Skyline Champion(SKY) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents Skyline Champion Corporation's unaudited condensed consolidated financial statements, reflecting significant revenue and net income growth for the period Condensed Consolidated Balance Sheets | Metric | July 3, 2021 (unaudited, in thousands) | April 3, 2021 (in thousands) | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $287,738 | $262,581 | | Inventories, net | $191,596 | $166,113 | | Total current assets | $562,374 | $499,767 | | Total assets | $986,397 | $917,902 | | LIABILITIES | | | | Total current liabilities | $288,443 | $263,642 | | Total long-term liabilities | $85,371 | $85,649 | | STOCKHOLDERS' EQUITY | | | | Retained earnings | $124,467 | $82,898 | | Total stockholders' equity | $612,583 | $568,611 | Condensed Consolidated Income Statements | Metric | Three months ended July 3, 2021 (in thousands) | Three months ended June 27, 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $510,197 | $273,285 | 86.7% | | Cost of sales | $398,667 | $219,282 | 81.8% | | Gross profit | $111,530 | $54,003 | 106.5% | | Selling, general, and administrative expenses | $54,023 | $40,807 | 32.4% | | Operating income | $57,507 | $13,196 | 335.8% | | Income before income taxes | $56,912 | $16,468 | 245.6% | | Income tax expense | $14,011 | $4,565 | 206.9% | | Net income | $42,901 | $11,903 | 260.4% | | Basic Net income per share | $0.76 | $0.21 | 261.9% | | Diluted Net income per share | $0.75 | $0.21 | 257.1% | Condensed Consolidated Statements of Comprehensive Income | Metric | Three months ended July 3, 2021 (in thousands) | Three months ended June 27, 2020 (in thousands) | | :--- | :--- | :--- | | Net income | $42,901 | $11,903 | | Foreign currency translation adjustments | $878 | $1,095 | | Total comprehensive income | $43,779 | $12,998 | Condensed Consolidated Statements of Cash Flows | Metric | Three months ended July 3, 2021 (in thousands) | Three months ended June 27, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,905 | $32,205 | | Net cash used in investing activities | $(9,219) | $(1,299) | | Net cash provided by (used in) financing activities | $1,798 | $(4,524) | | Net increase in cash and cash equivalents | $25,157 | $27,052 | | Cash and cash equivalents at end of period | $287,738 | $236,507 | - Cash provided by operating activities decreased slightly due to increased inventory from higher material costs and stocking levels, and an increase in prepaid and other assets from capitalized cloud computing costs, partially offset by higher net income[119] - Cash used in investing activities increased primarily due to higher capital expenditures, including the acquisition of an idle manufacturing facility in Texas[120] Condensed Consolidated Statements of Stockholders' Equity | Metric | Balance at July 3, 2021 (in thousands) | Balance at April 3, 2021 (in thousands) | | :--- | :--- | :--- | | Total stockholders' equity | $612,583 | $568,611 | | Net income | $42,901 | N/A (period activity) | | Equity-based compensation | $1,441 | N/A (period activity) | | Foreign currency translation adjustments | $878 | N/A (period activity) | Notes to Condensed Consolidated Financial Statements Note 1. Basis of Presentation and Business - Skyline Champion Corporation is a leading producer of factory-built housing in the U.S. and Canada, operating 35 U.S. and 5 Canadian manufacturing facilities, 18 retail sales centers, and transportation operations[19] COVID-19 Financial Assistance | COVID-19 Financial Assistance | Amount (in millions) | | :--- | :--- | | CEWS payroll subsidies (Q1 FY2021) | $3.6 | | CARES Act & state wage subsidies (Q1 FY2021) | $0.6 | | Deferred payroll taxes (through July 3, 2021) | $11.8 | Note 2. Business Acquisition - Acquired 100% of ScotBilt Homes, LLC on February 28, 2021, for $54.5 million total purchase consideration[29] Preliminary Purchase Price Allocation | Preliminary Purchase Price Allocation (in thousands) | | :--- | | Cash | $1,521 | | Trade accounts receivable | $2,256 | | Inventory | $6,752 | | Property, plant, and equipment | $10,466 | | Other assets | $1,164 | | Accounts payable and accrued liabilities | $(7,432) | | Intangibles | $21,100 | | Goodwill | $18,449 | | Total purchase