Skyline Champion(SKY) - 2026 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents Champion Homes' unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes Condensed Consolidated Balance Sheets | Metric | June 28, 2025 ($ thousands) | March 29, 2025 ($ thousands) | | :-------------------------------- | :-------------------------------------- | :--------------------------- | | Cash and cash equivalents | 605,327 | 610,338 | | Total current assets | 1,115,477 | 1,086,498 | | Total assets | 2,149,251 | 2,110,408 | | Total current liabilities | 465,988 | 451,308 | | Total long-term liabilities | 112,786 | 114,662 | | Total stockholders' equity | 1,570,477 | 1,544,438 | Condensed Consolidated Income Statements | Metric | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | YoY Change (%) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Net sales | 701,318 | 627,779 | 11.7% | | Gross profit | 189,830 | 164,215 | 15.6% | | Operating income | 78,521 | 55,388 | 41.8% | | Net income attributable to Champion Homes, Inc. | 64,687 | 45,794 | 41.2% | | Basic EPS | 1.13 | 0.79 | 43.0% | | Diluted EPS | 1.13 | 0.79 | 43.0% | Condensed Consolidated Statements of Comprehensive Income | Metric | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | 65,993 | 45,794 | | Foreign currency translation adjustments | 5,489 | (1,130) | | Total comprehensive income attributable to Champion Homes, Inc. | 70,176 | 44,664 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | 75,302 | 84,616 | | Net cash (used in) investing activities | (33,864) | (9,082) | | Net cash (used in) financing activities | (51,864) | (20,604) | | Net (decrease) increase in cash and cash equivalents | (5,011) | 53,870 | | Cash and cash equivalents at end of period | 605,327 | 548,933 | Condensed Consolidated Statements of Stockholders' Equity | Metric | Balance at March 29, 2025 ($ thousands) | Net Income ($ thousands) | Common Stock Repurchases ($ thousands) | Foreign Currency Translation Adjustments ($ thousands) | Balance at June 28, 2025 ($ thousands) | | :-------------------------------- | :-------------------------------------- | :----------------------- | :------------------------------------- | :----------------------------------------------------- | :------------------------------------- | | Total Stockholders' Equity | 1,544,438 | 64,687 | (50,342) | 5,489 | 1,570,477 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations for financial statements, covering accounting policies, business operations, and specific items 1. Basis of Presentation and Business - Champion Homes operates 42 manufacturing facilities in the U.S. and 4 in western Canada, 82 U.S. retail sales centers, and provides construction and transportation services[22] - During Q1 FY26, the Company idled production at its Bartow, Florida facility ($1.0 million costs) and plans to cease operations at its Kelowna, British Columbia facility (accrued $2.9 million costs)[27] - Floor plan receivables, primarily loans to independent retailers through Triad, totaled $38.2 million at June 28, 2025[29] 2. Business Combinations - On May 30, 2025, Champion Homes acquired Iseman Homes, Inc. for a total purchase consideration of $26.9 million, including $24.6 million in net cash paid[37] - The acquisition resulted in the recognition of $5.5 million in goodwill and $2.9 million for a trade name intangible asset[38][41] - The pro forma impact of the Iseman Homes acquisition on revenue and net income is not material to the consolidated financial statements[42] 3. Inventories, net | Inventory Component | June 28, 2025 ($ thousands) | March 29, 2025 ($ thousands) | | :------------------ | :---------------------------- | :--------------------------- | | Raw materials | 111,247 | 110,755 | | Work in process | 33,788 | 31,079 | | Finished goods and other | 227,704 | 218,795 | | Total inventories, net | 372,739 | 360,629 | | Reserves for obsolete inventory | 11,000 | 11,100 | 4. Property, Plant, and Equipment | Metric | June 28, 2025 ($ thousands) | March 29, 2025 ($ thousands) | | :-------------------------------- | :---------------------------- | :--------------------------- | | Property, plant, and equipment, net | 317,037 | 307,140 | - Depreciation expense for the three months ended June 28, 2025, was $9.0 million, up from $7.7 million in the prior year period[44] 5. Goodwill, Intangible Assets, and Cloud Computing Arrangements - Goodwill increased to $363.5 million at June 28, 2025, from $358.0 million at March 29, 2025, primarily due to the Iseman Homes acquisition[46] | Intangible Asset | June 28, 2025 ($ thousands) | March 29, 2025 ($ thousands) | | :----------------------- | :---------------------------- | :--------------------------- | | Amortizable intangibles, net | 64,707 | 64,712 | - Amortization of intangible assets was $2.9 million for both Q1 FY26 and Q1 FY25. Amortization of capitalized cloud computing costs increased to $1.0 million in Q1 