Skyline Champion(SKY) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Skyline Champion Corporation for the three and nine months ended January 1, 2022, are presented, including Balance Sheets, Income Statements, Cash Flows, and Stockholders' Equity, with detailed notes Condensed Consolidated Balance Sheets As of January 1, 2022, total assets and stockholders' equity significantly increased, primarily due to higher cash and retained earnings, while long-term debt decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | January 1, 2022 | April 3, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $382,133 | $262,581 | | Total current assets | $634,709 | $499,767 | | Total assets | $1,068,151 | $917,902 | | Liabilities & Equity | | | | Total current liabilities | $283,609 | $263,642 | | Long-term debt | $12,430 | $39,330 | | Total liabilities | $334,773 | $349,291 | | Retained earnings | $241,135 | $82,898 | | Total stockholders' equity | $733,378 | $568,611 | Condensed Consolidated Income Statements The company reported significant year-over-year growth for both the third quarter and the first nine months of fiscal 2022, with net sales increasing by 41.6% to $534.7 million and net income more than tripling to $67.6 million for Q3, and net sales growing 61.2% to $1.57 billion with net income tripling to $161.2 million for the nine-month period Income Statement Summary (Unaudited, in thousands) | Metric | Q3 2022 (ended Jan 1, '22) | Q3 2021 (ended Dec 26, '20) | 9 Months 2022 (ended Jan 1, '22) | 9 Months 2021 (ended Dec 26, '20) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $534,690 | $377,581 | $1,569,112 | $973,232 | | Gross profit | $157,239 | $71,784 | $398,096 | $188,580 | | Operating income | $91,414 | $27,498 | $216,908 | $62,114 | | Net income | $67,622 | $21,599 | $161,246 | $51,013 | | Diluted EPS | $1.18 | $0.38 | $2.81 | $0.90 | Condensed Consolidated Statements of Cash Flows For the nine months ended January 1, 2022, net cash provided by operating activities increased to $164.4 million, while cash used in investing activities rose significantly and cash used in financing activities decreased due to lower debt repayments Cash Flow Summary (Unaudited, in thousands) | Cash Flow Activity | Nine months ended Jan 1, 2022 | Nine months ended Dec 26, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $164,406 | $103,816 | | Net cash used in investing activities | ($22,921) | ($1,213) | | Net cash used in financing activities | ($21,355) | ($47,938) | | Net increase in cash and cash equivalents | $119,552 | $57,605 | Notes to Condensed Consolidated Financial Statements These notes provide detailed information supporting the financial statements, covering the company's business, the ScotBilt Homes acquisition, debt facilities, revenue disaggregation, and segment performance data - The company is a leading producer of factory-built housing in the U.S. and Canada, operating 35 manufacturing facilities in the U.S. and five in western Canada[21] - On February 28, 2021, the Company acquired 100% of ScotBilt Homes, LLC for a total purchase consideration of $54.5 million, which was accounted for as a business combination[31] - On July 7, 2021, the Company entered into an Amended and Restated Credit Agreement for a new revolving credit facility of up to $200.0 million, replacing its previous $100.0 million facility, with outstanding borrowings of $26.9 million repaid in July 2021[45] - The company is contingently liable under repurchase agreements with lending institutions, with an estimated contingent repurchase obligation of $281.7 million as of January 1, 2022, for which a loss reserve of $1.8 million was recorded[66] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strong performance driven by robust housing demand, detailing significant year-over-year increases in net sales, gross profit, and net income, while also covering liquidity, capital resources, and strategic acquisitions Overview and Outlook The company is experiencing robust demand for factory-built homes, leading to a $1.5 billion backlog, but faces challenges from rising material and labor costs, supply disruptions, and labor shortages - The company's order backlog surged to $1.5 billion as of January 1, 2022, a substantial increase from $488.5 million as of December 26, 2020, due to robust demand[74] - The company's U.S. wholesale market share of HUD code homes sold increased to 19.4% for the eight months ended November 30, 2021, up from 16.2% for the