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Skyline Champion Corp (NYSE:SKY)
Q2 2020 Earnings Call
Oct 31, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Skyline Champion Corporation's Second Quarter Fiscal Year 2020 Earnings Call. The Company issued an earnings press release yesterday after the close.

I would now like to introduce your host for today's call, Sarah Janowicz, the Company's Director of Investor Relations and External Reporting. Sarah, you may begin.

Sarah Janowicz -- Director of Investor Relations

Good morning, and thank you for participating in our earnings call to discuss our second quarter results. Joining me on today's call is Mark Yost, President and CEO; and Laurie Hough, EVP and CFO.

I would like to remind everyone that yesterday's press release and statements made during this call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission.

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

I would now like to turn the call over to Mark.

Mark Yost -- President and Chief Executive Officer

Sarah. Thank you. Good morning, everyone. I am pleased to report solid profit and cash flow generation in the quarter were the HUD industry shipments were soft and our consolidated quarterly revenue was flat compared to the prior year period.

With revenue that was stable, we delivered a 25% year-over-year increase in gross profit. Adjusted EBITDA grew by 36% year-over-year, reaching $32.5 million for the quarter. Adjusted EBITDA margin for the quarter was 9.2%, a 250 basis point improvement compared to a year ago and a 60 basis point improvement from our sequential June quarter. The strong gross profit and adjusted EBITDA margin improvement was driven by our material costs from the merger and the market, improvements in our product rationalization and material usage in full run rate synergies from our merger.

Turning to the market, we remain positive on the outlook for manufactured in all State housing industry, as we see the opportunity for continued growth, driven by both demographic and economic factors. The underlying demand for homes offered in affordable price point is strong, while the supply is very limited.

As expected, recent HUD industry shipments were soft, which normally happens when industry backlogs are at a lower level. HUD volume for the three months ended in August declined by approximately 2.6% year-over-year. Since the destocking, we feel, ended in June, retailers are managing their order rates based on manufacturers' backlogs and delivering -- their delivery times are shorter generally from last year's levels. The primary driver of the industry's decrease was concentrated in the State of Texas, which is the largest HUD market in the country.

In the broader single-family housing market, we are seeing increased interest from traditional builders regarding off-site construction options. We are in the early stages of introducing and educating traditional site builders on these options and in getting good responses on this long-term growth opportunity. We are seeing the demand for affordable housing continue to remain strong and expect the HUD industry's year-over-year volumes to improve modestly during the remainder of the fiscal year.

We saw stability from our Canadian home sales volume, driven by small bulk buys during the second quarter. We expect that the oil driven housing market in Western Canada will remain relatively weak for the short term. In the face of these conditions, the Canadian plants have performed well and remain profitable due our efforts to effectively manage production run rates and reduce fixed expenses during the slower housing market cycle.

Overall, backlog for the Company decreased 32% year-over-year. US retailers have worked to reduce their inventory levels by delivering and setting their on-site inventories and have normalized their ordering patterns, keep inventory at lower levels than seen over last year. At the end of September, our consolidated backlog was $172 million , compared to backlog last September of $252 million driven by the destocking that occurred earlier this year. Sequentially from the June quarter, consolidated backlogs have grown 12%.

Although backlog varies significantly by plant, our average US backlog stood at seven weeks production at the end of the quarter. Our optimal backlog is four to six week range as it allows us to effectively schedule production and manage the supply chain with our vendors. We typically see as buildup in backlog at the end of the second quarter and then expect our normal seasonal slowdown in the winter months, and in our third and fourth fiscal quarters.

On the financing front, we saw recently completed securitization of a mature portfolio of manufactured housing home loans totaling about $0.5 billion that represent the first post-housing crisis transaction of its kind. The GSEs are still working toward the secondary market for chattel lending, which we expect will take longer to roll-out than originally determined in the duty-to-serve program.

We continue to educate our customers on the benefits of the MH Advantage and MH Choice home programs that are part of the GSEs duty-to-serve. We are starting to see traction this quarter with the first home ships this quarter into our independent retail customers. The education process related to this new class of homes continues with our current customers as well as with the expanded efforts in our builder developer channel. We're really excited about the long-term potential of this new class of homes as well as interest from builder developers to utilize these homes in their subdivisions.

