Skyline Champion(SKY) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's condensed consolidated financial statements and related notes for the reporting period Item 1. Financial Statements This section provides the company's condensed consolidated balance sheets, income statements, comprehensive income, cash flows, and stockholders' equity Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, at specific points in time | Metric | Oct 2, 2021 (Unaudited, $ thousands) | Apr 3, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------------- | :----------------------------------- | :------------------------ | :------------------- | :--------- | | Total Assets | 1,010,330 | 917,902 | 92,428 | 10.07% | | Cash and cash equivalents | 310,258 | 262,581 | 47,677 | 18.16% | | Trade accounts receivable, net | 72,886 | 57,481 | 15,405 | 26.80% | | Inventories, net | 179,976 | 166,113 | 13,863 | 8.35% | | Total current assets | 583,435 | 499,767 | 83,668 | 16.74% | | Property, plant, and equipment, net | 122,905 | 115,140 | 7,765 | 6.74% | | Goodwill | 191,970 | 191,803 | 167 | 0.09% | | Amortizable intangible assets, net | 55,073 | 58,835 | (3,762) | -6.39% | | Total Liabilities and Stockholders' Equity | 1,010,330 | 917,902 | 92,428 | 10.07% | | Total current liabilities | 289,281 | 263,642 | 25,639 | 9.72% | | Long-term debt | 12,430 | 39,330 | (26,900) | -68.40% | | Total long-term liabilities | 58,071 | 85,649 | (27,578) | -32.19% | | Total stockholders' equity | 662,978 | 568,611 | 94,367 | 16.59% | | Retained earnings | 173,513 | 82,898 | 90,615 | 109.31% | Condensed Consolidated Income Statements This statement details the company's revenues, costs, and net income over the three and six-month reporting periods | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net sales | 524,225 | 322,366 | 201,859 | 62.6% | | Cost of sales | 394,898 | 259,573 | 135,325 | 52.1% | | Gross profit | 129,327 | 62,793 | 66,534 | 106.0% | | Selling, general, and administrative expenses | 61,340 | 41,373 | 19,967 | 48.3% | | Operating income | 67,987 | 21,420 | 46,567 | 217.4% | | Income before income taxes | 67,131 | 23,155 | 43,976 | 190.0% | | Income tax expense | 16,408 | 5,644 | 10,764 | 190.7% | | Net income | 50,723 | 17,511 | 33,212 | 189.7% | | Basic EPS | 0.89 | 0.31 | 0.58 | 187.1% | | Diluted EPS | 0.89 | 0.31 | 0.58 | 187.1% | | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net sales | 1,034,422 | 595,651 | 438,771 | 73.7% | | Cost of sales | 793,565 | 478,855 | 314,710 | 65.7% | | Gross profit | 240,857 | 116,796 | 124,061 | 106.2% | | Selling, general, and administrative expenses | 115,363 | 82,180 | 33,183 | 40.4% | | Operating income | 125,494 | 34,616 | 90,878 | 262.5% | | Income before income taxes | 124,043 | 39,623 | 84,420 | 213.1% | | Income tax expense | 30,419 | 10,209 | 20,210 | 198.0% | | Net income | 93,624 | 29,414 | 64,210 | 218.3% | | Basic EPS | 1.65 | 0.52 | 1.13 | 217.3% | | Diluted EPS | 1.64 | 0.52 | 1.12 | 215.4% | Condensed Consolidated Statements of Comprehensive Income This statement reports net income and other comprehensive income components, reflecting total changes in equity from non-owner sources | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net income | 50,723 | 17,511 | 33,212 | 189.7% | | Foreign currency translation adjustments | (1,520) | 861 | (2,381) | -276.5% | | Total comprehensive income | 49,203 | 18,372 | 30,831 | 167.8% | | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net income | 93,624 | 29,414 | 64,210 | 218.3% | | Foreign currency translation adjustments | (642) | 1,956 | (2,598) | -132.8% | | Total comprehensive income | 92,982 | 31,370 | 61,612 | 196.4% | Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting periods | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net cash provided by operating activities | 88,887 | 63,842 | 25,045 | 39.2% | | Net cash used in investing activities | (15,246) | (1,334) | (13,912) | 1042.9% | | Net cash used in financing activities | (25,553) | (8,936) | (16,617) | 185.9% | | Effect of exchange