say we're balanced about it and focusing on the things that we control and driving the business and engaging our customers digitally and obviously, with the new products that were coming out at our retail stores and with our community partners.

This concludes our question-and-answer session. I would like to turn the conference back over to Tim Larson for any closing remarks.

Thank you, everybody, for joining today, and we'll just reiterate our congratulations to Laurie and welcoming to Dave, and we appreciate today's call and everybody joining us and your continued interest in Champion Homes. We look forward to updating you on our fourth quarter and full year end here in a few months. Thanks, everybody. Have a great day and rest of your week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Champion Homes Second Quarter Fiscal 2026 Earnings Call. My name is Keith, and I will be recording your call today. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to your host, Jason Blair, to begin. Jason, please go ahead.

Good morning. Thank you for taking the time to join us for today's conference call and review of our business results for the second quarter ended September 27, 2025. Here to review our results are Tim Larson, Champion Homes' President and Chief Executive Officer; and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer.

Yesterday, after the market closed, we issued our earnings release. As a reminder, the earnings release and statements during today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from the company's expectations. Such risks and uncertainties include factors set forth in the earnings release and in the company's filings with the Securities and Exchange Commission.

Please note that today's remarks contain non-GAAP financial measures, which we believe can be useful in evaluating performance. Definitions and reconciliations of these measures can be found in the earnings release. I will now turn the call over to Champion Homes' CEO, Tim Larson.

Thank you, Jason, and good morning, everyone. I'll talk more specifically about our results in a moment, but first, I will share some operational highlights from the quarter and how I believe executing our customer-centric strategic priorities helped us exceed expectations in Q2.

Our strategic priorities will continue to provide the foundation for Champion's operational effectiveness in the near and long term. As I previously shared, one of our priorities is innovating and differentiated the products and services by customer segment and at the right price value.

During the quarter, we continued introducing new home designs to provide a range of price points and value for today's customers. We have included examples of some of our latest products on our socials and an investor deck on our website.

I continue to remain impressed by our team's ability to create stunning homes with relevant floor plans and features that are making new homeownership a reality for more consumers.

Increasing awareness, demand and advocacy for our brands and homes is another strategic priority for Champion. In the quarter, we continue to advocate for the ROAD to Housing Act, which includes a specific title section that highlights Congress' support for off-site built homes.

We are pleased that this bill has passed the Senate and on its way to the House. We will continue to monitor the legislation as it goes from the House to the President and then to HUD for implementation.

On a local level, in New York State and as reported in September by the New York Times, Champion is collaborating with New York State Homes and Community Renewal as part of their affordable housing strategy, reflecting New York State Governor Hochul's 5-year plan to create or preserve thousands of homes statewide.

The pilot program in Syracuse, New York demonstrates Champion's ability to provide affordable housing solutions with speed to market. The homes were installed on land provided by local land banks with the cost to build and install under $250,000 and taking less than 6 months to complete.

This project reflects the momentum and increased awareness we are seeing across federal, state, and local governments and highlights off-site construction's benefits of speed, cost, and quality.

Now I'll turn to the recent quarter's performance. Second quarter year-over-year net sales increased 11% to $684 million, and homes sold during the period increased 4% to a total of 6,771 homes.

The increased sales through our company-owned captive retail stores and at independent retailers were supported by effective cost management, delivering strong gross margin and earnings growth in the quarter.

Our teams continue to thoughtfully pace production with demand in each market. Manufacturing backlog at the end of September totaled $313 million, up 4% sequentially. The average backlog lead time ended the quarter at 8 weeks, which is within our target range.

From a channel perspective, sales to our independent retail channel grew compared to the prior year period. We've been successful in adding independent distribution points in the quarter, and we believe the marketing support we provide our dealers, including digital capabilities are helping to drive success in this channel.

At captive retail, sales increased versus the same quarter last year. We remain pleased with our acquisition of Iseman Homes, which helped drive this increase along with an increase in average selling price, which has been driven by our retail team's execution of new products and home features resulting in a mix shift to more multi-section homes compared to the prior year period and the sequential first quarter.

Moving to the community channel. As expected, our community sales were down slightly in the second quarter versus the same period last year. Based on the balancing of inventory levels in this channel that align with moderating order rates and softening consumer confidence, we expect order and production rates in the community channel to be mixed and impact near-term sales.

Sales through the builder developer channel grew in the second quarter versus the same period last year. We added several new customers in this channel and continue to see our pipeline grow. We take great pride in the work we do with builders, including providing education and support on the best practices to maximize off-site construction.