same period in 2020[75] - The company is expanding its manufacturing capacity through acquisitions and expansions, including new facilities in Texas and the acquisition of ScotBilt in Georgia[76][77] Results of Operations - Three Months Ended January 1, 2022 In Q3 FY2022, net sales increased 41.6% to $534.7 million, driven by higher home sales and average selling prices, leading to a significant expansion in gross profit margin and a 233% increase in operating income Q3 FY2022 vs Q3 FY2021 Performance (in thousands) | Metric | Q3 FY2022 | Q3 FY2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $534,690 | $377,581 | $157,109 | 41.6% | | Gross Profit | $157,239 | $71,784 | $85,455 | 119.0% | | Operating Income | $91,414 | $27,498 | $63,916 | 232.4% | | Net Income | $67,622 | $21,599 | $46,023 | 213.1% | | Adjusted EBITDA | $96,657 | $32,064 | $64,593 | 201.5% | - The increase in U.S. average home selling price (up 31.7% YoY) was due to pricing actions in response to rising material, freight, and labor costs, as well as a shift in product mix[87] - Gross margin improvement to 29.4% was driven by price increases, timing of raw material price adjustments, product simplification, and better leverage of fixed manufacturing costs[91] Results of Operations - Nine Months Ended January 1, 2022 For the first nine months of fiscal 2022, net sales grew 61.2% to $1.57 billion, with gross profit margin improving to 25.4%, and operating income increasing by 249% to $216.9 million Nine Months FY2022 vs FY2021 Performance (in thousands) | Metric | Nine Months FY2022 | Nine Months FY2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,569,112 | $973,232 | $595,880 | 61.2% | | Gross Profit | $398,096 | $188,580 | $209,516 | 111.1% | | Operating Income | $216,908 | $62,114 | $154,794 | 249.2% | | Net Income | $161,246 | $51,013 | $110,233 | 216.1% | | Adjusted EBITDA | $232,477 | $83,541 | $148,936 | 178.3% | - Other income decreased by $7.0 million year-over-year, primarily because government-sponsored COVID-19 wage subsidies of $7.0 million recognized in fiscal 2021 did not recur[120] Liquidity and Capital Resources The company's liquidity is strong, with $382.1 million in cash and $169.6 million available under its credit facility, supported by $164.4 million in operating cash flow for the nine-month period Summary Cash Flow Information (in thousands) | Activity | Nine months ended Jan 1, 2022 | Nine months ended Dec 26, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $164,406 | $103,816 | | Net cash used in investing activities | ($22,921) | ($1,213) | | Net cash used in financing activities | ($21,355) | ($47,938) | | Cash and cash equivalents at end of period | $382,133 | $267,060 | - The increase in cash used for investing activities was primarily due to higher capital expenditures, including the acquisition of two idle manufacturing facilities in Texas and other plant improvements[131] Quantitative and Qualitative Disclosures About Market Risk The company reports no significant changes in its exposure to interest rate and foreign exchange risks since its last annual report - There have been no significant changes in the Company's interest rate and foreign exchange risks since April 3, 2021[138] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 1, 2022, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of January 1, 2022[140] - There were no changes in internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls[141] PART II – OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, but management believes these will not materially affect its financial condition, results of operations, or cash flows - The Company is subject to various legal proceedings and claims in the ordinary course of business but does not believe the ultimate liability will have a material adverse effect on its financial condition[69][144] Exhibits This section lists the exhibits filed with the Form 10-Q report, including CEO and CFO certifications and Inline XBRL financial data files - The exhibits filed with this report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, along with various Inline XBRL documents[145] Signatures The Form 10-Q report was officially signed and authorized on February 3, 2022, by Mark Yost, President and Chief Executive Officer, and Laurie Hough, Executive Vice President, Chief Financial Officer and Treasurer - The report was signed on February 3, 2022, by Mark Yost (President and CEO) and Laurie Hough (EVP, CFO and Treasurer)[148]