rate changes on cash and cash equivalents | (411) | 1,259 | (1,670) | -132.6% | | Net increase in cash and cash equivalents | 47,677 | 54,831 | (7,154) | -13.0% | | Cash and cash equivalents at end of period | 310,258 | 264,286 | 45,972 | 17.4% | Condensed Consolidated Statements of Stockholders' Equity This statement details the changes in each component of stockholders' equity over the reporting period | Metric ($ thousands) | Oct 2, 2021 | Apr 3, 2021 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | | Total Stockholders' Equity | 662,978 | 568,611 | 94,367 | 16.6% | | Retained Earnings | 173,513 | 82,898 | 90,615 | 109.3% | | Additional Paid-in Capital | 496,059 | 491,668 | 4,391 | 0.9% | | Accumulated Other Comprehensive Loss | (8,166) | (7,524) | (642) | 8.5% | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Basis of Presentation and Business This note describes the company's primary business operations and the basis for financial statement presentation - 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] - The company recognized $0.6 million in U.S. wage subsidies and $2.6 million in Canadian wage subsidies (CEWS) for the three months ended September 26, 2020[20] - Through October 2, 2021, the Company deferred $11.8 million of payroll taxes under the CARES Act, with payments scheduled to begin in December 2021[20] Business Acquisition (ScotBilt) This note details the acquisition of ScotBilt Homes, including the purchase price and asset allocation - Acquired ScotBilt Homes, LLC on February 28, 2021, for a purchase price of $53.0 million, with a total consideration of $54.5 million after adjustments[28] - ScotBilt had annual revenues of approximately $79.0 million[28] Allocated Asset/Liability ($ thousands) | Allocated Asset/Liability | Amount ($ 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 | Inventories, net This note provides a breakdown of inventory components, including raw materials, work in process, and finished goods | Inventory Component ($ thousands) | Oct 2, 2021 | Apr 3, 2021 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | | Raw materials | 104,179 | 91,916 | 12,263 | 13.3% | | Work in process | 24,036 | 21,642 | 2,394 | 11.1% | | Finished goods and other | 51,761 | 52,555 | (794) | -1.5% | | Total inventories, net | 179,976 | 166,113 | 13,863 | 8.3% | Property, Plant, and Equipment This note details the composition of property, plant, and equipment, along with accumulated depreciation Component ($ thousands) | Component ($ thousands) | Oct 2, 2021 | Apr 3, 2021 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | | Land and improvements | 38,966 | 36,470 | 2,496 | 6.8% | | Buildings and improvements | 96,324 | 97,005 | (681) | -0.7% | | Machinery and equipment | 61,384 | 57,790 | 3,594 | 6.2% | | Construction in progress | 10,591 | 1,889 | 8,702 | 460.6% | | Property, plant, and equipment, at cost | 207,265 | 193,154 | 14,111 | 7.3% | | Less: accumulated depreciation | (84,360) | (78,014) | (6,346) | 8.1% | | Property, plant, and equipment, net | 122,905 | 115,140 | 7,765 | 6.7% | - Depreciation expense for the six months ended October 2, 2021, was $6.5 million, compared to $6.0 million for the same period in 2020[35] Goodwill, Intangible Assets, and Cloud Computing Arrangements This note outlines the company's goodwill, amortizable intangible assets, and capitalized cloud computing costs - Goodwill was $192.0 million as of October 2, 2021, and $191.8 million as of April 3, 2021[37] Amortizable Intangibles ($ thousands) | Amortizable Intangibles ($ thousands) | Oct 2, 2021 | Apr 3, 2021 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | | Gross carrying amount | 83,316 | 83,372 | (56) | -0.1% | | Accumulated amortization | (28,243) | (24,537) | (3,706) | 15.1% | | Amortizable intangibles, net | 55,073 | 58,835 | (3,762) | -6.4% | - Capitalized cloud computing costs increased significantly to $10.6 million as of October 2, 2021, from $0.3 million as of April 3, 2021, with no amortization yet as the technology is not in service[39] Other Current Liabilities