SKYLINE CHAMPION CORPORATION The following should be read in conjunction with
Overview
Industry and Company Outlook
Since
The robust demand environment has resulted in backlog of
For the three months ended
Acquisitions and Expansions
Over the last several years, demand for the Company's products, primarily
affordable housing in the
The Company has increased capacity through strategic acquisitions and expansions
of its manufacturing operations. The Company is focused on growing in strong HUD
markets across the
On
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presence in the attractive Mid-South region, which helps to balance national
distribution and complements the Company's existing manufacturing footprint. The
operations of ScotBilt are included in the financial results of the Company
since the date of the acquisition. On
The Company's acquisitions and investments are part of a strategy to grow and
diversify revenue with a focus on increasing the Company's HUD and modular
homebuilding presence in the
COVID-19 Pandemic
The outbreak of a novel strain of coronavirus ("COVID-19") was declared a global
pandemic by the
The Company has prioritized the safety and well-being of its employees and
customers and has implemented standards to operate in accordance with
social-distancing protocols and public health authority guidelines. Beginning in
In the first quarter of fiscal 2021, in response to the pandemic, the Company
offered extended benefits to employees, including increased sick pay and waived
premium payments on healthcare benefits for furloughed employees. The Company's
UNAUDITED INCOME STATEMENTS FOR THE FIRST QUARTER OF FISCAL 2022 VS. 2021
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Three months ended
July 3, June 27,
(Dollars in thousands) 2021 2020
Results of Operations Data:
Net sales $ 510,197 $ 273,285
Cost of sales 398,667 219,282
Gross profit 111,530 54,003
Selling, general, and administrative expenses 54,023 40,807
Operating income 57,507 13,196
Interest expense, net 649 942
Other income (54 ) (4,214 )
Income before income taxes 56,912 16,468
Income tax expense 14,011 4,565
Net income $ 42,901 $ 11,903
Reconciliation of Adjusted EBITDA:
Net income $ 42,901 $ 11,903
Income tax expense 14,011 4,565
Interest expense, net 649 942
Depreciation and amortization 5,145 4,282
Equity-based compensation (for awards granted prior
to December 31, 2018) - 970
Other - (122 )
Adjusted EBITDA $ 62,706 $ 22,540
As a percent of net sales:
Gross profit 21.9 % 19.8 %
Selling, general, and administrative expenses 10.6 % 14.9 %
Operating income 11.3 % 4.8 %
Net income 8.4 % 4.4 %
Adjusted EBITDA 12.3 % 8.2 %
NET SALES
The following table summarizes net sales for the three months ended July 3, 2021
and June 27, 2020 :
Three months ended
July 3, June 27, $ %
(Dollars in thousands) 2021 2020 Change Change
Net sales $ 510,197 $ 273,285 $ 236,912 86.7 %
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
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. manufacturing facilities in
operation at end of period 35 33
U.S. retail sales centers in operation
at end of period 18 21
Canadian manufacturing facilities in
operation at end of period 5 5
Net sales for the three months ended
Net sales for the Company's
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ScotBilt. The increase in the number of homes sold was due to strong demand which resulted in increased production levels at many of the Company's manufacturing locations. The average selling price increased due to pricing actions enacted in response to rising material costs. Net sales in the first quarter of fiscal 2021 were also negatively impacted by COVID-19 related plant shutdowns and higher than normal absenteeism.