I had the opportunity to see this firsthand at our builder event in Cleveland in September. Champion Financing continues to produce strong results and allows us to provide diverse financing options for our retailers and our consumers.

Our retail loan programs are enabling our teams to connect buyers with the right home and the right payment that fits their needs. I'll now turn the call over to Laurie, who will discuss our quarterly financial performance in more detail.

Thanks, Tim, 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. I will also briefly discuss our near-term expectations.

During the second quarter, net sales increased 11% to $684 million compared to the same quarter last year, with U.S. factory-built housing revenue also increasing 11%.

The number of U.S. homes sold increased 3% to 6,575 homes compared to 6,357 homes in the prior year period. U.S. home volume during the quarter was supported by increased captive retail sales, including the acquisition of Iseman Homes.

The average selling price per U.S. home sold increased by 7% to $98,700 due to changes in product mix to more multi-section units and increased pricing at homes sold through our company-owned retail sales centers.

On a sequential basis, U.S. factory-built housing revenue decreased 2% in the second quarter compared to the first fiscal quarter. We saw a sequential decrease due to moderating sales volume in the community REIT channel and a focus on pacing production in certain markets as we move into our slower winter selling season.

Manufacturing capacity utilization was 60% compared to 61% in the first quarter. On a sequential basis, the average selling price per U.S. home sold increased approximately 4% due to a shift in product mix.

Canadian revenue during the quarter was $26 million, representing a 10% increase in the number of homes sold versus the prior year period, primarily due to an increase in demand in certain markets.

The average home selling price in Canada increased 7% to $133,300 due to price increases and a shift in product mix. Consolidated gross profit increased 13% to $188 million in the second quarter, and our gross margin expanded to 27.5%, an increase of 50 basis points from the prior year period.

The higher gross margin was driven by a higher percentage of total sales through our company-owned retail sales centers in the current quarter and the unfavorable purchase accounting impact in the prior year related to the increase in the carrying value of inventory acquired in the Regional Homes acquisition that did not recur in fiscal 2026.

Gross margin increased sequentially from our first fiscal quarter and was higher than expectations, primarily due to lower-than-expected material input costs, including tariff impacts, higher captive retail ASPs and favorable product mix.

SG&A in the second quarter increased $13 million over the prior year to $113 million. The increase is primarily attributable to higher variable compensation from higher sales and profitability, closing costs related to the previously announced plant closures and the inclusion of Iseman Homes, all partially offset by a $3.7 million gain on sale of one of our idled manufacturing facilities.

The company's effective tax rate for the quarter was 23.6% versus an effective tax rate of 21.6% for the year ago period. The increase in the effective tax rate is primarily due to a projected decrease in tax credits due to the change in the new tax law.

Net income attributable to Champion Homes for the second quarter increased by $3 million to $58 million or earnings of $1.03 per diluted share compared to net income of $55 million or earnings of $0.94 per diluted share during the same period last year.

The increase in EPS was driven mainly by improved operating income. Adjusted EBITDA for the quarter was $83 million, which is an increase of $9 million or 12% compared to the prior year. Adjusted EBITDA margin was 12.2% compared to 12% in the prior year period.

We anticipate near-term gross margin to be in the 26% range as we manage through cautious consumer sentiment and softer demand in certain markets. Variability in consolidated gross margin is expected quarter-to-quarter, reflecting shifts in product mix and the proportion of sales through independent sales channels and our company-owned retail sales centers.

As we navigate the market, we continue to balance SG&A spend while continuing to drive our strategic growth priorities, including investments in people and technology.

As of September 27, 2025, we had $619 million of cash and cash equivalents, and we generated $76 million of operating cash flows during the second quarter. In the quarter, we leveraged our strong cash position and returned capital to our shareholders through $50 million in share repurchases.

Additionally, our Board recently refreshed our $150 million share repurchase authority, reflecting confidence in our continued strong cash generation. I'll now turn the call back to Tim for some closing remarks.

Thank you, Laurie. We are pleased with our second quarter results and how they reflect the Champion team's unwavering focus on our customers and delivering on our strategic priorities.

In our third fiscal quarter of 2026, we continue to navigate the dynamic macro and consumer environment with agility and steadfast execution. We are up against a unit sales shift from Q2 last year into Q3 due to the hurricanes in North Carolina and Florida, which will impact the comparable year-over-year sales.