This note provides a detailed breakdown of various other current liabilities, including customer deposits and accrued expenses Component ($ thousands) | Component ($ thousands) | Oct 2, 2021 | Apr 3, 2021 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | | Customer deposits | 59,807 | 58,888 | 919 | 1.6% | | Accrued volume rebates | 23,048 | 18,207 | 4,841 | 26.6% | | Accrued warranty obligations | 25,419 | 24,033 | 1,386 | 5.8% | | Accrued compensation and payroll taxes | 45,484 | 42,560 | 2,924 | 6.9% | | Accrued insurance | 15,716 | 12,421 | 3,295 | 26.5% | | Other | 31,273 | 24,586 | 6,687 | 27.2% | | Total other current liabilities | 200,747 | 180,695 | 20,052 | 11.1% | Accrued Warranty Obligations This note details the changes in the company's accrued warranty obligations over the reporting periods Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Balance at beginning of period | 30,469 | 24,969 | 5,500 | 22.0% | | Warranty expense | 21,184 | 14,753 | 6,431 | 43.6% | | Cash warranty payments | (19,798) | (15,262) | (4,536) | 29.7% | | Balance at end of period | 31,855 | 24,460 | 7,395 | 30.2% | | Total current portion | 25,419 | 18,670 | 6,749 | 36.1% | Debt and Floor Plan Payable This note describes the company's debt structure, revolving credit facility, and floor plan financing arrangements Debt Component ($ thousands) | Debt Component ($ thousands) | Oct 2, 2021 | Apr 3, 2021 | Change ($) | Change (%) | | :-------------------------------- | :---------- | :---------- | :--------- | :--------- | | Revolving credit facility | — | 26,900 | (26,900) | -100.0% | | Obligations under industrial revenue bonds | 12,430 | 12,430 | — | 0.0% | | Total long-term debt | 12,430 | 39,330 | (26,900) | -68.4% | - On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement for a $200.0 million revolving credit facility, replacing the previous $100.0 million facility, with outstanding borrowings of $26.9 million on the previous facility repaid[43] - As of October 2, 2021, $169.6 million was available for borrowing under the Amended Credit Agreement, with $30.4 million in letters of credit issued, and floor plan payable increased to $30.8 million from $25.7 million, with a total credit line capacity of $57.0 million[45][49] Revenue Recognition This note provides a breakdown of net sales by category for both quarterly and half-year periods Sales Category ($ thousands) | Sales Category ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Manufacturing and retail (U.S.) | 469,127 | 275,969 | 193,158 | 70.0% | | Commercial (U.S.) | 2,572 | 7,391 | (4,819) | -65.2% | | Transportation | 14,025 | 14,448 | (423) | -2.9% | | Canadian Factory-Built Housing | 38,501 | 24,558 | 13,943 | 56.8% | | Total Net Sales | 524,225 | 322,366 | 201,859 | 62.6% | | Sales Category ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Manufacturing and retail (U.S.) | 925,018 | 524,828 | 400,190 | 76.2% | | Commercial (U.S.) | 4,001 | 7,391 | (3,390) | -45.9% | | Transportation | 29,071 | 23,679 | 5,392 | 22.8% | | Canadian Factory-Built Housing | 76,332 | 39,753 | 36,579 | 92.0% | | Total Net Sales | 1,034,422 | 595,651 | 438,771 | 73.7% | Income Taxes This note details the income tax expense and effective tax rates for the reporting periods Metric | Metric | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Income tax expense ($ thousands) | 16,408 | 5,644 | 10,764 | 190.7% | | Effective tax rate | 24.4% | 24.4% | 0.0% | 0.0% | | Metric | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Income tax expense ($ thousands) | 30,419 | 10,209 | 20,210 | 198.0% | | Effective tax rate | 24.5% | 25.8% | -1.3% | -5.0% | - The effective tax rate 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[55] Earnings Per Share This note presents the basic and diluted earnings per share for the three and six-month periods Metric | Metric | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Basic net income per share | 0.89 | 0.31 | 0.58 | 187.1% | | Diluted net income per share | 0.89 | 0.31 | 0.58 | 187.1% | | Metric | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Basic net income per share | 1.65 | 0.52 | 1.13 | 217.3% | | Diluted net income per share | 1.64 | 0.52 | 1.12 | 215.4% | Segment Information This note provides financial performance data segmented by U.S. and Canadian factory-built housing operations - The Company operates in two reportable segments: U.S. Factory-built Housing (manufacturing and retail) and Canadian Factory-built Housing, with Corporate/Other encompassing transportation and corporate costs[61] Segment Performance (3 Months Ended, $ thousands) | Segment Performance (3 Months Ended, $ thousands) | Oct 2, 2021 | Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :---------- | :----------- | :------------- | :------------- | | Net Sales: | | | | | | U.S. Factory-built Housing | 471,699 | 283,360 | 188,339 | 66.5% | | Canadian Factory-built Housing | 38,501 | 24,558 | 13,943 | 56.8% | | Corporate/Other | 14,025 | 14,448 | (423) | -2.9% | | EBITDA: | | | | | | U.S. Factory-built Housing | 78,075 | 28,697 | 49,378 | 172.1% | | Canadian Factory-built Housing | 6,390 | 5,951 | 439 | 7.4% | | Corporate/Other | (11,351) | (6,221) | (5,130) | 82.5% | | Capital Expenditures: | | | | | | U.S. Factory-built Housing | 5,269 | 1,054 | 4,215 | 399.9% | | Canadian Factory-built Housing | 236 | 85 | 151 | 177.6% | | Corporate/Other | 379 | 102 | 277 | 271.6% | Segment Performance (6 Months Ended, $ thousands) | Segment Performance (6 Months Ended, $ thousands) | Oct 2, 2021 | Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :---------- | :----------- | :------------- | :------------- | | Net Sales: | | | | | | U.S. Factory-built Housing | 929,019 | 532,219 | 396,800 | 74.6% | | Canadian Factory-built Housing | 76,332 | 39,753 | 36,579 | 92.0% | | Corporate/Other | 29,071 | 23,679 | 5,392 | 22.8% | | EBITDA: | | | | | | U.S. Factory-built Housing | 141,092 | 53,090 | 88,002 | 165.7% | | Canadian Factory-built Housing | 12,056 | 10,857 | 1,199 | 11.0% | | Corporate/Other | (17,328) | (13,828) | (3,500) | 25.3% | | Capital Expenditures: | | | | | | U.S. Factory-built Housing | 12,527 | 1,939 | 10,588 | 546.0% | | Canadian Factory-built Housing | 341 | 242 | 99 | 40.9% | | Corporate/Other | 2,237 | 371 | 1,866 | 503.0% | Commitments, Contingencies and Legal Proceedings This note discusses the company's contingent obligations, letters of credit, and ongoing legal matters - Contingent repurchase obligation under floor plan financing agreements was estimated at $243.4 million as of October 2, 2021, with a loss reserve of $1.5 million[66] - The Company was contingently obligated for $30.4 million under letters of credit and $35.1 million under surety bonds as of October 2, 2021[67] - Management believes that the ultimate liability from various legal proceedings and claims will not have a material adverse effect on the Company's financial condition, results of operations, or cash flows[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook Overview This section provides a high-level introduction to the company's business as a leading factory-built housing provider - Skyline Champion Corporation is the largest independent publicly traded factory-built solutions provider in North America based on revenue[72] - The Company operates 35 manufacturing facilities in the U.S. and 5 in western Canada, along with 18 retail sales centers[72] Industry and Company Outlook This section discusses market demand drivers, backlog growth, and operational challenges in the housing industry - Robust demand in U.S. and Canadian housing markets is driven by limited existing homes, the need for affordable housing, and demographic trends (over 55, first-time buyers, lower-income households)[73] - Backlog increased significantly to $1,369 million as of October 2, 2021, compared to $390.1 million as of September 26, 2020[74] - Challenges include significant increases in material input costs (forest products), supply disruptions, higher freight costs, and labor retention, which are generally passed on to customers[74] Acquisitions and Expansions