We recently launched our Genesis Home brand, which is dedicated to the new class of homes and is positioned to serve the needs of our retailers and builder developer partners at a national level. We will be exhibiting two homes in January at the International Builders Show in Las Vegas, which is the largest show of its kind in the world. One of the models on display will be a Genesis home, which will be built to the specifications required for the financing program.

The other home will be an accessory dwelling unit or ADU as they're called, which is an innovative, effective, affordable housing option with a much needed housing throughout the country, especially in urban areas. We are excited about the future benefits of our investment in this new class of homes.

As you know, we recently expanded our manufacturing footprint to include the Louisiana with the opening of our Leesville facility in June. As expected, we are experiencing strong demand as a result of the opening. This plant is the only manufactured housing plant in the State of Louisiana, and can also easily serve the distribution channels in East Texas.

During the second quarter, we made great progress on production ramp efforts as well as the plant certification process. In addition, we shipped our first homes to our growing retail customer base. We are about three months into the 18-month ramp cycle to full run rate capacity and profitability levels. We are excited about the progress we're making on the technology initiatives that we piloted at this plant, which include automated floor and wall builds and other automated tools. We are also evaluating lessons learned from these initiatives that can be utilized and applied to our other facilities as part of our longer-term strategy to incorporate technology and automation in our business.

I am now going to turn the call over to Laurie to discuss our quarterly financials in more detail.

Laurie Hough -- Executive Vice President and Chief Financial Officer

Thanks, Mark. As expected net sales remained stable at $355 million in the current and year-ago quarter, despite some softness in the US HUD industry shipments and our transportation business. Revenue growth of $7.2 million in the US and Canadian factory built housing segments was offset by declines in our transportation business revenue. The factory built housing segment comprise 96% of our revenue during the quarter, compared to 93% in the year-ago quarter, as the transportation business has become a smaller piece of the consolidated Company's revenue base. The number of homes sold in the US was flat versus the same quarter last year, while US factory built segment revenue grew by 2%. The increase in US factory built revenue was driven by an average selling price per US homes sold increase of 2% to $62,200 primarily due to a shift in product mix.

Canadian revenue increased by 4% to $26 million, while the number of homes sold in the quarter remained stable at 311 homes, compared to 312 homes in the prior-year period. Average home selling prices increased 4% to $84,900 due to product mix and pricing. Similar to the broader housing market in Western Canada, we expect a modest year-over-year volume and revenue shortfalls for the remainder of the fiscal 2020 year compared to the same period in fiscal 2019.

Consolidated gross profit increased to $74 million, up 25% compared to $59 million in the prior-year quarter. Our US housing segment's gross margins were 20.9% of segment net sales, up from 16.5% last year. Sequentially from the June 2019 quarter, US factory built housing segment gross margins were up 30 basis points from 20.6% driven by favorable material pricing and the slight lower margins at our Leesville, Louisiana plant that is still working through the production ramp curve.

SG&A in the second quarter decreased to $48 million versus $128 million in the same period last year. The decrease was primarily due to non-cash equity-based compensation expense of $85.8 million recognized in the prior year and triggered by the secondary offerings, which closed during the second quarter of fiscal '19. When subtracting the $85.8 million of equity compensation expense from last year's SG&A, which provides a more comparable basis quarter-over-quarter, SG&A was up due to our investment in our Leesville, Louisiana facility and higher variable compensation expense.

Net income for the second quarter was $17.7 million or $0.31 per share compared to a net loss of $77 million or a loss of $1.42 per share during the same period in the prior year, driven by an increase in profitability from higher operating income, a reduction in equity compensation and other expenses and lower net interest expense. On an adjusted basis, we generated $0.34 of net income per diluted share compared to $0.20 in the year ago quarter.