As we assess all of these inputs, we currently anticipate our third quarter revenue to be flat versus the third quarter last year. This continues to be an exciting time for Champion, and we remain confident in the strategy we're executing across our stakeholders as each directly aligns with the broader trends and policy changes that are in support of off-site built homes.

Thank you, everyone, for tuning in today's call and for the Champion Homes team for their continued execution as we progress through this fiscal year. I look forward to updating you on the third quarter in early 2026. And now let's open the line for questions. Operator, please proceed.

[Operator Instructions] And the first question comes from Greg Palm with Craig-Hallum Capital Group.

Congrats on the results. Tim, you broke up pretty hard, at least on my end when you were going into details about kind of community and builder developer. So maybe you can just go back to some of the comments and explain what you were seeing in those 2 markets specifically.

Yes. As expected, community was down in the quarter as the community worked through some inventory and some softening in some markets. We certainly had some community operators up, but on the balance, it was down. And we anticipate some of that continuing in the near term.

On the builder channel, that grew, and we continue to build the pipeline in the builder channel, which just reflects this emergence of that channel for us as we think about reaching more consumers through a different channel. So we're pleased with the progress in the builder channel. But those are the 2 things that we hit on those channels.

Okay. Perfect. And then the ASPs up, I'm just curious, can you break out the impact from both mix, singles to multi, but also more sales going through company-owned stores?

And do you have like a percent of sales going through captive versus year ago periods or sequentially, just some reference point for us?

Greg, so we had about 37% of our sales go through our captive retail stores versus 34% roughly, give or take, last year and in the first quarter. So that pull-through through captive retail was significantly higher for us this quarter than we've been seeing.

As far as multi-wide and single-section homes, we don't disclose that publicly, but we have seen, over the last couple of quarters, an increase in multi-section. So sequentially, our ASPs are up primarily because of that mix.

Okay. And just any thoughts on sort of what you're seeing this quarter or expectations in terms of the mix of units going through captive, whether that is consistent or changes at all?

Hard to say what that's going to be from quarter-to-quarter this early in the quarter, just given timing of closings and weather-related events and so forth. But we do expect pricing generally to be impacted more by mix than by price actions.

And the next question comes from Daniel Moore with CJS Securities.

This backlog, despite the choppiness, held up nicely and reflect including 3% or 4% growth in shipments. Just maybe talk about the direction of how orders are trending thus far as we look into October and into early November.

And I guess, I appreciate the color on sales for this quarter, flat year-over-year. Where do you expect to kind of maintain current levels of production? And are there maybe regions where we're pulling back a little bit just as we get into the seasonally slower period? Any color there would be helpful.

Yes. Through October, we were hearing good reports of traffic and some order encouragement, but that is balanced against the year-over-year impact I mentioned with the shift from Q2 to Q3 last year.

In terms of the production approach, we certainly are doing that plant by plant, and we look at that region market and pace the production rates accordingly.

But obviously, you see our backlogs were 8 weeks, which is across the board. And so some markets, we have opportunities to work through that and others are a little bit lighter. But ultimately, we grew backlog sequentially.

Obviously, it's down year-over-year, which also is what we factored into our view for Q3. So on the balance, I think the team is doing a really good job being nimble in each of those markets and executing our playbook accordingly.

Got it. And then piggybacking on Greg's question, crystal ball it a little bit further, but what are you hearing from both sort of REITs as well as builder developers as we think about kind of turning the calendar to '26?

Are we in kind of wait-and-see mode, waiting for rates to come down? Is there a talk of more expansion given a little bit more maybe stability and visibility? Just -- again, I know it's very, very early, but what are you seeing there in terms of their midterm plans?

Yes. I'll start with the builders. Given that channel is a smaller percent, we certainly see continued growth in that channel based on the pipeline that we have.

And what we're encouraged by there is we had an event in Cleveland, where we brought a number of builders in from around the country that are either in-flight projects or potential new projects.

And they're encouraged about the progress that they're seeing, whether it's zoning support or also what they've heard from our best practice projects around the country.

So I think we're going to continue to be able to have that be a strength of ours as we go into the upcoming year, albeit within the total number of percent of our total business.

On the community side, I mentioned in the near term, we anticipate some moderation there, and that really depends on the community operator and also where they are in their cycle. So I think we're pretty balanced in terms of our thought process with community.

And that as we go into next year, it really is going to be term different factors, ultimately the end consumer. So if we see some more strength at the end consumer, then that obviously feeds all the way up through the community and the REITs.