This section details recent strategic acquisitions and facility expansions aimed at strengthening production capacity - Acquired two idle facilities in Navasota, Texas (June 21, 2021) to strengthen production in the Texas market, with production intended to start by end of fiscal 2022[78] - Acquired ScotBilt Homes on February 28, 2021, adding two manufacturing facilities in Georgia, shipping over 1,600 homes in calendar 2020, and strengthening presence in the Mid-South region[78][79] - Acquired two idled facilities in Pembroke, North Carolina (January 14, 2021) to expand manufacturing in the South and Southeast markets[80] COVID-19 Pandemic This section addresses the ongoing impact of the COVID-19 pandemic on the company's operations and financial results - COVID-19 continues to cause uncertainty, impacting labor and material availability, and leading to higher manufacturing costs[83] - The Company received $2.6 million in Canadian Emergency Wage Subsidy (CEWS) and $0.6 million in U.S. CARES Act payroll subsidies during the three months ended September 26, 2020[84] - Deferred $11.8 million of payroll taxes through October 2, 2021, under the CARES Act, with payments starting in December 2021[84] UNAUDITED INCOME STATEMENTS FOR THE SECOND QUARTER OF FISCAL 2022 VS. 2021 This section provides a detailed comparative analysis of income statement performance for the second fiscal quarter Net Sales (Q2) This section analyzes the drivers of net sales growth for the second fiscal quarter, including volume and pricing Metric | Metric | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net sales | 524,225 | 322,366 | 201,859 | 62.6% | | U.S. manufacturing and retail net sales | 471,699 | 283,360 | 188,339 | 66.5% | | U.S. homes sold | 5,902 | 4,689 | 1,213 | 25.9% | | U.S. manufacturing and retail average home selling price | 79.9 | 60.4 | 19.5 | 32.3% | | Canadian manufacturing net sales | 38,501 | 24,558 | 13,943 | 56.8% | | Canadian homes sold | 358 | 302 | 56 | 18.5% | | Canadian manufacturing average home selling price | 107.5 | 81.3 | 26.2 | 32.2% | - U.S. net sales increase was due to higher homes sold (25.9%), increased average selling price (32.3%), and the ScotBilt acquisition[88] - Canadian net sales increase was due to higher homes sold (18.5%) and increased average selling price (32.2%), partially offset by a $0.6 million unfavorable currency impact[89] Gross Profit (Q2) This section analyzes the gross profit and margin performance for the second fiscal quarter, highlighting efficiency gains Metric ($ thousands) | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Gross profit | 129,327 | 62,793 | 66,534 | 106.0% | | Gross profit as a percent of net sales | 24.7% | 19.5% | 5.2% | 26.7% | | U.S. Factory-built Housing Gross Profit | 116,604 | 54,546 | 62,058 | 113.8% | | Canadian Factory-built Housing Gross Profit | 8,868 | 4,787 | 4,081 | 85.3% | - U.S. Factory-built Housing gross profit increased by 113.8% due to higher homes sold, operational efficiencies, and increased leverage of manufacturing fixed costs[92] - Canadian Factory-built Housing gross profit increased by 85.3% due to increased sales volume and direct labor/manufacturing efficiencies, partially offset by higher material costs[93] Selling, General, and Administrative Expenses (Q2) This section analyzes the changes in selling, general, and administrative expenses for the second fiscal quarter Metric ($ thousands) | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Total selling, general, and administrative expenses | 61,340 | 41,373 | 19,967 | 48.3% | | SG&A as a percent of net sales | 11.7% | 12.8% | -1.1% | -8.6% | | U.S. Factory-built Housing SG&A | 43,014 | 29,601 | 13,413 | 45.3% | | Canadian Factory-built Housing SG&A | 2,751 | 1,683 | 1,068 | 63.5% | | Corporate/Other SG&A | 15,575 | 10,089 | 5,486 | 54.4% | - U.S. Factory-built Housing SG&A increased by 45.3% due to higher sales commissions, incentive compensation, wage expense from headcount increases, and the ScotBilt acquisition impact[97] - Corporate/Other SG&A increased