The company's effective tax rate for the three months ended September 28, 2019, was 29.8% versus an effective tax rate of a negative 8.2% for the fiscal 2019 second quarter. The change in the effective tax rate was primarily due to nondeductible transaction related expenses and stock compensation expense. Absent these nondeductible discrete items, the effective tax rate would have been 31.5% last year. The current quarter's effective tax rate is consistent with the Company's ongoing expected tax rate.

Adjusted EBITDA for the quarter was $32.5 million, an increase of 36% over the same period a year ago. The adjusted EBITDA margin expanded by 250 basis points to 9.2%, largely due to continued margin capture from lower material cost, synergies related to last year's combination reaching their run rate levels earlier this fiscal year and execution and identified operational improvements.

As of September 28th 2019, we had $155 million of cash and cash equivalents. Cash generated from operations during the second quarter of fiscal 2020 remains steady at $25 million versus the same period last year, driven by lower transaction related expenses and higher operating margins.

During the quarter, we used excess cash to pay down $5 million of our revolving credit facility. As a result, the Company has $39 million of unused borrowing capacity under our $100 million revolving credit facility as of September 28th 2019. We have a strong cash position with added liquidity from our credit facility that provides ample flexibility to invest in our core business and our strategic initiatives. We continue to be focused on identifying areas to utilize our strong free cash flow and opportunistic growth including potential acquisitions or further organic capacity expansion.

I'll now turn it back to Mark for some closing remarks.

Mark Yost -- President and Chief Executive Officer

Thanks, Laurie. As you see from our results, we continue to improve our financial and operational performance. We're pleased with the sequential improvement in margins and more importantly, our continued track record of progress as we continue to achieve our incremental improvements along the path to reaching our long-term goals. We're focused in the near term on internal opportunities to maintain and enhance our costing and pricing strategies as well as investing in our people, our processes and our products.

As we look forward, we expect the markets to remain healthy, driven by increasing demand for affordable housing supported by the favorable financing and regulatory environments. With favorable long-term demand fundamentals, we continue to invest and evaluate opportunities to position Skyline Champion as a sustainable solution for the future of our customers and their families.

And with that operator, you may now open the lines for Q&A.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting the question-and-answer session. [Operator Instructions] Our first question comes from the line of Greg Palm with Craig-Hallum Capital Group. Please proceed with your question.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Yeah. Thanks. Good morning, everyone. Congrats on the continued execution here, really impressive margins.

Mark Yost -- President and Chief Executive Officer

Thank you. Good morning, Greg.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

And still maybe starting with the demand environment a little bit, you alluded to a little bit, being a little bit softer than I think what maybe the earlier expectations were. I mean, can you tell us maybe about some geographic areas that are outperforming? It sounds like Texas is still a drag. And then maybe any commentary on the demand environment for the land lease community channel?

Mark Yost -- President and Chief Executive Officer

Yeah. No, I think overall we're seeing kind of demand. Texas was the industry driven thing. I think actually we saw Texas as fairly good during the quarter, and continue to see that. Overall, Greg, as you saw the industry, the HUD market was down 2.6% for the three months ended in August. Our shipments were flat. So we're kind of happy that we're outperforming a little bit there.

And as mentioned last quarter, we expected kind of with the normalization of our inventory that we saw. We saw that during this quarter, and it built back up. And we also saw that short-term pricing pressure that we expected, as we mentioned last quarter, and viewed that as a shorter-term demand environment that we chose to focus on operating improvements in marketing. So I think the margin aspect was really driven in part by that.

So I think, community channel very strong; underlying demand, very strong; and I think we've seen good demand overall. Right now placements are up 7% through August across the country based on staff surveys, data through August, for the three month period. So we see underlying consumer demand is actually quite healthy across the country. So no real weakness anywhere in the country per se, it's actually been strong right now. The only thing we see is, retailers, as we mentioned before, placing orders hand to mouth. So your wholesale shipments are going to lag a little bit to end consumer demand just because of the nature of how they're placing orders versus how they were a year ago, let's say, because they are more real-time. But community channel strong, underlying demand, very strong, no concerns there.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Yeah. Okay. It makes sense. That's helpful. And so, you mentioned the realization -- you saw some pricing pressure in the September quarter, you had your gross -- and I mean, even EBITDA margins greatly outperformed expectations. I mean, going forward, what are some of the biggest levers for continued improvement. Is it volume, is it continued operational excellence, standardization. I mean, how big of an opportunity is still ahead?