Corporate/Other:
Net sales for Corporate/Other includes the Company's transportation business and
the elimination of intersegment sales. For the three months ended
GROSS PROFIT The following table summarizes gross profit for the three months endedJuly 3, 2021 andJune 27, 2020 : Three months ended July 3, June 27, $ % (Dollars in thousands) 2021 2020 Change Change Gross profit: U.S. Factory-built Housing$ 99,211 $ 48,410 $ 50,801 104.9 % Canadian Factory-built Housing 8,325 2,782 5,543 199.2 % Corporate/Other 3,994 2,811 1,183 42.1 % Total gross profit$ 111,530 $ 54,003 $ 57,527 106.5 %
Gross profit as a percent of net sales 21.9 % 19.8 %
Gross profit as a percent of sales during the three months ended
Gross profit for the
Gross profit for the
Corporate/Other:
Gross profit for the Corporate/Other segment increased
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SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include foreign currency
transaction gains and losses, equity compensation, and intangible amortization
expense. The following table summarizes selling, general, and administrative
expenses for the three months ended
Three months ended
July 3, June 27, $ %
(Dollars in thousands) 2021 2020 Change Change
Selling, general, and administrative
expenses:
U.S. Factory-built Housing $ 40,755 $ 28,376 $ 12,379 43.6 %
Canadian Factory-built Housing 2,945 1,606 1,339 83.4 %
Corporate/Other 10,323 10,825 (502 ) (4.6 %)
Total selling, general, and
administrative expenses $ 54,023 $ 40,807 $ 13,216 32.4 %
Selling, general, and administrative
expense as a percent of net sales 10.6 % 14.9 %
Selling, general, and administrative expenses were
U.S. Factory-built Housing :
Selling, general, and administrative expenses for the
Selling, general, and administrative expenses for the
Corporate/Other:
Selling, general, and administrative expenses for Corporate/Other includes the
Company's transportation operations, corporate costs incurred for all segments,
and intersegment eliminations. Selling, general, and administrative expenses for
Corporate/Other decreased
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INTEREST EXPENSE, NET
The following table summarizes the components of interest expense, net for the
three months ended
Three months ended
July 3, June 27, $ %
(Dollars in thousands) 2021 2020 Change Change
Interest expense $ 808 $ 1,087 $ (279 ) (25.7 %)
Less: Interest income (159 ) (145 ) (14 ) 9.7 %
Interest expense, net $ 649 $ 942 $ (293 ) (31.1 %)
Average outstanding floor plan payable
Interest expense, net was
OTHER INCOME
The following table summarizes other income for the three months endedJuly 3, 2021 andJune 27, 2020 : Three months ended July 3, June 27, $ % (Dollars in thousands) 2021 2020 Change Change Other income$ (54 ) $ (4,214 ) $ 4,160 (98.7 %)
Other income decreased
INCOME TAX EXPENSE
The following table summarizes income tax expense for the three months ended
Three months ended
July 3, June 27, $ %
(Dollars in thousands) 2021 2020 Change Change
Income tax expense $ 14,011 $ 4,565 $ 9,446 206.9 %
Effective tax rate 24.6 % 27.7 %
Income tax expense for the three months ended
The Company's effective tax rate for the three months ended
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ADJUSTED EBITDA
The following table reconciles net income, the most directly comparable
Three months ended
July 3, June 27, $ %
(Dollars in thousands) 2021 2020 Change 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 (for awards
granted prior to December 31, 2018) - 970 (970 ) *
Other - (122 ) 122 *
Adjusted EBITDA $ 62,706 $ 22,540 $ 40,166 *
* indicates that the calculated percentage is not meaningful
Adjusted EBITDA for the three months ended
The Company defines Adjusted EBITDA as net income or loss plus; (a) the
provision for income taxes; (b) interest expense, net; (c) depreciation and
amortization; (d) gain or loss from discontinued operations; (e) equity based
compensation for awards granted prior to
In evaluating Adjusted EBITDA, investors should be aware that, in the future, the Company may incur expenses similar to those adjusted for in this presentation. This presentation of Adjusted EBITDA should not be construed as an implication that the Company's future results will be unaffected by unusual or nonrecurring items.
Adjusted EBITDA has important limitations as an analytical tool and you should
not consider it in isolation or as a substitute for analysis of our results as
reported under
Adjusted EBITDA:
? does not reflect the interest expense on our debt; ? excludes impairments; and ? does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; ? although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and ? other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Given these limitations, Adjusted EBITDA should not be considered as a measure
of discretionary cash available to us to invest in the growth of our business.
We compensate for these limitations by relying primarily on our
BACKLOG
Although orders from customers can be cancelled at any time without penalty, and
unfilled orders are not necessarily an indication of future business, the
Company's unfilled
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plant capacity, time to train new employees, employee attendance and availability of materials, including most recently raw material allocations by certain suppliers.