by 54.4% due to higher employee compensation (equity and incentive) and $2.1 million in investments for customer buying experience and supporting systems[99] Interest Expense, Net (Q2) This section analyzes the net interest expense for the second fiscal quarter, noting factors affecting its change Metric ($ thousands) | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Interest expense, net | 845 | 864 | (19) | -2.2% | - A $0.3 million write-off of deferred financing fees offset the reduction in interest expense from lower average outstanding borrowing on the revolving credit facility[100] Other Expense (Income) (Q2) This section analyzes other non-operating income and expenses for the second fiscal quarter Metric ($ thousands) | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Other expense (income) | 11 | (2,599) | 2,610 | -100.4% | - The decrease in other income was primarily due to a reduction in Canadian government wage subsidies[101] Income Tax Expense (Q2) This section analyzes the income tax expense and effective tax rate for the second fiscal quarter Metric ($ thousands) | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Income tax expense | 16,408 | 5,644 | 10,764 | 190.7% | | Effective tax rate | 24.4% | 24.4% | 0.0% | 0.0% | - The effective tax rate of 24.4% differs from the federal statutory rate of 21.0% due to state and local income taxes, non-deductible expenses, tax credits, foreign jurisdiction results, and tax benefits from vested equity compensation[104] Adjusted EBITDA (Q2) This section analyzes the Adjusted EBITDA performance for the second fiscal quarter, a key non-GAAP metric Metric ($ thousands) | Metric ($ thousands) | 3 Months Ended Oct 2, 2021 | 3 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Adjusted EBITDA | 73,114 | 28,937 | 44,177 | 152.7% | - The increase in Adjusted EBITDA was primarily due to higher operating income from increased sales volume and gross margin, partially offset by higher SG&A expenses[105] UNAUDITED INCOME STATEMENTS FOR THE FIRST HALF OF FISCAL 2022 VS. 2021 This section provides a detailed comparative analysis of income statement performance for the first half of the fiscal year Net Sales (H1) This section analyzes the drivers of net sales growth for the first half of the fiscal year, including volume and pricing Metric | Metric | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net sales | 1,034,422 | 595,651 | 438,771 | 73.7% | | U.S. manufacturing and retail net sales | 929,019 | 532,219 | 396,800 | 74.6% | | U.S. homes sold | 12,274 | 8,717 | 3,557 | 40.8% | | U.S. manufacturing and retail average home selling price | 75.7 | 61.1 | 14.6 | 23.9% | | Canadian manufacturing net sales | 76,332 | 39,753 | 36,579 | 92.0% | | Canadian homes sold | 743 | 494 | 249 | 50.4% | | Canadian manufacturing average home selling price | 102.7 | 80.5 | 22.2 | 27.6% | - U.S. net sales increase was due to increased production levels, higher homes sold (40.8%), increased average selling price (23.9%), and the ScotBilt acquisition[109] - Canadian net sales increase was due to increased demand and production rates, higher homes sold (50.4%), and increased average selling price (27.6%), with a favorable $6.8 million currency impact[110] Gross Profit (H1) This section analyzes the gross profit and margin performance for the first half of the fiscal year, highlighting efficiency gains Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Gross profit | 240,857 | 116,796 | 124,061 | 106.2% | | Gross profit as a percent of net sales | 23.3% | 19.6% | 3.7% | 18.9% | | U.S. Factory-built Housing Gross Profit | 215,815 | 102,956 | 112,859 | 109.6% | | Canadian Factory-built Housing Gross Profit | 17,193 | 7,569 | 9,624 | 127.2% | - U.S. Factory-built Housing gross profit increased by 109.6% due to operational efficiencies, increased leverage of manufacturing fixed costs, and a reduction of COVID-19 related sick-pay and health benefits[113] - Canadian Factory-built Housing gross profit increased by 127.2% due to increased sales volume and operational