FY26 from $0.2 million in Q1 FY25[47][48] 6. Investment in ECN Capital Corporation - The Company holds a $137.8 million equity investment in ECN Capital Corp. (19.9% voting shares) and formed Champion Financing LLC (51% owned) with Triad, an ECN subsidiary[49] - The Company's share of ECN's net losses was $0.5 million for Q1 FY26, down from $1.2 million in Q1 FY25[50] - Dividend income from ECN Preferred Shares was $1.2 million for both Q1 FY26 and Q1 FY25[51] 7. Other Current Liabilities | Liability Component | June 28, 2025 ($ thousands) | March 29, 2025 ($ thousands) | | :-------------------------------- | :---------------------------- | :--------------------------- | | Customer deposits | 87,973 | 82,886 | | Accrued product liability - water intrusion | 33,283 | 34,094 | | Total other current liabilities | 294,079 | 280,081 | 8. Accrued Warranty Obligations | Metric | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Balance at beginning of period | 53,155 | 50,869 | | Warranty expense | 18,165 | 18,688 | | Cash warranty payments | (18,057) | (15,446) | | Balance at end of period | 53,263 | 54,111 | | Total current portion | 40,631 | 42,418 | 9. Debt and Floor Plan Payable | Debt Type | June 28, 2025 ($ thousands) | March 29, 2025 ($ thousands) | | :---------------- | :---------------------------- | :--------------------------- | | Total long-term debt | 24,105 | 24,773 | | Floor plan payable | 103,684 | 106,091 | - The Company has a $200.0 million revolving credit facility, with $172.5 million available for borrowing as of June 28, 2025[58][61] - The weighted average interest rate on floor plan payables was 7.06% at June 28, 2025[65] 10. Revenue Recognition | Sales Category | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | | U.S. Factory-Built Housing | 661,931 | 599,533 | | Canadian Factory-Built Housing | 30,120 | 20,799 | | Corporate/Other | 9,267 | 7,447 | | Total Net Sales | 701,318 | 627,779 | 11. Income Taxes | Metric | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | Income tax expense | 17,699 | 13,719 | | Effective tax rate | 21.0% | 22.5% | - The recently enacted One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which changes U.S. corporate income taxation, is being assessed for its potentially material financial reporting implications[69] 12. Earnings Per Share | Metric | Three months ended June 28, 2025 | Three months ended June 29, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net income attributable to Champion Homes, Inc. ($ thousands) | 64,687 | 45,794 | | Basic net income per share | 1.13 | 0.79 | | Diluted net income per share | 1.13 | 0.79 | 13. Segment Information - The Company operates in two reportable segments: U.S. Factory-built Housing and Canadian Factory-built Housing, with Corporate/Other including transportation, financing, and corporate costs[74] | Segment | Net Sales (Q1 FY26, $ thousands) | Net Sales (Q1 FY25, $ thousands) | Segment EBITDA (Q1 FY26, $ thousands) | Segment EBITDA (Q1 FY25, $ thousands) | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------------ | :------------------------------------ | | U.S. Factory-built Housing | 661,931 | 599,533 | 99,099 | 79,021 | | Canadian Factory-built Housing | 30,120 | 20,799 | 3,008 | 2,879 | | Corporate/Other | 9,267 | 7,447 | (12,355) | (16,024) | | Consolidated | 701,318 | 627,779 | | | 14. Commitments, Contingencies, and Legal Proceedings - The Company has a contingent repurchase obligation of $246.5 million on independent retailer floor plan loans, with a loss reserve of $1.8 million at June 28, 2025[82] - Outstanding letters of credit totaled $27.5 million and surety bonds totaled $17.6 million at June 28, 2025[83] - A product liability for water intrusion in homes built prior to fiscal 2022 has an estimated remediation cost range of $34.5 million to $77.5 million, with $34.5 million recorded and $1.2 million paid through Q1 FY26[85] 15. Subsequent Event - On July 28, 2025, the Company entered into a Second Amended and Restated Credit Agreement, providing a $200.0 million revolving credit facility (with potential for an additional $100.0 million) maturing on July 28, 2030[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Champion Homes' financial condition and operational results, covering business overview, acquisitions, and performance analysis Overview - Champion Homes, Inc. is a leading producer of factory-built housing in the U.S. and Canada, operating 42 U.S. and 4 Canadian manufacturing facilities and 82 U.S. retail sales centers[91] - The Company offers a complete solutions provider model, including manufacturing, company-owned retail, construction services, and transportation logistics[91] Acquisitions, Expansions and Consolidations - The Company acquired Iseman Homes in May 2025 (10 retail sales centers) and Regional Homes in October 2023 (3 manufacturing facilities, 44 retail sales centers) to strengthen distribution and expand