But we did anticipate some of that slow down a bit in the community channel for the quarter, and we saw that, and we see some of that in the near term.

But I think that's more tied to the general market, and there's certainly going to be opportunities for some community operators depending on their project flow. So that's why we're taking the balanced approach relative to that channel.

Got it. Last for me. You mentioned the ROAD to Housing. A lot of talk lately by investors about potential benefits of specifically removing the chassis requirement, another potential legislation. I guess you mentioned the -- it's kind of moving past the Senate, moving to the House.

What are your thoughts in terms of where you see the most potential direct impacts? And how do you think about the magnitude of the potential benefit of some of this legislation?

Yes. I think we look at it from a macro perspective of what doors can it open up in municipalities that previously were more restrictive. The second piece is what can we do from a product perspective, whether that's 2-story as well as some different elevations that again open up the market.

That's all dependent on how long it takes to get through the next phase of legislative process and then ultimately through the HUD process. So we're certainly anticipating those elements and being prepared for that.

But I think it also speaks to a broader trend that we're seeing around the overall off-site build category. There's more visibility for it. There's more awareness that certainly get more attention at the legislative level.

And I think that's from a longer-term trend, a positive for the industry. And so our strategies, the 5 that I've laid out, are really geared towards being in a good position to execute on those opportunities as they come about.

And the next question comes from Phil Ng with Jefferies.

Congrats on another strong quarter in a tough environment. If we think about fiscal 3Q, Tim, should we expect ASPs to be fairly stable sequentially?

I know mix is going to be a swing factor. But if ASPs are pretty stable and you're guiding to flat sales would imply volumes down, call it, mid-single digits in 3Q, which is a noticeable step down from the first half run rate.

So I know there were some timing nuances at play, but anything else to call out where you're seeing trends soften a bit? I know you've given us some color on REIT and the builder side. But what about the retail side? So just kind of help us unpack the trends you're calling out for 3Q in particular.

Yes. The year-over-year piece is really a driver from what happened last year Q2 from Q2. That's a key factor. And then the other piece is as far as the other channels go. So far, I said we're encouraged in October with our retail channels, but we've got a ways to go there.

So at this point, we're balanced in terms of that. Because of the community impact, it's a significant percent of our total volume. That's a key driver.

And then I would say in terms of the mix and pricing, what we saw this last quarter on the ASP was more mix driven from more single section to multi-section.

That movement can happen -- change quarter-to-quarter just based on what's happened at the consumer level. And part of it is in this last quarter, we introduced more new products that were geared towards the multi-section. And so we had that initial response to those homes.

So that balance is going to play out through the quarter. And I think that also speaks to the multi-section is a function of our consumer that may come from that single family or that new buyer.

And at the same time, there's also a lot of affordability buyers that are focused in the market where you have single section. So some of that is in our thesis for the quarter.

So I would say those are the different factors where we played into our view for the potential flat for the quarter. But ultimately, we're driving every day and going to do the best through the quarter through those execution priorities. But those are the key factors that drove into that.

Yes, that's helpful perspective. I mean you called out some of this choppiness in the REIT side already. I mean it sounds like more of the same, but I don't want to put words in your mouth. And then October trends for retail, pretty similar to what we've seen last quarter.

So far, we're encouraged by both the traffic and the orders, but the traffic is a leading indicator. So we need to see that play out with the consumer in the upcoming months.

And yes, the choppiness in the REITs, I mean we've got certain REITs that are growing, others that are holding back a bit. So I think that's part of where we factored in that balance.

Okay. And then I appreciate you don't have a crystal ball on the legislation front, but the ROAD to Housing Act is certainly very encouraging. It's out the door with the Senate already. The House obviously needs to mark up their version of the bill.

But do you have any insights if there was any large differences in terms of how they're thinking about the opportunity in the bill that they're tackling? Any nuances with government shutdown in terms of timing?

I know there is a steel chassis element, which could reduce the cost by $15,000 on a list price of ASP in the $100,000 range. But any other pieces that we should be mindful of where it could really reduce the cost for the end consumer from an affordability standpoint?

Yes. I think in terms of the legislative process, there is some impact, obviously, with the shutdown, but there was a positive outcome in the Senate, which I think gives a good indication, plus you've seen a lot of the noise and chatter and positivity around the need for affordable housing. So I think that bodes well.

In terms of some of those other dynamics in terms of the cost, there's going to be some elements of that. But what we're looking at is how does it open up the broader industry with zoning and more adoption and then how do we think about product. And so those are going to work through.