price allocation | $54,276 | - Goodwill is primarily attributable to expected synergies from procurement activities and operational improvements through sharing of best practices[30] Note 3. Inventories, net | Inventory Component (in thousands) | July 3, 2021 | April 3, 2021 | | :--- | :--- | :--- | | Raw materials | $109,950 | $91,916 | | Work in process | $23,090 | $21,642 | | Finished goods and other | $58,556 | $52,555 | | Total inventories, net | $191,596 | $166,113 | | Reserves for obsolete inventory | $4,600 | $4,600 | Note 4. Property, Plant, and Equipment | PPE Component (in thousands) | July 3, 2021 | April 3, 2021 | | :--- | :--- | :--- | | Land and improvements | $38,455 | $36,470 | | Buildings and improvements | $95,789 | $97,005 | | Machinery and equipment | $59,052 | $57,790 | | Construction in progress | $9,393 | $1,889 | | Property, plant, and equipment, net | $121,313 | $115,140 | - Depreciation expense for the three months ended July 3, 2021, was $3.3 million, compared to $2.9 million for the three months ended June 27, 2020[35] Note 5. Goodwill, Intangible Assets, and Cloud Computing Arrangements | Metric (in thousands) | July 3, 2021 | April 3, 2021 | | :--- | :--- | :--- | | Goodwill | $191,970 | $191,803 | | Amortizable intangibles, net | $56,947 | $58,835 | | Capitalized cloud computing costs | $5,400 | $300 | - Amortization of intangible assets was $1.9 million for the three months ended July 3, 2021, compared to $1.4 million for the three months ended June 27, 2020[38] Note 6. Other Current Liabilities | Liability Component (in thousands) | July 3, 2021 | April 3, 2021 | | :--- | :--- | :--- | | Customer deposits | $64,551 | $58,888 | | Accrued volume rebates | $19,834 | $18,207 | | Accrued warranty obligations | $24,643 | $24,033 | | Accrued compensation and payroll taxes | $38,663 | $42,560 | | Accrued insurance | $13,762 | $12,421 | | Other | $32,133 | $24,586 | | Total other current liabilities | $193,586 | $180,695 | Note 7. Accrued Warranty Obligations | Metric (in thousands) | Three months ended July 3, 2021 | Three months ended June 27, 2020 | | :--- | :--- | :--- | | Balance at beginning of period | $30,469 | $24,969 | | Warranty expense | $10,304 | $6,359 | | Cash warranty payments | $(9,694) | $(6,633) | | Balance at end of period | $31,079 | $24,695 | | Total current portion | $24,643 | $18,905 | Note 8. Debt and Floor Plan Payable | Debt Component (in thousands) | July 3, 2021 | April 3, 2021 | | :--- | :--- | :--- | | Revolving credit facility | $26,900 | $26,900 | | Industrial revenue bonds | $12,430 | $12,430 | | Total long-term debt | $39,330 | $39,330 | | Floor plan payable | $28,778 | $25,733 | | Total credit line capacity (floor plan) | $57,000 | N/A | - The revolving credit facility has a capacity of up to $100.0 million, with $30.4 million in letters of credit issued and $42.7 million available borrowings as of July 3, 2021[44] - The company was in compliance with all covenants of the Credit Agreement as of July 3, 2021[48] Note 9. Revenue Recognition | Sales Category (in thousands) | Three months ended July 3, 2021 | Three months ended June 27, 2020 | | :--- | :--- | :--- | | U.S. Factory-Built Housing | $457,320 | $248,859 | | Canadian Factory-Built Housing | $37,831 | $15,195 | | Corporate/Other (Transportation) | $15,046 | $9,231 | | Total Net Sales | $510,197 | $273,285 | Note 10. Income Taxes | Metric | Three months ended July 3, 2021 (in thousands) | Three months ended June 27, 2020 (in thousands) | | :--- | :--- | :--- | | Income tax expense | $14,011 | $4,565 | | Effective tax rate | 24.6% | 27.7% | - The effective tax rate for Q1 FY2022 differs from the federal statutory rate of 21.0% due to state and local income taxes, non-deductible expenses, tax credits, foreign jurisdiction results, and tax benefits from vested equity compensation[52] Note 11. Earnings Per Share | Metric (in thousands, except per share) | Three months ended July 3, 2021 | Three months ended June 27, 2020 | | :--- | :--- | :--- | | Net income attributable to common shareholders | $42,901 | $11,873 | | Basic weighted-average shares outstanding | 56,706 | 56,532 | | Diluted weighted-average shares outstanding | 57,203 | 56,761 | | Basic net income per share | $0.76 | $0.21 | | Diluted net income per share | $0.75 | $0.21 | Note 12. Segment Information - The company operates in two reportable segments: U.S. Factory-built Housing (manufacturing and retail) and Canadian Factory-built Housing, with Corporate/Other including transportation operations, corporate costs, and intersegment eliminations[60] Segment Financials | Segment Financials (in thousands) | Three months ended July 3, 2021 | Three months ended June 27, 2020 | | :--- | :--- | :--- | | Net sales: | | | | U.S. Factory-built Housing | $457,320 | $248,859 | | Canadian Factory-built Housing | $37,831 | $15,195 | | Corporate/Other | $15,046 | $9,231 | | EBITDA: | | | | U.S. Factory-built Housing EBITDA | $63,017 | $23,793 | | Canadian Factory-built Housing EBITDA | $5,666 | $1,292 | | Corporate/Other EBITDA | $(5,977) | $(7,607) | | Capital expenditures: | | | | U.S. Factory-built Housing | $7,258 | $885 | | Canadian Factory-built Housing | $105 | $157 | | Corporate/Other | $1,858 | $269 | | Total Assets (July 3, 2021 / April 3, 2021): | | | | U.S. Factory-built Housing | $602,941 | $578,897 | | Canadian Factory-built Housing | $91,561 | $87,224 | | Corporate/Other | $291,895 | $251,781 | Note 13. Commitments, Contingencies and Legal Proceedings - Contingent repurchase obligation for retailer floor plan financing was estimated at $231.0 million as of July 3, 2021, with a loss reserve of $1.5 million[63][64][66] - The company is contingently obligated for $30.4 million under letters of credit and $35.0 million under surety bonds[67] - The company believes that the ultimate liability from various legal proceedings and claims will not have a material adverse effect on its financial condition, results of operations, or cash flows[69] Note 14. Subsequent Event - On July 7, 2021, the company amended and restated its credit agreement, increasing the revolving credit facility from $100.0 million to $200.0 million[71] - The new Revolving Credit Facility matures on July 7, 2026, and outstanding borrowings of $26.9 million on the previous facility were repaid at closing[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis highlights strong Q1 FY2022 performance, driven by robust demand, acquisitions, and efficiencies Overview - Skyline Champion Corporation is the largest independent publicly traded factory-built solutions provider in North America based on revenue[74] - The company operates 35 manufacturing facilities in the U.S. and 5 in western Canada, 18 retail sales centers, and a transportation business[74] Industry and Company Outlook - Robust demand in U.S. and Canadian housing markets is driven by limited existing homes, the need for affordable single-family housing, and demographic trends[75] Backlog | Metric | July 3, 2021 | June 27, 2020 | | :--- | :--- | :--- | | Backlog | $1,200 million | $192.1 million | - U.S. wholesale market share of HUD code homes sold was 20.8% for the three months ended May 31, 2021, up from 13.8% in the prior year[77] Acquisitions and Expansions - Acquired ScotBilt Homes on February 28, 2021, which shipped over 1,600 homes in calendar 2020, strengthening presence in the Mid-South region[80] - Acquired two idle facilities in Navasota, Texas on June 21, 2021, with production intended to start by end of fiscal 2022[80] - Acquired two idled facilities in Pembroke, North Carolina on January 14, 2021, to expand manufacturing footprint in the South and Southeast markets[82] COVID-19 Pandemic - Increased daily production rates in the second half of fiscal 2021 due to improved direct labor staffing and production efficiencies, despite intermittent closures and higher absenteeism in fiscal 2021[85] - Availability of labor and certain materials remains subject to disruption and uncertainty, with increased volatility and higher manufacturing costs for key raw materials[85] COVID-19 Financial Assistance (Q1 FY2021) | COVID-19 Financial Assistance (Q1 FY2021) | Amount (in millions) | | :--- | :--- | | CEWS payroll subsidies | $3.6 | | CARES Act & state wage subsidies | $0.6 | | Deferred payroll taxes (through July 3, 2021) | $11.8 | Unaudited Income Statements Summary | Metric | Three months ended July 3, 2021 (in thousands) | Three months ended June 27, 2020 