market presence[93] - Strategic actions include idling production at the Bartow, Florida plant and planning to cease operations at the Kelowna, British Columbia plant to improve operating efficiency and profitability[94] - An equity investment in ECN facilitated the creation of Champion Financing LLC, a captive finance company, to provide financing solutions and improve market share[95] Industry and Company Outlook - Demand for affordable, single-family housing continues to drive the market, supported by demographic trends in key homebuyer groups[97] - Manufacturing backlog decreased to $302.5 million as of June 28, 2025, from $404.8 million in the prior year, due to decreased customer orders and higher production rates[98] - The Company's U.S. wholesale market share of HUD code homes increased to 22.5% for the three months ended May 31, 2025, up from 21.3% in the prior year[99] UNAUDITED RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF FISCAL 2026 VS. 2025 Analyzes Champion Homes' unaudited financial performance for Q1 FY26 compared to Q1 FY25, detailing key operational metrics | Metric | Three months ended June 28, 2025 ($ thousands) | Three months ended June 29, 2024 ($ thousands) | YoY Change (%) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Net sales | 701,318 | 627,779 | 11.7% | | Gross profit | 189,830 | 164,215 | 15.6% | | Operating income | 78,521 | 55,388 | 41.8% | | Net income attributable to Champion Homes, Inc. | 64,687 | 45,794 | 41.2% | | Adjusted EBITDA | 94,177 | 74,967 | 25.6% | NET SALES - Net sales increased by $73.5 million, or 11.7%, to $701.3 million for Q1 FY26 compared to Q1 FY25[101] - U.S. manufacturing and retail net sales rose 10.4% due to a 6.5% increase in homes sold and a 3.6% increase in average selling price[102] - Canadian manufacturing net sales grew 44.8% due to a 49.7% increase in homes sold, partially offset by a 3.3% decrease in average selling price[103] GROSS PROFIT - Total gross profit increased by $25.6 million, or 15.6%, to $189.8 million for Q1 FY26[105] - Gross profit as a percent of net sales improved to 27.1% in Q1 FY26 from 26.2% in Q1 FY25[105] - U.S. Factory-built Housing gross profit margin increased to 26.3% (from 25.7%) due to higher average selling prices and reduced impact from purchase accounting[107] SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Total SG&A expenses increased by $2.5 million, or 2.3%, to $111.3 million for Q1 FY26[110] - SG&A as a percent of net sales decreased to 15.9% in Q1 FY26 from 17.3% in Q1 FY25[110] - U.S. Factory-built Housing SG&A increased due to higher incentive compensation, Iseman Homes acquisition, and Bartow plant idling costs, partially offset by the non-recurrence of a $7.9 million contingent consideration charge[111] - Canadian Factory-built Housing SG&A increased by 96.8% due to $2.9 million in costs associated with the Kelowna plant closure[112] INTEREST (INCOME), NET - Net interest income was $4.5 million for Q1 FY26, an increase from $4.2 million in Q1 FY25, primarily due to lower interest rates on invested cash balances and floor plan payables[114] OTHER (INCOME) EXPENSE - Other income remained stable at approximately $1.2 million for both Q1 FY26 and Q1 FY25, representing dividend income from the investment in ECN Preferred Shares[115] INCOME TAX EXPENSE - Income tax expense increased by 29.0% to $17.7 million for Q1 FY26, with the effective tax rate decreasing to 21.0% from 22.5% in Q1 FY25[116][117] EQUITY IN NET INCOME OF AFFILIATES - Equity in net loss of affiliates decreased by 56.4% to $0.6 million for Q1 FY26, primarily due to a lower share of ECN's net losses[118] NON-CONTROLLING INTEREST - Net income attributable to non-controlling interest was $1.3 million for Q1 FY26, representing the minority partner's 49% share of Champion Financing's results[119] ADJUSTED EBITDA - Adjusted EBITDA increased by $19.2 million, or 25.6%, to $94.2 million for Q1 FY26, driven by higher sales volumes and gross profit, partially offset by higher SG&A expenses[120] - Adjusted EBITDA as a percent of net sales was 13.4% for Q1 FY26, up from 11.9% in Q1 FY25[100] BACKLOG - The Company's unfilled U.S. and Canadian manufacturing orders decreased to $302.5 million at June 28, 2025, from $404.8 million at June 29, 2024[126] - The decrease in backlog is attributed to lower orders and higher production rates during Q1 FY26 compared to the prior year[126] Liquidity and Capital Resources Examines Champion Homes' cash flow, debt, and credit facilities, detailing sources and uses of capital for operations and investments Sources and Uses of Cash - Net cash provided by operating activities decreased to $75.3 million in Q1 FY26 from $84.6 million in Q1 FY25, primarily due to less favorable changes in working capital[128][129] - Net cash used in investing activities increased significantly to $33.9 million in Q1 FY26 from $9.1 million in Q1 FY25, mainly due to the Iseman Homes