Mark Yost -- President and Chief Executive Officer

There's still definite opportunity there. In short, we're at the early stages of all of that. We've made good progress. This quarter we really focused on those operational improvements and margin enhancements as opposed to kind of chasing the market with pricing pressures. So I think we made good traction along that path this quarter. And I think we'll continue to see that, but there is still a long tremendous way to go to kind of there is a lot of upside there.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Okay. Great. And I guess just last one. It's interesting that several of the large public site builders are starting to talk about off-site construction in a much, much more favorable way. I guess, what's your opinion on this? Would you be a potential partner, could they do this in a JV, do you think they do it themselves. I mean, any thoughts on some of that recent commentary? And if you want to sort of include any commentary on the Genesis brand within that, that would be probably helpful for all of us?

Mark Yost -- President and Chief Executive Officer

Yeah. I think, the launching of the Genesis brand is really targeted to builder developers and to create awareness of what off-site solutions are out there for builder developers. And I think it's, that's why we're investing in the IBS show this upcoming quarter to take two products there, to demonstrate that product and help them understand the timeliness, the affordability and the ease of doing business with that It will generate for them.

Overall, so I absolutely think you're going to see a shift in the off-site construction market from builder developers in time. And I -- so I -- that's why we're taking action to make that happen. And I definitely think -- I don't know if it's JVs, partnerships, alliance customers, it could be any form. Obviously, it really depends on the builder developer themselves. It depends on the strategic partnership. It depends on all those factors. But I think as the labor market tightens, which it will, and it is going to continue to do, especially as we see an aging population. That's going to require more and more labor to be utilized for repair and remodeling across the country, because our current housing stock doesn't allow for people to age in place as effectively as they need to. I think, the labor costs are going to become extreme in -- they are extraordinarily tight in the upcoming year. So I think you're going to see a movement from builder developers to off-site. And we think we're going to be the partner for them to do that.

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Yeah. Sounds like an obvious opportunity. All right. That's it for me. Thanks for the time and good luck going forward.

Mark Yost -- President and Chief Executive Officer

Thanks, Greg.

Operator

Thank you. Our next question comes from Matthew Bouley with Barclays. Please proceed with your question.

Matthew Bouley -- Barclays -- Analyst

Good morning. Thank you for taking my questions. Congrats on the quarter as well. So just to follow up on that last point around Genesis, maybe some specifics there might be helpful. Do you actually have any kind of line of sight to orders with Genesis or is it something that be -- that can be kind of incremental in the next year or two. And then just maybe some details around what you're doing to kind of penetrate the builder developer customer? Thank you.

Mark Yost -- President and Chief Executive Officer

Yeah, Matt. Good morning. I think overall the Genesis product we have started to generate some product that is built to the MH Advantage and MH Choice specs, which is what the Genesis product is geared toward largely. It also has an ADU or accessory dwelling unit component that we have done as well to that for maybe, for mostly urban environments, the ADU product is what [Phonetic]. But I think both of those really fit the builder developer channel. We have shipped MH Advantage and MH Choice product to our retail customers. In this past quarter, we've actually started shipping and generating that product. So we have seen some incremental pickup of that, very small, but it happened this past quarter.

I think the Genesis brand, which we just launched a week ago is kind of our entrance into this and it will definitely generate incremental growth and opportunity in the builder developer channel, especially coming out of the IBS show, as we get awareness and exposure to it out there. So I definitely think it's definitely a way to bring awareness to the industry, to bring awareness for our retail customers and other partners. Because I think, I mean, this is the product of future. It's a way we can target the affordable price point and make it accessible as it's especially in a recessionary environment or potential recessionary environment that may be out there, that people are thinking about. I think builder developers are concerned about their cost of capital in tying up land for a long period of time. And because we can turnaround a development much faster with our product advantage. I think their risk profile is advantageous as they hear the rumors of a potential recession, which we haven't seen any of that on our side as consumer demand is still very robust.