Liquidity and Capital Resources
Sources and Uses of Cash
The following table presents summary cash flow information for the three months
ended
Three months ended
July 3, June 27,
(Dollars in thousands) 2021 2020
Net cash provided by (used in):
Operating activities $ 31,905 $ 32,205
Investing activities (9,219 ) (1,299 )
Financing activities 1,798 (4,524 )
Effect of exchange rate changes on cash, cash equivalents 673 670
Net increase in cash and cash equivalents 25,157 27,052
Cash and cash equivalents at beginning of period 262,581 209,455
Cash and cash equivalents at end of period $ 287,738 $ 236,507 The Company's primary sources of liquidity are cash flows from operations and existing cash balances. Cash balances and cash flows from operations for the next year are expected to be adequate to cover working capital requirements, capital expenditures, and debt payment obligations. The Company does not have any scheduled long-term debt maturities in the next twelve months. The Company's revolving credit facility includes a leverage ratio covenant that requires the Company's first lien debt levels to remain less than 2.75 times consolidated trailing twelve-month EBITDA. The leverage ratio was increased to 3.0 times consolidated trailing twelve-month EBITDA for the four quarters subsequent to the acquisition of ScotBilt. The Company anticipates compliance with its debt covenants and projects its level of cash availability to be in excess of cash needed to operate the business for the next year. In the event operating cash flow and existing cash balances were deemed inadequate to support the Company's liquidity needs, and one or more capital resources were to become unavailable, the Company would revise operating strategies accordingly.
Cash provided by operating activities was
Cash used in investing activities was
Cash provided by financing activities was
On
Critical Accounting Policies
For a discussion of our critical accounting policies that management believes affect its more significant judgments and estimates used in the preparation of our Consolidated Financial Statements, see Part II, Item 7 of the Fiscal 2021 Annual Report, under the heading "Critical Accounting Policies." There have been no significant changes in our significant accounting policies or critical accounting estimates discussed in the Fiscal 2021 Annual Report.
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Recently Issued Accounting Pronouncements
For information on the impact of recently issued accounting pronouncements, see Note 1, "Basis of Presentation - Recently Issued Accounting Pronouncements," to the condensed consolidated financial statements included in this Report.
Forward-Looking Statements
Some of the statements in this Report are not historical in nature and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements about our expectations regarding our future liquidity, earnings, expenditures, and financial condition. These statements are often identified by the words "will," "could", "should," "anticipate," "believe," "expect," "intend," "estimate," "hope," or similar expressions. These statements reflect management's current views with respect to future events and are subject to risks and uncertainties. There are risks and uncertainties, many of which are beyond our control, that could cause our actual results to differ materially from those in our forward-looking statements, including regional, national and international economic, financial, public health and labor conditions, and the following:
? The COVID-19 pandemic, which has had, and could continue to have, significant adverse effects on us; ? supply-related issues, including prices and availability of materials; ? labor-related issues; ? the cyclicality and seasonality of the housing industry and its sensitivity to changes in general economic or other business conditions; ? demand fluctuations in the housing industry; ? the possible unavailability of additional capital when needed; ? competition and competitive pressures; ? changes in consumer preferences for our products or our failure to gauge those preferences; ? quality problems, including the quality of parts sourced from suppliers and related liability and reputational issues; ? data security breaches, cybersecurity attacks, and other information technology disruptions; ? the potential disruption of operations caused by the conversion to new information systems; ? the extensive regulation affecting the production and sale of factory-built housing and the effects of possible changes in laws with which we must comply; ? the potential impact of natural disasters on sales and raw material costs; ? the risks associated with mergers and acquisitions, including integration of operations and information systems; ? periodic inventory adjustments by, and changes to relationships with, independent retailers; ? changes in interest and foreign exchange rates; ? insurance coverage and cost issues; ? the possibility that all or part of our intangible assets, including goodwill, might become impaired; ? the possibility that our risk management practices may leave us exposed to unidentified or unanticipated risks; and ? other risks described in Part I - Item 1A, "Risk Factors," included in the Fiscal 2021 Annual Report, as well as the risks and information provided from time to time in our other periodic reports filed with theSecurities and Exchange Commission (the "SEC").
If any of the risks or uncertainties referred to above materializes or if any of the assumptions underlying our forward-looking statements proves to be incorrect, then differences may arise between our forward-looking statements and our actual results, and such differences may be material. Investors should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We assume no obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof, except as required by law.
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