Skyline Champion(SKY) - 2020 Q2 - Quarterly Report

PART I Item 1. Financial Statements The financial statements present Skyline Champion Corporation's financial position as of September 28, 2019, and its performance for the three and six months then ended Condensed Consolidated Balance Sheets As of September 28, 2019, the company's total assets were $731.6 million, an increase from $700.0 million as of March 30, 2019, primarily driven by an increase in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 28, 2019 (unaudited) | Mar 30, 2019 | | :--- | :--- | :--- | | Total current assets | $340,067 | $318,290 | | Total assets | $731,550 | $699,954 | | Total current liabilities | $200,600 | $206,303 | | Total liabilities | $281,400 | $287,982 | | Total stockholders' equity | $450,150 | $411,972 | Condensed Consolidated Statements of Operations For the three months ended September 28, 2019, net sales were flat at $354.5 million, but net income swung to $17.7 million from a net loss of $77.0 million in the prior-year quarter, largely due to the absence of significant one-time expenses Statement of Operations Summary (in thousands, except per share amounts) | Metric | Three Months Ended Sep 28, 2019 | Three Months Ended Sep 29, 2018 | Six Months Ended Sep 28, 2019 | Six Months Ended Sep 29, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $354,458 | $355,436 | $726,346 | $677,697 | | Gross profit | $74,055 | $59,000 | $150,090 | $114,160 | | Operating income (loss) | $25,653 | $(69,069) | $49,973 | $(58,997) | | Net income (loss) | $17,745 | $(77,025) | $35,125 | $(77,878) | | Diluted EPS | $0.31 | $(1.42) | $0.62 | $(1.53) | Condensed Consolidated Statements of Cash Flows For the six months ended September 28, 2019, net cash provided by operating activities was $52.2 million, a significant increase from $29.0 million in the prior-year period, resulting in a net increase in cash of $28.1 million Cash Flow Summary for Six Months Ended (in thousands) | Cash Flow Activity | Sep 28, 2019 | Sep 29, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $52,158 | $29,018 | | Net cash (used in) provided by investing activities | $(9,392) | $5,181 | | Net cash used in financing activities | $(14,829) | $(67,904) | | Net increase (decrease) in cash | $28,105 | $(33,743) | Notes to Condensed Consolidated Financial Statements The notes detail the basis of presentation, including reverse acquisition accounting, adoption of the new lease standard, debt facilities, revenue disaggregation, segment performance, and contingent liabilities - The June 1, 2018 combination with Champion Holdings was treated as a reverse acquisition, with Champion Holdings as the accounting acquirer, and prior year results include significant one-time costs related to this transaction[19][33] - The company adopted the new lease accounting standard ASC 842 on March 31, 2019, resulting in the recognition of lease-related assets and liabilities of $13.7 million on the balance sheet[26][29] - The company operates in two reportable segments: U.S. Factory-built Housing and Canadian Factory-built Housing, with the U.S. segment being the primary driver of revenue and operating income[77] - The company is contingently liable under repurchase agreements with lenders for retailer floor plan financing, with an estimated obligation of $157.4 million as of September 28, 2019, though actual losses have been immaterial[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the significant improvement in profitability for the second quarter and first half of fiscal 2020 to improved gross margins and the absence of prior-year one-time costs related to the business combination Results of Operations - Q2 Fiscal 2020 vs. 2019 In the second quarter of fiscal 2020, net sales were nearly flat at $354.5 million, but gross profit increased 25.5% to $74.1 million, and the company reported operating income of $25.7 million compared to a loss of $69.1 million in the prior-year quarter Q2 Fiscal 2020 vs. 2019 Performance (in thousands) | Metric | Q2 FY2020 | Q2 FY2019 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $354,458 | $355,436 | (0.3%) | | Gross profit | $74,055 | $59,000 | 25.5% | | Operating income (loss) | $25,653 | $(69,069) | N/A | | Net income (loss) | $17,745 | $(77,025) | N/A | | Adjusted EBITDA | $32,482 | $23,799 | 36.5% | - U.S. Factory-built Housing sales increased 2.0% to $312.8 million, driven by a 2.3% increase in average selling price, with gross margin expanding significantly to 20.9% from 16.5% due to lower material costs, synergy capture, and operational improvements[99][100][104] - SG&A expenses decreased by $79.7 million, primarily because the prior-year quarter included $85.8 million in stock compensation expense triggered by secondary offerings[107][110] Results of Operations - First Half Fiscal 2020 vs. 2019 For the first six months of fiscal 2020, net sales increased 7.2% to $726.3 million, driven by a 12.5% increase in the U.S. Factory-built Housing segment, and the company posted net income of $35.1 million, a reversal from a $77.9 million net loss in the prior year H1 Fiscal 2020 vs. 2019 Performance (in thousands) | Metric | H1 FY2020 | H1 FY2019 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $726,346 | $677,697 | 7.2% | | Gross profit | $150,090 | $114,160 | 31.5% | | Operating income (loss) | $49,973 | $(58,997) | N/A | | Net income (loss) | $35,125 | $(77,878) | N/A | | Adjusted EBITDA | $64,567 | $46,534 | 38.8% | - U.S. Factory-built Housing sales grew by $71.7 million (12.5%), with $50.3 million of the increase attributable to the inclusion of Skyline operations for the full six-month period, compared to only four months in the prior-year period[120] - Canadian Factory-built Housing sales decreased 5.0% due to an 11.6% decline in the number of homes sold, reflecting weaker demand in British Columbia and Alberta[121] - SG&A expenses decreased by $73.0 million, mainly due to $93.9 million in stock compensation expense recognized in the prior year related to the Exchange and secondary offerings[127][130] Liquidity and Capital Resources The company's liquidity remains strong, with cash and cash equivalents increasing by $28.1 million during the first six months of fiscal 2020 to a total of $154.7 million, and $39.4 million of unused borrowing capacity under its revolving credit facility Liquidity Position (in thousands) | Metric | Sep 28, 2019 | Mar 30, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $154,739 | $126,634 | | Working Capital (Current Assets - Current Liabilities) | $139,467 | $111,987 | - Cash from operations increased to $52.2 million for the six months ended Sep 28, 2019, up from $29.0 million in the prior year, driven by higher operating income and the absence of prior-year transaction expenses[145] BACKLOG The company's unfilled manufacturing orders for homes decreased to $172.0 million at September 28, 2019, compared to $252.4 million at the same time last year, attributed to a decrease in order rates and continued softness in western Canada housing markets - Unfilled U.S. and Canadian manufacturing orders totaled $172.0 million at September 28, 2019, a decrease from $252.4 million at September 29, 2018[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there were no significant changes in its market risk, including interest rate and foreign exchange risks, from the information disclosed in its Annual Report on Form 10-K for fiscal year 2019 - There were no significant changes to the company's market risk disclosures regarding interest rates and foreign exchange compared to the Fiscal 2019 Annual Report[152] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 28, 2019, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of September 28, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[155] - No changes occurred in the company's internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[156] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings and claims in the ordinary course of business, but management does not believe the ultimate liability will have a material adverse effect on the company's financial condition or results of operations - The company is subject to various legal proceedings and claims arising in the ordinary course of business but does not expect them to have a material adverse effect[85][159] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year 2019 - No material changes have been made to the risk factors disclosed in the Fiscal 2019 Annual Report[160] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications (pursuant to Sarbanes-Oxley Act Sections 302 and 906) and Inline XBRL data files - The report includes required CEO and CFO certifications and interactive data files (XBRL) as exhibits[162]