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $510,197 | $273,285 | 86.7% | | Gross profit | $111,530 | $54,003 | 106.5% | | Gross profit as a percent of net sales | 21.9% | 19.8% | +2.1 pp | | Operating income | $57,507 | $13,196 | 335.8% | | Net income | $42,901 | $11,903 | 260.4% | | Adjusted EBITDA | $62,706 | $22,540 | 178.2% | | Adjusted EBITDA as a percent of net sales | 12.3% | 8.2% | +4.1 pp | Net Sales Analysis | Segment Net Sales (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Net sales | $510,197 | $273,285 | $236,912 | 86.7% | | U.S. manufacturing and retail net sales | $457,320 | $248,859 | $208,461 | 83.8% | | U.S. homes sold | 6,372 | 4,028 | 2,344 | 58.2% | | U.S. manufacturing and retail average home selling price | $71.8 | $61.8 | $10.0 | 16.2% | | Canadian manufacturing net sales | $37,831 | $15,195 | $22,636 | 149.0% | | Canadian homes sold | 385 | 192 | 193 | 100.5% | | Canadian manufacturing average home selling price | $98.3 | $79.1 | $19.2 | 24.3% | | Corporate/Other net sales | $15,046 | $9,231 | $5,815 | 63.0% | - U.S. sales increase driven by strong demand, increased production, higher average selling prices due to rising material costs, and the impact of ScotBilt acquisition[91][92] - Canadian sales increase due to higher demand, increased production rates, and higher average selling prices in response to rising material costs, with favorable currency translation contributing $4.5 million[93] Gross Profit Analysis | Segment Gross Profit (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total gross profit | $111,530 | $54,003 | $57,527 | 106.5% | | Gross profit as a percent of net sales | 21.9% | 19.8% | N/A | +2.1 pp | | U.S. Factory-built Housing gross profit | $99,211 | $48,410 | $50,801 | 104.9% | | U.S. Factory-built Housing gross profit as % of net sales | 21.7% | 19.5% | N/A | +2.2 pp | | Canadian Factory-built Housing gross profit | $8,325 | $2,782 | $5,543 | 199.2% | | Canadian Factory-built Housing gross profit as % of net sales | 22.0% | 18.3% | N/A | +3.7 pp | | Corporate/Other gross profit | $3,994 | $2,811 | $1,183 | 42.1% | | Corporate/Other gross profit as % of net sales | 26.5% | 30.5% | N/A | -4.0 pp | - U.S. gross profit increase due to operational efficiencies, increased leverage of fixed costs from higher production, and reduction of COVID-19 related sick-pay and health benefits, partially offset by higher material and labor costs[96] - Canadian gross profit increase due to direct labor and manufacturing efficiencies from higher sales volumes, partially offset by higher material and labor costs[97] Selling, General, and Administrative Expenses Analysis | Segment SG&A (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Total SG&A expenses | $54,023 | $40,807 | $13,216 | 32.4% | | SG&A as a percent of net sales | 10.6% | 14.9% | N/A | -4.3 pp | | U.S. Factory-built Housing SG&A | $40,755 | $28,376 | $12,379 | 43.6% | | U.S. Factory-built Housing SG&A as % of net sales | 8.9% | 11.4% | N/A | -2.5 pp | | Canadian Factory-built Housing SG&A | $2,945 | $1,606 | $1,339 | 83.4% | | Canadian Factory-built Housing SG&A as % of net sales | 7.8% | 10.6% | N/A | -2.8 pp | | Corporate/Other SG&A | $10,323 | $10,825 | $(502) | (4.6%) | - Increase in U.S. SG&A due to higher sales commissions, incentive compensation, wage expense from headcount increases, increased travel expenses, and the impact of ScotBilt[102] - Corporate/Other SG&A decreased due to a reduction in equity compensation costs[104] Interest Expense, Net Analysis | Metric (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Interest expense, net | $649 | $942 | $(293) | (31.1%) | | Average outstanding floor plan payable | $28,592 | $31,067 | N/A | N/A | | Average outstanding long-term debt | $39,330 | $77,330 | N/A | N/A | - The decrease in net interest expense was primarily due to a lower average outstanding balance on the company's revolving credit facility[105] Other Income Analysis | Metric (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Other income | $(54) | $(4,214) | $4,160 | (98.7%) | - The decrease in other income is due to a reduction in wage subsidies from government financial assistance programs (CEWS and CARES Act) enacted in response to the COVID-19 