Matthew Bouley -- Barclays -- Analyst

Okay. Got it. Thank you for that. Yeah, I think, well, I look forward to seeing that product on Vegas in January. So, secondly, I guess the other thing you're hearing from the site builders is that there is a bit of a push into the build-to-rent marketplace. Obviously for you guys, it's really not too different than what you're already doing with your REIT customers. Can you just comment if you're hearing anything different or incremental opportunities there, I guess, as built to rent kind of gains momentum out there? Thank you.

Mark Yost -- President and Chief Executive Officer

Yeah. I think that's a good channel. We're not hearing much, I think, it's just at the beginning stages of interest or thought process on that. But with our amount of business we do with the large REITs, build-to-rent type of housing in accommodations is kind of a bread and butter product of ours. So, and I think this MH Advantage and MH Choice product that you're going to see at the builder show is really geared toward both a rental and a purchase option for homebuilders out there. So I think it really, really suits the rental market strongly, because of its features and amenities and price point. So I think it's definitely an opportunity for builder and developers to serve that market, it's definitely a growing trend.

Matthew Bouley -- Barclays -- Analyst

All right. Got it. I'll leave it there. Thanks a ton, Mark.

Mark Yost -- President and Chief Executive Officer

Thanks, Matt.

Operator

Thank you. Our next question comes from Daniel Moore with CJS. Please proceed with your question.

Daniel Moore -- CJS Securities -- Analyst

Mark and Laurie, good morning. Thanks for taking the questions.

Laurie Hough -- Executive Vice President and Chief Financial Officer

Good morning, Dan.

Mark Yost -- President and Chief Executive Officer

Good morning, Dan.

Daniel Moore -- CJS Securities -- Analyst

That's OK. I wanted to start with gross margin operationally, obviously, this is very strong quarter. And I know, Mark, you mentioned there is more opportunity over time. Near term gross margins that we saw in Q2, I mean, that type of level is sustainable as we think about the rest of this year?

Laurie Hough -- Executive Vice President and Chief Financial Officer

Yeah, Dan. US margins we think generally are sustainable, but in the third and fourth quarter, we expect some impacts from our planned holiday shutdowns in November and December, which is pretty normal for our Company, and generally, the industry. And then also, we'll see some investments in the IBS show that we mentioned, but other than that, generally sustainable. Canada and Star Fleet will probably see a little bit of pressure in the third quarter and then maybe bounce back in the fourth.

Daniel Moore -- CJS Securities -- Analyst

And at this stage, can you quantify the investments in the -- the marketing investment in the show that you expect?

Laurie Hough -- Executive Vice President and Chief Financial Officer

No.

Daniel Moore -- CJS Securities -- Analyst

Okay. And volume growth, not to pin you down too much, Laurie, but expect modest volume growth for the remainder of the year or should we think about that is sort of low single-digit, and what are your expectations for ASPs for the remainder of the year as well?

Mark Yost -- President and Chief Executive Officer

Yeah, Dan. I think, volume growth for the remainder of the year we kind of see mid single digits. I think it'll increase as we go from the third quarter to fourth quarter. So the average is kind of that mid single digits. But I think it will be a little less than that in the third and stronger in the fourth as we go through. So I think it will pick up as we go.

Retailers are really not going to stock more inventory or build, rebuild inventories to normalized levels until they've spent six months to a year destocking inventories to lean down. After all that time and effort, they're going to want to go into the December period lean and then kind of research after the holiday season there.

Daniel Moore -- CJS Securities -- Analyst

It makes sense. And Mark, maybe just talk about the GSEs, as we work toward chattel lending, obviously we had the first securitization, which is a great sign, albeit some seasoned loans in that portfolio. What is it that's taking a little bit longer than expected, is it purely education or is the other things that you can sort of put your finger on at this stage?