efficiencies, partially offset by higher material and labor costs[114] Selling, General, and Administrative Expenses (H1) This section analyzes the changes in selling, general, and administrative expenses for the first half of the fiscal year Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Total selling, general, and administrative expenses | 115,363 | 82,180 | 33,183 | 40.4% | | SG&A as a percent of net sales | 11.2% | 13.8% | -2.6% | -18.8% | | U.S. Factory-built Housing SG&A | 83,769 | 57,977 | 25,792 | 44.5% | | Canadian Factory-built Housing SG&A | 5,696 | 3,289 | 2,407 | 73.2% | | Corporate/Other SG&A | 25,898 | 20,914 | 4,984 | 23.8% | - U.S. Factory-built Housing SG&A increased by 44.5% due to higher sales commissions, incentive compensation, wage expense from headcount increases, increased travel expenses, and the ScotBilt acquisition[118] - Corporate/Other SG&A increased by 23.8% due to higher wages, incentive and equity compensation costs, and $1.9 million for customer buying experience and supporting systems investments[120] Interest Expense, Net (H1) This section analyzes the net interest expense for the first half of the fiscal year, noting factors affecting its change Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Interest expense, net | 1,494 | 1,806 | (312) | -17.3% | - The decrease in interest expense was primarily due to a lower average outstanding balance on the revolving credit facility, partially offset by a $0.3 million write-off of deferred financing fees[121] Other Expense (Income) (H1) This section analyzes other non-operating income and expenses for the first half of the fiscal year Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Other expense (income) | (43) | (6,813) | 6,770 | -99.4% | - The decrease in other income was due to a reduction in government-sponsored wage subsidies, including $6.2 million from Canadian CEWS and $0.6 million from U.S. federal and state programs in the prior year[123][124] Income Tax Expense (H1) This section analyzes the income tax expense and effective tax rate for the first half of the fiscal year Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Income tax expense | 30,419 | 10,209 | 20,210 | 198.0% | | Effective tax rate | 24.5% | 25.8% | -1.3% | -5.0% | - The effective tax rate of 24.5% differs from the federal statutory rate of 21.0% due to state and local income taxes, non-deductible expenses, tax credits, foreign jurisdiction results, and tax benefits from vested equity compensation[126] Adjusted EBITDA (H1) This section analyzes the Adjusted EBITDA performance for the first half of the fiscal year, a key non-GAAP metric Metric ($ thousands) | Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Adjusted EBITDA | 135,820 | 51,477 | 84,343 | 163.8% | - The increase in Adjusted EBITDA was primarily due to higher operating income from increased sales volume and gross margin, partially offset by higher SG&A expenses[128] - Adjusted EBITDA is a non-GAAP financial measure, defined as net income plus provision for income taxes, interest expense (net), depreciation and amortization, gain/loss from discontinued operations, equity-based compensation (pre-Dec 2018 awards), non-cash restructuring charges, impairment of assets, and other non-operating costs[129] Backlog This section discusses the significant increase in unfilled manufacturing orders and factors influencing production capacity - Unfilled U.S. and Canadian manufacturing orders totaled $1,369 million as of October 2, 2021, a substantial increase from $390.1 million at September 26, 2020[132] - The increase in backlog was driven by increased demand for single-family homes, which significantly outpaced production[132] - Production capacity is limited by plant capacity, availability of trained employees, employee attendance, and material availability, potentially leading to higher order cancellations due to longer lead times and changing prices[132] Liquidity and Capital Resources This section assesses the company's financial flexibility, cash flow generation, and available credit