There'll be adders, deleters in terms of cost as you think about the -- to create a home that really works well with that approach. But net, at the end of the day, it's going to be the price value to the consumer.

We're already at a good price value to the consumer advantage. So I think it's more about bringing in more customers is the main goal. And then where we do have opportunities to get that to consumer, we will. But ultimately, there's going to be some other product innovation that comes out from it.

And certainly, from a transport perspective, you're not leaving the chassis there, so you're going to get some recycling benefits from the chassis in terms of that element. So those are all factors that I think will bode well for the opportunity if that comes together.

And the next question comes from Matthew Bouley with Barclays.

I want to stick with the ROAD to Housing as this is clearly progressing. My question is, what are you doing to kind of get ahead of these potential changes, whether it's the permanent chassis or otherwise? Kind of what investments might you be considering in your own manufacturing or transportation?

What do you think you need to be more nimble about this if it does happen? And I'm also curious if the industry is advocating for any changes on the financing front as well.

So in terms of the readiness for it, our product development teams are always evolving, innovating, come up with new products that's been helping us here through the year. So that's part of the process. And then we own our own transportation company and Star Fleet.

So the benefit of that is we can directly make moves there that are necessary to support the change. The reality, though, is we'll have to see how long it takes to get through the legislative process and thus, you have to have HUD to put it in implementation. So there's those factors in terms of timing.

So I would say that's kind of an approach, the balanced approach we have getting ready for it. And we do -- I think we've got the time to do it the right way.

Okay. Got it. Secondly, the captive retail and the mix to multi-width and, I guess, the higher like-for-like prices as well. I mean, it's obviously a tough consumer backdrop out there. I think mix and price is probably not something you're seeing on the site-built side right now.

So I'm curious if -- from your perspective, is this more just, as you mentioned earlier, just the tough affordability out there that you're sort of potentially drawing buyers from site-built into MH? Or was there kind of a previous opportunity in your product that was available out there and you just kind of reached more for it? So any additional color on that?

Yes, exactly. There really are 3 things. In our captive retail stores, we've mentioned, we didn't take price for a while.

And so there was an opportunity but the larger piece that hit this last quarter was the shift to more multi-section and that relates to the new products we introduced that certainly are more of a fit for the buyer that's looking for more space, more square footage.

And yes, you're right that when we bring in new buyers to our category, some of those new buyers are in that segment that's looking for those larger homes. But to your point on price point, the third piece is that we're already relatively a less price point to site built.

So even though we have some gains, we're still much more affordable given our wholesale price point. So it's those factors that are really driving that.

And the next question comes from Mike Dahl with RBC Capital Markets.

Tim, just to add one more on to the ROAD to Housing, obviously, very topical. I believe there's a part of the permanent chassis discussion is that there would be a voluntary opt-in from states, and so you could have a state-by-state approach to whether they're opting into that chassis removal.

So I was wondering if you had any insight into kind of what that would look like. And I guess the basic question is like hypothetically, let's say that this were to get passed by the end of this calendar year, how long do you think it would take to get some of the things like the space on board, the fleet and logistics and product mix?

Is this a calendar '26 impact? Or should we really be thinking about this is all great, but material impacts maybe still a couple of years out?

Yes. Great question. In terms of the timing, that's what I was referencing in terms of the HUD implementation, how long does that process take? And again, we're assuming that it gets through the legislative process. So I think it's fair to say there is a longer runway in that regard.

What we are seeing, though, is as there's the communication about this, more states are engaging in terms of understanding how can off-site built homes be a bigger solution for affordability. I referenced in my remarks the example in New York.

And so I think we get the benefit of that more in the near term, but the full benefits are going to take some time in terms of the rollout that we talked about.

Okay. Got it. And then I guess shifting gears back to the near term. So I think previously, you were talking about 25% to 26% gross margin being the near-term range. Now it's about 26%. So be at the higher end of that.

What are the major moving pieces? Is it really kind of the cost dynamic being less bad than feared or just -- or product mix? Can you help bucket out like what exactly is leading you to kind of the modestly higher near-term range there?

It's quite a few things, Mike, actually. As you touched on, certainly lower material input costs than we expected, including the impact of tariffs. So we had mentioned previously that tariffs were estimated to be about 1% of material costs.

That came in about half that this quarter. We do expect that to increase as we go into the third quarter, the impact from tariffs, but the team is still doing a really good job in mitigating those.