Mark Yost -- President and Chief Executive Officer

No. I think with the securitization market, it's just -- here we are in, at the end of October, beginning of November and I think it's just taking longer to get traction. I -- the government is not always firmly prompt on all their programs and initiatives, and I think so -- I think it's really just a timing issue. Just a few weeks ago in front of Congress, there was discussion and there's still commitment to the duty-to-serve and they're still progressing along that track. I think they just need to make that first move and get it done. And I just think that's going to take a little longer than it's -- at the end of this calendar year, given where we're at today.

Daniel Moore -- CJS Securities -- Analyst

And last from me. You mentioned some of the "automation' that is being -- has been installed in Leesville in terms of floor and wall building. How is that learning going and how can -- how big of an opportunity is that to transport some of those capabilities across some of the other legacy or existing plants? Thanks.

Mark Yost -- President and Chief Executive Officer

Yeah, thanks, Dan. I think that the learnings gone phenomenally well actually. I couldn't be more excited about what the takeaways from the team have been , especially given the fact that no automation company today that builds this equipment has really done anything for manufactured production. They've done it for a small light built type of doing wall panels or doing normal rough processes and things like that, but they've -- it's a big difference when you have an automation piece of equipment that does a 80-foot wall panel, right for an 80-foot floor, it's different load requirements, everything else. So I think the takeaways from that had been monumental and very impressed by it.

There is the automated tools, I think, it would be a fast roll-out in terms of how we've looked at those and how we're approaching that. I would like to see Leesville ramp another few months to get the final kinks out of it and the fine tune the process a little bit. And then I think we can look at the larger automation projects in terms of long floor builts and some of those other dynamics, but it's -- what we're seeing right now is encouraging.

Daniel Moore -- CJS Securities -- Analyst

Very helpful. Thank you.

Mark Yost -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Mike Dahl with RBC Capital Markets. Please proceed with your question.

Mike Dahl -- RBC Capital Markets -- Analyst

Good morning. Thanks for taking my questions.

Mark Yost -- President and Chief Executive Officer

Good morning, Mike.

Mike Dahl -- RBC Capital Markets -- Analyst

I have a couple of follow-ups on the volume side, and Mark you alluded to the placement data running up 7% year-to-date. And I think if you look at the implication for the summer months, is that actually accelerated to high-single digits, specifically through the summer. So as it relates to your expectations for the low-single digit growth, potentially, then higher in fourth quarter as and -- in getting to the mid-single for the second half. Is there anything other than timing and that lag really prevents you from seeing the same growth as what we're seeing out of placements? And I am thinking whether it's -- the things you've pointed out about choosing to pass on some volume that's been price driven or also just because you're putting through higher mix that you may not see the unit numbers, but we'll see it in price? Just a little more color on that would be great.

Mark Yost -- President and Chief Executive Officer

Yeah. Sure, Mike. Just one clarification, I think the 7% was for the last three months ended in August. So it's not year-to-date necessarily, it is for us, MH placement data. So it's kind of a comparable period for us. But I think there is nothing stopping us from seeing the 7% type of a growth rate as we go. I think the big things we saw this past quarter, as I mentioned, was, we rebuilt and normalized our inventory. So if you remember, last quarter we destocked or call it or we had some inventory and cash flow generation from shipments of inventory and we expected a normalization. So we've built back up our finished good inventory this quarter.

So some of our process went there, backlogs built up healthily, and that's why we're seeing that in the backlog. Our backlogs are up 12%. So we see quite healthy demand environment as orders are processing through. Like I said, it really comes down to the timing of when the customers take those in all those things. I don't know, with the holiday seasons and everything else, If they're going to take them in the last few weeks of December or if it's going to roll over into January, right. That's really the question of when the deals are going to take those and depending on their demand and set crew availability and everything else.

Mike Dahl -- RBC Capital Markets -- Analyst

Got it. Okay. That's helpful and encouraging. My second question really relates to the margins and I guess, bigger picture as others have alluded to, you guys have done a tremendous job expanding margin at a fairly rapid pace over the past year and certainly ahead of where we would have expected is the question, as we think through the next 12 to 18 months given the progress that you've already made, yet the runway that's still left in your view? What are -- what's a realistic goal post per where EBITDA margins can get to over the next 12 to 18 months and how much of that would you say is internal initiatives versus market recovery and for in [Phonetic] volumes.