facilities - Primary liquidity sources are cash flows from operations and existing cash balances, expected to be adequate for working capital, capital expenditures, and debt payments for the next year[133] Cash Flow Metric ($ thousands) | Cash Flow Metric ($ thousands) | 6 Months Ended Oct 2, 2021 | 6 Months Ended Sep 26, 2020 | YoY Change ($) | YoY Change (%) | | :-------------------------------- | :------------------------- | :-------------------------- | :------------- | :------------- | | Net cash provided by operating activities | 88,887 | 63,842 | 25,045 | 39.2% | | Net cash used in investing activities | (15,246) | (1,334) | (13,912) | 1042.9% | | Net cash used in financing activities | (25,553) | (8,936) | (16,617) | 185.9% | - The Company has a $200.0 million revolving credit facility, with $169.6 million available for borrowing as of October 2, 2021, and is in compliance with all debt covenants[133] Critical Accounting Policies This section highlights key accounting policies requiring significant judgment - No significant changes in critical accounting policies or estimates have occurred since April 3, 2021[138] Recently Issued Accounting Pronouncements This section discusses the impact of new accounting standards - Information on recently issued accounting pronouncements is detailed in Note 1 of the condensed consolidated financial statements[139] Forward-Looking Statements This section provides cautionary language regarding future-oriented information - Forward-looking statements are subject to risks and uncertainties, including the COVID-19 pandemic, supply and labor issues, housing industry cyclicality, demand fluctuations, capital availability, competition, consumer preferences, quality problems, data security, regulatory changes, natural disasters, and acquisition risks[140][141] - The Company assumes no obligation to update, amend, or clarify forward-looking statements to reflect events, new information, or circumstances occurring after the report date, except as required by law[141] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Fiscal 2021 Annual Report for a discussion of the Company's interest rate and foreign exchange risks, confirming that no significant changes have occurred since April 3, 2021 - No significant changes in interest rate and foreign exchange risks have occurred since April 3, 2021[142] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of October 2, 2021, concluding they were effective. No material changes in internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of October 2, 2021[144] - No material changes in internal control over financial reporting occurred during the fiscal quarter[145] PART II – OTHER INFORMATION This section presents additional non-financial information and other required disclosures for the reporting period Item 1. Legal Proceedings The Company is involved in various legal proceedings and claims arising in the ordinary course of business, including commercial disputes and product liability claims. Further details are referenced in Note 13 of the condensed consolidated financial statements - The Company is involved in various legal proceedings and claims, including commercial/contractual disputes and product liability claims[147] - Additional information on legal proceedings is available in Note 13, "Commitments, Contingencies and Legal Proceedings – Legal Proceedings," of the condensed consolidated financial statements[147] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and various Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32) and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[149] SIGNATURES This section contains the official certifications and dates for the report's submission SIGNATURES The report is signed by Mark Yost, President and Chief Executive Officer, and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer, on November 3, 2021, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report is signed by Mark Yost (President and CEO) and Laurie Hough (EVP, CFO, and Treasurer) on November 3, 2021[153]