pandemic[106] Income Tax Expense Analysis | Metric (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $14,011 | $4,565 | $9,446 | 206.9% | | Effective tax rate | 24.6% | 27.7% | N/A | -3.1 pp | - The effective tax rate for Q1 FY2022 differs from the federal statutory rate of 21.0% due to state and local income taxes, non-deductible expenses, tax credits, foreign jurisdiction results, and tax benefits from vested equity compensation[108] Adjusted EBITDA Reconciliation and Analysis | Metric (in thousands) | July 3, 2021 | June 27, 2020 | $ Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Net income | $42,901 | $11,903 | $30,998 | * | | Income tax expense | $14,011 | $4,565 | $9,446 | * | | Interest expense, net | $649 | $942 | $(293) | (31.1%) | | Depreciation and amortization | $5,145 | $4,282 | $863 | 20.2% | | Equity-based compensation (pre-Dec 2018 awards) | — | $970 | $(970) | * | | Other | — | $(122) | $122 | * | | Adjusted EBITDA | $62,706 | $22,540 | $40,166 | * | - The increase in Adjusted EBITDA is primarily a result of higher operating income, driven by increases in sales volume and gross margin, partially offset by higher SG&A expenses[109] Backlog | Metric | July 3, 2021 | June 27, 2020 | | :--- | :--- | :--- | | Unfilled U.S. and Canadian manufacturing orders (Backlog) | $1,200 million | $192.1 million | - The increase in backlog was driven by increased demand for single-family homes, with order levels significantly outpacing production in both the U.S. and Canada[114] - Increasing production rates is limited by individual plant capacity, time to train new employees, employee attendance, and availability of materials[117] Liquidity and Capital Resources - Primary sources of liquidity are cash flows from operations and existing cash balances, expected to be adequate for working capital, capital expenditures, and debt payments for the next year[118] Cash Flow Summary | Cash Flow Summary (in thousands) | Three months ended July 3, 2021 | Three months ended June 27, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,905 | $32,205 | | Net cash used in investing activities | $(9,219) | $(1,299) | | Net cash provided by (used in) financing activities | $1,798 | $(4,524) | | Cash and cash equivalents at end of period | $287,738 | $236,507 | - The company entered into an Amended and Restated Credit Agreement on July 7, 2021, increasing its revolving credit facility to $200.0 million[122] Critical Accounting Policies - No significant changes in critical accounting policies or estimates since the Fiscal 2021 Annual Report[123] Recently Issued Accounting Pronouncements - No recently issued accounting standards are expected to have a material impact on the company's financial position or results of operations[26][124] Forward-Looking Statements - Forward-looking statements are subject to risks and uncertainties, including economic, financial, public health, and labor conditions, supply/labor issues, housing industry cyclicality, competition, and regulatory changes[125][126] Item 3. Quantitative and Qualitative Disclosures About Market Risk No significant changes in interest rate and foreign exchange risks since April 3, 2021, as discussed in the Fiscal 2021 Annual Report - No significant changes in interest rate and foreign exchange risks since April 3, 2021[127] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of July 3, 2021, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective as of July 3, 2021[129] - No material changes in internal control over financial reporting during the fiscal quarter[130] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, but management anticipates no material adverse effect on financial condition or results - The company is involved in various legal proceedings and claims, but management believes the ultimate liability will not have a material adverse effect[132] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, and Inline XBRL documents[134] SIGNATURES Signatures The report was signed by Mark Yost (CEO) and Laurie Hough (CFO) on August 4, 2021, on behalf of Skyline Champion Corporation - The report was signed by Mark Yost, President and Chief Executive Officer, and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer, on August 4, 2021[137]