Laurie Hough -- Executive Vice President and Chief Financial Officer

Hi, Mike. I really think as we've stated before, that we can get our EBITDA margins to around the 10% level. I do think it might take a little bit longer than the 18 months, may be all the way to 24 months, because we've captured the low hanging fruit. Now, we're focusing on the operational improvements that we've been talking about, which just take time to roll-out all 38 plants. So we're going to see slow progression of that increase in EBITDA margins, but it's really going to be from all operational improvements in that volume improvement.

Mark Yost -- President and Chief Executive Officer

Volume improvement would be...

Laurie Hough -- Executive Vice President and Chief Financial Officer

Upside.

Mike Dahl -- RBC Capital Markets -- Analyst

Upside to that.

Laurie Hough -- Executive Vice President and Chief Financial Officer

Yeah.

Mike Dahl -- RBC Capital Markets -- Analyst

Okay. That's great. And last one from me. Mark, you mentioned the securitization that recently occurred. Can you talk a little bit more about, yeah, have you heard post that any changes in the landscape as far as what's that -- what that's done to potentially encourage further deals or larger deals along the same lines and whether you're starting to see any new entrants into the lending market on the back of this?

Mark Yost -- President and Chief Executive Officer

Yeah, Mike. I think we're definitely seeing kind of new entrants and maybe even as important in my mind or is just important, because new entrants is, we've seen improvements in the lending environment from the existing players in the market. So there is definitely a stronger level of competition. There is more engagement, the turnaround times are faster, the responsiveness is faster.

I think the whole process in the chain has improved. The securitization it has been that one that was completed, it has been a wonderful thing to see to the first type of its kind, since our call, the secondary market went away. That the thing I would caution everybody, just to be transparent and honest is that, that was a portfolio of mature loans. So it was rated by the rating agencies that had good strength to it. It had good duration. So they were able to accomplish those ratings and so we have a mature portfolio getting a secondary issuance of it is easier, we'll say, then having a bucket of newly issued loans that doesn't have quite the maturity, time duration on it.

So I think there is excitement there is a secondary market and that performed well. I think now, the next step is, OK, that started the ball, now we've got to get kind of the rating agencies and other people to take a look at a batch of new loans and get those through the process. And I think Fannie and Freddie, when they target that secondary market will assist that. But I think also, two, you're going to a see more activity from the current players in the market who are actually going to just look to do securitization in the secondary market offering of their portfolios irregardless of Fannie and Freddie.

So I think you will see the lenders in the market start to go that route independent of Fannie and Freddie, and they won't wait for Fannie and Freddie. So I think it is a good sign, but it obviously would be helpful as Fannie and Freddie got behind it and started the program as well.

Mike Dahl -- RBC Capital Markets -- Analyst

Great. Okay. Thank you, both.

Operator

Thank you. Our next question comes from Rohit Seth with SunTrust. Please proceed with your question.

Rohit Seth -- SunTrust -- Analyst

Hey, and thanks for taking my question. On the secondary purchase, just to be clear, that was on the chattel loan side?

Mark Yost -- President and Chief Executive Officer

Yes. Yeah, that was -- I think about 80% of that was chattel loans, Rohit,

Rohit Seth -- SunTrust -- Analyst

Okay. And then what is the ASP those MH Advantage homes that you produced in the Genesis Homes?

Mark Yost -- President and Chief Executive Officer

It really varies by amenity and feature and the brand is just rolling out. So we're going to work through pricing and everything else by the Builders show. But I would say it's generally in line with our HUD product, may be slightly up with the added features that they'll generally have if the customer chooses, like a garage component to it. So it will be built with a garage and other amenities which will raise the price. But you're getting more house for the money. So general average ASP is going to be higher.

Rohit Seth -- SunTrust -- Analyst

Okay. And then do you have any comments on the M&A pipeline?

Mark Yost -- President and Chief Executive Officer

M&A pipeline is always good. We're always looking at that. We have a stronger balance sheet that we can utilize. I would say, right now, we're just looking for the right opportunities and making sure that we do the right amount of diligence and not rush into anything. So I would say, prudent diligence and kind of looking for the right opportunities.