acquisition[130] - Net cash used in financing activities increased to $51.9 million in Q1 FY26 from $20.6 million in Q1 FY25, primarily due to $50.0 million in common stock repurchases[131] - The Company had $172.5 million available for borrowing under its Amended Credit Agreement as of June 28, 2025[127] Critical Accounting Policies - There have been no significant changes in critical accounting policies other than those included in Note 1, 'Basis of Presentation'[132] Recently Issued Accounting Pronouncements - Information on the impact of recently issued accounting pronouncements is provided in Note 1, 'Basis of Presentation – Recently Issued Accounting Pronouncements'[133] Forward-Looking Statements - The report contains forward-looking statements subject to various risks and uncertainties, including supply issues, labor, inflation, housing industry cyclicality, demand fluctuations, and potential impairment of assets[134][140] - Other risks include quality problems (e.g., water intrusion claims), data security breaches, regulatory changes, M&A integration risks, and the material weakness in internal control over financial reporting[134][140] Item 3. Quantitative and Qualitative Disclosures About Market Risk Refers to the Fiscal 2025 Annual Report for market risk disclosures, noting no significant changes in interest rate or foreign exchange risks - There have been no significant changes in the Company's interest rate and foreign exchange risks since March 29, 2025[136] Item 4. Controls and Procedures Addresses disclosure controls and procedures, identifying a material weakness in internal control over financial reporting and outlining remediation efforts Evaluation of disclosure controls and procedures - The CEO and CFO concluded that the Company's disclosure controls and procedures were not effective as of June 28, 2025, due to a material weakness in internal control over financial reporting[138] Material Weakness - A material weakness was identified in internal controls related to ineffective operation of controls in the retail operations of Regional Homes, acquired in October 2023[139] - This weakness resulted from insufficiently documented manual controls over transaction recording and a lack of analysis and review related to financial statement accounts[139] Remediation of Material Weakness - Management is implementing measures including improving retail accounting/IT systems, additional training, hiring personnel, and increasing corporate oversight to remediate the material weakness[141] - The material weakness will be considered remediated only after applicable controls operate effectively for a sufficient period and are tested[142] Changes in internal control over financial reporting - Except for the material weakness and remediation efforts, there were no other material changes in internal control over financial reporting during the quarter[143] - The acquired operations of Iseman Homes are excluded from the current assessment of internal control over financial reporting[143] PART II – OTHER INFORMATION Item 1. Legal Proceedings Refers to Note 14 for legal proceedings, noting no material adverse effect on financial condition, results, or cash flows is expected - The Company is involved in various legal proceedings and claims in the ordinary course of business[146] - The ultimate liability from these contingent obligations is not expected to have a material adverse effect on the Company's financial condition, results of operations, or cash flows[146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the Company's share repurchase program, including recent increases in authorization and shares repurchased during Q1 FY26 - The Board of Directors increased the share repurchase program authorization by $70.0 million in Q1 FY26 and by an additional $50.0 million on July 24, 2025, bringing the available amount to $150.0 million[147] | Fiscal Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------- | :------------------------------- | :--------------------------- | | 5/4/2025 - 5/31/2025 | 100,187 | $65.69 | | 6/1/2025 - 6/28/2025 | 671,601 | $64.63 | | Total | 771,788 | | Item 5. Other Information States that no directors or Section 16 officers adopted or terminated a Rule 10b5-1 Trading Plan during Q1 FY26 - None of the Company's directors or Section 16 officers adopted or terminated a Rule 10b5-1 Trading Plan during the three months ended June 28, 2025[148] Item 6. Exhibits Lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include certifications of the CEO and CFO (31.1, 31.2, 32) and Inline XBRL Instance and Taxonomy Extension Schema documents (101, 104)[149] SIGNATURES SIGNATURES Contains formal signatures of the Company's authorized officers, certifying the filing of the Form 10-Q report - The report was signed by Tim Larson, President and Chief Executive Officer, and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer, on August 6, 2025[153]