We're also seeing the higher captive retail ASPs as we've been talking about, primarily due to product mix. And then that product mix component was actually a large piece, especially this quarter with the 37% going through captive retail. So it's a mix of all 3 of those items that we expect to continue.

Okay. And -- or if I could just sneak a follow-up in, then the sequential decline versus 2Q, how would you characterize the drivers of that?

Yes. It's going to be the higher costs from tariffs, as I talked about and then as well as just the slower winter selling season and the cautious consumer confidence coming into that season, coupled both together.

And the next question comes from Jesse Lederman with Zelman & Associates.

Quick one on the tariff-related impact. You noted about 0.5% increase from tariffs that you expect to rise. Do you expect it to rise to the previously articulated 1%? Or do you think it will rise a little bit higher than that? And is there any impact from Canadian lumber tariffs on Canadian lumber?

Yes. So we expect it to be in that 1% of material costs in the third quarter and going forward. And yes, we factored in the additional 10% on that countervailing antidumping duties in Canada.

Got it. On the revenue front, on the last call, I think that was in early August, you had 1 month of the quarter. You noted orders were tracking lower than in the prior year.

So just curious, given the very strong results from a year-over-year perspective through the balance of the quarter, what changed over the subsequent couple of months relative to your expectations? And how have those kind of indicators been tracking as we continue on here into early November?

Yes. As we mentioned, the community channel is consistent with what we anticipated. The 2 retail channels, independents and captive, performed stronger through the quarter and then our builder channel as well, as I mentioned. And so those contributed to the stronger performance.

And then the shift to the multi-section was another driver. When you launch new products, you see what's the uptick going to be, and there was really strong response to those new products during the quarter.

And so I mentioned in October so far, we're encouraged by the traffic and the early orders, but those need to play out through the rest of the way, and we're watching those in each of our channels very closely, but we do expect the community still to moderate.

Okay. So it sounds like the consumer got a little bit stronger as you went from July to August and September, and you're seeing a little bit of that continue. Does that sound about right?

And perhaps some of the top line, especially from an ASP perspective, the catalyst there was maybe some of the new multi-section products. Does that all sound right? Or is there anything you'd change from that summary?

Yes. I would say in the multi-section products for sure. I think in terms of the consumer, that certainly is going to be retail location by retail location, geography by geography. And so we're watching that closely.

We certainly see some positive momentum in some of the markets for the new products that we're driving, but there's other markets that are not as strong. So I think that's just part of the reality of today's consumer depending on where the geography is and some of the key drivers.

But I'm encouraged by the new products that we're coming out with because we've talked a lot today about multi-section, but we also have really compelling offerings on that entry level, that single section, and those are key in those markets where that's the primary buyer.

So I think your assumptions there make sense, Jesse. And I think ultimately, it's the balance of that playing out through the rest of the quarter, and we'll update you that in January.

Okay. Last one for me. You touched on some perhaps market-related differences. Could you maybe expound upon which markets have been maybe particularly strong and others, even if you could summarize by region, if that's a better characterization, which have been a little bit weaker?

Yes. So the Northeast and Southeast this last quarter were the stronger markets for us from a geography, some moderating in the West. I previously mentioned the West had been stronger.

I think on a quarter-to-quarter basis, you're going to see some shifts depending on if there's larger community orders coming in, in those markets and also the consumer dynamic. But the Northeast and Southeast were stronger for us and then some moderating in the West.

And then you can see the national data in some state by state, but we certainly are pleased with the progress in the Southeast, which is where our strongest retail presence is.

One quick follow-up on that, if I may. What do you think drives the stronger performance? Do you think it's inherent demand from the consumers relative to the products you have available maybe at retail locations in those markets?

Or do you think it's supply driven and some of your stronger markets have the least amount of supply, whether that's entry-level new homes or existing home inventory or something like that? Do you think it's kind of demand related or supply related where you may be seeing some regional differences?

There certainly is the demand element in terms of where the consumer is at in those particular markets. And as we introduce the new products, we can pull in more of those consumers. So that would be demand driven.

There's also a channel element relative to where we are across our various channels. So if we've got a builder project that's advancing, that can drive that market for in a window.

And then we've talked about the community. So it's a combination of those factors, the channel factor and those key customer buyers and then also the end consumer on the demand side.

And this concludes our question-and-answer session. I would like to turn the conference back to Tim Larson for any closing comments.

We appreciate everybody joining this morning and your continuous interest in Champion Homes. We look forward to updating our progress on our next call. Thanks, everybody.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.