Rohit Seth -- SunTrust -- Analyst

And are you looking on the manufacturing side or the regional side or both?

Mark Yost -- President and Chief Executive Officer

Could be any and all the above.

Rohit Seth -- SunTrust -- Analyst

Yeah. All right. Thank you. That's all I have.

Operator

Thank you. [Operator Instructions] Our next question comes from Phil Ng with Jefferies. Please proceed with your question.

Colin Devine -- Jefferies -- Analyst

Hey, good morning. It's actually Colin on for Phil. Just wanted to go back to the Genesis brand. Can you give any more color on the value proposition that this has for the builder developers, like how much cost savings you can pass along and how much time do you anticipate being able to save the builder developers and I know it's early days, but any quantification of the opportunity size that you see for Skyline whether that's in shipments or revenues?

Mark Yost -- President and Chief Executive Officer

Yeah. I think the value proposition to the market is, the average home builder today uses 22 subcontracting trades to build a home and sometimes it varies, there are some builders that use 51 subcontractors, some use a few less, but on average across the industry, they use 22 subcontracting trades to build a home. And those homes, generally, depending on the geography, everything else, can take months upon months to multi-year type of a -- or 18 months to build a subdivision.

I think the benefit for the builder developer is, if they look at their return on capital employed or return on invested capital and the speed of that getting our product in weeks and being able to put into a side. I think it really improves their returns overall and eliminates the challenges they have in managing the multiple sub-contractors. We in essence replace and augment, I'll call it, if you will, all the sub-contracting trade so, with the architect, with the builder, with the plumber, the electrician where all of those things to the builder. So I think the market is there.

Right now today, the manufactured housing industry is what between 90,000 and 100,000 units this year. Single family starts is 860,000 over the last 12-month period. So when you take a look at it, the market opportunity is really opening up for ourselves and our retail partners to sell it into that 850,000 type unit market and it broaden our horizon. So I think it's a large opportunity, especially as subcontracting trades and labor challenges become more challenged and as liquidity risk, perceived liquidity risk becomes more top of mind with builder developers and other partners if they are -- if they are focused on return on capital employed or return on invested capital and they're concerned about liquidity risk. It's really hard to start and stop of subdivision, when you employ subcontracting trades, because they -- that it will be hard to hold them together, where we can supply one or two houses at time or entire subdivision within weeks.

Colin Devine -- Jefferies -- Analyst

Okay. Great. Thank you. And then just in terms of your backlog, I was wondering if you could help us understand how much of the sequential move higher was normal seasonality versus any acceleration in order trends you saw from your customers?

Mark Yost -- President and Chief Executive Officer

So backlog, I think, we saw 12% growth in our backlog, and I would just say that's the normal demand curve that we saw during the quarter. So really the way we saw the quarter was, we rebuilt inventory in the early months of the quarter. And then as orders and demand were strong, we've built our backlog in the latter half of the quarter, so is good.

Colin Devine -- Jefferies -- Analyst

Okay. Great. Thank you very much.

Operator

Thank you. It appears we have no additional questions at this time, so I'd like to pass the floor back over to, Mr. Yost, for any of your concluding concluding comments.

Mark Yost -- President and Chief Executive Officer

Well, thank you, everyone. Excited about the progress we've made. So it's about the opportunities. Hopefully we'll see all of you at the Las Vegas show in -- at the IBS show in Vegas from January to see the new product. It is really game-changing, we're very excited about it. Look forward to the opportunity, and we'll talk to you soon. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Sarah Janowicz -- Director of Investor Relations

Mark Yost -- President and Chief Executive Officer

Laurie Hough -- Executive Vice President and Chief Financial Officer

Greg Palm -- Craig-Hallum Capital Group -- Analyst

Matthew Bouley -- Barclays -- Analyst

Daniel Moore -- CJS Securities -- Analyst

Mike Dahl -- RBC Capital Markets -- Analyst

Rohit Seth -- SunTrust -- Analyst

Colin Devine -- Jefferies -- Analyst

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